"You think so?" asks Jonah.
On the floor he diagrams it like this...
This time, he says, the X and Y operate independently of one another. They are each filling separate marketing demands.
"How much of Y's 600 hours can the system use here?" asks Jonah.
"All of 'em," says Bob.
"Absolutely not," says Jonah. "Sure, at first glance it looks as if we can use one hundred percent of Y, but think again."
"We can only use as much as the market demand can ab- sorb," I say.
"Correct. By definition, Y has excess capacity," says Jonah. "So if you work Y to the maximum, you once again get excess
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inventory. And this time you end up, not with excess work-in- process, but with excess finished goods. The constraint here is not in production. The constraint is marketing's ability to sell."
As he says this, I'm thinking to myself about the finished goods we've got crammed into warehouses. At least two-thirds of those inventories are products made entirely with non-bottleneck parts. By running non-bottlenecks for "efficiency," we've built inventories far in excess of demand. And what about the remain- ing third of our finished goods? They have bottleneck parts, but most of those products have been sitting on the shelf now for a couple of years. They're obsolete. Out of 1,500 or so units in stock, we're lucky if we can sell ten a month. Just about all of the competitive products with bottleneck parts are sold virtually as soon as they come out of final assembly. A few of them sit in the warehouse a day or two before they go to the customer, but due to the backlog, not many.
I look at Jonah. To the four diagrams on the floor, he has now added numbers so that together they look like this...
Jonah says, "We've examined four linear combinations in- volving X and Y. Now, of course, we can create endless combina- tions of X and Y. But the four in front of us are fundamental enough that we don't have to go any further. Because if we use these like building blocks, we can represent any manufacturing situation. We don't have to look at trillions of combinations of X and Y to find what is universally true in all of them; we can generalize the truth simply by identifying what happens in each of these four cases. Can you tell me what you have noticed to be similar in all of them?"
Stacey points out immediately that in no case does Y ever determine throughput for the system. Whenever it's possible to
activate Y above the level of X, doing so results only in excess inventory, not in greater throughput.
"Yes, and if we follow that thought to a logical conclusion," says Jonah, "we can form a simple rule which will be true in every case: the level of utilization of a non-bottleneck is not determined by its own potential, but by some other constraint in the system."
He points to the NCX-10.
"A major constraint here in your system is this machine," says Jonah. "When you make a non-bottleneck do more work than this machine, you are not increasing productivity. On the contrary, you are doing exactly the opposite. You are creating excess inventory, which is against the goal."
"But what are we supposed to do?" asks Bob. "If we don't keep our people working, we'll have idle time, and idle time will lower our efficiencies."
"So what?" asks Jonah.
Donovan is taken aback. "Beg pardon, but how the hell can you say that?"
"Just take a look behind you," says Jonah. "Take a look at the monster you've made. It did not create itself. You have created this mountain of inventory with your own decisions. And why? Because of the wrong assumption that you must make the work- ers produce one hundred percent of the time, or else get rid of them to 'save' money."
Lou says, "Well, granted that maybe one hundred percent is unrealistic. We just ask for some acceptable percentage, say, ninety percent."
"Why is ninety percent acceptable?" asks Jonah. "Why not sixty percent, or twenty-five? The numbers are meaningless un- less they are based upon the constraints of the system. With enough raw materials, you can keep one worker busy from now until retirement. But should you do it? Not if you want to make money."
Then Ralph suggests, "What you're saying is that making an employee work and profiting from that work are two different things."
"Yes, and that's a very close approximation of the second rule we can logically derive from the four combinations of X and Y we talked about," says Jonah. "Putting it precisely, activating a resource and utilizing a resource are not synonymous."
He explains that in both rules, "utilizing" a resource means
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making use of the resource in a way that moves the system toward the goal. "Activating" a resource is like pressing the ON switch of a machine; it runs whether or not there is any benefit to be de- rived from the work it's doing. So, really, activating a non-bottle- neck to its maximum is an act of maximum stupidity.
"And the implication of these rules is that we must n o t seek to optimize every resource in the system," says Jonah. "A system of local optimums is not an optimum system at all; it is a very ineffi- cient system."
"Okay," I say, "but how does knowing this help us get the missing parts unstuck at the milling machines and moved to final assembly?"
Jonah says, "Think about the build-up of inventory both here and at your milling machines in terms of these two rules we just talked about."
"I think I see the cause of the problem," Stacey says, "We're releasing material faster than the bottlenecks can process it."
"Yes," says Jonah. "You are sending work onto the floor whenever n o n -bottlenecks are running out of work to do."
I say, "Granted, but the milling machines are a bottleneck."
Jonah shakes his head and says, "No, they are not-as evi- denced by all this excess inventory behind you. You see, the mill- ing machines are not intrinsically a bottleneck. You have turned them into one."
He tells us that with an increase in throughput, it is possible to create new bottlenecks. But most plants have so much extra capacity that it takes an enormous increase in throughput before this happens. We've only had a twenty percent increase. When I had talked to him by phone, he thought it unlikely a new bottle- neck would have occurred.
What happened was that even as throughput increased, we continued loading the plant with inventory as if we expected to keep all our workers fully activated. This increased the load dumped upon the milling machines and pushed them beyond their capacity. The first-priority, red-tagged parts were pro- cessed, but the green-tagged parts piled up. So not only did we get excess inventory at the NCX-10 and at heat-treat, but due to the volume of bottleneck parts, we clogged the flow at another work center and prevented non-bottleneck parts from reaching assembly.
When he's finished, I say, "All right, I see now the error of
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our ways . Can you tell us what we should do to correct the prob- lem?"
"I want you all to think about it as we walk back to your conference room and then we'll talk about what you should do," says Jonah. "The solution is fairly simple."