theory of constraints

theory of constraints

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Background

Eastern Financial Florida Credit Union is the largest credit union in South Florida. The last three years have been intensive with rates dipping to there lowest in 40 years. Because of this, 92% of mortgage holders had economic reasons to refinance.
     Eastern exists to achieve goals to improve member service, work performance and increase profitability; however, certain factors limit their capacity to manage constraints and they needed help.

Eastern Weak Links

Eastern needed help because they were faced with a bottleneck/constraint of having more loan applicants than they were able to timely process so they decided that the problem can be eliminated by implementing Theory of Constraints (TOC) drum-buffer rope and five focusing steps. Other weak links that need to be addressed are:

·     Inability to commit to closing dates
·     A lot of work in process in the system
·     Lead times too long
·     Constantly shuffling priorities
·     Too much expediting
·     Stressful work environment
·     Difficulty in responding to urgent member requests
·     Overtime doesn’t increase profits
·     Outsourcing doesn’t solve the problem

TOC is based on the fact that all businesses operate with constraints or bottlenecks, which disable the progress or success of a company. By identifying the bottleneck, the entire operation is strengthened.

Drum, Buffer, Rope (DBR)
Eastern uses this view in managing constraint along with the five steps. Using DBR assures that the company is running the right thing at the right time.

Five Focusing Steps
·     Identify
·     Exploit
·     Subordinate
·     Elevate
·     Inertia
Identify/Drum
Since we just reviewed the weak links, we must seek and destroy the bottleneck. Identifying the drum/constraint is critical to the theory of constraints. Eastern identified the constraint to be in the underwriting department.
Exploit/Buffer
To exploit the constraint, Eastern puts all efforts toward maximizing the area that is causing the problem, which is underwriting. Eastern provided enough work in process files to protect the systems deliverables (closing and delivery dates), which is related to the buffer. The buffer tells two things: when too much material is in the buffer and not enough. The system assures that underwriting is protected with work in process files, which is the amount of material in the buffer. This pre-determined amount of work is the rope.

Subordinate
Subordinating involves training others to improve the constraints area; Eastern provides the protection for all resources to underwriting and provides cross training and backups to the department; this assures that the constraint is operating continuously.

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Elevating
Elevating the system requires document improvement and at Eastern files are now released so that they accumulate where they have protection. Also, multi-tasking was replaced with single tasking.

Inertia
With inertia, Eastern must celebrate success and identify new challenges for continuous improvement, which is why the company plans to add resources and work on the process of on-going improvement to further shorten lead time through the system and continue to improve member services.

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