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Focus on production efficiency often leads to lower profits… Be careful!
Production teams in most companies have a razor-sharp focus on improving their production efficiencies. This is encouraged by the top management as it is often their primary goal. Does it improve company profits?
In their endeavour to improve production efficiency, teams often end up breaking the rules of flow. If that happens, it only results in increasing inventory in certain pockets without increasing the overall company sales. Throughput remains the same and inventory goes up. Is it advisable?
Improving production efficiency does lead to higher sales and higher throughput only if we continue to follow the rules of flow. This happens at the constraint machine or around the constraint machine to create protective capacity buffers.
Supply Chain professionals will do a lot of good to their company if they shift their focus from local production efficiency efforts to improving the overall system efficiency and throughput.
TOC provides a sound framework to follow.