LEAN Vs. ToC - Key Differences

Recently I participated in a webinar with a panel of experts, which I was honored to be considered a part of comparing and contrasting ToC and LEAN. I was asked during the webinar to provide a write-up about my point of view about the key differences between the two disciplines and where I see that LEAN is erroneous in its approach. So, I took this challenge and this is what came out.

Some Background

 Philosophically I know and believe that both ToC and Lean have similar vision, they differ meaningfully (to my understanding) in their approach and “patience”. With patience I mean, that Lean, coming from the Japanese culture is much more willing to accept that the time that will pass between the minute a change is implemented to the time it starts showing the effects can be very long and that the effects can be, at least to start with quite minimal. Lean advocates persistence and the profound belief that with time the effects of the changes implemented will get to “world class”.

 As an anecdote, I do not remember the exact year, but sometime around 1994 we were approached by the CEO of Ford Motors Electric Division CEO. At that time Ford was holding 25% of the shares of Mazda. For the two years preceding the time he approached us, under the guidance of Mazda, Ford has been implementing Lean in its two factories of Alternators in Spain. The performance was not satisfactory and the factories were overloaded. Ford has already approved a USD1B investment in a third factory. Before they have started their Lean journey the lead time (average) was 10.6 Days, and after 2 years of implementing lean it want down to 8.5 days. The CEO was in Japan in a visit and when he asked his Mazda piers about it, their response was – “Why are you worried, you are improving, keep on the track and better results will come”. On his flight back, he read the book “The Goal”.

We started working with these two factories, six months later the average lead-time was 2.2 days and both factories have released so much space, that the USD1B investment was canceled. A year later the average lead time reached a level of less than 2 shifts. Mazda at that time, still believed it is impossible to bring the lead time to be less than a few days (sorry forgot the number).

 Now for the background; ToC is kind of a derivative of Physics (Eli Goldratt was a physicist). It takes from there a few fundamental believes;

• The first is that all systems in nature (and human based systems are still a system in nature) performance is governed by cause-and-effect interdependencies,
• The second is that cause-and-effect interdependencies in nature systems always converge, thus there are always much less causes than effects (in Physics there is a fundamental belief that there cannot be more than one cause) and accordingly all cause-and-effect governed systems have a few causes the control their performance,
• The third is that in human based systems (as much as in other nature systems) performance is subject to statistic fluctuations and it is practically impossible and highly futile to even try to find and work according to any “accuracy”,
• The fourth is that the most profound error people do is working under the believe that they “know”, they have the experience, knowledge and intuition to “know”, however even when it is true this knowledge is only relevant to the specific occasion(s). ToC advocates a “scientific” approach where things are tested before a decision about the full scale approach is taken,
• The fifth is that people always want to improve in areas that are important for them, thus “resistance” to change is only existing in two scenarios; the area of improvement in irrelevant, the change presented is inappropriately presented
• The sixth is that people behavior is always according to the key measure that their performance is measured upon,
• And the last one is that whenever people de-facto allow themselves to live within a reality that has occurrences that carry meaningful negative effects on something important for them (a need)it is because whatever solution they may think about to improve, carries potential other negatives to something else equally important (another need) to them that they cannot accept. As a result, they are caught in a dilemma (or more than one). And, Dilemmas always have at least one possible solution (often more) that with no compromise will allow the attainments of all needs.

 In the spirit of “scientific testing” the first testing filed was manufacturing companies. When it became obvious that the experiment was successful (a process that was also instrumental in further development of the solutions and the body of knowledge) ToC continued to evolve from manufacturing to a full holistic approach. Today ToC provides a framework for managing systems holistically, pragmatically while not only realizing leap-jumps in key performance indicators rapidly but more importantly establishing a profound baseline to support the two most critical functions of management:

•  Ensuring that the company outperforms, regularly, its commitments to the external world, and
• Ensuring that the company consistently and continuously improves its overall performance (as measured by the overall key performance indicator)

 And here comes the last point of the introduction, where ToC moves away from all other practices. In ToC planning is almost insignificant and even almost undesired (pay attention to the word almost). As we plan for the future, and the future carries uncertainty, it is a fundamental believe that the focus of management should not be on planning but rather on execution. ToC advocates “good enough” planning and exceptionally excellent execution. The same mechanism that enables the above mentioned two tasks, is also the one enabling the shift from planning focused management to execution focused management.

 Now, this is a summary of the key (in my eyes) principles of ToC. Over the years, applying these principles to multitude of organizations (systems) of various types has allowed the knowledge to develop to an extent at which some generic, basic solutions have been developed and are known and proven to be effective and appropriate under defined conditions (of course they vary in detail when implemented), these solutions include:

•  Production management (obviously)
• Supply Chain management
• Project management (both stand-alone projects as well as multi-project environments)
• Finance and measures
• Marketing
• Sales
• Managing people
• Strategy
• Innovation
• Health care systems management
• Education system management
• Government service systems management

 Underneath all of these solution, lies a basic layer of analysis tools designed to be applied to any system based on the concepts mentioned in the beginning of this section. These tools are generic, system-indifferent and most importantly (to my eyes) very practical. Thus easily convert philosophical ideas to practical actions. This is eventually where the strength of ToC lies, in combining philosophy with pragmatic means of execution.

 Some Differences between ToC and Lean

 As mentioned earlier, the main differences are in the approach towards the end. But, at least in my eyes, some of Lean applied practices are not only wrong, but actually counter-productive and highly risky (for most manufacturing organizations, for some they are most likely not so. But this would be for a very small part of the manufacturing world). Lean approach to manufacturing assumes production is stable;

•  Stability of processes and products (no meaningful changes for a considerable length of time),
• Stability of demand per product (again for a considerable length of time) and
• Stability of total load placed by the orders on the different processing centers (here for example Toyota is “forcing” its customers to order at least a month in advance to keep this stability, a power most companies do not have)

 Most production environments are not stable in one, or more of these aspects.

 Some of the resulting practices of Lean which are, again at least to my understanding, erroneous and causing more damage then good in the short term are (I do agree that if you are patient, do not seek results fast and are willing to accept some deterioration in performance on the way of becoming better, eventually these negatives will disappear):

• Tact time – it is a concept which is totally misaligned with reality, it assumes that this level of accuracy exists and that it is possible to synchronize a full production process to the beat of a clock. As mentioned, it is possible only in very rare cases. In all others it forces suboptimization of the system as a whole just to “honor” a mechanism. Not to mention to futile attempt to plan production to this tact time, which in cases where stability is not the reality will force constant re-planning
• Inventory everywhere (between all steps of production) – Inventory equals time, distribution it across everywhere unnecessarily elongates lead time, adds cost and investment and disturbs the flow of the items that should be flowing
• All produced items in WIP stock, on the floor – similar to the previous point, just for sporadic demand products it is totally unnecessary stock
• Value Stream Mapping – Too much effort into detailing the processes and collecting information and data that is not only not needed, but more importantly misleading as it provides the feeling of understanding and accuracy where both do not really exist
• Load Leveling – one of the riskiest concepts of all. First, it is practically impossible to level the load due to variability, uncertainty and dependency. Second, even if it was possible it places the whole system at risk, as it is enough for one step of the process to fluctuate for the whole process to fluctuate the same. Why try to enforce an unnatural reality instead of harnessing the natural reality of flow?
• Kaizen – there is nothing wrong with Kaizen, other than the fact that there is not methodological reason for applying it in a given place. Again the Japanese culture – at the end the sum of all activities will bring benefits (in ToC we will also be using Kaizen, but as an outcome of the focusing process)
• Kanban – An artificial way to try and control WIP. Again why do things artificially, “force” the system to an “office” determined value rather than harnessing the natural flow if the system and allowing it to adjust automatically?
• OEE – The worse concept ever – resource utilization is not only not an objective it is a recipe of ensuring misalignment between promises to the market and what production is occupied with, it will almost always prefer efficiency over promise (remember people behave according to their measures)

 These are just a few of the key concepts of Lean that as mentioned are either artificial, or can only bring value under very specific conditions that mostly do not exist, or are potentially harmful, or all of the above.

 The ToC approach to Manufacturing

 As an alternative approach, the ToC for manufacturing is based on:

•  As Lean tried to create a BEAT using tact time, ToC creates BEAT using customer orders commitment (it can be time, and/or stock) – it is called the DRUM
• To expedite flow, the key obstruction to flow needs to be removed. For the vast majority of “traditional” manufacturing organization the never-ending quest for cost-efficiency drove a reality of sacred resource utilization that in turn brings factories to have way too much WIP on the floor (as it allows resources to keep operating). As WIP elongates lead-time, reduces factory productivity and delivery reliability, increase FG stocks of the products not needed and insufficient stocks of what is needed, the first thing that needs to be done is to limit the allowed WIP on the floor. (I will come back to this point answering the third question). To achieve that, materials are released to the floor in a predetermined time (much shorter than the existing one) to the floor. The release mechanism, which is also the whole ToC planning procedure is called – Rope
• As reality tends to be different than plan, and disturbances to flow do happen, a priority system is needed. It sets, automatically, for every production order a priority color based on the commitment to the customers (time and/or stock). This guarantees the constant focus on the market, the alignment of priorities across all functions and serves as the basis for focusing the improvement efforts. This mechanism is called BUFFER, hence- DRUM-BUFFER-ROPE (DBR)

 Of course there are more details to that, but this is the concept.

 Achieving 50% lead-time in the first day of implementation

Sorry if I misspoke, I did not mean 98% reliability in day 1, but 50% lead time in day 1. 98% reliability is realized in the vast majority of the cases within 8-12 weeks. As mentioned above the first action is to limit the WIP on the floor. Without going too much into the science behind it, for the vast majority of manufacturing organizations the amount of WIP on the floor is so high that cutting 50% of it as the first step is a very safe place to start. In the first day of implementing DBR we remove 50% of the WIP out of the factory. The immediate result is 50% of the lead time (and then we start improving). Just an example, a company I currently work with, before we started the implementation their production lead time (for delivering up to 90% of the customer orders) was 52 days. In the first day we went don to 26 days, 3 months later it was 18 days, 12 months after the start they deliver 98% of the orders to the market within 9 days. Their OTIF went from low 60%’s to 98% or more consistently and they are producing with the same infrastructure about 35 % more Throughput.

 Some World Class Examples

You have asked for some names of companies that have achieved world-class performance using ToC. As we do not have an agreement on what world-class is, I will refer to those examples that I consider as such:

•  Wal Mart – in their supply chain operations
• Nike – Same
• Mazda – their new car development process is managed according to the ToC project solution. Their cycle time is by far better than any competitor
• Embraer – They have achieved unprecedented world records in the development of the new generation of their aircraft
• US navy Depots – working on the service for equipment based on combination of ToC solutions for production and projects, supported by Lean tools for the guided Kaizen
• Dealta Airlines – Reported that using ToC to overall their aircrafts had saved them from bankruptcy
• Boeing – In various of their operations
• Valmont Polls – using ToC holistically for many years now
• Dr. Reddy’s
• Tata Steel
• Godrej Consumer Products
• African Breweries
• McDonalld’s France
• General Motors – Cadillac Division
• Ford Motors – Electronics Division