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to be independent of each other but in reality, any action taken by one of the activities will impact the others. Then it follows any real and lasting change for the better must be based on a systems approach; all changes must not just improve a local activity, but rather the entire organization. There are two characteristics of all systems (Goldratt and Cox, 1984): dependency of variables or activities and fluctuation (more commonly referred to as variability). Even if this tenet of improvement is recognized and accepted, it will immediately create a conflict with existing metrics. This conflict highlights the requirement for an overarching common set of metrics for evaluating individual contributions of all activities while establishing connectivity to the performance of the organization as a whole. Once these new metrics are in place and effective management tools assessing the impact of internal and external variability are being used, then the variability can be evaluated quickly and corrective action taken to protect the organization’s performance.

Copyright © 2010 by Daniel P. Walsh.

FIGURE 35-1 Evaporating Cloud of managers’ dilemma of judging the system performance. (© E. M. Goldratt used by permission, all rights reserved. Source: E. M. Goldratt 1999. Viewer Notebook 137.)

The purpose of this chapter is to provide a better understanding of why addressing the effects of local variability is crucial to developing strategies that are more effective for managing entire supply chains. Again, these new metrics and approach must provide connectivity from the local activities to the global Throughput of the organization. In addition, it is important to use the correct planning, scheduling, and controlling algorithms; in other words, make sure the right tool is being used. Lastly, it is important to make sure these tools and algorithms are holistically employed.

Brief Background

First, we must better understand the chronic dilemma virtually every manager faces on a daily basis. To illustrate the dilemma and the resultant conflict, we will use a simple Evaporating Cloud (EC) developed by Dr. Eliyahu Goldratt (1994; see Fig. 35-1). In order to [A] manage well we must [B] control costs; in order to [B] control costs we (managers) must [D] evaluate and make decisions based on how it impacts locally. The other side of the dilemma is that in order to [A] manage well we must [C] protect the company’s Throughput and fulfill our commitments to the market; in order to [C] protect the company’s Throughput, we [D’] must not make decisions based on local impact. The needs of the company, [B] controlling costs, and [C] protecting Throughput, are necessary conditions and must be achieved in order to [A] manage well. The conflict is very clearly defined as being between whether we [D] make decisions based on local impact or we [D′] do not evaluate according to local impact.2

Now why do we feel compelled to evaluate according to local impact? We feel compelled because of the ingrained assumption that the local impact of decisions is equal to the impact it will have on the company as a whole. In fact, this is consistent with common business folklore and is fortified by what is accepted and being taught in virtually every learning institution throughout the world.

The other side of the dilemma is that in order to protect Throughput, many times we must not evaluate and make decisions based on the local impact, rather do whatever it takes to meet our commitments to the market. This, of course, is the familiar phenomena commonly referred to as “firefighting,” the bane of all managers. It also manifests itself by managers focusing on local metrics during the first part of a reporting period and then later in the reporting period shifting the focus to meeting orders whose due dates are starting to slip. When this occurs, the focus is no longer on local impact, but rather on delivering our products to clients.

It is clear this dilemma must be addressed or managers at all levels will remain frustrated and the true potential of