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The Case for a Throughput Operating Strategy

By Robert E. Fox and Reza M. Pirasteh | N/A 2010 | 5 | 10
Improvement efforts come and go. They are introduced with great fanfare, shine brightly for a while, and then gradually fade-only to be replaced by new and supposedly better methods. The cost-reduction efforts of 50 years ago were followed by materials requirement planning-which morphed into manufacturing resources planning-and enterprise resources planning. There was the era of robotics fever and lightless plants. Total quality management and business process reengineering also were pursued with great vigor. 

The key question we should try to answer is why . Why have improvement efforts failed to deliver desired results? And will the current improvement trio-lean, six sigma, and theory of constraints (TOC)-meet the same fate? In seeking an answer to these questions, let's examine two systems that changed the economics of the world: Ford's process for producing and selling the Model T and the Toyota Production System.

Henry Ford's goal was extraordinarily ambitious. He wanted to produce a reliable, dependable automobile that the common man could afford. Between 1909 and 1927, he produced and sold 17 million Model Ts while driving the price down from $970 to $290-and that does not take into account inflation. The inputs to Ford's system included raw materials such as iron ore for metal parts, silicates for glass, and textiles for fabrics. The flow of materials eventually became so seamless that it represented a smooth, fast-moving river in which there were no meandering currents, dams, or rapids.

In addition to developing a more efficient method of producing automobiles, Ford devised a way to greatly increase demand for his product. At one point, he more than doubled the wage of his workforce to $5 a day, while reducing the workday from nine to eight hours. This wage increase enabled his workers to purchase the product they produced; they simply needed to save their wage increases for about a year. Other companies were forced to pay a competitive wage in order to retain good workers-again increasing the number of customers for Ford's Model T. In fact, Ford claimed that, every time he reduced the price of the Model T by $1, he created another 1,000 buyers.

Some have minimized Ford's achievement by arguing, "You could get Model T in any color you wanted, as long as it was black." The color actually was midnight blue, but the point is valid. Ford built his river system to produce one product in one color-no variations or options were available. 

When Taiichi Ohno came on the scene, after World War II, he built upon Ford's ideas in order to create a more advanced system that would work for multiple products. The result was the Toyota Production System. At the time, most improvement efforts focused on local areas, specific activities, departments, and functions. They did not give sufficient consideration to how improvements affected the overall system.  These concepts had been driven largely by cost-accounting thinking, which causes us to decompose our complex organizations into parts or subsystems and then focus on improving the pieces. We assume that local improvements will advance the whole. This often is not the case. 

Ohno believed cost-accounting thinking was the biggest obstacle he had to overcome in developing his system. Workers believed they should make each operation very efficient, which often meant running big batches of parts. But Ohno knew this was detrimental to the total system. His task of creating a Henry Ford-style "river system" in a multiple-product environment proved difficult because equipment could not be dedicated to producing the same items day in and day out. He  had to create different models that were assembled from a variety of parts. Because he couldn't dedicate machines, equipment had to be changed over many times a day in order to produce needed parts. It took Ohno nearly 40 years to develop and refine his system. But, now this once-obscure automobile company is the world's leading producer.

What made these systems so successful? Both Ford and Ohno viewed their company processes as rivers and devoted their efforts to enhancing the overall current and helping it flow more rapidly. Reducing defects, minimizing the time for equipment downtime and changeovers, and producing in response to purchases rather than forecasts indicated significant progress. Local benefits were not the driving criteria. If the system moved faster and more smoothly, more products could be produced with the same resources, enabling Ford and Ohno to sellmore. 

Throughput operating strategy 
In the flow of activities required to make products and solutions, there is a logical point that indicates where improvement efforts would be most beneficial. With this understanding, it's possible to devise a strategy for creating a fast, smooth-flowing river system that enables a company to sell more. This is called a throughput operating strategy (TOS) because the emphasis is on using improvement efforts to generate revenue rather than save expenditure.

Once a company develops and communicates a TOS to its employees, they will better understand which activities should be improved first and how they can assist in the effort. It also enables the development of a systematic process for combining today's favorite trilogy-lean, six sigma, and TOC-into a more powerful improvement methodology.

Perhaps support for improvement efforts erodes not because managers lack patience; perhaps it's because these efforts have not been sufficiently focused on improving the performance of the overall organization.   

Robert E. Fox is a founder of The Goldratt Institute, The TOC Center Inc., and Viable Vision LLC. He has 50 years of industrial and consulting experience and has served as vice president for Booz & Co. and president of Tyndale Inc. He may be contacted at (203) 315-2123. 

Reza M. Pirasteh, PhD, is a Master Black Belt and Certified Lean Master. He has held executive, staff, and line positions and implemented continuous improvement systems in both manufacturing and transactional environments. He may be contacted at 469-422-4921.

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