Operations Research Tools (Stage 3: Re-allocation of resources)

You’ve recognized that your company is suffering from a disadvantaged business or operational model. Learn how to properly re-allocate your resources.
Operations Research Tools (Stage 3: Re-allocation of resources) - Articles


Based upon the work you've already done, you have a good idea of where you're constrained. The objective in re-allocating your resources is to relieve those constraints; that is, give more resources to that area so that it no longer limits your new business model. How do you do that under tight cash conditions? Aren't you robbing from Peter to pay Paul if you move capital, labor, or management from one area of your operation (which you already consider to be as "lean" as possible?)

Again, we return to the lessons we learned from Elihayu M. Goldratt in The Goal. Since the true constraints of your operation dictate the actual production (and profits), any resources dedicated to non-constraints are non-critical unless they become constraints themselves after the re-allocation. You can deal with them at that time. But for now, recognize your non-critical assets, expenses, managers, and workers, and re-allocate them to work on your newly defined constraints. For most operations, that doesn't mean eliminating a product line or work center, it merely means reducing the resources of these non-critical areas to more closely balance the flow of work (and dollars) through your production system. You'll know if you're still out of balance; the process bottlenecks will pop up in other places. Even so, productivity may still increase, because you've relieved the most critical constraint (the biggest bottleneck), and your balancing act will continue to yield productivity improvements.

The key to successful re-allocation and balancing is having a proper system of process metrics in place. This is where we sometimes tend to get over-analytical until we can't see the forest for the trees. Efficiency measures such as % yield, overrun, machine center efficiency, cost/unit, etc. are all famous measures that provide some managerial information but can greatly mis-direct a well-meaning managerial initiative. The mistake that many of our largest corporations have made is that they took their eye off the fundamentals while chasing envisioned markets, fancy technology, or mystic accounting and acquisition strategies. We must remember that profit is the ultimate measure…and yet, profit is relative to the market, so our analysis must stay relative to the market by normalizing our profit and productivity measures through specific, specialized indices, or we must focus on measures that drive positive effects on profit but are independent of market movements. There are good, proven techniques for both of these tactics, and we'll go into more detail on them in future TechNotes and at our Penn State Wood Products Management short courses. These techniques take some quantitative digestion that is best covered in a hands-on short course…if you're interested, watch for our upcoming program announcements.

Once an accurate and meaningful process metric system has been developed and implemented, care must be taken to properly sample the results. Process sampling is the foundation of the entire Total Quality Management movement, which was first described in this country in the 1960's and 1970's by academic statisticians such as George E. P. Box, and later popularized by practitioners such as W. Edwards Deming. Central to the theme of these two productivity experts is that a company and its managers must understand what process variation is and how it impacts their operating results, the outcomes of their management experiments, and the thinking of their employees. Many American companies have grappled with the related technique of statistical process control (SPC), usually to try to reduce defects or better control a machine center. We have some top-notch experts in this area at Penn State, such as Enrique del Castillo, who will be helping us develop specialized control strategies for wood products processes as we develop our process control line of research. But there is real value in these techniques when you use them to better manage your business on a higher level as well. That too will have to be another TechNote, as this one is getting long already.

As the re-allocation projects begin to take shape, you'll want to properly manage those projects. There are time-tested project management techniques, such as PERT (Program Evaluation and Review Technique) and CPM (Critical Path Method) which have been used in wide variety of projects, such as

  • Research and development of new products and processes
  • Facility construction
  • Maintenance of large and complex equipment
  • Design and installation of new systems

In projects of this type, activities are never strictly linear, but tend to occur dynamically and dependent on other events. The complexity of the interactions has doomed many well-conceived projects to long-term failure because of concessions that had to be made to deal with last-minute problems that popped up because of poor execution and management of the project. PERT and CPM help you avoid these pitfalls and deliver projects on time and on budget, which is necessary for the project to deliver its anticipated pro forma return on investment.

Also, there are tools that help you evaluate your re-allocation project prior to and during the implementation. One such tool that you may consider are computer modeling programs that help you determine the optimal layout or expansion of your facility or an individual process. Here again, Penn State expert resources are available, as Jose Ventura, a successful researcher and consultant in process design and optimization here at Penn State, has agreed to extend his research to the wood products industry when we find the right opportunities.

Finally, to wrap up this series, I must comment on the value of your workforce in the whole effort to re-engineer your company. All of the tools we've discussed in this series draw on the experience of your people. Any productivity tool, consulting analysis, or software program that is marketed as a solution independent of your company's existing base of knowledge is highly unlikely to bring you any true value. All these tools should be looked at as things to fine-tune your efforts, much as a calculator sharpens up the balancing of your bankbook. True, they do deliver a method of dealing with incredible complexity, and they do it well when implemented as a part of a team effort within your organization. But their value depends on employee involvement and ownership of the tool and project. Because of this, any consideration you may give to using OR tools in managing your business should begin with a committed effort to train your employees on the project to be undertaken, using their input before finalizing project details, and defining beforehand the benefit to them of a successful project. In The Goal, the management team understood that it had three months to turn the plant around or it was going to be shut down. We hope that you're not facing such dire straits, but even so, your mission has got to be just as clear all the way through the ranks. If you make it so, your project will succeed, and you'll reap the profits for years to come.