Make More Money Using Theory of Constraints
Most of you readers have heard about Lean Thinking, Lean Manufacturing, or simply Lean. But have you heard about the Theory of Constraints? I know some of you have, but as with Lean, the concept may still be a little unclear. Although there are both commonalities and differences between Lean and TOC, I believe collision repairers can benefit from understanding and applying both ways of thinking to their repair businesses.
The word Lean was originally used in James Womack’s 1990 book entitled The Machine that Changed the World. His book described the dominance of Toyota and the effectiveness of a production system that banishes waste from the value stream. This lean thinking has revolutionized many industries and still does today. Unfortunately, many collision repairers have made attempts to implement such thinking and systems in their shops with limited results at best. While I believe that there are many benefits to creating a lean culture and adopting lean methods and using its tools, few shops that I am aware of have figured out how to fully realize their profit potential unless they have also become familiar with the Theory of Constraints.
Theory of Constraints
The Theory of Constraints was first introduced to us by an Israeli physicist named Eliyahu M. Goldratt in his 1984 book The Goal. This book has had a profound effect on my life since first reading it in the early nineties. I would highly encourage all of you to read this book too. Although there is a little more to it, it is basically bottleneck management and adopting an understanding that there is always at least one resource (department, machine, person) in your business that is a limiting factor to your throughput ability (making money).
Local Efficiency vs. Global Efficiency
The problem with many collision repair businesses is that silos are created in all departments. Each department attempts to perform their portion of the work to whatever feels most efficient to them in their own department without regards to how it affects the overall efficiency of the shop. On the surface this “local (silo) efficiency” may look like a good idea because everyone is motivated to perform their best; however, the problem with this is it can create dramatic peaks and valleys in the flow of the work from one department to the next. For example, if it is more efficient for a paint shop to primer the whole day’s work at one time or wait until all the bumpers are prepped and ready before loading into one giant booth batch, guess who usually suffers? That’s right, the guy that has been waiting all day to build his cars and now the paint shop unloads all of them at once! This poor technician can only build one car at a time so cycle time and global efficiency suffers. Both Lean and TOC teaches us that sometimes we actually need to reduce batch size in order to improve throughput. Focus on global efficiency instead of local efficiency.
The 5 Steps to busting bottlenecks
Theory of Constraints uses a systematic approach to busting bottlenecks and increasing your shop’s ability to make money.
Step 1 Identify the constraint. This step is usually pretty easy to identify because it is usually the resource that has the most inventory (cars) stacked in front of it waiting to be worked on. In many shops I find the constraint to be the paint booth (or poor use of the booth), but in many advanced shops that are performing thorough disassembly and blueprinting, the hold-ups are commonly there. Also it is not uncommon for the biggest constraint to be the front office itself.
Step 2 Exploit the constraint. Exploiting the constraint involves making sure we are using the resource as effectively as possible. If the paint booth is the constraint, are you effectively using it during all the work hours in the day, or does it sit empty until 10 am? Also consider the hours the booth is in operation. There are more than 8 hours in a day, you get to choose how to use them.
Step 3 Subordinate to the constraint. When you subordinate to the constraint you are effectively making sure it does not get interrupted or delayed in any way. Again, if your booth is a constraint, you would want to make sure that the quality of the prep work was sufficient and your colors were tinted so no additional delays would occur while the vehicle was in the booth. You should also make sure the booth is well maintained to avoid mechanical failures. Blueprint/Damage Analysis departments are often a constraint, yet I am amazed at how often the people performing these operations are routinely interrupted to deal with other issues. You need to “protect” your constraint at all costs! Subordinating also means making sure that everyone in the shop clearly understands that nothing comes before the constraint, especially their own agendas of silo efficiency.
Step 4 Elevate the constraint. This step simply means to make the department, or resource bigger. It could mean you need to add a tech, buy a frame rack, or perhaps apply some Lean tools and techniques to increase the constraint’s capacity. Again, the size of your constraint dictates the size of your potential throughput.
Step 5 Repeat steps 1-4. Much like Lean, TOC is a continuous improvement process. Once one constraint is identified and resolved, begin at Step 1 again.
Drum, Buffer, Rope
Another one of the elements of TOC involves Drum, Buffer, Rope (DBR). You can learn a lot about this by reading Goldratt’s The Goal. There is also a lot of information about it on the internet. Essentially, DBR suggests that your company has a drum beat that everyone follows. The beat follows the speed of your constraint resource. An example of this, is that all body shop departments work to keep in pace with the constraint resource. The buffer (a small buildup of work) ensures that the constraint never runs out of work. The rope is tied to your scheduling of work coming in. In other words, you schedule your repair jobs in as your constraint can begin working on it. As with lean thinking, scheduling too many repair jobs in, leads to excess inventory (waste).
During my training at the AGI Goldratt Institute, I was told by a very wise TOC Instructor that the smart practitioners eventually decide where they want the constraint to be and then they build their business around it. This keeps you from spending all your time chasing bottlenecks around your shop.
I want to drive home a most important point. Whether you subscribe to Theory of Constraints or not, it is a universal law that your business throughput ability will always be dictated by your system’s constraint. On occasion, this constraint can be the market you serve. If you don’t have enough work to feed your shop you can still use TOC thinking to help solve your problem using the 5 steps. You may have to Identify, Exploit, Subordinate, and Elevate your company’s attention to marketing or other forms of attracting additional work.
I am going to leave you with an eye opening figure. Every dollar lost in a constraint resource due to mechanical breakdown, quality defect, or any other reason is a dollar lost forever! If you run a shop producing $100,000 a month and your constraint shuts down, it costs you roughly $600.00 an hour! You may want to protect your constraint!