The Theory of Delays

The Problem with Lean: Lean does not fit custom manufacturing very well because the focus of the methodology is on reducing inventory. This is not a problem in a make-to-order business where no finished goods inventories exist (by definition—it’s made to order). Lean works best in mass production manufacturing facilities that build finished goods inventories to stock, and then fill orders from this inventory. This is where the money is... a $1,000,000 reduction in inventory saves the company the "cost to carry" which often runs 25% or more per year, so there are big savings in inventory when lean programs are successfully implemented. 1

The Problem with the Theory of Constraints: TOC, on the other hand, focuses on eliminating constraints that impede the flow of work through the shop (throughput). The problem here is that constraints or bottlenecks are moving targets in a job shop environment. Bottlenecks are created and disappear hourly with changes in customer priorities and schedules. An operator fails to show up for work—a bottleneck is created. A customer changes a specification—an existing bottleneck may disappear, and a new one may or may not be created. The progress of an order through a shop often has any number of starts and stops that have nothing to do with constraints. The drum-buffer-rope technique, central to the theory of constraints, is not particularly useful in the dynamic world of the job shop vs. a more stable volume production environment where a constraint is more likely to stay put.

The Theory of Delays: Some have argued that a combination of these two approaches would somehow provide the conceptual framework and methodologies that would work in a job shop environment. This does not make any sense—why try to cobble together two ill-fitting methods in the hopes that the negatives of each will cancel each other out? A better solution is a job shop specific theory and methodology I call the Theory of Delays (TOD). Its central premise is that cutting lead time—or more accurately customer wait time—is the key to performance improvement. The objective is to eliminate delays in the overall business process from "quotes to cash" that prevent a company from serving customers faster. Shorter lead times will increase sales, reduce costs, accelerate cash flow, and increase effective capacity all at the same time. Applying the theory of delays, also known as speed to market, is the single most powerful strategy you can follow to improve productivity, increase profits, and position a job shop or custom manufacturing company for future growth.

Perspective is Important: Few people understand that job shops are different. A job shop is a service business first, and a manufacturing company second. When a job shop makes something for a customer, that customer is buying a make-to-order service. It just happens to come in the form of a manufactured item.

This is not a matter of semantics. Recognizing this difference is extremely important because it changes one’s perspective and approach. If you see a job shop as a manufacturing company, you will naturally look for ways to improve how it produces products. On the other hand, if you see it as a service company, you will look for ways to improve how it satisfies market demand and serves customers. This does not exclude improving how it produces products, but this is not the sole, or even primary, focus.

Delays vs. Constraints: Before jumping to the conclusion that "delay" is just another word for "constraint," recognize there are many delays that occur in the process of converting quotes to cash (the job shop business process) that are not created by bottlenecks or constraints. Delays mostly occur between process steps when information or work is not moved along. For example, you can have a delay in submitting a quote to a customer because the owner wasn't available to OK the price, not because a bottleneck exists in the production of estimates. Likewise, you can have a delay on the floor that results from the failure to move work to the next workstation, or when a last minute schedule change means you have to reset the tooling on a machine.

Measuring Results: In addition to broadening the system scope and focusing attention on delays, the theory of delays uses two operational measures that are meaningful. One is similar to that used by TOC—throughput productivity which is measured in sales dollars per payroll hour. The problem with using this metric by itself is that customer service can be sacrificed for throughput efficiency. Therefore, it is also necessary to measure lead time (and on-time ship performance) to ensure improvement is happening in these areas as well.

An accurate and informative method for measuring lead time is velocity. Velocity is the speed at which an order moves through a business from order entry to ship, and is measured in days. Velocity is calculated by determining the number of days between the order entry date and the ship date. The fewer the days, the faster the velocity; the faster the velocity, the more successfully a job shop can serve its customers. (See the companion paper, Measuring the Value of Speed to Market Programs, for more on this subject.)

Summary: Both lean manufacturing and the theory of constraints have problems of fit in job shops and order-driven businesses. Rather than trying to integrate two ill-fitting methods in the hope that the negatives of each will cancel each other out, a better approach is to use the theory of delays (TOD), which is specifically applicable to custom manufacturing environments. TOD focuses on continually eliminating delays in the business process in order to cut lead time and serve customers faster. This, not manufacturing efficiencies, is the key to profitable growth in these types of businesses. In today's just in time, lean manufacturing environment, faster service is more valuable than slow service. Companies that can respond to customers' needs more quickly than their competitors will survive and prosper. Those that cannot will fall by the wayside. It's that simple.

1 Addendum: It would seem that TOC has more to offer job shops compared to lean when it comes to methods for improving performance and profitability. In fact, it would even appear that lean has very little to offer given that its focus is on inventory reduction which is not the central issue in job shops. But this is not necessarily the case. Here's why.

Lean works in a mass production operation by seeking to align the production system more closely with demand. What you are trying to do is match supply and demand more closely with less finished goods inventory (FGI) in the system. (FGI buffers the mismatches and is expensive.) The closer production output can match actual customer orders, the better. This is the idea inherent in pull.

This is accomplished operationally through flexible manufacturing—small lot sizes, quick changeovers, dedicated cells, kan-ban systems, just-in-time scheduling, and a variety of other methods designed to make a mass production system more readily adaptable to fluctuations in market and customer demand. Flexible manufacturing enables products to flow thorough the system in smaller lot sizes with greater variety. In this way production is able to mirror actual demand more closely, so there is less need for inventory in the system. This is the idea inherent in flow.

Where the objective of lean in a mass production operation is to match supply and demand more closely in terms of quantities produced, lean in a job shop seeks to match supply and demand more closely in terms of time. What you are trying to do is lean time out of the production system, not physical items.

The objective of lean in a mass production operation is to make it work more like a job shop by bringing supply and demand closer together in terms of production quantities. The objective of lean in a job shop is to make it work more like a mass production system by bringing supply and demand closer together in terms of time. Each has a similar ideal objective ... zero inventory and zero time, but they are starting from different positions. 

About the Author: Vincent Bozzone has generated millions of dollars in new revenues and earnings for companies as a result of his ability to conceive, plan, and implement solutions for a broad range of strategic and operating problems. He has led, or participated in, more than 600 engagements with Fortune 500 corporations and privately-held firms in manufacturing, financial services, health care, transportation, distribution, and service industries. He is the president of Delta Dynamics Incorporated, a firm he founded in 1991 to provide job shops and custom manufacturers with expertise and hands-on implementation support to improve performance and profitability in a lean manufacturing world. He is the author of Speed to Market: Lean Manufacturing for Job Shops, and has written many articles for professional journals and business publications, a chapter in the Handbook of Organizational Consultation, and two books on international business. He is an MBA graduate of Columbia University, the Past President of the Association for the Management of Organization Design, and lives in Bloomfield Hills, Michigan. For more information, visit www.deltadynamicsinc.com