The Goal

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The Goal
Increase 
Net Profits
ROI
Cash 
Cashflow

The Goal: "increase a company's profitability by improving throughput, reducing inventory, and reducing operating expenses."

Increase Throughput - Rate in which the system generates money through sales.
Decrease Inventory  - All the money the system invested that in things that intends to sell
Decrease Operational expense - money spent to turn inventory into throughput

An important idea is the concept of statistical fluctuations and dependent events. In a series of dependent events any statistical fluctuation that occurs upstream will affect the production/progression in subsequent steps.

For example, imagine we are making breakfast using one pan
Eggs typically take 2 minutes to make on avg.
Bacon 11 minutes
Toast 3 minutes

If we take averages, then the average time to make breakfast is 15 minutes.

But we are bound to face statistical fluctuations. We break a piece of egg shell in our mix and that adds 2 minutes to our process. We burn the bacon. Since each subsequent step relies on the completion of the prior step, they are all affected by the fluctuation.

The idea of bottlenecks are the thing that is limiting the total process due to it being the slowest. Bottlenecks are everything. We should be doing everything to optimize the bottleneck which means never wasting the bottlenecks time, it should never be idle and it should never handle or pass through unneeded material. Offload any resources that are to be processed by the bottleneck and distribute the work to other processes if possible.

The bottleneck likely has the largest pending inventory needed to process

Each piece of inventory in the bottleneck is limiting throughput. Get things the the bottleneck because that's the biggest constraint on throughput.

The goal is to increase throughput

The goal is to make money by increasing throughput while simultaneously reducing inventory and operational expense.
Fluctuations in a process do not average out, they accumulate.
Optimize the whole system, not just an individual process.
Do not balance capacity with demand. Make the flow through the bottleneck equal to the demand from the market.
In order of importance: Throughput > Inventory > Operating Expense

Increasing inventory often raises operational expenses (storage, handling) without guaranteeing higher throughput

Focusing solely on reducing operational expense can decrease throughput if critical resources are cut

Optimal throughput requires balancing inventory levels - enough to keep constraints running at maximum capacity, but no more

A 4-lane highway that narrows to 1 lane creates a bottleneck. Traffic can only move as fast as this constraint allows, no matter how wide other sections are.

System throughput is limited by its constraints. Improving non-bottleneck areas doesn't help overall performance. Focus improvements on the bottleneck itself.

Just as a chain is only as strong as its weakest link, a production system can only move as fast as its slowest part, regardless of the capacity elsewhere in the system.

Coupled events - When one event must take place before another event takes place.The subsequent event is affected by the preceding event.
Statistical Fluctuations -

What to change
What to change to
How to cause the change
Why change?
How to maintain the process of ongoing improvement (POOGI)?

Improve Flow
Stop WIP
Abolish Local efficiencies
Guide Flow

A goal of an individual or an org should not be defined in absolute terms. A good definition of a goal is one 
that puts us on the path for continuous improvement.

Standing on Shoulders of Giants
1. Identify a "giant", not a chupchick. Intuition will guide you - important enough subject for you.

2. Identify the enormity of the area not addressed by the giant. Reality gives the signals that so much more can be done. You are aiming for a broader, not a more confined, area than what was addressed by the giant.

3. Get on the giant's shoulders. Gain the historical perspective - understand the giant's solution better than he did.

4. Identify the conceptual difference between the reality that was improved so dramatically by the giant and the area untouched.

5. Identify the wrong assumption.

6. Conduct the full analysis to determine the core problem, solution

every problem is a conflict, and that conflicts arise because we create them by believing at least one erroneous assumption. Thus, simply by thinking about the assumptions that enforce the existence of a conflict, we should be able to resolve any conflict by evaporating it with the power of our thinking.

Identify the type of problem (there are variations in the way the diagrams are constructed for different types of problems.)
Write a storyline of this problem in a factual, objective way, even if the problem causes an emotional upset.
Build the Cloud (see example guides below).
Check the logical statements of the Cloud and make necessary corrections and upgrades.
Surface the assumptions behind the logical connections to find the one that is supporting the conflict.[note 4]
Construct your solution and check it for win-win.
Communicate the solution to the people involved in dealing with the problem.

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