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FALLLaunching out with his freshly learned OPT techniquesat new clients', Ernest Heptonstall is the hero ofthe hour - but only the hour. He recounts how hebecomes the scapegoat for the failure of throughputaccounting at the same company.

Ifirst came across OPT in 1987 at

Biggadykes Clogg Mill when MasterJonathan gave me the seminal bookThe Gaol by Silvermouse and

Stroke. I found it boring but our Maggieread the book avidly and particularly en-joyed the love interest. Master Jonathanhad said it were the latest thinking inmanufacturing management, but Bigga-dykes became so bogged down in imple-menting MRP that we never properlyinvestigated it. I next came across it at aWDH 'Campus', where I attended a weeklong course on OPT.

The basic principlesIt were a real eye opener. Most of my

MBA colleagues said that the principleswere obvious and queried whether it con-flicted with MRP II and JIT. (This was thetime of the great MRP II versus JIT de-bate.) But those of us with experience ofworking as production controllers, par-ticularly in processing industries, ratherthan assembly, recognised that its prin-ciples confirmed what a number of ushad intuitively been doing.

At Biggadykes we had always ac-cepted orders and quoted deliveries onthe basis of the capacity available on thekey machines, the moulders. Mr Bigga-dyke used the motto, "Moulders humm-ing keeps the money running". If youstopped to think, it were obvious that to

maximise capacity you needed to opti-mise throughput on the bottleneck ma-chine. To do this you needed to keep abuffer stock in front of it and to ensurethat all material entering the bottleneckwas of the correct quality. Clearly therewas no point issuing material earlier thanwas necessary to have it at the bottle-neck at its planned time.

These ideas are obvious, but this wasthe first time anyone had said them. Italso resolved some of my problems withJIT. JIT was developed for assemblyplants; OPT was most appropriate forprocessing plants.

The WDH approachOn the final day of the course, it be-

came clear what WDH's real interest inOPT was. It was explained by JeremyWhiteside, my consultancy partner, likethis:

"The most exciting development fromOPT is Throughput Accounting.Throughput Accounting recognises thatto maximise profits, a company has tomaximise its recovery per hour ofthroughput on its bottleneck machine.Stock has little value other than materialcontent and thus it is wrong to hold it atfull cost but should be held at only mar-ginal cost. Now I hope you all understandthat this is leading edge thinking and hasled to the development of the WDHThroughput Accounting System which Ishall now explain to you ..."

In the tea break, I excitedly discussedthese new breakthroughs in costing withJoe Brown, a consultant of many yearsexperience.

"Hang on, Ernie," he said, "Just thinkabout it. How did your clogg firm in York-shire do its stock valuation every

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month?""Well we just evaluated the amount of

raw wood which had been used to makethe cloggs in work-in-progress and fin-ished stock and valued it at that," I re-plied.

"Exactly," Joe continued, "You usedThroughput Accounting the same asevery other tinpot firm does that has nomore sophistication. Don't you see thatthis is the beauty of it all for our account-ing colleagues. When they go into a firmlike Biggadykes Cloggs they sneer andsay, 'how unsophisticated' and land a jobto introduce standard costing with fullabsorption recovery. When they go intoa slightly more sophisticated companythat already has standard costing theysay, 'Haven't you heard of the latest -Throughput Accounting?' and land an-other job returning the company to thesystems it had ten years previously.They can't lose."

I have to admit that I found Joe'scynicism rather worrying, and I couldn'tfault his logic, but I was still convinced ofthe usefulness of OPT.

OPT In actionMy opportunity to try it out came a few

weeks later when Rodney Hamilton-Smythe introduce me into my next as-signment which was to act as the locumDirector of Material Supply at a manufac-turer of large roll grinding machines andvertical lathes which had risen from theashes of previous failure so regularly thatit was now called Phoenix MachineTools.

The previous incumbent had beensacked at Rodney's instigation as beingineffectual.

The terms of reference which he gaveme were straight forward, "They stillaren't making any money but they havemore orders than they can cope with andoverdues are continually climbing. Yourjob is to get it under control and reduceoverdues. Because they use the Man-Key MRP II system, I immediatelythought of your expertise when this as-signment came up."

The factory consisted of two basicsections, the machine shop and an areaassembling the complete machine frombought in items and parts made in themachine shop. As usual in an assemblyenvironment all the complaints were ofpart shortages.

I set to work doing all the obviousactions such as beefing up expediting,

/ have to admitthat I found Joe'scynicism ratherworrying, and 1

couldn't fault his logic,but I was still convinced

of the usefulnessof OPT.

ensuring that works orders were put onquickly and getting the bills of materialaccurate. It all had an effect and outputjumped but I appeared to have trans-ferred the problem back to the machineshop.

In the machine shop I insisted that the'work-to' lists were followed and used thecapacity planning module of ManKey toidentify bottlenecks. I subcontracted ex-cess load but this was only suitable forthe smaller items. The large componentscould not be subcontracted and the bot-tlenecks seemed to keep movingaround.

However I obtained copies of the rout-ings and it became obvious that the con-straint was the borer.

As a result I applied all the ideas fromOPT: I transferred everything possibleoff the borer to alternative routings, Iinsisted that there were always somecomponents in front of the machineawaiting machining and that the machinewas always staffed by alternative oper-ators during the regular operators' ab-sences.

Everyone thought I was wrong andwould create chaos. But it did work!Overdues continued to fall until wereached the position that we had to trans-fer work back into the machine shop fromsubcontract to keep busy.

Ernest triumphsAs you can imagine my reputation in

Phoenix rose. I decided that because theOPT principles had worked so well Iwould push for Throughput Accountingto be implemented. I explained to themanaging director, Bill Utterlidge, whooverrode his very traditional financial di-rector with the words, "Look how well MrHeptonstall has improved output usingOPT. I'm sure that his Throughput Ac-counting will be equally successful inimproving financial control."

I felt that I had finally cracked it as aconsultant. Rodney complimented meon my 'selling on' of a product outside mydiscipline when he took over the man-agement of the new assignment. My starwas in the ascent at WDH.

OPT's unexpected resultsThree months later Jeremy Whiteside

called me into his office."Ernest, I think that it is only right that

I should tell you that I do not think youhave a future with WDH. You made themost dreadful mess of Phoenix MachineTools. It has now become a TPM {Edi-tor's Note: troublesome practice matter).As a result of the Throughput Accountingassignment that you sold, we have lostthe audit and they are refusing to pay ourbill and threatening to sue us. Rodneytells me that you sold the work despitehis insisting that you didn't."

"What went wrong?" I stuttered."Because Throughput Accounting

does not put overhead absorption intostock, profitability depends strongly onhow many machines you sell everymonth. That's OK if you're selling thou-sands each month, but Phoenix wereselling only between one and three. Dur-ing the first three months using Through-put Accounting the monthly profitabilityswung between £1 million loss and£500 000 profit. By the end of the year,sales had fallen and some machines hadhad to be put into stock. Using Through-put Accounting, losses for the year were£4.5 million. Using conventional ac-counting losses were £200 000. Theyhave thrown Throughput Accounting out,along with their managing director andour bills. It's all your fault, Ernest." EQ

Ernest Heptonstall was formerly a con-sultant with Wrigglesworth Dunstonesand Hepplewhite (WDH), the interna-tional accountants and managementconsultants.

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WORKINGITOUTTOGETHERThe gulf between receiving good advice and beingable to act on it is never better illustrated than in industrialconsultancy. Keith Nichols argues thatmanufacturing companies should demand somethingmore from their consultants.

TI he consultants came; they saw;they conquered our fears; theyproduced lengthy, impressivereports; and then they departed.

Now it is the board's responsibility to pulltogether the threads and implement therecommendations. And the reports arestill gathering dust on the shelf."

How often have you heard commentssuch as these from your industry peers?Or perhaps your company is one of thosewho has not yet achieved the hoped forreturn on your investment in consult-ancy? If so, you probably feel a senseof frustration, in knowing that you havepaid for and received some sound busi-ness advice, but have not yet translatedit into management actions that will havea tangible impact on your business.

Times are hard, the market is tough,and that is concentrating managementminds. It is time for the consultancy pro-fession and industry to work more closelytogether, to deliver a service that meetsmanufacturers' demands for tangible,

measurable benefits.It is not the quality of consultant ser-

vice that is the issue, so much as itslimited role. Often, it stops at advice,leaving the client to implement that ad-vice. Consultants are rarely cheap:therefore whatever recommendationsthey come up with should be im-plemented. There is no lack of oppor-tunity to achieve benefits - so why docompanies so often fail to do so?

When partnership paysMuch of the problem is caused by an

apparent lack of commitment from bothsides to see the job through. In the earlystages, companies are happy to let con-sultants do the running round to come upwith the reports that provide the clues toimprovement. The consultant's work isthen considered to be finished, and thecompany takes on the responsibility toimplement and achieve the potential re-sults.

This is where performance improve-

Keith Nichols

ment programmes can fall between thecracks. There is insufficient commitmentand involvement from both partiesthroughout the process. As a result, theconsultancy payment bears no relation-ship to the risk that the results may neverbe achieved.

So what is the solution? The answerlies in an alternative approach: one inwhich the consultancy enters an assign-ment, from the outset, as a partner inachieving results. It works out the oppor-tunities together with its client, whilstbringing clear value to the work. For thatvalue, the client pays a percentage of thetotal fee upfront - with the remainder tiedto the achievement of results, measuredin better business performance.

Clearly, this approach necessitates ashared responsibility to make the con-sultancy recommendations work. Whyshould companies continue to take allthe risks, particularly when the recom-mendations are not implementable?

How to get morefrom your consultant

How, then, does a performance im-provement programme based on this ap-proach work in practice? Typically theconsultants assigned to the client willspend many days understanding a com-pany's problems, weaknesses, and op-portunities. They will have an immenseadvantage in being able to spend timelooking at the company from a very un-

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attached viewpoint. They will be able tostudy cross-functional boundaries, andhow these are contributing towards theinefficiencies of the operation as awhole. In the process they will absorbmany facts and will develop their ownunderstanding in figuring out whatcourse of action their client should take.

The client company pays for this pro-cess - but is more closely involved.There is a high level of customer partici-pation, in which the consultancy takes itsclients through the valuable 'relearning'stage. The company's managementgains a valuable insight into its own or-ganisation, and shares in an under-standing of the options in moving for-ward. They are given the opportunity todebate and explore the opportunities,and the rationale for their eventual rec-ommendation. And the consultancy pro-vides the facilitation, the learning pro-cess, and the wider industry expertise, toensure that the customer is fullyequipped and better off as a result of theirreport.

When time is moneySome busy readers may now be

thinking "this approach looks promising,but can I afford the management time topursue it?" I hope that I have conveyedthe high level of return that can beachieved on that time invested: but it alsohelps if your chosen consultant can 'fast

track' the programme by using scientificshort cuts - techniques that enable himto identify opportunities for improvementmore quickly.

In my experience, the best of these(and it should be used more widely thanat present) is operational (or industry)benchmarking. The consultancy investsin building a database of benchmarkinginformation that represents a state of theindustry. This is then used to comparethe client's operational benchmarksagainst a profile of the industry. Theconsultant can then gauge whether spe-cific parts and pressure points of theclient's operation are close to 'best inclass', or at the other end of the scale.Armed with this knowledge, the consult-ant can then more rapidly identify wherethe client company can gain most fromimprovement, as well as being able tomeasure its relative competitive position-ing in its target markets - which mayinclude overseas as well as UK markets.Both local and global perspectives arepossible.

One often useful extension of bench-marking is to compare a client's oper-ational benchmarks against other indus-tries. This is a valid exercise when, forexample, particular industries have pion-eered or introduced leading methodsand ways of working and, as a result,have put in some good performances -which then show up in industry bench-

marks. Frequently, these methods andways of working are transferable be-tween industries and companies. Agood consultant should be able to ident-ify any potential for 'cross-industry fertili-sation' - but benchmarking will help himto do so more quickly, by providing aninvaluable analysis support tool.

Better, cheaper, fasterConcurrent engineering techniques,

just-in-time manufacturing, TQM, andthe like are often translated into businessterms such as, 'better, cheaper, faster'.And these are terms that, in my view,manufacturing industry should applywhen choosing and using consultants.

By 'better', I mean an approach toconsultancy that demands clear,measurable recommendations and ashared commitment to ensure that theylead to a successful result. By 'cheaper',I mean not a consultancy 'price war' thatdamages quality of service, but a pro-cess which ensures that the client sharesin the full value of the consultant's rec-ommendations, through partnership -value for money. And by faster', I meanthe use of techniques such as bench-marking, which ensure speedier identifi-cation of improvement opportunities. EQFor more information enter ME41

Keith Nichols is the director of EDS UKManufacturing Consultancy.

MANUFACTURING ENGINEER JULY 1992