Theory of Constraints Handbook - James Cox Iii [685]
Throughput Accounting for All Methods
The TOC approach provides a common overarching metric, Throughput (T) dollars which are defined as sales (S) dollars minus Truly Variable Costs (TVC) dollars as a rate; that is, T in dollars per period of time. The significance is managers now have an unburdened, absolute, and real measurement that can be used across the organization. Every work center, department, and functional area has a common metric on which they can focus. This enables companies to make decisions focusing on what is best for increasing Throughput with individuals and every individual support function measured on their contribution to Throughput. As previously stated, the limiting factor to increasing Throughput is the company’s constraint; therefore, it follows that all support functions must always make this metric their top priority. Now for the first time, every part of the company has the same common metric for measuring the flow of value added being generated. This also provides managers with the individual contribution to Throughput that each part of the company is generating.
Buffers for Time Management
The other critical contribution the TOC approach provides is the concept of time management. There are many very effective ways to manage operations within a business. Henry Ford used the concept of placing material on conveyor belts to control the flow. Dr. Ohno revolutionized the world of manufacturing by controlling the release of material and work performed as late as possible, thus reducing the queue, the key to improving Throughput. Dr. Goldratt (2009) decided a more effective way was managing time; this also is a way of reducing the queue providing the advantages pioneered by Dr. Ohno. However, it also provides a means for protecting against variability by strategically placing time buffers that will send a signal when to release material to be worked on. In Fig. 35-7b, the material is released earlier in time, a buffer time, to reach the CCR when needed as determined by the schedule. The buffer is divided into three regions: green (all is well), yellow (caution), and red (schedule is being jeopardized). The time buffers are an integral part of the TOC solution. Once the proper buffer levels are established, they also become the control limits. By monitoring the penetration of the buffers, it will indicate when and where variability is affecting the schedule allowing management to take action in a timely manner. In almost all cases, there is enough time to intervene without affecting delivery commitments. It is important to understand that buffer penetration indicates the system is experiencing disruption and monitoring and taking action when required is key to keeping the system in control.
A key factor then is the focus BM provides on the highest priority problems.
Since the three TOC scheduling and business solutions are focused on maximizing Throughput, providing risk management using strategically placed time buffers provides the basis for a powerful means of improving productivity across the enterprise. It appears that, using common metrics, we can now assess the impact any specific task is having on any part of the organization even though they may be using different scheduling algorithms and may even be in different functional areas.
Think of time buffers as aggregating a portion of the total required time and placing it in strategic parts of the schedule in order to provide significantly more effective protection. This is in stark contrast to conventional approaches that simply release material much earlier than needed to allow additional time to combat