In Any Business Crisis, These Two Magic Words Change Everything
Alan Barnard is 6’6” and 220 pounds, and his size certainly helped him appear confident as he stood before a hostile audience of mine managers facing yet another round of layoffs at their mine.
Barnard, a protégé of Dr. Eliyahu Goldratt, creator of the Theory of Constraints, was there to help fix a giant problem. The mine had a target of a million tons a month—and it wasn’t coming close. Just four months into the year, and they were already four hundred thousand tons behind.
Customers threatened legal action because they had to pay premiums on the spot market to get their demand satisfied. Shareholders stood to lose more than $30 million in profit from the lost production. Unless they could find a way to catch up, the mine’s management team stood to lose not just their bonuses but their jobs.
Two prior consultants had offered the usual solution – cut costs and fire people. Those approaches had only made things worse and often represent a vicious cycle that lead to a death spiral. No wonder Barnard faced such a hostile crowd.
The Theory of Constraints is based on Goldratt’s idea that if you can identify and focus improvements or investments on the bottleneck you can normally achieve more with the same or even less resources, simply and quickly.
Barnard took a breath and told his impatient audience, “Firstly, it is clear that cost cutting will not fix your problem. The only way out is to find simple, quick and low cost ways to increase throughput so the mine can catch-up. That means we need to find the bottleneck. So, where is the bottleneck?”
Management explained that there are four main steps to getting ore out of the ground and on its way to customers: (1) expose the ore using explosives; (2) extract the ore using dragline excavators; (3) move the ore to the processing plant with trucks; and (4) process the ore to produce the grades desired by customers.
The mine manager explained that they didn’t have a single bottleneck. Their bottleneck was a moving target: if they had a good day exposing ore, the draglines became the bottleneck. If the draglines had a good day, they would run out of ore or out of trucks. And if there was a large enough buffer of the right ore, the processing plant often couldn’t keep up.
All present quickly agreed that the biggest bottleneck was the processing plant.
“So, let’s start with the process to expose ore,” Barnard, began. “How can you increase your throughput?” Barnard asked the supervisor in charge of that process.
“We can’t do it,” was the angry response. “It’s impossible!”
Barnard, grateful for his size as he stared the supervisor down, took a Zen-like approach: “Impossible, unless…?”
The two words echoed in the silence.
What did he mean, “Impossible, unless…?”
It turns out that those two words are the key to solving almost any business problem.
After what felt like an eternity, the supervisor finally said, “Okay, I’ll play your stupid game. It’s impossible unless we are willing to mine an area we’ve avoided mining over the past few years. This will allow us to catch up and sustain the ore buffer the draglines need.”
“So why not do it?” Barnard asked simply.
“Because these guys—” he jerked a thumb at the accountants — “will never agree. They will say that renting the special equipment we will need to mine this area will cost too much and there’s simply no budget.”
“Have you ever thought about asking?” Barnard said.
“Of course not,” the man replied. “I told you. They would never approve it. So why even try?”
Barnard glanced at the accountant who shrugged, indicating that this was exactly the case.
“How many machines would you really need and for how long?” Barnard asked.
The answer: three or four at $5,000 rental each per day.
“That’s $600,000 a month, worst case,” Barnard said, doing some fast math in his head. “And you’re saying that will allow you guys to produce the additional 200,000 tons more per month?”
“Of course,” was the reply.
“Sounds like a simple decision,” Barnard said, glancing at the mine manager and mine accountant. “At around $20/ton margin, an additional 200,000 tons - if the downstream guys can process and sell it - is worth $4 million in additional profit a month!”
Barnard glanced at the Mine Manager and mine accountant, who, after first confirming the simple math a few times with a calculator, excitedly nodded their approval. And just like that, the supervisor had his machines.
Onto the next bottleneck: not having enough dragline capacity to ensure the processing plant is never starved of the right ore mix.
Barnard asked, “Why not make sure you have enough drivers and maintenance crew on standby?”
The mine manager shook his head. “Top management can’t stand seeing standby drivers or maintenance guys sitting idle,” he said. “It makes them crazy to see guys doing nothing.”
Barnard asked some more questions and found that at 1,300 tons per hour and $20/ton margin, the mine lost $26,000 an hour. And the mine was losing more than 10 hours every month just because they didn’t have standby drivers and maintenance crew to cover for absenteeism.
Again, an easy decision for the mine manager once he realized $260,000 a month benefit is a LOT more than the cost to having a few standby drivers and maintenance crew.
Management would learn to live with idle resources, rather than lose all that money.
The remainder of the capacity problems were also solved with those two magic words — “Impossible, unless…?”
Within just two months, the mine was running at more than 1.1 million tons a month, generating more than $30 million in additional profits.
As Barnard illustrated with his rather courageous application of the Theory of Constraints, any situation can be turned around if you expose the real bottleneck in the organization.
“Your employees already know how to solve your biggest problems,” Barnard told me. ‘Impossible, unless…’ points them toward the highest leverage opportunities.”
And saves bonuses, jobs, and entire enterprises. Not bad for just two simple words.