Resource Optimization – Don’t Make the 100% Efficiency Mistake

Do you think getting everything in your system/organization to work at 100% is the right way to create maximum efficiency? Dr. Giovanni Siepe explains how we can learn from management science (and other sources) that there is a better way.

Not too long ago I was reading about “Sukkot”, a holiday celebrated at the end of the Jewish year, and a particular phrase caught my attention:
“But remember that a cup that is filled has no room for anything else in it”.

It is remarkable how you can find elements of knowledge in all sort of fields connected with what you do in your everyday life. From the bible we can see a connection with management. The idea that if “a cup is filled”, i.e. there is no room for anything else inside it, carries embedded in it the very concept of “buffer” and protection capacity. Let’s take a look.

Managing finite resources

Managing an organization is about managing finite resources: people, machines, money, etc. The ‘conventional’ way to do that is to extract and exploit the maximum capacity from every element of the system. People may commonly believe that by doing this, they are achieving maximum efficiency. In other words, the reasoning is that if I can make machines work 100% of the time, I will achieve the maximum for the system.

However, this is far from the truth, and  at least for two reasons:

1. the interdependencies among the different parts of the system (interactions behave non-linearly)
2. variation that affects all processes

Interactions: 1 + 1 does not equal 2

As a matter of fact, for a system made of two parts, “A” and “B”, the result of the interaction gives:

Yield (system) ≠ Yield (A) + Yield(B)

Actually, the effect of the interaction can go both ways, and the exact equation is:

Yield (system) = Yield (A) + Yield(B) + Yield (AB)

If the parts of the system interact in a “constructive” way, then the system will benefit from an “added value”; if the interaction is not “constructive”, the system will experience a negative effect.

Variation and constraints

The second point is variation.
If we take into account variation, which is intrinsic to any human activity (no process can be repeated in an identical manner), then synchronization becomes an issue and even obtaining 100% efficiency from every machine becomes a fantasy.

So how can we manage our resources in a system usefully? The right way to manage the system is through a very precise process:

• identify the constraint of the system -this is the element of the system that limits its ability to generate value, and can be also chosen strategically;
• exploit the constraint; make sure the constraint works all the time; every second lost at the constraint, is throughput (money in a for-profit environment) lost forever;
• subordinate to the constraint; the entire system has to be built and designed in order to allow the constraint to work properly.

Exploitation and subordination are two steps that are achieved through a proper mechanism of protection of the constraint. We protect the constraint with a buffer, and we monitor the consumption of the buffer statistically using Statistical Process Control (SPC).

Giving some slack

This is where resource optimization becomes counterintuitive for those accustomed to a conventional approach. We make sure that every resource (machine) around the constraint is not working at its maximum. This is because we can afford some idle time for “non-constraint” resources. It is the constraint, and the constraint alone, that dictates the pace at which the system generates value. We always need to have extra capacity to protect the constraint from the intrinsic variation that will inevitably affect the system.

If a “cup” is filled, there is no room for anything else inside it. If we acknowledge the existence of variation, and understand interdependencies, we have to make sure to have enough “room” to protect the constraint and make it work as close to its 100% as possible. This is a much more effective way of  “optimizing”.

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About the Author

Angela Montgomery Ph.D. is Partner and Co-founder of Intelligent Management and author of the business novel+ website  The Human Constraint. She is co-author with Dr. Domenico Lepore, founder, and Dr. Giovanni Siepe of  ‘Quality, Involvement, Flow: The Systemic Organization’  from CRC Press, New York.