First Solar - Critical Chain and Theory of Constraints in a highly successful company

Ray Immelman, VP at First Solar - Speech at "Erfolg im Projektgeschäft" - April 2009

The Story of First Solar

First Solar was formed in 1999. Their first commercial production came in 2002. Since then First Solar has grown to be the largest thin film solar panel producer with the lowest costs. In the 4th quarter of 2008 First Solar became the first company to break the 1$/watt production cost barrier.

First Solar has grown from under 150m$ sales in 2006 to just over500m$ in 2007 and 1,200m$ sales in 2008. In 2007 and 2008 reported net income was 158m$ and 349m$ respectively. Clearly First Solar is a very successful company.

The First Solar mission: To create enduring value by enabling a world powered by clean, affordable solar electricity. First Solar pursues an ambitious three -pronged environmental plan to

1. Convert mining byproducts to clean, renewable energy;
2. Procure, produce, use and recycle solar modules in a perpetual and environmentally safe life cycle;
3. Substitute fossil fuels with solar energy to reduce emissions.

To achieve such growth in sales and profits while successfully pursuing their mission and their environmental targets requires an especially effective organization. As Ray Immelman tells the story First Solar must be a very exciting place to work!

The Theory of Constraints

True North Partners purchased First Solar when it was very shaky – at one stage they were the last company still trying to make CdTe solar panels commercially viable. The COO (Chief Operating Officer) recommended the Theory of Constraints (TOC) as the management philosophy for the company. TOC was adopted with the support of the CEO. Active participation and support by the management team is a key ingredient for the success of TOC at First Solar – as it would be in any implementation according to Ray Immelman.

The Theory of Constraints was supplemented with the 6-Sigma and Taguchi robust engineering toolsets.

Ray Immelman and Bob Fox (both TOC pioneers) led the TOC implementation at First Solar. Everyone read ‘The Goal’ and participated in the production and project management simulations (1). Weekly meetings were held until TOC was real – became part of the First Solar culture. As TOC became part of First Solar culture, the focus moved from one of “turning knobs” (making changes within the noise?) to a focus on the constraint of the organization. Key was sufficient management attention and training to make sure the necessary TOC paradigm shifts became a permanent part of how First Solar operates.

The Theory of Constraints puts the priority of a company on Throughput  (defined as Sales less ttally variable cost) while common practice is the Cost World – where costs are the priority. Immelman is convinced that a Throughput mindset contributes more to the success of an organization than one that is more concerned with cost minimization. The priority in the Throughput World is 1.) Throughput, 2.) Investment, 3.) Operating Expenses (cost) while in the Cost World they tend to be reversed.

Immelman recommends creating and building on early successes.

“Copy Smart” in Manufacturing

Once production was sorted out in the base plant the company replicated this technology into all of their subsequent manufacturing sites. This coupled with their continuous improvement process led to the ability to rapidly expand their manufacturing base successfully.

Critical Chain Project Management (CCPM)

First Solar had to rapidly build their ‘Gen 2’ plant and simultaneously develop a reliable manufacturing technology. They used Critical Chain supported by the Concerto software and a dedicated CCPM manager to manage the execution of this project. As Immelman recalls, nobody believed they could deliver in the targeted time, but in fact the plant was finished significantly ahead of schedule. CCPM buffer management reports are used to monitor the progress of projects, with close attention by senior managers.

Since their initial success with CCPM, First Solar suggested that key suppliers adopt the same methodology. With similar success at these suppliers, they in turn suggested the same approach further up the chain.

Immelman’s key points about CCPM are

1. Success breeds success – so make sure of an early success;
2. Use a consistent language and a consistent process across the entire organization;
3. Use the CCPM performance and improvement measures to gain even greater effectiveness and
4. Ensure a  team-level response to buffer incursions.

Critical Chain offers the means for the effective management of complex, multiple project environments.

Key points from the First Solar Critical Chain efforts:

1. Understand the different cultures in each CCPM application area -  IT is quite different from R&D or construction.
2. Understand the business drivers for behavior in each group – what causes the current behavior in each group and how does this need to change?
3. Support the decisions people have to make – ensure that the behavior and information generated by CCPM contributes to the business decisions they have to make.
4. Provide strong technical support and reassurance – Critical Chain software is the only software that directly touches people’s work and corporate interaction (even on a daily basis).

The “Thinking Processes”

TOC has a set of cause and effect logic tools to describe the current situation, the core problem of the current situation, build a logical ‘tree’ to achieve the desired future situation. The First Solar management team uses these tools to develop and communicate their operational strategies.

What made it work for First Solar?

1. TOC is simply a means to an end a tool and management philosophy.
2. TOC provided a central concept around which a strong Throughput driven corporate culture could be built.
3. TOC had strong buy-in and long-term support from the CEO.
4. Extensive exposure to the concepts of cost world and throughput world – this is a strong “tribal” motivator. (2)
   
5. Use of the tools in all possible areas helped define and build process and systems around the concepts.
6. Over time, success helped to build confidence in own capability, which drove an increasing virtuous loop.
7. Small, successful initial applications built trust and confidence.
8. Critical mass and bench strength perpetuates the throughput culture.

(1) Immelman referred to GSIM 10 and PMSIM – both simulations developed by Eli Schragenheim as tools to help get the TOC concepts across to participants in TOC training. Participants can experience TOC in safe environments.

(2) Ray Immelman’s book “Great Boss, Dead Boss” explains the importance of tribal behaviour in organisations.