A ten-step guide to Deming and Goldratt
Chennai, Sept. 16: Marrying the ideas of two big masters, William Edwards Deming and Eliyahu M. Goldratt, is ‘Deming Goldratt’ by Domenico Lepore and Oded Cohen from Productivity and Quality Publishing P Ltd (www.pqp.in).
William Edwards Deming (1900-1993), an American statistician, college professor, author, lecturer, and consultant, is best known for his work to improve Japan’s productivity. “There, from 1950 onward he taught top management how to improve design (and thus service), product quality, testing and sales (the last through global markets) through various methods, including the application of statistical methods such as analysis of variance (ANOVA) and hypothesis testing,” informs Wikipedia.
According to Deming, the goal of quality is deep knowledge of the impact actions have on a system as a whole. “The ability to predict events is one of the major elements of profound knowledge in Deming’s approach to management.”
Theory of constraints (TOC) of Goldratt, an Israeli physicist turned business consultant, looks at an organisation as a chain of interdependent processes, “TOC aims at achieving the goal of a system or organisation by focusing on the weakest link in the chain – the constraint. This is done with the aid of logical tools called Thinking Processes.”
The book presents the ideas of the two experts in the form of Decalogue – a ten-step process, beginning with establishing the goal of the system, the units of measurement and the operating measurements.
A manager’s job is to optimise the system, by coordinating the efforts of all the components of the system to achieve the pre-established goal. “Everything that does not optimise the whole system will inevitably lead to losses.” The authors therefore insist that people should be allowed to interact in such a way that they can see that is not the sum of their individual efforts but their coordinated activities that produce the best results.
Three measurements that form the core are ‘I’ for inventory-investment, ‘all the money the system invests to purchase goods’; ‘T’ for throughput, ‘the pace with which the system generates units of the goal’; and ‘OE’ for operating expenses, ‘all the money that the system spends to transform I into T’. Net profit, according to TOC, is T minus OE, because T already reflects the cost of materials and external services. And ROI (return on investment) is net profit upon I.
Understanding the system and making it stable are steps 2 and 3 in the Decalogue. Next comes the identification of the constraint. “Generally we can identify a constraint in a system on the basis of the interval of variability of its processes, and by observing how they interact,” guides the book. “In a production environment, the constraint is likely to be the production stage where work in progress is generated.”
Once you have identified the constraint, you must exploit it, say the authors. “Exploit is the right word. We have no other choice. As the constraint is what limits the system’s throughput, we have to make it work to the maximum…”
The final step is to set up a continuous learning program, because external reality continues to change.
Worth adding to your bookshelf.