The Three Bucket Theory --DickesonSeptember 2002
Take the Wip, for instance. When the materials are committed to a job and move out of Raw inventory, time starts to run on work in process. The Wip clock stops when deliverable product is completed. Wip time is a true measure of production JIT—just in time.
Taichi Ohno taught us to use yellow Kanban cards to "pull" materials through production rather than "pushing" them up into queues. Eli Goldratt teaches us that the rate of production conversion of Raw to Fig is the key to success. In effect, they're both saying that the DMOH of the Wip measures the rate of conversion—the productivity of the enterprise.
We've been speaking of global Wip—total work in process by week. Let's drill down in the data for a local view—by job. Can you tell me the Wip dwell time on a job-by-job basis for your plant? No? I doubt that any Management Information System supplier is providing this. We've never demanded it.
What would we learn? We'd discover more detail of throughput constraint properties, wouldn't we? What would we do about it? What actions would we take? Think about it. Want continuous improvement of productivity? Isn't this a prime place to look? Forget that job cost stuff and look at the Wip lag in days or hours, both locally and globally.
There's an elephant in your conference room. Look at your Fig DMOH. The minute deliverable product is completed it leaves the Wip and the finished goods inventory clock begins ticking. It ticks in Fig until the sale is booked and it enters the A/R (Accounts Receivable) classification. What Fig time says is: "This is how long it's taking us to get invoices for our jobs into e-mail." We're measuring a liquidity constraint. (Don't do this unless you're lying down and someone who knows CPR is standing by.) Again, view the days or hours globally for the enterprise and drill down locally by job.
Okay. What are the invoicing constraints? What's keeping us from cutting the invoice in the same procedure as the packing slip? Is it because the controller insists on seeing the completed job cost file before preparing the invoice? Completing that job cost file requires being sure that invoices from outside vendors are in and tally with the estimates, purchase orders and receiving slips, doesn't it? It requires that every AA be in the file and listed. A dear friend in printing said that he'd struggled a lifetime trying to accelerate invoices and he'd succeeded in reducing the lag to 14 business days!
I'm saying that Fig lag is an UNACCEPTABLE constraint on cash flow. If you measure and report the Fig weekly it will eventually go away due to the nausea of seeing useless cash waste every Monday morning. But, your A/R inventory may increase if you don't accelerate your collection process!
We haven't said anything about raw materials inventory. Most of us think that's what Just In Time is about. That's only partly right. We want to keep our DMOH for raw down by receiving materials as near scheduled production time as possible. But we put in some safety buffers for raw materials that are too extended. Like wearing both a belt and suspenders to hold up our Dockers. There's both a global and local view of Raw DMOH. The local drill down is by lot and type. How many days or hours has that lot been on hand?
Accounts Receivable inventory? Yes, it's an inventory of claims and is the fourth hurdle between cash out and cash in. Compute DSOH (Days Sales On Hand) by dividing the receivables balance by the week's sales. Multiply by seven for a week.
What can I say about A/R that hasn't been said—ad nauseum. It's global and local DSOH analysis once again. Measure and manage. Collection lag can kill—it has and it does.
All this is just for the bean counters, you say? No way. The four inventories and Days On Hand perceivers are for enterprise managers!
—Roger V. Dickeson
About the Author
Roger Dickeson is a printing productivity consultant based in Tucson, AZ. He can be reached by e-mail at email@example.com, by fax at (520) 903-2295, or on the Web at http://www.prem-associates.com.