Archive for May, 2010

(excerpted from The Pipeline)

“In this session, we are just going to talk about how we better manage whatever it is that is preventing the system from producing more with what it has. First, I want to talk about variation and uncertainty”, said the intrepid, results-based consultant.

“It was mentioned earlier that variation is a form of waste, because, to the extent that it does not add value, variation is wasteful. That thinking largely comes from the Toyota Production System and the Lean Production methodology that TPS later spawned. But – Taiichi Ohno did not include variation as a form of waste (muda) in the TPS, opting instead to use the term for unevenness (mura), and associate it with the separate principle of stability; production processes need stability, and variation causes instability.

“Interestingly, in both Lean Production and the TPS, the principle of stability sits between the principle of waste and the principle of standardization, which includes the concept of standards, visual management, and problem-consciousness, which are linked to PDCA problem-solving.

“So, there is that distinction that would seem to differentiate variation from other forms of waste”, she said.

“I think there is a reason Mr. Ohno chose to not place waste and variation in the same category. There is no possibility of having either zero waste or zero variation; the goal is to reduce waste and reduce variation, which is achievable. However, given their inherent characteristics, a desire to eliminate waste is more reasonable than a desire to eliminate variation.”

Turning to the board, the intrepid, results-based consultant wrote:

DISTINCTIONS: WASTE V. VARIATION
PRODUCTION PHYSICS: LAW OF VARIABILITY BUFFERING

“Then – beyond that distinction -there is the series of basic laws of production physics that directly or indirectly form our understanding of variation. Five laws, to be exact, but two in particular”, she said. “The first law, called the Law of Variability, states that higher levels of variation degrade the performance of the production system.

“The second law, the Law of Variability Buffering, says that variation will always be buffered by some combination of inventory, capacity utilization, or time – always through a combination of higher work-in-process, excess/unused capacity, or longer durations.”

She wrote:

BUFFERS = PROTECTION
THREE WAYS:
1. HIGHER WIP
2. EXCESS/UNUSED CAPACITY
3. LONGER DURATION

“So”, she continued, “If all RB Builders does is attack variation by attacking waste (in the form of errors, rework, etc), and it fails to directly attack the variation that causes instability, then it will have to live with a production system that protects itself with some combination – buffers itself with some level – of additional work-in-process, longer-than-necessary cycle times, or wasted capacity. Our production system will default to longer durations. Time is the self-determining buffer, the “buffer of last resort”, so to speak. If we do nothing about variation, yet limit work-in-process and capacity, the result will be long cycle times. Guaranteed.

“Buffers – high levels of work-in-process, long cycle times, and unused capacity – allow the system to compensate for variation, but, regardless of the combination in which they occur, they all result in lost Throughput.

“And – the true cost of variation is the financial throughput – the Gross Income – that RB Builders surrenders to that variation.

“Taken together, you begin to get a sense that variability is a very big deal”, the intrepid, results-based consultant continued. “Jack Welch used to say, “Variation is evil.” Some variation and uncertainty is natural, and some of it is necessary and planned. But, the instability that variation and uncertainty cause is a decidedly evil form of waste.

“In process religion, the gods of production will not be mocked”, she said. “If all we ever do is attack variation by attacking waste, in the form of errors, rework, etc., and we fail to also directly attack the variation that causes instability, then we will have to live with a production system that protects itself with some combination of too much work-in-process, long cycle times, or reduced throughput.”

“But – isn’t protection a good thing?”, deadpanned a superintendent. “Shouldn’t we be practicing safe production?”

“Yes, protection would be a good idea”, responded the intrepid, results-based consultant, equally deadpan. “Especially for boys like you, who should be worried about contracting a PTD.

“Let’s put it this way”, she said. “Which one of the Productionally-Transmitted Diseases would you like to have? Exactly which combination of longer-than-necessary cycle times, higher-than-necessary levels of work-in-process, and lower-than-possible rates of throughput (because of excess and unused capacity) do you really want to contract? I hear they are all really painful.

“Some level of variation and uncertainty is natural, inevitable, and unavoidable”, she said. “We have to buffer that. In addition, some variation is necessary, just to protect ourselves in the marketplace. For example, we don’t offer only one floorplan and elevation. Lastly – whenever we are protecting the output of the system from variation and uncertainty – some level of protective capacity or buffering is needed.

“However – protecting a system from variation comes at a cost, and to the extent that the variation that necessitates the buffering is unnecessary, avoidable, excessive, or uncontrollable, it is a very bad thing.”