Theory of Constraints Handbook - James Cox Iii [579]
Services WIP is often intangible, but it does exist, on paper or in computers. Although such WIP is not exactly inventory, it may nevertheless be managed with similar methods. For instance, service center managers can monitor work queues and completion of service requests. Likewise, research laboratory managers can monitor experiments and completion of milestones.
Briefly, Drum-Buffer-Rope for Services (DBRS) wrings maximum productivity out of service processes with an internal constraint by ensuring that the constraint, and only the constraint, sets the pace. The work buffer ahead of the constraint ensures that the constraint has work to do.
Based on the description of DBRS thus far, it may seem that DBRG and DBRS are indistinguishable, but that is not the case. There is one profound difference: In DBRG, the manufacturer modulates the work released into the factory in order to keep the constraint busy, while in DBRS, the service provider cannot control the inputs to the service process. Service requests come from the clients’ customers, employees, suppliers, shareholders, or any other group that the client deems eligible for service. The arrival of service requests is not something the service provider can predict with accuracy, let alone control.
If the service provider cannot control inputs to the process, yet is bound by an SLA to deliver service within specified parameters, the process itself cannot have fixed capacity. Hence, the buffer and rope work differently in DBRS. When the buffer grows beyond its upper threshold, the rope triggers an increase in capacity that eventually brings the buffer level back down into the normal range. When the buffer shrinks beneath its lower threshold, the rope triggers a decrease in capacity that eventually brings the buffer back up into the normal range.
Thus, DBRG does buffer management of operations with fixed capacity, while DBRS does capacity management of processes with variable capacity. DBRG and DBRS are based on the same principles, but they work differently and are used in different contexts.
Throughput Accounting for Services
Throughput Accounting for Goods (TAG) is the traditional TOC application for measurement. It’s an alternative to cost accounting, the dominant measurement method.
Briefly, TAG changes financial measures—and therefore other measures derived from them—plus it changes management priorities. One of the financial measures, Throughput, was mentioned earlier. The other financial measures are Investment and Operating Expense (Corbett, 1998).
Throughput (T) is cash from sales minus truly variable cost. Thus, it’s revenue minus cost for materials and parts from which each item is built.
Investment (I) is all money invested in things for sale. Plants and inventory are included.
Operating Expense (OE) is all money spent turning I into T. Direct labor, rent, and selling, general and administrative (SG&A) costs are included.
There is no product cost construct in TA. OE is simply summed. It’s not allocated to products. This avoids the distortions that make some products appear profitable when they are not.
The financial goal for a profit-making enterprise is to maximize net profit (NP), which is T minus OE. To accomplish that, enterprises have to create products that generate T, make judicious decisions about I, and manage OE in light of T.
Furthermore, the priorities have to be T, I, OE because that fosters growth. This is the opposite of typical management priorities, which focus relentlessly on cost reduction and thereby hinder growth.
In addition to financial measures with conventional names, TAG has control measures with unconventional names. Throughput Dollar Days (TDD) indicates whether work is being shipped on time. Inventory Dollar Days (IDD) indicates whether excess inventory is accumulating. TDD and IDD thus steer the manufacturer toward its goal.
At the highest level, Throughput Accounting for Services (TAS) is virtually identical to TAG. That is, TAS changes financial measures, and all measures derived from