Applying Theory of Constraints to our packaging process

In “Theory of Constraints, for ecommerce businesses,” my previous post, I discussed the fundamentals of Theory of Constraints, a system of continuous improvement developed by Dr. Eliyahu Goldratt, a physicist and management consultant. In this article I will explain how we implemented a few of the elements of this system in my ecommerce business, overstockArt.com, which sells hand-painted art reproductions.

We take unassembled inventory. In addition, we carry a pick-and-pack assembly operation that we call our production department. Just like the majority of ecommerce companies, our clients expect us to send the goods (art, in our case) within 24 to 48 hours, which means production can not have a backlog. Everything needs to go out the same day or another. Therefore, though our manufacturing team can easily meet up with the average quantity of orders daily, our challenge was staffing low and higher order quantity on a daily and weekly basis. Unlike other companies, which mainly see seasonal fluctuations, for us the change in volume occurs every day.

Many companies utilize part time workers or pay overtime to existing employees to compensate for the changes. We had been guilty of both of these previously. Sooner or later, we determined that we wanted more skilled employees, which meant having full time workers. We also determined that we must have surplus capacity, which meant we wouldn’t measure efficiencies by metrics like manufacturing per man-hour or the output of every station. Rather, we measured total manufacturing output. Since we don’t build finished goods inventory beforehand, the outcome of our manufacturing department is true throughput to the client.

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We chose to begin applying Theory of Constraints — TOC — together with the manufacturing department because it was much easier for us to recognize a physical restriction than it would be to determine other kinds of bottlenecks. Using the focusing steps and charting our production process, we identified our packing area as the restriction. It was convenient since it is in the end of the line. This was the initial step in identifying the restriction. The following two steps were to choose how to exploit the restriction, and then weak everything to this choice.

There are two methods you can exploit a restriction with no additional investment and without significant work.

  1. Construct a buffer before the constraint so that it is never out of work.
  2. Have both management and employees educated to the fact that this is our constraint and this is what controls our throughput so that as a section our manufacturing team is focused on ensuring this area is always operational.

The next step is to elevate the restriction. At this point we were looking for greater packaging choices. We were searching for a procedure that will continue to keep our artwork safe — maybe even decrease the amount of damages we get from FedEx, our main carrier — and boost the speed of our packing procedure. After we identified a solution, the restriction was raised without further cost and throughput was increased significantly.

At this point we proceeded to step five — determining if the restriction was broken. If it had been broken, we began the whole process again.

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Overall results have been an increase of 50 percent in throughput with no increase to operational cost. The method used to determine core issues or constraints is in the core of the Theory of Constraints.

Where do you think that your operation lags behind? Utilize the five focusing steps to rein in constraints, improve throughput, and increase endurance.

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