Average Production Rates: A  Misleading Metric

This article is an excerpt from the Shortform book guide to "The Goal: A Process of Ongoing Improvement" by Eliyahu M. Goldratt. Shortform has the world's best summaries and analyses of books you should be reading.

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What are the average production rates in manufacturing? Why are they unreliable and what should you use instead?

Average production rates let you know, generally, how much you’re manufacturing. However, it is misleading, because you rarely produce exactly the average.

Read more about average production rates and why you can’t rely on them.

The Fallacy of Average Production Rates

In manufacturing, a balanced plant tries to match the average production capacity of every resource exactly with market demand. Any resource beyond the average rate is seen as extraneous, so it is either put to use or eliminated. This is the traditional mode of thinking at the protagonist’s company in The Goal.

However, two interconnected concepts make the balanced plant backfire, thus decreasing throughput, increasing inventory, and increasing carrying costs:

  • Dependent events – one part of the chain depends on the upstream part.
    • The speed of the downstream part is constrained by the upstream part – if the upstream part isn’t delivering, the downstream part can’t do any work.
  • Statistical fluctuations – many factors cannot be predicted precisely
    • Even at an average steady state rate, there are fluctuations in production. Someone may produce 2 widgets per minute on average, but at times he produces 2.5 and at times he produces 1.
    • Larger events – machines may break down; workers many get sick; inclement weather may arrive.

Fluctuations happen regularly at each part in the chain. However, each downstream part can only catch up to the extent that the upstream part permits it to. Negative fluctuations bring down every later step of the chain; positive fluctuations are constrained by the next bottleneck. Over time, this causes a lower than expected average throughput.

  • Let’s say there are three tools in a series – X → Y → Z. They can each work at an average of 5 units/hour, with fluctuations around this average. Each hour, parts from one tool are moved to the next one.
  • If X suddenly produces 3 units in 1 hour, then in the next hour, Y can only produce 3 units from X, even if Y could actually work at 6 units/hour in that hour.
  • For the system to make up time for every negative fluctuation, both X and Y need to work at above-average rates in synchrony.
    • In a complex chain with many parts, this is difficult.
  • In contrast, if X gets a boost. suddenly produces 10 units in 1 hour, Y can still only produce 5 units per hour, so the gain in X is stifled by the inability of Y to meet X’s boost.

As explained in the next sections, the solution is not to balance average capacity with demand, but rather to balance flow or throughput with demand. The way to do this is a drum-buffer-rope system, where the bottleneck determines the throughput and inventory of the entire system.

Average Production Rates: A Misleading Metric

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Rina Shah

An avid reader for as long as she can remember, Rina’s love for books began with The Boxcar Children. Her penchant for always having a book nearby has never faded, though her reading tastes have since evolved. Rina reads around 100 books every year, with a fairly even split between fiction and non-fiction. Her favorite genres are memoirs, public health, and locked room mysteries. As an attorney, Rina can’t help analyzing and deconstructing arguments in any book she reads.

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