8. The fable of the two mules
They pulled... And pulled...
9. The fable of the two mules
They pulled... And pulled...
10. The fable of the two mules
What were they doing wrong? What is the solution?
11. The fable of the two mules
The answer is obvious!
12. The fable of the two mules
They need to try harder!
13. The fable of the two mules
They need to try harder!
14. The fable of the two mules
They need to try harder!
15. The fable of the two mules
They need to try harder!
16. The fable of the two mules
They need to be more efficient!
17. The fable of the two mules
They need to be more efficient!
18. The fable of the two mules
They need to be more efficient!
19. The fable of the two mules
For anyone who doesn’t know
this story...
The moral is that co-operation is
better than struggle.
20. The fable of the two mules
For anyone who doesn’t know
this story...
The moral is that co-operation is
better than struggle.
But that’s not my moral...
34. Efficiency vs. Effectiveness
“Efficiency is doing things right; effectiveness is doing the
right things.”
“There is surely nothing quite so useless as doing with
great efficiency what should not be done at all.”
“The most serious mistakes are not being made as a result
of wrong answers. The true dangerous thing is asking the
wrong question.”
-- Peter Drucker.
50. The chain
I’ll lend you
some of my
metal
Me too!
Help the weakest link get stronger.
51. The chain
I’ll lend you
some of my
metal
Me too!
Help the weakest link get stronger.
There is no point making other links efficient
until the weakest link is strengthened..
54. The chain
• What is the goal of a chain?
• Is there always a weakest link?
55. The chain
• What is the goal of a chain?
• Is there always a weakest link?
Yes!
56. The chain
• What is the goal of a chain?
• Is there always a weakest link?
• What is the most effective action to take?
57. The chain
• What is the goal of a chain?
• Is there always a weakest link?
• What is the most effective action to take?
Make the weakest link stronger
80. The bucket brigade
Water
input
Water
output
• What is the goal of a bucket brigade?
• What (or rather who) determines the throughput?
• Is there always a weakest link?
Yes! There is always a slowest person
82. The bucket brigade
Water
input
•
•
•
•
Water
output
What is the goal of a bucket brigade?
What (or rather who) determines the throughput?
Is there always a weakest link?
What is the most effective action to take?
Make the weakest link stronger
83. The bucket brigade
Water
input
•
•
•
•
Water
output
What is the goal of a bucket brigade?
What (or rather who) determines the throughput?
Make the slowest person faster
Is there always a weakest link?
What is the most effective action to take?
Make the weakest link stronger
91. How a business works
Stuff we
buy
Our business
Inventory/Investment
Stuff we
sell
Operating expenses
92. The goal of a business
Throughput
Goal: Try to
increase this bit
Our business
Inventory/Investment
Operating expenses
93. The goal of a business
Throughput
Our business
Inventory/Investment
Operating expenses
These numbers are related, often in unobvious ways.
Changing one affects all the others. It’s a balancing act!
94. The goal of a business
Throughput
Our business
Inventory/Investment
Operating expenses
Some common metrics to help you relate the numbers and do the balancing act...
95. The goal of a business
Throughput
Our business
Inventory/Investment
Operating expenses
Some common metrics to help you relate the numbers and do the balancing act...
Net profit (NP) = Throughput (T) - Operating expense (OE)
96. The goal of a business
Throughput
Our business
Inventory/Investment
Operating expenses
Some common metrics to help you relate the numbers and do the balancing act...
Return on investment (ROI) = Net profit (NP) ÷ Investment (I)
97. The goal of a business
Throughput
Our business
Inventory/Investment
Operating expenses
Some common metrics to help you relate the numbers and do the balancing act...
Productivity = Throughput (T) ÷ Operating Expense (OE)
98. The goal of a business
Throughput
Our business
Inventory/Investment
Operating expenses
Some common metrics to help you relate the numbers and do the balancing act...
Investment Turns = Throughput (T) ÷ Investment (I)
99. What if a bucket brigade
was like a business?
Another overly-simplistic
business analogy....
100. If the bucket brigade were a business...
Water
input
If the bucket brigade were a business, what questions would we ask?
Water
output
101. If the bucket brigade were a business...
Water
input
What is the throughput?
Water
output
102. If the bucket brigade were a business...
Water
input
Water
output
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)? a.k.a "latency"
103. If the bucket brigade were a business...
Water
input
Water
output
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
104. If the bucket brigade were a business...
Water
input
Water
output
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
What are the operating expenses?
105. Real Numbers
Mr Blue can do
2 Buckets/hour
Each worker
costs $12/hour
Mr Pink can do
1 Bucket/hour
Mr Green can do
3 Buckets/hour
Each bucket sells for
a markup of $24
Let’s look at some real numbers!
108. Real Numbers
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
109. Real Numbers
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)? Mr Blue takes 30 min per bucket, and
Mr Green takes 20 min, so it takes a
bucket 1h 50m to go through the system.
110. Real Numbers
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
111. Real Numbers
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
Little’s law: inventory = throughput * flow time.
So inventory = 1 bucket/hour x 1.83 hours => 1.83 buckets
112. Real Numbers
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
What are the operating expenses?
113. Real Numbers
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
What are the operating expenses? $12/hour x three people =
$36/hour
114. Real Numbers
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
Throughput
(buckets/hr)
(money/hr)
Flow
time
Inventory
(buckets)
Opex
(money/hr)
Net Profit
(money/hr)
= T - OE
Inventory
turns
= T/I
1/hr or $24/hr
1h 50m
1.83
$36/hr
-$12/hr
0.54
Here are all the numbers....
Oh noes.... We’re losing money!
117. Real Numbers
We’re losing money – what should we do?
Let’s step back and look at the problem...
Mr Pink is working flat out but look at all the idle people!
Mr Blue is only working ½ time.
And Mr Green is working only a third of the time. Lazy sod!
118. Real Numbers
We’re losing money – what should we do?
Let’s step back and look at the problem...
Mr Pink is working flat out but look at all the idle people!
Mr Blue is only working ½ time.
And Mr Green is working only a third of the time.
There’s your problem right there!
120. Real Numbers
What to do?
Option 1: Panic!
Option 1: Reduce wages or staff (helps with operating expenses)
Especially the lazy ones like Mr Pink...
121. Real Numbers
What to do?
Option 1: Reduce wages or staff (helps with operating expenses)
Option 2: Hire extra people (helps with throughput, maybe?)
122. Real Numbers
What to do?
Option 1: Reduce wages or staff (helps with operating expenses)
Option 2: Hire extra people (helps with throughput, maybe?)
Option 3: Change the process (but how?)
123. Fixing the problem by reducing staff
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
Let’s start with option 1: “Reduce staff on the non-bottlenecks”
A.k.a. Don’t pay people to be idle.
124. Fixing the problem by reducing staff
As it happens, around this time, Mr Blue had
a very unfortunate industrial accident – he
was cut in half.
125. Fixing the problem by reducing staff
As it happens, around this time, Mr Blue had
a very unfortunate industrial accident – he
was cut in half.
Luckily he can still work at 2 buckets/hour,
But since there is only half of him, his average
throughput is now 1 bucket/hr.
126. Fixing the problem by reducing staff
As it happens, around this time, Mr Blue had
a very unfortunate industrial accident – he
was cut in half.
Luckily he can still work at 2 buckets/hour,
But since there is only half of him, his average
throughput is now 1 bucket/hr.
As a result, the cruel capitalists who employ
him have decided to slash his salary in half as
well -- to only $6/hr.
127. Fixing the problem by reducing staff
By coincidence Mr Green also had a very
unfortunate industrial accident – he was cut
into one third.
128. Fixing the problem by reducing staff
By coincidence Mr Green also had a very
unfortunate industrial accident – he was cut
into one third.
129. Fixing the problem by reducing staff
By coincidence Mr Green also had a very
unfortunate industrial accident – he was cut
into one third.
His productivity is only a third now. Just like
Mr Blue, his average is now 1 bucket/hr.
The cruel capitalists have decided to slash his
salary even more -- to only $4/hr.
130. Fixing the problem by reducing staff
1 Bucket/hour
$24
$6/hour
1 Bucket/hour
$24
$12/hour
1 Bucket/hour
$24
$4/hour
$24
Here is the new setup.
Mr Blue and Mr Green have been rehired at lower wages,
corresponding to their lower throughput.
131. Fixing the problem by reducing staff
1 Bucket/hour
$24
$6/hour
1 Bucket/hour
$24
$12/hour
1 Bucket/hour
$24
$4/hour
What is the throughput? Still 1 bucket/hour
$24
132. Fixing the problem by reducing staff
1 Bucket/hour
$24
$6/hour
1 Bucket/hour
$24
$12/hour
1 Bucket/hour
$24
$4/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)? Mr Blue and Mr Green have lower
throughputs, but their latency is still the
same. so the flow time is unchanged at 1h
50min.
133. Fixing the problem by reducing staff
1 Bucket/hour
$24
$6/hour
1 Bucket/hour
$24
$12/hour
1 Bucket/hour
$24
$4/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
Same as before.
134. Fixing the problem by reducing staff
1 Bucket/hour
$24
$6/hour
1 Bucket/hour
$24
$12/hour
1 Bucket/hour
$24
$4/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
What are the operating expenses? $6 + $12 + $4 =
$22/hour
135. Fixing the problem by reducing staff
1 Bucket/hour
$24
Throughput
(buckets/hr)
(money/hr)
1/hr or $24/hr
$6/hour
Flow
time
1h 50m
1 Bucket/hour
$24
$12/hour
1 Bucket/hour
$24
$4/hour
Inventory
Opex
Net Profit
(buckets)
(money/hr)
(money/hr)
= T - OE
1.83
Here are the new numbers...
$22/hr
+$2/hr
$24
Inventory
turns
= T/I
0.54
136. Fixing the problem by adding staff
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
Now try option 2: “Adding extra staff on the bottleneck”
That is -- bring the weakest links up to speed
137. Fixing the problem by adding staff
2 Buckets/hour
$24
$12/hour
3 Buckets/hour
$24
$36/hour
3 Buckets/hour
$24
$12/hour
We’ll hire 2 people to help Mr Pink.
This team’s throughput is now 3 buckets/hour!
$24
138. Fixing the problem by adding staff
2 Buckets/hour
$24
$12/hour
3 Buckets/hour
$24
$36/hour
But now Mr Blue is the bottleneck.
3 Buckets/hour
$24
$12/hour
$24
139. Fixing the problem by adding staff
2 Buckets/hour
$24
$12/hour
3 Buckets/hour
$24
$36/hour
3 Buckets/hour
$24
$12/hour
But now Mr Blue is the bottleneck.
Luckily he has a half-brother who can help.
$24
140. Fixing the problem by adding staff
2 Buckets/hour
$24
$12/hour
3 Buckets/hour
$24
$36/hour
3 Buckets/hour
$24
$12/hour
But now Mr Blue is the bottleneck.
Luckily he has a half-brother who can help.
Literally!
$24
141. Fixing the problem by adding staff
3 Buckets/hour
$24
$18/hour
3 Buckets/hour
$24
$36/hour
3 Buckets/hour
$24
$12/hour
$24
Mr Blue’s throughput is now 3 buckets/hour as well.
142. Fixing the problem by adding staff
3 Buckets/hour
$24
Throughput
(buckets/hr)
(money/hr)
3/hr or $72/hr
$18/hour
Flow
time
1h 50m
3 Buckets/hour
$24
$36/hour
3 Buckets/hour
$24
$12/hour
Inventory
Opex
Net Profit
(buckets)
(money/hr)
(money/hr)
= T - OE
5.5
$66/hr
Here are the numbers for this approach.
+$6/hr
$24
Inventory
turns
= T/I
0.54
143. Fixing the problem by adding staff
Moral: Adding staff can be more profitable than
reducing staff – if you know where to add them.
Adding also gives economies of scale, because there
are other fixed costs like buildings, etc., which don’t
need to be scaled at the same rate.
144. Fixing the problem by adding staff
Moral: Adding staff can be more profitable than
reducing staff – if you know where to add them.
Adding also gives economies of scale, because there
are other fixed costs like buildings, etc., which don’t
need to be scaled at the same rate.
Question:
Under what circumstances can you NOT add staff?
145. Fixing the problem by adding staff
Moral: Adding staff can be more profitable than
reducing staff – if you know where to add them.
Adding also gives economies of scale, because there
are other fixed costs like buildings, etc., which don’t
need to be scaled at the same rate.
But can we do even better?
146. Fixing the problem by changing the process
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
Option 3 is “changing the process”. What does that look like?
147. Fixing the problem by changing the process
2 Buckets/hour
$24
$12/hour
1 Bucket/hour
$24
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What happens if we get rid of the second step in the process
and merge it into the first?
148. Fixing the problem by changing the process
What happens if we get rid of the second step in the process
and merge it into the first?
149. Fixing the problem by changing the process
Mr Blue and Mr Pink now work together on step 1.
Their combined throughput is now 3 buckets/hour.
150. Fixing the problem by changing the process
3 Buckets/hour
$24
$12/hour
$12/hour
3 Buckets/hour
$24
$12/hour
Mr Blue and Mr Pink now work together on step 1.
Their combined throughput is now 3 buckets/hour.
$24
151. Fixing the problem by changing the process
3 Buckets/hour
$24
$12/hour
$12/hour
3 Buckets/hour
$24
$12/hour
Mr Blue and Mr Pink now work together on step 1.
Their combined throughput is now 3 buckets/hour.
$24
152. Fixing the problem by changing the process
3 Buckets/hour
$24
$12/hour
$12/hour
3 Buckets/hour
$24
$12/hour
What is the throughput? 3 buckets/hour
$24
153. Fixing the problem by changing the process
3 Buckets/hour
$24
$12/hour
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)? Mr Blue and Mr Pink have a combined
latency of 40 mins so the total flow time
is now 1 hour.
154. Fixing the problem by changing the process
3 Buckets/hour
$24
$12/hour
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
Little’s law: inventory = throughput * flow time.
So inventory = 3 bucket/hour x 1 hours => 3 buckets
155. Fixing the problem by changing the process
3 Buckets/hour
$24
$12/hour
$12/hour
3 Buckets/hour
$24
$12/hour
$24
What is the throughput?
How long does it take a bucket to move through the
system (“flow time”)?
What is the current inventory?
What are the operating expenses? $12 x three = $36/hour
156. Fixing the problem by changing the process
3 Buckets/hour
$24
Throughput
(buckets/hr)
(money/hr)
3/hr or $72/hr
$12/hour
Flow
time
1h
$12/hour
3 Buckets/hour
$24
$12/hour
Inventory
Opex
Net Profit
(buckets)
(money/hr)
(money/hr)
= T - OE
3
$36/hr
+$36/hr
$24
Inventory
turns
= T/I
1
157. Summary of different approaches
Option
Throughput
(buckets/hr)
(money/hr)
Flow
time
Inventory
Opex
Net Profit
(buckets)
(money/hr)
(money/hr)
= T - OE
Inventory
turns
= T/I
Original
1/hr or £24/hr
1h 50m
1.83
£36/hr
-£12/hr
0.54
Reduce
Staff
1/hr or £24/hr
1h 50m
1.83
£22/hr
+£2/hr
0.54
Increase
Staff
3/hr or £72/hr
1h 50m
5.5
£66/hr
+£6/hr
0.54
Change
Process
3/hr or £72/hr
1h
3
£36/hr
+£36/hr
1.0
158. Summary of different approaches
Option
Throughput
(buckets/hr)
(money/hr)
Flow
time
Inventory
Opex
Net Profit
(buckets)
(money/hr)
(money/hr)
= T - OE
Inventory
turns
= T/I
Original
1/hr or £24/hr
1h 50m
1.83
£36/hr
-£12/hr
0.54
Reduce
Staff
1/hr or £24/hr
1h 50m
1.83
£22/hr
+£2/hr
0.54
Increase
Staff
3/hr or £72/hr
1h 50m
5.5
£66/hr
+£6/hr
0.54
Change
Process
3/hr or £72/hr
1h
3
£36/hr
+£36/hr
1.0
159. Summary of different approaches
Moral: Changing the process can have much greater
impact than just tweaking efficiencies.
160. Summary of different approaches
Moral: Changing the process can have much greater
impact than just tweaking efficiencies.
161. Summary of different approaches
Moral: Changing the process can have much greater
impact than just tweaking efficiencies.
171. What is the goal of your team?
Sales
Your team
Supply Chain
What is the most effective action
for your team to take?
172. What is the goal of your team?
Throughput
The business
Inventory/Investment
Operating expenses
Where can your team add value to the business?
173. What is the goal of your team?
Throughput
The business
Inventory/Investment
Operating expenses
Where can your team add value to the business?
174. What is the goal of your team?
For example, how might an HR team add value?
175. What is the goal of your team?
For example, how might an HR team add value?
How can HR help throughput?
• Reduce purchase costs by hiring or training expert purchasers.
• Better throughput by encouraging employee feedback and
learning.
• Promoting and managing continuous improvement.
How can HR help capex?
- Reduce need for facilities by helping people work remotely.
How can HR help opex?
• Reduce turnover with better working conditions, training,
employee morale.
176. What is the goal of your team?
For example, how might an HR team add value?
How can HR help throughput?
• Reduce purchase costs by hiring or training expert purchasers.
• Better throughput by encouraging employee feedback and
learning.
• Promoting and managing continuous improvement.
How can HR help capex?
- Reduce need for facilities by helping people work remotely.
How can HR help opex?
• Reduce turnover with better working conditions, training,
employee morale.
178. What next?
“The Goal”
by Eliyahu M. Goldratt & Jeff Cox
And find out about
• Value Streams
• The “Theory Of Chains”
• Lean Enterprise/Lean Accounting
• The Toyota Way
179. What next?
“The Goal”
by Eliyahu M. Goldratt & Jeff Cox
And find out about
• Value Streams
• The “Theory Of Chains”
• Lean Enterprise/Lean Accounting
• The Toyota Way