Bal Seal Engineering Company

TOC Case Study: Bal Seal Engineering

Before discovering the Theory of Constraints (TOC), Bal Seal Engineering was a typical manufacturer. The plant was laid out by function, measurements focused on departmental efficiency and production was batch-oriented. Also in typical fashion, the firm was experiencing some of the more troublesome difficulties many manufacturers face: inventory and work-in-process were everywhere, lead times were long, the entire production crew was routinely working 55 to 58 hours per week, yet the on-time shipment rate hovered in the 80-85 percent range.

When Dave Pickels, the production manager for the fabrication area, read The Goal, he could identify completely with the fictional manufacturing company and its lead characters. It almost seemed like Eli Goldratt had been writing about Bal Seal. To learn more about TOC, David read The Race and It's Not Luck, attended a two-day production workshop at the Goldratt Institute, then started to introduce other company managers to the concepts of TOC.

As the ideas began to take hold, Pickels and his boss attended the five-day DBR (Drum-Buffer-Rope) workshop and began a TOC project at Bal Seal. They got a team together, taught them the basics of the thinking processes and got to work on the conflicts present at Bal Seal Engineering. After developing a number of "current reality trees" and evaporating a number of clouds, they developed a 30-day project plan to convert the plant to TOC.

The results were dramatic and highly visible. Almost immediately, work-in-process began to dry up. This caused some concern among the production workers; they were used to seeing WIP all over the place and they were worried about their job security and efficiency ratings. One project team member was assigned the task of meeting with each direct production worker and explaining that it was okay to have nothing to do. Under this new way of managing production, only the constraint must be kept productive all of the time - the other work centers were tied to that constraint and it was their job (the other work centers') to be available and ready when work came their way.

Under TOC, extra capacity surfaced everywhere except at the constraint. Where the company had been able to produce a maximum of 65,000 parts per week, after TOC total production was up to 100,000 per week. And even at this higher throughput rate, non-constraint work centers were not operating at peak capacity all of the time.

Reduction in lead time.
Another almost-immediate effect was the reduction of lead time from six weeks to eight days. At the same time, on-time shipments improved to 97 percent. Interestingly, everyone started worrying about the remaining three percent. It became almost an obsession to find out what happened to those few orders and how the on-time rate could be lifted to 100 percent. For a time, though, customers couldn't believe the performance. Even after receiving shipments per the shortened lead times, many questioned whether Bal Seal could keep it up; they thought it was just a temporary condition. Time has proven the permanence of the improvements.

One critical issue was workers' concern over their take-home pay. After continuous overtime at the rate of 15 to 18 hours per week, they had become used to the extra income. When the plant performance improved and throughput increased without the disruption and confusion of the past, and without the need for 55- to 58-hour work weeks, workers feared that they would go back to 40 hours of regular pay with no time-and-a-half premium for the extra hours.

Bal Seal management compensated by paying production workers the same amount they were previously receiving, despite the shortened work week. It didn't really cost they company any more than they had been paying for labor, they got significantly higher throughput for those same labor dollars, the workers' take-home pay was preserved, and their quality of life was enhanced considerably - a true win-win situation.

For Bal Seal Engineering, net profit has doubled, inventory is down 50 percent, operating expenses are down, and the shortened lead-times and improved customer service have provided a true competitive edge. Now that the plant is shipshape, the next challenge is to address the sales department. Bal Seal's springs and seals are basically catalog products - when a customer needs them, he looks in the catalog and orders what he needs. The sales people were simply order-takers. Now, the sales department must become proactive, seeking out additional business to take advantage of the plant's higher production rate. You can be sure that the lessons of TOC will be applied there as well.

Copyright © 1999 Midrange ERP

A representative of Bal Seal Engineering presented the company's story at the Jonah^SM Upgrade Workshop in October 1996. That presentation is available on video (JCS-11).