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Good morning. We are going to talk about bottlenecks today and if you are as old as I am you might remember Friday night: “Twilight Zone,” pizza, spin-the-bottle. Anybody remember that or am I really weird? But I remember playing spin-the-bottle. I could not resist it. So what is a bottleneck and we are going to talk about that briefly. We do not have a lot of time to get into the real details of the process or the finer points, but what I would like to do is whet your appetite. It is based on a book by a guy named Eliyath Goldratt called The Goal. Some of you may have read it before. In our business when we look at these presentations and we think about this and what we have seen in the past, being teachable is a critical aspect of it. Being teachable...having teachable hearts, being willing to be educated. Even at my age I think I am still teachable. Maybe my colleagues would disagree with me, but it is possible I still am. We hear a lot of quotes from Lincoln and Deming and Einstein and Gary Brodsky. But are

we willing to learn? (Slide 3) And I thought of a guy who wrote a phrase that has stayed with me for years and that is Bob Dylann and Bob Dylan said that, “Them not busy being born are busy dying,” and to me I think about that as being teachable. So I challenge you to keep an open mind. Myself, I am 63, but I am certainly not ready for the big sleep yet, so we are going to talk about that. (Slide 4) The objective today is to look at an approach really in a way to view your operation in it from a difference lens, let us say, or from a different perspective. And at the end of the talk, hopefully you are going to have an interest to learn more about managing bottlenecks and what is called the theory of constraints, focusing improvement efforts where they will have the most impact and the greatest immediate impact on the bottom line and this process provides a reliable approach to follow-through and follow-up. (Slide 5) So let us find Herby. Where is Herby? Hi, Herby. I can go on from here. We found him already.

(Slide 6) Goldratt writes this book in a fictional kind of allegorical way where he takes a plant manager named Alex and he is confronted with all these problems in his plant and how to get production out, how to lose less

BottleneckAnalysis

By Brian Summ

Brian Summ has a ton of experience not only with his years at Xerox Corporation but currently as the Quality Systems Manager with East Balt, Inc.

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So he talks to the boys and he tries moving Herby, they start again and he tries moving him to the middle of the line, to the front of the line, to the back of the line, but no matter where he moves Herby, there is a problem, there’s a constraint, there is a bottleneck. And finally he gets with Herby and he says, “What is going on?” They take a rest and he says, “What you got in that pack?” and Herby hands him the pack and he almost falls down and he looks and he is got like four cans of Spaghetti-O’s, he is got this huge cast iron pan, he is got a full outfit of foul weather gear including boots, and he says, “How can you carry this?” So he said, “Okay, I am going to do some problem-solving,” and he gives one boy the pan and another boy the cans and so forth and this at least fixes the problem so they get to the campsite on time and they get their tent set up. Obviously Alex is thinking of all of the problems he has at the plant. What can I do at the plant? Because he has bottlenecks. (Slide 7) What is a bottleneck? A bottleneck basically by his definition in the book is any resource whose capacity is equal to or less than the demand placed on it. A bottleneck, right? (Slide 8) They take it a little further and they talk about the theory of constraints and basically a constraint is something that is what it is and you cannot make it go any faster. There are a few variables...perhaps only one...for which a significant change in local performance will affect a significant change in global performance. (Slide 9) So what is a constraint? Well, I would like to split some hairs just for sake of clarification and just say that let us call a bottleneck a temporary constraint, a temporary blockage. Let us take a pan stacker. We know that pan stacker can work faster, but it needs to be rebuilt or it needs some parts, we need to spend a little money, but if we do, we can stack more pans with it. So right now though we are running our line based on the constraint of that pan stacker. Maybe we put somebody on the line next to it and they are throwing pans along with the pan stacker, but we fix that pan stacker and now it is producing. A constraint is something that really is. A bun packer for instance in our business can only...let us say, can only do 3,000 dozen. That is the maximum rating of that bun packer, so we cannot run our line any faster than 3,000 dozen. So that is a true constraint.

money, etc. etc. and Alex has also got a son and he is in a Boy Scout troop and someone Alex gets volunteered to lead the Boy Scout troop on a hike. So Saturday morning they all meet up at 8:00 o’clock at the state forest and they are going to hike about ten miles and then sleep overnight at the campsite and then hike back the next morning. So they start out pretty good. It is just Alex, 15 scouts and they are going along and he is feeling pretty good. He figures if I make two miles an hour, we have got a ten-mile hike, we will be ready to set up camp about 3:30 and we will be fine. So he is going along and all of a sudden he looks behind him and there are only two boys behind him and then there’s this huge gap between the next boys and he cannot understand what is going on. So he says, “This cannot work, we will lose these boys, I am responsible.” So he said, “I am going to go to the back of the line, that will fix the problem. Everybody will move right along.” So he is hiking along again. Now, all of a sudden he sees up ahead in front of about eight guys a huge gap again. And he goes up there and he finds a kid named Herby and Herby is kind of an overweight Scout. When I was a kid they used to sell jeans they called them “husky,” remember that some of you? I am still having to use the husky designation. In fact, Dennis the Menace, Walther Matthau’s wife said, “You always were a fat little boy.” And he said, “No, I wasn’t, I was husky...I was husky.” So Herby was quite husky and they were hiking and he was holding everybody up. So he went to the back of the line that did not help and he could not figure out what to do, but while he was in the back of the line he did notice a couple of things and what he noticed was that sometimes the space got bigger between him and the boy in front of him and smaller and he noticed the boy kept changing speeds and he also realized that as much as he wanted to push everybody at a certain speed, he could only go as fast as the guy in front of him. Now, you can begin to see the parallels, right, in a production line, right? You are only as fast as your slowest system in your production line. So he started to think and Goldratt calls these “statistical fluctuations and dependent events.” And again, I have talked about the goal. Hypothetically they should be halfway through their hike, but they are not halfway through their hike and at this rate he is not going to get to the campsite until dark and then they are going to have to try to pitch tents in the dark and what the heck am I going to do?

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Bottleneck AnalysisA proofer that holds only so many pans and in our bun business we proof it around 56 minutes, so if it only holds so many pans, you can only run so many buns. A divider that only cuts 100 cuts a minute, it cannot go any faster. That is a constraint. That is the limiting aspect in our business. (Slide 10) And the theory of constraint says that you need to begin to look at your business from a different perspective. Part of that is our measurements. We all have traditional measurements. We heard them this morning: cash flow, sales revenue, profit, so forth, ROI, net profit, sales revenue, and those are all good, reasonable measurements and we know we have to take those measurements. We have accounting rules and we have other reasons, but there are some nontraditional measurements. They help express the goal of making money perfectly well, but they permit you to develop operational rules for running your plant. They do not supersede or replace the other measurements, but maybe they help people see things more clearly or in a different way. (Slide 11) First of all, Goldratt says that the goal of any business is to make money now and in the future. That is the goal of any business. Would anyone argue with me? Are there any nonprofits out here? But today in our mission and vision statements we talk about customer satisfaction, we talk about employee satisfaction and those are important goals, but I would posit that if we are not making a profit, we are going to have a heck of a hard time meeting those goals. If we are not making a profit, it is going to be hard to satisfy the customers. In fact, we probably are not and we might have dissatisfied employees. (Slide 12) Here are the three major measurements that he talks about. He talks about throughput, inventory and operational expense. And that is looking at your plant as a complete system. These measurements get dangerous if you try to apply them locally to a subsystem within a plant or a subdepartment within a plant. They really need to be applied globally within the plant. And he says that if you tell me how I will be measured, I can predict how I will behave. Makes sense? If you tell me how you are going to measure or reward me, I can tell you how I am going to behave.

The measurements are system measurements and using them even within the system as a local measurement, they can help you predict, but you want to keep it in the system so let us quickly look at throughput. (Slide 13) The way throughput is defined is the rate at which the system generates money through sales. If you produce something but you do not sell it, it is not throughput. If you produce buns and freeze them or bread and freeze them and keep them in inventory, it is not throughput until someone pays money for that stuff and it goes out. Sales revenue is not throughput. Financial credit should only be given to value added. Only dollars generated by the system get counted. For instance, raw materials and purchase parts are not throughput. So throughput equals the selling price minus the material costs. It is a system measurement not a local measurement.

So one way to begin to look at your operation differently to help identify constraints and remove constraints or manage constraints is more appropriate, is to begin to look at throughput. (Slide 14) Inventory. All the money that the system has invested in things it intends to sell. Inventory is looked at in this concept as a liability not an asset. It is not adding value to your bottom line as inventory. Raw materials, work in process, finished goods and scrap are inventory by this definition. Everything in the system invests in what it intends to sell. A larger definition is all the money that is tied up inside the system. (Slide 15) And finally, operational expense. Now, this is obviously a lot more complex than I am delivering here today so hopefully some of you will walk away with more interest to find out more about this concept, a different way to look at your operation, but operational expenses, all the money the system spends in order to turn inventory into throughput. All employee time is operational expense. Direct, indirect, operating, all salaries you pay while you are running that plan that day, are operational expense. They all add to the cost of producing whatever it is you produce. Depreciation of a machine is operating expense. Operating supplies are operating expense. No differentiation is made between direct and indirect labor. As long as money is being spent during production, it is an operating expense. Quickly, of course, he takes it and makes a process out of it, looks very similar to a typical problem-solving process. (Slide 16) We will not spend a lot of time on

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this, but basically first of all you have to identify the constraints. What is the Herby in your operation? There may be more than one Herby. Once you identify it, how do you exploit it, how do you manage that, how do you take advantage of that constraint and use it to its best? In the book, for instance, they had strong unions who took lunch breaks and their Herby just sat idle during the lunch break and they negotiated with the union. Hey, let us just keep this running. Will you stagger your lunch breaks? Some simple things. Subordinate everything to the above decision. In other words, stick to your guns. Elevate the system constraint. If you have to, if it is still a big, big problem, you may have to raise it up and say...we need to get a 4,000-dozen packer. And, finally, go back to step one, but do not let inertia cause a system constraint.

The theory of constraints is really about two things: focus and follow-through. A company must first know its goal and then it must identify the things, the constraints that are limiting the level of the achievement of the goal. (Slide 17) So where is your Herby? How do you approach this? Here’s a quote from a woman who says, “There really is no choice in the matter...either you manage constraints or they manage you. The constraints will determine the output of the system whether they are acknowledged and managed or not. That constraint is there.” And finally, what I really wanted to focus on is really about change and about being open to change. Whether you use the theory of constraints or you use process improvement or you use problem-solving or you finally break out of your own not invented here and call Glenn and say, “I am going to put a new line in, can you share your experiences with me?” Right? Because I have noticed, I have only been with bakers for 15 years; I have noticed there is somewhat or a non-invented here. Am I wrong or am I...never mind, I am not going to put that up to a vote. (Slide 18) But these guys came up with six layers of resistance and then they added another one and they called it zero because they liked their six and they did not want to have seven. Basically you can probably relate to some of these, right? Maybe you have even said some of them yourself.

First one is: What do you mean, we do not have a problem. Have you heard that one before, right? So the challenge then to the change agent in your company or the consultant that you hire is convincing people there is a problem. Then, “Well, okay, but you do not understand my problem. You cannot understand my problem. What do you know about it?” Especially if there is a consultant from the outside, but there is also an excellent book out there by Peter Block called Flawless Consulting and it is about internal consultants, those of us that have to try to convince other people that maybe we should do something different. How do you do that?

We do not agree on the direction of the solution. Again, there are a lot about involvement there, there is about the good use of analytical tools, so you can really see what your issues are and then, of course, your solution cannot possibly produce the level of results you say it will. And then we get to the next couple and they are kind of strange because layer four and five do not always emerge discretely, do not just jump out at you. Sometimes they are interwoven in the resistance and the buy-in process. Layer four is your good solution is going to cause some bad things to happen, right? We are going to have to lay off some people or the analogy that they use in the book that I do not like too much is chemotherapy. It is got a good purpose, but there are some really harsh side effects. Then layer five; this idea is dead before we can even implement it. And again, we have that other resistance, one is obstacles and one is negative. And then finally, layer six, the unverbalized fears. But typically it is something that you miss during the first layers and you have to go back and cycle through and begin to uncover it. And then finally the last thing, of course, if you are going to work on a project...our first presenter talked about the fact that we are making this new test product and all of a sudden we find out the V. P. of Marketing likes this flavor, right? And you just put in three months with all the R&D people and the customer’s R&D people and this guy says, “No, too gummy,” so you start from scratch. So you have got to make sure in the beginning that you are going to get somebody to support what you are doing.

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(Slide 19) And then how do we capture the benefits of our efforts and how do we sustain momentum? I call it inertia inoculation. One of our bakeries started a really great 5S program and they did cross training and they did cross-functional teams with great leadership from all levels of management and they really did accomplish some good things with that. How do you keep that alive? (Slide 20) So that is the goal, but the last thing available here, it is not very legible here, but available at Iowa State University, they had a whole section on this with a lot of offerings for help and consultation and to clarify it. You have got the goal by Goldratt. He has written a couple of other books since, and of course there is a high dollar consulting firm in Indiana that does this goal too. Thank you.

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