The current TOC achievements in handling uncertainty

TOC has always been focused on the common and expected uncertainty.  It just did not generalize in full the global ramifications of its tools to handle uncertainty.  In this post I like to highlight the wider impact that stem from DBR, CCPM and Replenishment.unnamed

The critical TOC terminologies that are a key in handling common and expected uncertainty are:

  1. Buffers
  2. Buffer Management
  3. Protective capacity
  4. Thin and focused planning

Buffers:  The concept of inserting visible buffers as anintegral part of the plan is, for me, a landmark in managing uncertainty and by “managing” I mean also the behavioral side.  People use buffers all the time to protect themselves, but they have to hide the buffers. The main problem in using hidden buffers is that they are wasted by being always fully consumed because the organization does not recognize the need for buffers.

The visible use of buffers in the planning raises several issues that planners have to consider:

  1. What to buffer? Should we spread buffers everywhere or concentrate on specific locations?
  2. How should we size buffers?
  3. What is the cost of maintaining such buffers? What are the benefits?

Struggling with the above questions force people to recognize the impact of uncertainty and to employ certain key insights from Probability Theory.

Buffer Management:  It is a unique concept of TOC, I don’t know of any similar idea to inquire the actual usage of buffers to guide decisions.  Buffer Management is relevant only to buffers that are frequently partially consumed.  Buffers that are either fully consumed or not at all, like alarm systems or insurance, cannot be managed by buffer management.

The value of buffer management is for two different fronts:

  1. Dictating a priority system in the execution phase, striving to achieve all the planning true objectives.
  2. Generating valuable feedback on the planning, thus improving the future planning, including the more appropriate size of the buffers.

Protective Capacity:  This is the most revealing concept, as it is in direct clash with the utopia of being able to match capacity to demand and the efficiency syndrome.  The important message is that due to both external and internal uncertainty lack of enough excess capacity hurts the delivery performance to the market.  Note that there is no formula for how much protective capacity is necessary.  Buffer management let us know when one or more resources come close to the protective capacity, but is unable to tell us whether we have too much protective capacity.

Thin and focused planning:  Is a TOC concept even though it was never verbalized as such.  From the five focusing steps we realize that the key planning rule is exploitation of the constraint.  Subordination is about adding buffers to the planning and mainly about execution – making sure the exploitation plan progresses smoothly.  Both DBR and Replenishment use very thin planning, leaving many decisions for the last-minute where the actual impact of uncertainty is known.   CCPM does not fully follow the thin planning direction and it leads to recent ideas, by James Holt and Sanjeev Gupta, of simplifying the CCPM planning.

The above achievements should encourage us all to develop more tools that will allow management to recognize and manage the uncertainty.  I think most managers are aware of the need, but simply are caught within the fear of being unjustly criticized.

A superior level of performing well in spite of significant uncertainty will be achieved ONLY when a decision making process is established that verbalizes the uncertain potential results and lead the decision makers to contemplate decisions that would achieve high gains most of the time, but also take into account that in some cases limited damage will occur.  The emphasis is on ‘limited damage’, meaning the organization is able to tolerate, and thus the potential results considered can be used in the future to demonstrate the validity of the decision at the time.

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Eli Schragenheim

My love for challenges makes my life interesting. I'm concerned when I see organizations ignore uncertainty and I cannot understand people blindly following their leader.

3 thoughts on “The current TOC achievements in handling uncertainty”

  1. Only to add that the amount of needed protective capacity is proportional to demand variability and to internal variability (noise within our organisation). If we have a demand profile (day by day, for example) we can select our capacity level (at the constraint) simply by drawing the horizontal line that satisfies the desired service level (for example, 97% inside our capacity limits). Of course, there will be idle resourses, including the CCR from time to time, sometimes most of the time. All this assuming our objective is not to use our resourses the most, but to preserve and increase the number of clients and thruput.
    Of course we must estimate if the potential increase of thruput will compensate the increase in OE (a bit of business risk).
    The capacity level must be even higher if we consider internal noise, of course.
    One thing is sure: if we design capacity to meet average demand, our results will be mediocre if not disastrous. In the average, dwarfs get drowned.
    Regards
    Julio

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  2. Eli, this is a wonderful and elegant distillation. Thank you.

    I particularly liked your statement “Buffers that are either fully consumed or not at all … cannot be managed by buffer management.” This is obvious, if one thinks about it, but I have never seen it stated before. Many clients and other novice TOC folks may miss just that point.

    With respect to your mention of the efficiency syndrome, it seems to me that its prevalence stems from the misunderstanding that any systemic efficiency is an outcome and does not result from direct manipulation of its components.

    I also like your notion of thin and focused planning. Right on!

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  3. Eli, this is a superb subject. Practitioners would do well to pay attention to this, it is the most important aspect of effective operational TOC. Not much commentary unfortunately, perhaps people throw it into the too hard basket?
    Many times, I find that effective buffer management DOUBLES the EFFECT of constraint management: if you got +30% from installing DBR (or CCPM, etc), you can get another +30% from BM. Seems like a topic worthy of more discussion…

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