One of my first assignments in graduate school was to read The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt. As someone who majored in engineering as an undergraduate student, it had been awhile since I was assigned a novel for required reading, but I decided to put my skepticism aside and dive in. After a few chapters, it was pretty clear why our Operations Management professor assigned this book to the class. Goldratt’s Theory of Constraints and his lessons on capacity management would be the building blocks for the rest of the term. I have found his teachings on identifying process bottlenecks and designing productive systems to be incredibly useful during my time at Indium Corporation this summer.
I will not attempt to summarize the whole book in this post, but I do want to highlight a few points that I have found particularly insightful and applicable to the work I have been doing as the Product Management Intern:
- Productivity is the act of bringing a company closer to its goal. The goal is to make money.
- To achieve the goal, it is necessary to increase throughput while simultaneously reducing both inventory and operating expenses.
- A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it.
- The capacity of a system will be determined by the capacity of the bottleneck in the system.
At first glance, point number one might seem like an oversimplification that is too money-oriented. It is true that companies may have broad, arching goals that look further than their bottom line. However, these other goals are tied to revenue streams and cash flows. For example, our goal at Indium Corporation is to increase our customers’ productivity and profitability through the design, application, and service of advanced materials. However, this goal is only possible by getting as much of our material to our customers through the generation of sales and, therefore. money.
Another way to think about point number two is to think of throughput as the rate at which the system generates money through sales and inventory, as the money that has been invested in the products or services that are intended to be sold. Operating expenses are therefore the money needed to turn inventory into throughput. In order to make more money, a company must increase the rate at which they generate money while simultaneously reducing the money tied up in the system and the cost of turning that investment into sales.
The third statement is fundamental in the theory of constraints. If a resource operates at a lower throughput rate, or capacity, than the rate at which orders, or demand, come in, a bottleneck will be created. Simply stated, if the rate at which orders come in is greater than or equal to the rate at which orders come out, there is a bottleneck.
Lastly, the fourth statement explains that the throughput of an entire system will be determined by the resource with the lowest capacity. In his novel, Goldratt uses a group of hikers as an analogy to explain this point. He explains that the pace of the group will be determined by the slowest hiker, just like the capacity of a system is determined by the bottleneck.
Tying everything together, we can conclude that if we increase the capacity of the bottleneck, we will increase the throughput rate of the system as a whole while simultaneously reducing both inventory and operating expenses and therefore achieve the goal of making more money. However, increasing throughput rate while simultaneously reducing inventory is no easy task. As Little’s Law (Inventory = Throughput Rate * Throughput Time) states, the only way to do this is to reduce the time it takes to fulfill sales. Therefore, to effectively reduce lead time and operating expenses simultaneously, there must be a fundamental change in the system.
This summer I have been working on the introduction of a new product that could be a fundamental change in the additive manufacturing industry. We at Indium Corporation are hoping to improve our customers’ productivity by addressing a bottleneck in the 3D metal printing process. Our proposed solution leverages the company’s expertise in material science to drastically increase the throughput rate of 3D metal printing processes that use Powdered Bed Fusion or Direct Metal Laser Sintering technologies at a lower cost than the current approach. By addressing the bottleneck in the system, we hope to make our customers more productive.
I have thoroughly enjoyed working on a project that relies on the fundamentals of operations management to provide a solution. I am looking forward to our first sales, and hopefully I will be able to tell you all about the technical details soon. I believe that by getting this product into the hands of customers, Indium Corporation will be helping other companies achieve their goals.