Laconic and Lucid of "The Critical Chain" Part 2

Since all the processes are interlinked with each other, we need to manage well; we must control cost and at the same time, must protect the throughput also. Controlling cost and protecting throughput require different mode of management. The process of a finished product represents our physical chain. What is the equivalent of throughput in our physical chain? What is determined not just by the links, but by fact that they interact with each other. It’s not just the weight (work done by individual link). If we remove all interaction, all linkages, and we are left with just a pile of links, the weight is still the same. So what property typifies a chain? It is the strength of the chain. If one link breaks, just one link, the chain is broken; the strength of the chain drops to zero. What determines the strength of a chain? The chain is as strong as your weakest link. Now suppose we have 7 links in the chain and link 4 is not the weakest link in the chain. So we try to strengthen link 4. What will be the impact on the chain? “Nothing,  Absolutely Nothing”.  So the local improvements do not contribute to the global improvements. And the organizations want improvement as a whole. Now we know that since any improvement requires attention and time and money, the way to improve the total organization is definitely not through inducing many local improvements, the more the better. That’s not the way.

There are two ways in which work in done in industries; Cost world and throughput world. What companies work is according to Cost world and at the end of the project throughput world? Cost world is where the companies produce taking into account the cost at every step and try to minimize it. Throughput world where companies produce according to the output needed, although cost world is also taken into picture but more emphasises is on the throughput (Output).  At the start of the month the companies produce according to the Cost world (Tight fist on overtime, batch Size) and in the last days of the month according to the throughput world (ship out however it is possible). Fewer and Fewer of these companies survive today. Why? Because compromises that were acceptable yesterday are intolerable today.     

Let’s not forget that in the throughput world the linkages are as important as the links. This means that if we decide to do something in one link, we have to examine the ramifications on the other link. It’s quite easy. Our intuition is in the throughput world and always was.

There are two assumptions about Cost Performance and Throughput Performance. Assumption 1- The only way to achieve good cost performance is through good local (Individual Process) performance everywhere. Assumption 2 is there is no way to achieve good throughput performance through good local performance everywhere.

Let us see how these assumptions are correct. Suppose we have one bottleneck and the other non-bottleneck. The bottleneck can produce 20 units in an hour and the non-bottleneck can produce 30 units in an hour. So now we make the non-bottleneck produce only 20 units because if we produce more than that we will have excess inventory which will increase our cost. So we produce less not to control throughput but to control cost. So to achieve good cost performance we have to make good local performances.   

Source:- The critical Chain from Eliyahu M. Goldratt

Note:- There are some excerpts that have been added from my side