Sunday, December 25, 2011

Focusing Methods

Theory of Constraints and 80:20 principle: When managers need a focusing method, they should collect data and use it effectively. Two focusing methods which are commonly used are The 80-20 principle and the Theory of Constraints.

1. The 80-20 principle – states that, for many events, roughly 80% of the effects come from 20% of the causes.

If we are able to find those vital few that contribute to most of the delays or delays or time spent, we can try to find methods to address them. This requires data collection and preparation of a Pareto chart.
► A hospital may like to know which of the complaints are most frequent at the OPD.
► A manufacturing company would like to find what contributes most of their inventory cost.
► A boutique may like to know which type of designs is most demanded.
► An ice-cream parlour may like to know which types are most sold and should be promoted, displayed or stacked better.

2. Theory of Constraints – states that, any manageable system is limited in achieving more of its goals by a very small number of constraints, and that there is always at least one constraint.

In simple words, a step is called a constraint if its inflow rate is more than its outflow rate. For example –
► If there is a queue in a billing counter but all other steps are smooth flowing, (as found in a mall on a weekend), the billing step is a constraint.
► If a machine commonly has unfinished inventory before the operation and no inventory after the operation, the machine’s step is a constraint.

The important learning from TOC are -
► If we improve processes or steps that are not constraints in the system, then we are probably wasting our resources and the business impact of change is not going to be felt.
► Once you remove a constraint from the system, another constraint appears. The constraints keep shifting but never disappear altogether.

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