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Implementing Process Of On Going Improvement (POOGI) Part 3 - Introduction to Resource Utilization

During organization/system improvement you may face a dilemma of Resource Utilization. Common understanding of Resource utilization is that you should use resources to their fullest capacity, some managers set special policy such as 100% Utilization across organization for every single resource. Before I go ahead and say how stupid is such decision, I would like to first define Resource Utilization and Resource Activation. These two terminology are not synonym.

Utilizing a resource, as Dr. Goldratt defines, means making use of a resource in a way that moves the system toward the goal. (Check this Blog) Activating a resource is like pressing the ON switch of a machine, it starts no matter if there is any benefit that can be gained from the work it is doing. For example, activating a non-bottleneck resource to its maximum is an act of maximum stupidity, as described by Dr. Goldratt in the Goal business novel.

Therefore, utilization of 100%, or 90% or any other number is meaningless unle…

Implementing Process Of On Going Improvement (POOGI) Part 2 - Introduction to Bottleneck

At the first part of Implementing POOGI , I described that in order to balance a system, market demand should not be matched to resource capacity because of the relationship of two phenomenons: Dependent Events and Statistical Fluctuation. However, you should balance the capacity of the production "flow" to market demand. In this case, some resources may have idle time and some may turn into system constraint. In fact, the capacity of the flow should be little bit less than the demand, so if demand goes down you do not loose money.

In balancing the flow, you may realize that some resource have less capacity than market demand and are impacting the entire flow. These resources are bottlenecks or to put it in a better term,system constraints. So, bottleneck is a resource whose capacity is equal to or less than demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it.

Here are couple of facts on bottleneck / Constraint:

B…

Implementing Process Of On Going Improvement (POOGI) Part 1 - Introduction To Goal, Throughput Accounting and Balanced System

What is the Goal of the business?

This is the first question to answer in order to establish a process of on going improvement (POOGI). The goal must be clear, simple and measurable, and it must be understood by all players in the organization, who are involve somehow in improving the system. A general goal could be something like this "To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow." as told by Alex to his team members in The Goal novel written by Dr. Eliyahu M. Goldratt. Therefore, any action that moves the organization toward this goal is productive and any action that takes the organization away from it is non-productive.

Actually, such a goal can be applied to many for profit organizations. Let's take an Advertising Agency as an example. For such an agency Customer Satisfaction is critical but it can not be the main goal. In fact, main goal (similar to the goal above) is dependent…