Vedanta and Theory of Constraints

Dr. Eliyahu Goldratt, passed away on this date, three years ago. He was an honest scientist who said what he saw as reality.

Eli spent his entire adult life fighting to show that it is possible to make this world a better place. We must have the honesty to see reality as it is, we must have the courage to challenge assumptions, and above all, we must use the gift of thinking. Having applied these principles to various management fields, he created the Theory of Constraints (TOC). His concepts and teachings have expanded beyond management and are being used in healthcare, education, police work, counseling, government, agriculture and personal growth - and the list of the fields using TOC goes on and on. Dr. Goldratt's legacy is invaluable. 

To my mind, he was a Modern Rishi (a sage, seer), just like the Rishis who discovered Vedanta and propagated it through various means.

Vedanta (Veda + Anta) means culmination / end (anta) of knowledge (Veda).

The people, Rishis, who wrote our philosophical books – Upanishads, Vedas, Puranas, Ramayana, Mahabharata, Bhagwad Gita etc were actually scientists. Like any scientist they got into the journey of discovering cause and effect relationships explaining the visible phenomena. Unlike natural scientists, who focused their attention on external phenomena, these Rishis focused on human experience.

VedantaTreatise is a digestible version of their discoveries of “Laws of nature” governing human experience.

Each one of us is a unique combination of three qualities:

1. Sattwa - goodness, truthfulness, thus illumination
2. Rajas - passion and desire
3. Tamas - indifference, inertia, ignorance and thus, darkness

A human being in whom tamas predominates is surrounded by a cloak of darkness because typically he is lazy, self-centered, deluded, his discordant thoughts and actions bringing suffering to himself and others.

A person in whom rajas is dominant is cloaked in an aura clouded with his passions and desires and, although he might be clever, creative, even heroic at times, he will be held back from advancement if he is centered too much on himself, on possessions and personal gains.

One in whom sattva predominates is surrounded by a radiant halo that reflects his virtuous, wise, and compassionate nature. His dedication to the welfare of others brings peace and stability to every situation. But even he, if he is too attached to what is noble, beautiful, and true, will be blocked from rising into higher realms. (Cf. Heinrich Zimmer, Philosophies of India, p. 231.)

As we are aware, our consciousness continually rises and falls through these levels and conditions. When asleep we are in the tamasic condition; when awake and active, in rajas; and when we are thinking and working for others, or wrapped in spiritual contemplation, we are in the sattvic state. However, these qualities seldom exist singly. Their interaction adds variety to our lives, not only creating challenges for us to meet but tending to balance, strengthen, and/or neutralize the influence that one or the other guna exerts. 

These qualities also apply to all beings throughout the cosmos, from the divine to the microcosmic.

What is the value and purpose of these intricate and interesting teachings?

They can help us understand the nature, movement, and function of our manifold being, and give us the incentive and tools by which we can improve our lives and hasten our evolution. By freeing ourselves from attachments and then by sublimating these qualities within our nature -- transforming tamas into tranquillity, rajas into compassionate action, and sattva into divine altruism -- we raise our focus of awareness from jagrat (Waking State) to svapna (Dreaming State) to sushupti (Deep Sleep State) and enter the realms of turiya, (The Fourth State).

However, this goal is not quickly attained. Obstacles arise. The hindrances of ignorance, egotism, and attachments test our resolve and hold us captive in this world of illusion, or Maya. But we can overcome. 

We can become one with "the Self which is free from sin, free from old age, from death and grief." Our whole nature will then be so spiritual that the worlds and desires we sought to attain will be ours to bless and uplift.

I find lot of parallels between Theory of Constraints and Vedanta especially the essence:

1. Global Thinking
2. Focus

The five focusing steps as per my understanding are:

TOC	Vedanta
1.    Identify the system constraint.	The ignorance of answer to the question “Who am I?” “The Real I.”
2.    Decide how to exploit the constraint.	Gain knowledge (Read and Contemplate on) of the “Laws of nature” which help in getting the true answer.
3.    Subordinate everything else to the above decision	Surrender in the application of the above laws and drop all smart decision making geared towards enhancing local optima.
4.    Elevate the system constraint	Get deeper and finer understanding of the “Laws of nature” by constant study, contemplation and application.
5.    Warning! If in any previous step a constraint is broken, go to step 1. Do not allow inertia to cause the next constraint.	The journey is to remove “Tamas” with “Rajas”, “Rajas” with “Satwa” and “Satwa with nothing”. Allow only the INTELLECT to be in control. MIND has a tendency to get comfortable and cause slip-back.

Learning Vedanta and TOC is a never ending joyous journey!

Do the numbers that you look to navigate your improvement journey give you the right picture?

The din about Management Accounting practices, especially those related to Product Cost Accounting, not helping at all the leaders / top managers as well as operational managers, has been around for quite some time.

Dr. Eliyahu Goldratt in his famous 1983 presentation at APICS proclaimed “Cost Accounting is enemy number one of Productivity”.

Tom Peters’ published an article in 1987 “The Accountants Are Letting Us Down” where he gave numerous examples how the Cost Accounting numbers instigate the operational and top managers to take decisions and actions which are detrimental to organisation’s medium term performance as well as long term endurance and survival.

Many decades before the above two, Henry Ford had stated his “common sense” principle – “We should not let Cost Accounting run the business!”

Even Taiichi Ohno, founding father of the Toyota Production System was quite alergic to cost accounting. He famously said – "It was not enough to chase out the cost accountants from the plants. The problem was to chase cost accounting from my people's minds"

If such has been the vehemence with which certain practices are being continuously denounced, what keeps these practices afloat? 

As per The American Institute of Certified Public Accountants, both IFRS and GAAP recommend direct production cost and overheads allocation to arrive at value of the inventory. http://wiki.ifrs.com/Inventories (See 13.8 and 13.9). This is precisely at the root cause of some of the distortions and incorrect decisions.

Still the "authority" recommends!

Completely beats me.

Can someone throw light on this?

Guru of common sense

Sixty-four years ago a giant was born. Eliyahu Moshe Goldratt (March 31, 1948 - June 11, 2011)

Dr. Eliyahu M. Goldratt spent his entire adult life fighting to show that it is possible to make this world a better place. We must have the honesty to see reality as it is, we must have the courage to challenge assumptions, and above all, we must use the gift of thinking. Having applied these principles to various management fields, he created the Theory of Constraints. His concepts and teachings have expanded beyond management and are being used in healthcare, education, counseling, government, agriculture and personal growth - to name a few fields using TOC. His legacy is invaluable.

On June 11th, 2011 at noon, Eli Goldratt passed away at his home in Israel in company of his family and close friends.

The strength and passion of Eli allowed him to spend his last days sharing and delivering his latest insights and breakthroughs to a group of people who have committed to transfer this knowledge to the TOC Community during the upcoming Theory of Constraints International Certification Organization Conference in New York.
It was Eli's last wish to take TOC to the next level - truly standing on the shoulders of the Giant he is.

"I smile and start to count on my fingers: One, people are good. Two, every conflict can be removed. Three, every situation, no matter how complex it initially looks, is exceedingly simple. Four, every situation can be substantially improved; even the sky is not the limit. Five, every person can reach a full life. Six, there is always a win-win solution. Shall I continue to count?"

The onus to carry forward the torch of clear thinking is on the followers. Hope we are adequate and live up to the responsibility. http://deepaknagar.blogspot.com/2008/12/three-habits-of-highly-effective-clear.html

Necessary but not sufficient redux – Inability of ERP vendors to think logically

Redux is an adjective meaning "brought back, restored"

The headline SAP's CEO Resigns: Delays in Launching Online Business Software Cited as One Reason for Downfall
brings the prophetic nature of Eliyahu Goldratt's novel "Necessary but not sufficient" into immediate relevance. Goldratt had written the novel to alert the ERP vendors, which were held as stock market darlings in the late nineties, against the bumpy road ahead. These companies were attracting a PE multiple of 100 mostly due to their growth track record rather than their profitability.

Goldratt had logically pointed out that ERP vendors had wrongly surmised that in order to make the customers happy they needed to keep on adding newer and newer features. This race for adding features to make the ERP application as comprehensive as possible was resulting a very complex software. In order to compete with each other, these vendors were releasing incomplete and bug-ridden application to the clients. This in turn was making it difficult to implement for the implementation partners and difficult to troubleshoot whenever bugs were reported by the clients and implementation partners, which was happening with more and more regularity. These facts had started appearing in reality and they pointed to the future where ERP vendors would stop growing at a scorching pace. Another factor that would be contributing to brakes on growth was that almost all of Fortune 1000 organizations had implemented one or the other ERP. These organizations had implemented ERP in their drive to replace the legacy software before the purported Y2K disaster. Moreover, the ERP application was in a position to provide visible bottom-line improvements by shrinking the time that information was travelling through the geographically diverse locations where such large organizations had presence. The sub-Fortune 1000 organizations, popularly known as SMEs (Small and Medium Enterprises), did not have legacy applications that needed to be replaced before Y2K and hence wanted to have a bottom-line orientation for their decisions.

ERP vendors did not have any story, other than jazzy features and catchy phrases like system optimization, or greater operations visibility, then. They still do not have a credible story of why any organization should implement ERP and go through a very painful change. The key benefits that ERP can bring to organizations - large, medium or small, but which ERP vendors and their implementation partners do not focus on are:

1. Reduction in lead-time
   
2. Increasing the reliability in delivery measured as On-time-in-full delivery %
   
3. Reduction in inventory
   
4. Increase in sales.
   
5. Reduction in material costs,
   
6. Reduction in the days of outstanding receivables
   

It seems the ERP vendors did not draw any lessons from that warning. They are still too dazzled by technical wizardry their techies can throw-up. The debate around on-premise and hosted (SAP V/s Netsuite) points towards this myopic vision.

Below is an extract from a flyer on SAP BusinessByDemand, a SAAS offering from SAP and why I find it so disappointing. The biggest disappointment is obsession with cost reduction rather than throughput (sales minus totally variable cost) increase.

Summary	My Comments
The SAP® Business ByDesign™ solution is an on-demand solution that comes with the extensive expertise and stability of SAP. This solution helps enhance growth, productivity, and collaboration and provides lower, more predictable IT costs. SAP experts fully manage, monitor, and maintain the solution in hosted data centers worldwide, freeing you to focus on growing your business.
Business Challenges
• Streamline business processes without incurring significant IT capital costs	Instead of highlighting the reduction in costs, it would be great to highlight how ERP can help "Exploit the Constraint" to squeeze out maximum throughput for the given investment in business. The transparency is required for internal stakeholders more than the external stakeholders to prevent accumulation of inertia and unnecessary inventory in any part of the organization. Rather than managing complexity, it should highlight how the whole thing can be simplified by ensuring WIN-WIN situation for all the components of Supply-Chain. This can be done by reporting the Throughput-Dollar-Days and Inventory-Dollar-Days for different players in the Supply-Chain.
• Meet increased requirements for transparency and reporting
• Preserve and expand customer base
• Manage logistical and supply chain complexity
• Improve employee productivity and collaboration
Key Features
• Financials and compliance – Generate trusted, up-to-date data that lets you perform financial reporting, make informed management decisions, and enable regulatory compliance • IT on demand – Reduce costs and increase control with a single, flexible business management solution	The most important feature should be managing operations using Simplified Drum-Buffer-Rope (S-DBR) for Production environment and Critical Chain Project Management (CCPM) for Project environment. The focus again should be on increasing throughput, creating conflict free environment within and outside the organization rather than shaving some imaginary costs.
• Customer service and support – Use customer relationship management processes to improve service with a new understanding of costs and profitability
• Workforce management – Enhance HR operations and maximize employee potential
• Procurement – Strengthen relationships with suppliers and streamline purchasing processes
• Supply chain – Cut costs and improve effectiveness of supplier relationships and logistics
Business Benefits
• Get up and running quickly with streamlined business processes and a 360-degree view of your business	Reduction in lead-time Increasing the reliability in delivery measured as On-time-in-full delivery % Reduction in inventory Increase in sales. Reduction in material costs, Reduction in the days of outstanding receivables
• Reduce IT costs with smooth, predictable deployment and operation as well as built-in service and support
• Enhance employee productivity and collaboration using a single solution interface, personalized business portals for each employee, and built-in user help
• Make better-informed decisions faster using analytics and dashboards
• Improve flexibility and reduce risk by adapting the business to changing

Goldratt’s Law of output from processes

“Theory of Constraints” should be restated as “Goldratt’s law of output from processes”.

I believe people tend to pay more attention to a “Law” than a “Theory” simply because they understand the consequences of not following or flouting the laws.

We have had many experiences of flouting the universal law of gravitation while learning to walk and suffering the falls. We have gulped water while learning to swim as we could not properly act on Archimedes’ Principle.

Here is my attempt at drafting the law.

“Goldratt’s law of output from processes states that

1. The process constituent with minimum capacity determines the maximum possible output from the process.
2. The statistical fluctuations of performance of the process constituents result in the negatives being accumulated and the positives being wasted.
3. Hence, unless proper mitigating actions are taken, the process output will always be significantly less than the maximum possible defined earlier.”

The five focusing steps would be the pragmatic corollary to the above law. These steps help us to minimize the influence of statistical fluctuations or the common and expected uncertainty that our collaborative work is always subjected to.

A project environment is a special case of process but the law still holds with careful translation.

I am sure there are better and wiser people who will be able to make it simple and more follow able.

The organizations have been routinely and willfully flouting this law with dire consequences. I am sure once the leaders and managers wake up to the universal and unmerciful applicability of this law, the rush to get things right would be bigger than the “Y2K” or the “Sarbanes Oxley” rush!!!

The term “Theory of Constraints” has been around for quite some time (since 1983 at least, more than a quarter of a century). It is yet to become mainstream and people still find it difficult to grasp the full impact and even more difficult to adopt, rather benefit from it in day to day running of organizations.

What is the difference between a scientific theory and a scientific law?

I looked up the Wikipedia to understand the difference between theory and law in science. This is what is mentioned there.

A theory, in the scientific sense of the word, is an analytic structure designed to explain a set of empirical observations. A scientific theory does two things:

1. it identifies this set of distinct observations as a class of phenomena, and

2. makes assertions about the underlying reality that brings about or affects this class.

Furthermore, it is written there…

Theories are abstract and conceptual, and to this end they are never considered right or wrong. Instead, they are supported or challenged by observations in the world. They are 'rigorously tentative', meaning that they are proposed as true but expected to satisfy careful examination to account for the possibility of faulty inference or incorrect observation. Sometimes theories are falsified, meaning that an explicit set of observations contradicts some fundamental assumption of the theory, but more often theories are revised to conform to new observations, by restricting the class of phenomena the theory applies to or changing the assertions made. Sometimes a theory is set aside by scholars because there is no way to examine its assertions analytically; these may continue on in the popular imagination until some means of examination is found which either refutes or lends credence to the theory.

At another place, the following is found…

To be a scientific theory, a theory must be tested a large number of times, by many different scientists in many different places, and must pass the test every time. It must be stated exactly, often using mathematics. And it must fit in with all of the other scientific theories. Science has many branches. Physics, chemistry, biology, geology, and astronomy are some of the major branches of science. A scientific theory in one branch of science must hold true in all of the other branches of science.

As regards, the scientific law following is mentioned:

A scientific law or scientific principle is a concise verbal or mathematical statement of a relation that expresses a fundamental principle of science, like Newton's law of universal gravitation. A scientific law must always apply under the same conditions, and implies a causal relationship between its elements. The law must be confirmed and broadly agreed upon through the process of inductive reasoning.

A law differs from a scientific theory in that it does not posit a mechanism or explanation of phenomena: it is merely a distillation of the results of repeated observation. As such, a law is limited in applicability to circumstances resembling those already observed, and is often found to be false when extrapolated.

Furthermore, under Physical Law it is written:

Several general properties of physical laws have been identified (see Davies (1992) and Feynman (1965) as noted, although each of the characterizations are not necessarily original to them. Physical laws are:

§ True, at least within their regime of validity. By definition, there have never been repeatable contradicting observations.

§ Universal. They appear to apply everywhere in the universe. (Davies, 1992:82)

§ Simple. They are typically expressed in terms of a single mathematical equation. (Davies)

§ Absolute. Nothing in the universe appears to affect them. (Davies, 1992:82)

§ Stable. Unchanged since first discovered (although they may have been shown to be approximations of more accurate laws—see "Laws as approximations" below),

§ Omnipotent. Everything in the universe apparently must comply with them (according to observations). (Davies, 1992:83)

§ Generally conservative of quantity. (Feynman, 1965:59)

§ Often expressions of existing homogeneities (symmetries) of space and time. (Feynman)

§ Typically theoretically reversible in time (if non-quantum), although time itself is irreversible. (Feynman)

§ Often those who understand the mathematics and concepts well enough to understand the essence of the

A "law" differs from hypotheses, theories, postulates, principles, etc., in that a law is an analytic statement, usually with an empirically determined constant. A theory may contain a set of laws, or a theory may be implied from an empirically determined law.

To my understanding, Goldratt’s law fits the bill and it should be declared to everyone who cares to run organizations.

Benefitting from Portal and Web 2.0 Technologies

We have to have clear and common-sense answers to following set of questions: (I am sure you would have come across these from Goldratt's "Necessary but not sufficient" business novel)

1. What is the power of the technology?
   
2. What is the limitation that the technology helps in diminishing?
   
3. What are the business rules that organizations have formed to function 'with the limitation'?
   
4. What are the new business rules that need to be formed so that the power of the technology can be directly applied to diminish the limitation?
   
5. How to cause the change from old ways of doing things to new ways of doing things?
   

The technology vendors focus on selling the 'Power' of the technology but the business users need to look at the same from the context of how this power helps them achieve their Goal of 'making more money now as well as in future'

The examples of MRP and ERP given by Goldratt could help us in thinking through.

	Question	MRP	ERP	Portal / Web2.0
	What is the power of the technology?	Completing dependent calculations in a jiffy	Store and retrieve enormous amount of data quickly	Display and organize data and information on demand Power to individual to have a say
	What is the limitation that the technology helps in diminishing?	Inability to create and modify the shop-floor production schedule as frequently as possible as manually preparing the schedule was very laborious	Inability to guide managers and workers to take 'local decisions' based on a global picture.	Individuals have to depend on their own limited visibility of the system, selective memory clouded by prejudices and limited experience to arrive at the view on health of the overall system, role played by different players and the next best action for the self interest and interest of the overall system.
	What are the business rules that organizations have formed to function 'with the limitation'?	Create the schedule on a monthly basis.	Create common-sense business rules for local optima. E.g. optimum batch size, inventory re-order levels, evaluate the machine and shop-floor worker by utilization / efficiency, product costing as a basis for deciding a sale etc, in short Cost Accounting based measures	Promote specialization in job roles; give weightage to 'marquee qualification', 'experience' and 'eloquent references' for deciding on awarding posts of importance in the organization. Promote hierarchical organization with power to decide, reward and punish concentrated in the hands of few. Promote competition amongst organizations even when they are part of the same value chain.
	What are the new business rules that need to be formed so that the power of the technology can be directly applied to diminish the limitation?	Create the schedule on a daily or bi-weekly basis.	Throughput accounting and basing local decisions on the primary criteria of impact on the system throughput	One thing is very clear; this will lead to SIMPLE ORGANISATIONs. To my mind it will be on the lines of Toyota Productions System for information processing especially from the Goals and Long Term Philosophy point of view.
	How to cause the change from old ways of doing things to new ways of doing things?	Point out the ridiculousness of not utilizing the power.	Educating everyone concerned on systems thinking with effect-cause-effect mode, changing the measurement system, creating incentives which promote increasing throughput rather than reducing cost.	Organisations will not on their own change to the new ways of doing things. It will be through a process of survival of the fittest that the organizations who adopt this will survive in the long run while the others who sit on the fence or adopt this half heartedly will be forced to close down as we are witnessing in the Automotive Crisis in the US