When efficiency has the opposite effect

If I make every part of my organisation super-efficient, I’ll have a really efficient organisation, won’t I?

Well, if you believe this, then the whole of the theory of constraints seems to have passed you by. Squeezing every bit of efficiency out of every bit of an organisation generally has the opposite effect. It can make matters worse or even prove disastrous. On a similar note, one part of an organisation making itself super-efficient may also make the whole organisation perform worse.

We live in the real world, not a theoretical world, things can and do go wrong (no matter how often you bang the desk and shout at people!). The world is too complex and inter connected to be able to predict causes and effects across an entire organisation and the environment which influences it. Against this back-drop, let’s look at these two cases.

Case 1 – a production facility
Take a simple factory line. Raw goods go in one end, are worked on in a series of machines and then finished goods come out the other end. Each machine has a probability of breaking down. The thing that matters is not that every machine is working to maximum efficiency, but that the throughput of the whole line, from raw materials to finished goods, is maintained and is efficient overall. If a machine breaks down, this stops downstream machines working as they have nothing to process. Manufacturers deal with this by having “buffer” stocks of partially finished goods, so the line can continue working even if an upstream machine is out of action for a time. The size of the buffer is related to the probable “outage” time. If there were five machines, each with a probability of breakdown of 0.1, then at any point in time there is a fifty:fifty probability the line will be out of action. If someone had insisted that the “buffer stocks” represented waste and required them to be removed, that production line would be out of action half the time. When any one machine breaks down, the whole production line stops. So much for efficiency!

Case 2 – having one really efficient part
In the second case, imagine a sales group who, in isolation, devised a really effective and efficient sales approach. They did this because they had an instruction, from on high, to be as efficient as possible. So like good corporate citizens they halved their sales costs and quadrupled the volume of sales. You’d think this was rather good wouldn’t you? WRONG! If the fulfilment departments couldn’t keep pace with the increased sales volumes, there would be a lot of dissatisfied customers.. . . in fact “service” may now be so bad, customers want their money back and will never buy again; and you get a slamming in the press. Not quite what was wanted.

So, when looking at efficiency, you cannot look at any part in isolation; you need to look at the whole chain and decide where the “constraint” is and manage it. Certainly you can improve efficiency, but it must always be in relation to the whole system. Find the constraint, remove the constraint, check the throughput and then move on to the next constraint.

In a later blog we’ll look at how theory of constraints affects project working . . . but I think that is enough for you to chew on, for now. In the meantime, if you want to know more about the theory of constraints look up Goldratt.