In This Issue

Theory of Constraints Applied to Human Resources
Call for Papers
TOC News from Around the World
Joint Executive MBA Program Alliance - Explode the 10 Management Myths practiced today!
TOC World^TM 2001 Countdown
Client Feedback about AGI's new Supply Chain course
Letter from Kathy Suerken

How many times is TOC thought of as logistical solutions: Drum-Buffer-Rope for production, Critical Chain for project management or Replenishment for distribution? It is not often that TOC tools and thinking is expanded to apply to the most important part of any enterprise – the people that work in and operate the system. This is not just any system but a system whose policies and measurements have been changed to reflect a new reality – one of thinking throughput on a system-wide basis instead of cost along a departmental basis.

As a contributor to this issue’s guest editorial, Mr. Jeff Jernigan, VP of Human Resources at Bal Seal Engineering Company enlightens us with his article on how the TOC processes and methodology was applied to human resources. In his article, Mr. Jernigan states that “ The human capacity replenishment cycle was improved 22% and the cost of hiring was reduced 38%. Variation in the process was handled through either a human capacity buffer or intermediate stocking point. True, these terms are more commonly associated with production. However, employees are a resource to be scheduled just as carefully as other manufacturing resources.”

I trust that you will find this article insightful and welcome your feedback. Join us in our next TOC Times Quarterly for September. I will comment on the relationship between TOC, Autopoiesis and the work of Stafford Beer’s, the Variable System Model. My thanks to Leonid Ototsky from Russia who posed the question.

Theory of Constraints Applied to Human Resources
By Jeff Jernigan, VP of Human Resources
Bal Seal Engineering Company

The Theory of Constraints views the organization as a system rather than as a hierarchy with a commitment to align the employee with the business and the business with the marketplace by ignoring local improvements that do not contribute to global optimization, and through abandoning cost accounting techniques in favor of performance improvement techniques. The following are a few of the benefits we verified when we applied TOC to human resources.

• The ability to quickly identify process improvements that contribute directly to the bottom line.
• The ability to forecast the impacts of overtime, temporary labor, turnover, absenteeism, and employee relations issues and provide timely intervention to reduce labor costs.
• The ability to quantify the true impact of training to net profit.
• The ability to provide on-line real time human resources operating expense data.
• The ability to have a newly-hired operator standing at the machine fully qualified to make parts when the order and materials show up, avoiding staffing delays and jeopardized lead times.
• The ability to schedule production around operator skill rather than machine cycle time and improve throughput.
• The ability to solve complex problems without resorting to management by committee.

TOC views the organization as an interdependent series of processes rather than independent business units and seeks to control variation in those processes. This means managers seek to optimize systems spanning multiple departments and not necessarily the individual departments themselves. Traditional human resources cost accounting attempts to make a connection between local actions and the overall performance of the organization. This results in assumptions regarding decisions that have little if any tangible dollar values attached to them. In the long run the goals of the company are not achieved by the sum of the efforts of all the employees but instead by the interaction of individual efforts. While it is difficult to allocate costs to individual activities it is quite a straightforward process to identify the costs associated with a process.

Every system has one or more constraints, like a garden hose with a number of kinks. Identifying the constraints and “elevating” them until they are removed or are as free flowing as possible is a basic principle of TOC. In applying this idea to Bal Seal Engineering over the last three years we have improved net profit 300%, created double-digit growth, and won four national awards in human resources, accounting, and manufacturing.

The first step involved identifying our primary business system. This is the garden hose everything flows through.

Bal Seal Engineering
Strategic Business System
This infrastructure was designed with a systems view in mind. Now it was time to do some process mapping, TOC style. A Current Reality Tree was developed to identify the challenges presented by the current way of doing things that prevent the desired outcomes described at the beginning of this article. Clouds were used to identify crucial problems and eventually the ideal process was mapped.

For example, the traditional management philosophy was in conflict with the changes we needed to make. Constructing a Conflict Cloud helped us to see the obstacles more clearly. This represented a philosophical constraint to performance improvement.

Management Philosophy Conflict
In the organizational development, we found four higher-level constraints that can severely limit top management. There are administrative constraints, policy constraints, philosophical constraints, and ideological constraints. With the idea of focusing senior management on what ultimately determines the level of performance, the constraint that prevented us from making more money was a philosophical one.

We had a philosophical constraint of decision-making based on local measures, and removed that constraint by switching to global measures and controls based on the Theory of Constraints. This allowed the system to shift, and begin to realign to a more global focus. Over time, we found other constraints emerging at the upper management level.

1. Administrative constraints exist when leading indicators do not exist or inadequately forecast crucial information. The right indicators will enable both strategic perspective and situational awareness. These constraints are illustrated by statements like:
   • “Why can’t we control overtime?”
   • “Training doesn’t directly impact the bottom line.”
   • “There is no relationship between operational expense and sales.”
   • “Staffing requirements and employee relations issues are not predictable.”

2. Policy constraints as applied to human resources exist when current policy or practice (unwritten policy) impede or prevent progress. They need to be evaluated and a decision made whether the constraint is valid and should remain, or is there a change needed. These constraints are illustrated by statements like:
   • “We’ve never done it that way before.”
   • “The system won’t let us do that.”
   • “That’s not the way we do it here.”
   • “That violates policy or procedure.”

3. Philosophical constraints exist when values, attitudes or beliefs are in opposition to progress. This can be represented in a lack of alignment with company goals, a lack of understanding what the real goals are, or unproductive attitudes that prevail in key players or groups. These constraints are illustrated by statements like:
   • “We need sales acquisition, not sales fulfillment.”
   • “This company hasn’t done anything for me.”
   • “Those people don’t know what they are doing.”
   • “There’s no leadership around here.”

4. Ideological constraints exist in the form of doctrines or opinions of individuals or groups. They are recognized as paradigms or mindsets that prevent change or progress. These constraints are illustrated by statements like:
   • “It’s not just a we/they attitude, it’s us and the enemy.”
   • “We don’t like change around here.”
   • “The values we have are not the ones we need.”
   • “If it didn’t originate with us it’s not a good idea.”

Regardless where the constraint appears – in a system or people – the approach is the same. These are called the Five Focusing Steps.

1. Identify the systems constraint(s).
2. Decide how to exploit the system’s constraint(s).
3. Subordinate everything else to the above decision.
4. Elevate the system’s constraint(s).
5. If, in previous steps, a constraint has been broken, go back to step one.

Often, when physical restraints involving resources are removed, policy constraints emerge.

In Human Resource department we found that, the length of time required to ramp-up staffing for increased production demands was affecting our lead times. This was due in part to large orders closing early and a very competitive labor market due to low unemployment. The staffing process was mapped, constraints identified, and process improvements designed and implemented. The result was advance notice based on sales performance and production capacity of staffing requirements. This required system improvements across multiple departments, not just Human Resources.

The human capacity replenishment cycle was improved 22% and the cost of hiring was reduced 38%. Variation in the process was handled through either a human capacity buffer or intermediate stocking point. True, these terms are more commonly associated with production. However, employees are a resource to be scheduled just as carefully as other manufacturing resources.

The advantage of the pipeline focused by the constraint is also seen in reporting. We can know daily if necessary where we are as a company. By designing the right metrics we can track global company performance measures or any individual system measures required. This gives us the ability to forecast without waiting for the month-end close or quarterly reports. In a TOC system, actual costs can be determined at any point in the system by converting time to money using the appropriate throughput rate, usually dollars per minute. The throughput rate is based on actual schedules, cycle times, labor rates, material costs, and etcetera.

Management philosophy and staffing are just two simple examples of global and local human resource issues that can be unknotted profitably using the Theory of Constraints. Imagine the principles applied to every business function in the organization! Certainly, there are hundreds if not thousands of excellent tools “out there” you can use and ostensibly get similar results. You may be using them now and find yourself quite pleased with their performance. There is one thing TOC does for me that other systems have not been able to do.

TOC allows me to accommodate the vagaries of human behavior in quantifiable terms relevant to the success of business. Employees work everyday in the context of multiple relationships that cross many departmental or business unit boundaries. They use procedures, policies, practices, and processes that are reflected poorly or not at all in cost accounting based systems. TOC principles and tools let me know exactly my human capital return on investment. How many dollars per minute are your employees generating? Shouldn’t it be higher?

For a copy of this article with the Human Resources Staffing Network included, please email your request to Rika Visser at rika.visser@goldratt.com.

About the Author Jeff Jernigan currently serves Bal Seal Engineering Company as Vice President, Human Resources. Bal Seal Engineering, founded in 1958, is a world leader in highly technical sealing and connecting solution design and manufacturing. The California based international company received the Arthur Anderson/Business Finance Weekly Vision Award for business reporting in 1998, the Employers Group/Saratoga Institute Best Practices Award for Human Resources programs contributing to business success in 1999, the National Association of Manufacturers’ Winners Circle Award in 2000 for innovative production systems, and the Workforce Optimas Financial Impact Award in 2001 for Human Resources business solutions. Jeff has more than twenty-five years experience as an organizational development specialist providing companies support in creating, continuing, and capitalizing on change. Jeff also serves as Legal Coordinator on the Board of Directors for the Olive Branch International, a humanitarian organization serving militaries around the world. Jeff and his wife Nancy make their home in Corona, California.

Call for Papers
International Journal of Production Research Special Issue on Constraints Management: Recent Advances and Practices

International Journal of Production Research announces a call for papers for a special issue on Constraints Management.

Theory of Constraints topics of interest include but are not limited to the following:

• Operations Strategy and Strategic Planning
• Product-Mix Decision, Production Scheduling, Inventory/Buffer Management
• Thinking Processes
• Project Management
• Supply Chain Management
• Continuous Improvement or Integration of TQM and TOC
• Integration/comparison among various Manufacturing Practices - JIT, TOC, MRP
• Performance Measurement
• Integration of ABC and TOC
• Review and Synthesis of TOC Literature

Mahesh Gupta
Associate Professor
Department of Management
College of Business and Public Administration
University of Louisville
Louisville, KY 40292
Phone: (502) 852-4783
Fax: (502) 852-7557
mcgupt01@gwise.louisville.edu

All papers will be evaluated using the standard review process of the journal. Deadline for submission of manuscripts is 30 November, 2001. Authors will be notified of decisions by 28 February, 2002. Publication is provisionally scheduled for August 2002.

TOC News from Around the World

TOC in China
By William Law

William Law is AGI Regional Director/Manager, Jonah’s Jonah and AGI Certified Associate. His office is in the Hong Kong Special Administrative Region, China. He publishes Dr Eli Goldratt’s books in Chinese and is a much sought-after speaker in the region. Prior to taking on the mission of promoting TOC in his region in 1994, he held senior IT management positions in large companies in Hong Kong. He holds a BS degree from the University of the State of New York in Albany and is a corporate member of many professional management and engineering bodies in Hong Kong, Europe and USA. William is married, with two daughters.

China is a new frontier to TOC. Everyday, the AGI office in Hong Kong receives lots of letters, email and fax messages from all over China, written by readers of the Chinese version of The Goal launched in early 2000. I always find the comments and questions absorbing and enlightening. Here are a few of them, translated from Chinese, of course:

• “Alex Rogo’s plant is in the US, but I am surprised by the extent to which the concepts are compatible with our Chinese culture.”
• “I have been managing large garment factories in China for 18 years now and thought I am quite successful at that. Now I know what more I can do.”
• “I am on a long train ride to Beijing. Outside, it is snowy, windy and dark. It is 5 a.m. In the dim light and warmth inside the train, I do not feel sleepy at all. My head is racing. This book which I have been holding in my hands in the last 6 hours really touches me. I thought our plant was hopeless. Now I see a ray of hope. Yes, just like the ray of light that is beginning to appear on the distant horizon, over the vast farmland, as I peer out of the window. Beijing is not too far away now. I do not feel tired. I feel invigorated. I thank Dr. Goldratt for inventing TOC. And, thank you for making this book available in Chinese. I learned a lot. I am sure readers in many enterprises in China share the same feeling.”
• “I am a high school student. I do not know much about operational problems in plants but the book still fascinated me. I like to read more on TOC. Where can I find It's Not Luck and Critical Chain? I do not mind Hong Kong-Taiwan versions. Also, please make more of Dr. Goldratt’s books available in Chinese. I can help you sell them.”

Some organizations are ready to move beyond the reading stage and into the action stage – taking courses and going for implementation. So, my hands are very full at the moment. I plan to revisit Beijing in the next couple of months. I spent most of my time in southern China recently. Friends in the north have been patiently looking forward to this visit for a long time now. I must not let them down.

William Law
Regional Director/Manager,
Avraham Y. Goldratt Institute
1208 Telford House
16 Wang Hoi Road
Kowloon Bay
HONG KONG
Tel (852) 2695 4929
Fax (852) 2795 2660
wlaw@tocnet.com

First AGI Seminar in Japan
Eric Desmet announced that the first AGI seminar in Tokyo was held on May 9th, in cooperation with the Japan Research Institute. The topic covered during the one-day seminar was: Overview of TOC’s Holistic Systemic Approach to manage organizations.

Hello from Haiti
The Haitian branch of the Goldratt Institute directed by Hans Tippenhauer, Jonah Jonah, has trained 11 new Jonahs. Welcome to AGI’s family!

Inquiry from Indonesia
“My name is Elida Yuniaty, an undergraduate student from Indonesia. I am working a research related with TOC for my final task.  I want to ask you some questions about TOC because my reference about TOC is not enough.  Do the product which has the highest throuhput/limited resources the profitable product?”

Thank you for your attention.

Sincerely yours,
Elida Yuniaty
University of Atma Jaya Yogyakarta
Indonesia - Southeast Asia

Dear Ms. Yuniaty:

It is difficult to answer your question without more information.  However, I will answer in this context:

If you are considering the throughput of a system, you must “Identify the system’s constraint”.  This is Step 1 of the Five Focusing Steps.  Step 2 requires that you “Exploit the constraint”.  In this sense, you want the constraint to operate at 100 percent efficiency since time lost on the constraint is time lost to the system.  In this case, time is money when considering “throughput dollars per constraint minute.”  Note that I said, “The constraint operates at 100 percent efficiency.”  Step 3 requires that “Everything else is subordinated to the constraint”.  What should the non-constraint activities be doing?  As it is very common for companies to have a product mix being processed through the constraint, each of these products must be examined using throughput dollars per constraint minute.  Once this product mix analysis is completed, one should know how much of which product to produce for maximum throughput (net profit) of the system.  Do you recall your professor demonstrating the “P&Q exercise” in your course work?

Joint Executive MBA Program Alliance - Explode the 10 Management Myths practiced today!

Integrating the Organization...from Vision to Reality
The Joint Executive MBA Program Alliance (JEMBA) program opened its knowledge vault to more than traditional universities and professors. This is a comprehensive educational track for people in charge of developing a knowledge strategy for learning organizations, corporate universities, traditional universities, or those who want to learn how TOC’s integrated approach applies to management. In four and a half days, the JEMBA explores in depth the integration of the following activities to create value:

• Strategy
• Customer Relationship Management
• Accounting (Measurements)
• Supply Chain Management
• Project Management
• Program Management
• Information Exchange and Flow

Look for more details about the JEMBA presentation at www.goldratt.com “What to ask for in graduate education.”

TOC World^TM 2001 Countdown

Hotel cut-off date extended
Cut off date for hotel extended to June 5! The rate when you mention “Goldratt” is $199 – single or double occupancy. After June 5, the room rate is $350 per night.

List of presenters
Brush Wellman.  Increased sales, profits, and on-time delivery in high performance engineering and manufacturing.

Fairchild Semiconductor.  Integrating different improvement efforts.

Institute for Defense Analyses.  Designing a system of systems approach to improve the Department of Defense Readiness Reporting System.

Intel Network Communication Group - Israel.  How do you recover when conventional planning methodology leaves no chance of finishing a strategic project on time?

Kiowa. Doubling your customer base with quicker, faster product development in the manufacturing of custom dies for heavy equipment industry.

Lockheed Martin, Boeing, and F-22 System Program Office. Applying the TOC Thinking Processes and Critical Chain Project Management for final development and delivery of the F-22 Raptor.

Raychem HTS, a division of TYCO. Moving the world’s leading supplier of heat tracing systems and heat-tracing integration services from the bottom-up with TOC.

Seagate. When speed to market in new product development is crucial - integrating the organization and the supply chain.

Shea Homes.  Applying Critical Chain Project Management to accelerate improvement of the acquisition cycle in the home building and construction industry.

Verhaert. Developing systems and products, they will demonstrate the optimal way to manage complex projects and the organization with TOC.

Dr. Eli Goldratt’s Keynote Address
Dr. Eli Goldratt, keynote speaker at TOC World^TM 2001, will deliver his address on June 20 from 9:00 a.m. till 10:30 a.m. He will go into detail on the subject of dollar days metrics and its impacts as a stand-alone tool.

Special NBNS offer in combination with TOC World^TM 2001
Necessary But Not Sufficient
Special Promotion
Monday, June 18

This session is not included in your TOC World^TM 2001 registration, however, a discount is available when you register for BOTH this one-day session and TOC World^TM 2001. For more information, please go to our registration form at www.goldratt.com/tocworld2001/reg.htm. To take advantage of this discount, you must register for BOTH sessions simultaneously.

Software vendors participating
After-Hours Software Preview
On designated evenings, following the conference day, TOC-related software exhibitors will offer demonstrations of their TOC application products. Don’t miss out on this opportunity to see the latest TOC software available to the market.

       
       

Suggested Educational Tracks for TOC World^TM 2001

Client Feedback about AGI's new Supply Chain course

This was held in New Haven in April. AGI Certified Associate, Gerry Hoffman, led the course.

• “As the production manager I am tasked with significant improvements in cycle time, throughput, responsiveness to market...this class was designed to provoke thought, and provided the ability to share perspectives.”
• “This class was very applicable. I will be implementing TOC supply chain solutions.... the combination of production, replenishment and the TP was what I liked most about this program so far.”
• “I appreciated learning how to improve on-time delivery and managing inventories.... the class was enlightening, especially to find answers to daily problems.”
• “I liked the way the class progressed towards the goal of DBR and replenishment processes.”
• “I am currently responsible for supporting a large scale distribution project and will be part of the strategic planning and execution of similar projects across the country...I am now much more comfortable with the technical solutions and where and when they are applicable. I’m looking forward to the 2nd half of the course.”
• “Through the use of TOC we will be able to greatly reduce our cycle times.... I appreciated the interaction from the other class members.”

Letter from Kathy Suerken

“We go where our vision is.” -- Joseph Murphy

Dear TOC Friends,

It’s been said that you don’t remember days, you remember moments. Why do you think I so remember the moment in 1993 when I first spoke to a group of TOC visionaries?

Was it because, at that moment, I realized that the children and I had become linked to a group of people who act on—BIG—vision and who think we should be encouraged to do the same? Thank you for your supportive comments, letters and leads along the way, which are so much ‘in the banana’ from where the kids and I were...to where we are now.

In the five years since Eli Goldratt founded TOC for Education, TOC has spread from one classroom in Florida into the classrooms of 16 nations! Big impact?

In November 2000 the Ministry of Education in Malaysia trained over 30,000 first grade teachers in our new 12-hour training module designed to enable teachers to immediately implement TOC in the classroom. When in Malaysia last month, I saw first grade teachers teach values education (and other content) lessons through TOC. They used the cloud and negative branch to reenact the plot line of fables and other relevant stories so that their students could derive-for themselves- the moral/lesson objective.

Is it a superior way to teach concepts? Are children then able to apply what they learned in different environments? In one classroom, a teacher shyly asked if it was ok that some of her students had—on their own initiative—used the cloud to solve problems at home. (Smile)

Most of the schools I toured had clouds painted on outside corridors or playgrounds and at one school I observed students using a negative branch hopscotch template as they thought through the consequences of their actions.

Meanwhile in Mexico, the Secretary of Education of Nuevo Leon has endorsed TOC for every student and teacher in his state and acted on his belief by establishing a TOC department (office) to put in place a widespread training program.

What about USA results? Some school districts have used TOC to lower failure rates; others to raise standardized test scores! But it’s not enough! What must we do to ensure that TOC opportunities exist for all children-such as yours as well as children who so much impact your quality of life and...the future of civilized societies?

In the USA, we need to progress from “a cent to a cent” impact - a school district here and there - to a more “ big bang” result. Toward that end, TOC for Education is preparing a great big Archimedes target!

Our fifth TOC for Education International Conference will be hosted this year in Detroit, Michigan June 25-28 and will be a training conference at which we will deliver six new, 15 hour training modules designed to meet the needs of every stakeholder in a school system:

• Process to achieve system-wide reform
• Strategies and tools for parents and other caregivers to enable student success
• Responsible decision making
• Academic content based on standards and benchmarks
• Conflict mediation and crisis management
• Leadership skills for students

Additionally, we will host an Odyssey Program for University Students. There are five Odyssey slots open to children of a TOC-trained parent from business and which are available on a first come, first served basis for a donation of $1,000 to TOC for Education.

To ensure the success of this ambitious event, we very much need the impetus of business partners. One suggestion is:

Team Sponsorships: Price: $495 for a team of five people that you select:

1. The business sponsor
2. A teacher
3. A counselor
4. An administrator
5. A parent or a student

All TOC for Education patrons will be acknowledged in our conference materials (printing deadline May 15) and on our web site (ongoing). Conference details are available on our web page.

I eagerly await your additional ideas for partnerships as well as needed points of contact in order to realize the shared goal of a better tomorrow. After all, you have convinced me that it is not just teachers who touch the future. It is people who act on their beliefs...people who move toward their visions... People like you.

Thank you for reading this.
Kathy and the kids

Kathy Suerken, President
TOC for Education
Phone 850.897.2616
suerken@tocforeducation.com
www.tocforeducation.com

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