In a warehouse setting, throughput, inventory, and operating expenses are proxy metrics that represent net profit, return on investment, and cash flow, the three levers of a business.Throughput: the rate at which the system generates money through sales.Inventory: Inventory is all the money that the system has invested in purchasing things which it intends to sell.Operating expense: Operational expense is all the money the system spends in order to turn inventory into throughput.The goal is thus to increase throughput while simultaneously reducing both inventory and operating expense

Throughput, Inventory, and Operating Expense

Although the 5-step process above can work in any organization, the exact details and application must be tailored to the specific circumstances and challenges in your organization.The constraints that you face may not always be physical. There could also be intangible constraints, such as attitudes and deeply-entrenched practices from long-standing policies and procedures

Applying The Process of Ongoing Improvement

Utilizing a resource means using a resource in a way that moves the system toward its goal. Utilizing a resource is a productive action.Activating resources means using a resource, whether or not there is benefit from the work its doing. This explains why activating a non-bottleneck resource is often inefficient – it does not move the system closer toward its goal.

Activating vs. Utilizing a Resource

At its core, manufacturing is a series of dependent events. Ensuring the right interaction between these dependent events is essential for the success of the manufacturing business.To improve in manufacturing, you must optimize for the entire system, not just a local area. The reality is that some resources have more capacity than others, and this needs to be considered when creating efficiencies in the system.

A Plan Is a System of Dependent Events

Bottleneck: a resource whose capacity is equal to or less than the demand placed upon it. Non-bottleneck: a resource whose capacity is greater than the demand placed on it.Because bottlenecks are the constraint in the system, if you waste any time on a bottleneck resource, your entire system loses time. The capacity of the plant is equal to the capacity of the bottleneck. If you lose an hour on a bottleneck, you lose an hour in the entire plant.

Bottlenecks and Non-Bottlenecks

A manager has the ability to answer three simple questions:<ul><li>What needs to be changed?</li><li>What does it need to be changed to?</li><li>How do you cause the change?</li></ul>

The Role Of A Manager

<ul><li>Identify the system’s constraint.</li><li>Decide how to exploit the system’s constraint.</li><li>Subordinate everything else to the above decision.</li><li>Elevate the system’s constraint.</li><li>If in the previous steps a constraint has been broken, go back to step 1, but do not allow inertia to cause a system’s constraint.</li></ul>

The Five Step Process

In business, you have three primary levers – net profit, return on investment, and cash flow. You want all three levers to move in the right direction. A common mistake is optimizing for one of these metrics, which may inadvertently make one or both of the other metrics go in the wrong direction. It’s important to view your business as a system, and the system improves when you move the three metrics the right way.

The Goal of A Business

Productivity is the act of bringing a company closer to its goal. Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive.Productivity is not about getting more done in less time. It’s about getting the right things done. The right things are those actions that move you or your company closer to the goal.

The Premise

Essential reads for entrepreneurial growth, curated by Lenny Rachitsky.

strategy

Strategy

books

Books

startup

Startups

entrepreneurship

Entrepreneurship

business

Business

leadershipandmanagement

Leadership & Management

productivity

Productivity

timemanagement

Time Management

Lenny’s Top Business Books

personaldevelopment

Personal Development

"This book, which introduces the Theory of Constraints, is changing how America does business. The Goal is a gripping, fast-paced business novel about overcoming the barriers to making money. Over 2 million copies sold! Used by thousands of companies and hundreds of business schools! Required reading for anyone in the Theory of Constraints. This book, which introduces the Theory of Constraints, is changing how America does business. The Goal is a gripping, fast-paced business novel about overcoming the barriers to making money. You will learn the fundamentals of identifying and solving the problems created by constraints. From the moment you finish the book you will be able to start successfully addressing chronic productivity and quality problems."--Proporcionado por la editorial.

Bottlenecks and Non-Bottlenecks

Similar ideas to Bottlenecks and Non-Bottlenecks

The inner tyrant

Medical X-rays and cancer

Planning vs Doing