In my article Competing by Managing Asset Bottlenecks, I unpacked our value statement: ‘We help ambitious executives in industrial environments systemically improve production’. This article looks at four levers that fulfil this promise to make Asset Constraint Management yield its full potential. First, let’s see why it’s so essential to get the most from your assets.
[Listen to audio version, read by David Hodes]
As a species, we are generally more anxious about loss than we are moved by imagining the rewards of the pursuit of gain. Fear of failure often motivates more than the pursuit of a distant goal and will, therefore, likely trump whatever instincts there are to strive for success. We will often play not to lose rather than play to win. When the chips are down and the organisation is not performing well, the usual reaction is to shut down reason and revert to the fight or flight centres of the brain—what Daniel Kahneman called System 1 thinking in his book Thinking, Fast and Slow.
In a scenario where the competition squeezes you on price, or an increase in the cost of labour and material inputs eat into your margins—and sometimes both—the gut instinct is to cut costs. In the heat of battle, this cost-cutting is often done without much in the way of a business case validation. It will almost certainly not entail thinking through a detailed plan on how to bring the assets back to high-reliability once the crisis is over. The context within which we make these reactive decisions is often one of high anxiety and usually serves the needs of senior executives—several levels of abstraction away from operations—seeking to mollify analysts, boards and shareholders.
How many asset managers would be courageous enough to declare that the executive’s short-term gain comes at a high long-term cost to the business? In the world of asset management, you can increase the interval between major maintenance events and save significant amounts of today’s cash outlay, despite the asset being on a slide from tip-top form. The executive gets an immediate win by saving costs and then, unjustly, targets operations down the track after unplanned breakdowns lead to production losses. The asset management team cops a hit and is forced to pay nine stitches for the one not completed on time. And, inevitably, the planned maintenance work has to be done anyway. Not only have you lost production through unplanned outages, but all you have done in terms of saving the cost of the major maintenance event is kicked the can down the road.
“Fear of failure often motivates more than the pursuit of a distant goal”
There is a further effect of this rush to cut costs. In most cases, the people charged with analysing where and how to cut costs are pulled away from the regular rhythms and routines of running their part of the business. You add workload to an already busy schedule as you redo budgets, compute the forecasts and keep going back to get to a number to appease the powers that be. There is little heed paid to the load put on these analysts and the resultant stress that arises. They know they are mortgaging the future of staff engagement and equipment performance in pursuit of solutions which will likely result in only a short-term fix to a current cost problem. It diminishes pride in work and builds a culture of cynical compliance. Although the easy way out usually leads back in, we are seldom bold enough to call a halt to the madness.
What is the way out of this bind? What can we do to sustainably break the cycle of kneejerk responses to the inevitable ups and downs of the market? It is not enough to issue pleas to the workforce to freeze recruitment or make contributions via the suggestion box to cost-saving ideas. The systems thinker looks for leverage, and the leverage lies in a systemic approach to improvement of production, as first outlined in last week’s article.
There are four major areas where we can increase production without compromising safety or increasing costs:
1. The planning and execution of projects
2. Production maximisation
3. Maintenance management
4. Contractor controls
The good news is that the Theory of Constraints (TOC) was invented to address the planning and performance of work in a consistent manner, with a single organising principle, across all of these areas of focus. Let’s take a brief look at each in their turn:
A forestry manager had a well-drilled team of axemen able to cut more cords per hour than any other. They had learned all the lessons of highly effective people such as ‘sharpen the saw, begin with the end in mind etc.’ When they got to the end of the project, they did a great job, very efficiently, but cut down the wrong forest.
Portfolio selection is the art of making the right decisions as to which projects you do, in what sequence, and when, based on the finite resources available to get them done. Understanding your project’s ‘octane’, or NPV per unit of your scarce resource, makes all the difference to optimising your flow of cash. Furthermore, an analysis of this sort will provide you with an accurate measure of where the focused investment of specific additional resources can yield a disproportionate outcome for the overall portfolio.
Critical Chain Project Management (CCPM) is the only method of project planning and execution which has explicit and proven means of addressing the twin challenges of being restricted to a finite resource pool and operating in environments of intrinsic uncertainty. The method includes the ability to systematically program and pipeline the execution of multiple projects based on the system’s bottleneck and hence yield an optimum result for increased volumes and reduced operating expense.
You maximise production potential by first choosing the right projects in the portfolio. Executing projects flawlessly is how you turn portfolio possibility into business reality. Having capability in the TOC project planning and execution capabilities is a path to both doing the right things, then doing them right.
Increasing volume through an existing asset base has two benefits. The obvious first one is the contribution made by the extra output. Every extra unit produced without any increase in fixed costs adds the whole of the increased throughput (marginal contribution) direct to the bottom line. Likewise, the increased output dilutes the fixed costs of the business. Thus the unit cost of production is reduced—an important measure when trying to get into the lowest quartile of the cost curve.
The TOC way to safely and reliably increase production is Drum Buffer Rope (DBR) What’s remarkable about DBR is its wide variety of applications. Once the concept is understood, you can apply it across an array of asset management fields such as synchronising maintenance work where complex interactions occur between shared resources and different areas of the plant. Or managing the high number of technical queries hitting the desk of the reliability engineers as operations look to get the most productive use of these scarce custodians of continuous improvement. You could even apply it to processing the qualifications of contractors as they mobilise for a major maintenance event.
Typically maintenance is made up of four big categories: routine maintenance, emergency work, emergent work (which you don’t need to address immediately) and shuts.
Doing the work of regular maintenance on time, in full, is a production issue and thus lends itself very well to a Drum Buffer Rope approach. It has the same characteristics as most engineering job shops. Shuts, on the other hand, are significant events which have a defined scope, cost and schedule. They are therefore best treated as projects with CCPM—especially its most recent breakthrough innovation: two-tier scheduling.
Using the constraint accounting framework provides asset managers with the means of calculating the cost of an hour gained or lost at the value chain’s bottleneck. In asset management, the gains and losses typically dwarf the associated costs. In the case of routine maintenance, it’s about delivering high levels of schedule adherence on the day; for significant maintenance events, such as shuts or checks, it’s about compressing the length of the critical chain.
By contractors, I mean anyone who does work for the organisation who is not a full-time employee. Contractors could include anything from engineering consultants to software specialists and from trade craft to project managers. One of the features of TOC is the ability to articulate both the supply and demand of resources required to achieve the work outcomes. When using its methods of project and production management, the attention to the detail of quantitative work management provides a framework and practical means of effective resource management.
Knowing what kind of resource by skill type is available for any given time and place lets us find the constraint. It also naturally corresponds to the demands of those who are accountable for contractor controls: work management, supply, finance, training, safety, and execution to name a few. Being able to integrate the plethora of information systems involved in accounting for everyone who comes to do work on site creates a real source of competitive advantage.
Schedules of rates, skills matching, timesheeting, qualification verification, rosters, inductions, vendors payments are all brought under one umbrella. We can accurately check the work required on any given day against the people we have to do it and find the magic Goldilocks number. Too many and we’re wasting money—too few, and we’re wasting time. Time is money and money is time.
An added advantage of a seamless approach to end-to-end contractor controls is the massive reduction in overhead burden in processing dozens of different spreadsheets to arrive at an accurate, fair and timely accounting of who owes what to whom for what work.
These four pillars of Asset Constraint Management lead to outcomes that would be thought neither reasonable nor possible without a systems thinking approach.
This is Part 1 of our series on Asset constraints management.
Part 1: Asset Constraints Management Capabilities
Part 2: Projecting Projects
Part 3: Producing production
Part 4: Maintaining production
Part 5: Controlling contractors
The change from standard thinking to Theory of Constraints (TOC) is both profound and exhilarating. To make it both fun and memorable, we use a business simulation we call The Right Stuff Workshop.
We’d love to run it with you. To learn more:
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