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Aditya Chandra Adc65@pitt.edu 29th September, 2011 This book is introduces us to the main character named Alex Rogo the plant manager of one of the manufacturing plants of UniCo. From the beginning of this story the particular manufacturing plant has been facing issues of timely customer order fulfillment and low quality production leading to an adverse impact in the bottom-line. The UniCo management has thus taken several steps to bring the cost of production down by taking cost cutting initiatives and my automating parts of the production process to increase efficiencies. All this has been accomplished without the downsizing of the workforce. Due to the continuous financial downward trend of the plant Alex is unofficially given a 3 month deadline to make turn the plant profitable or it would be shut down and all the plan executives and workers would be laid off. At the beginning of this 3 month deadline the plant has a backlog of around 2 months of customer deliveries, millions and millions in inventory in the warehouse (finished goods). Items that are urgently required by the customer are expatiated causing disruption in the other production of other goods. As a result of untimely deliveries sales are falling and all financial and performance metrics are going below unacceptable levels. During this time Alex meets his old physics professor, Jonah. Once Alex describes the problems his plant is facing Jonah uses the Socratic Approach and gives him the advice that Productivity is the act of bringing a company closer to its goal. Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive . Alex is required to think about the goal and he comes to the conclusion that the goal of a manufacturing organization is to make money. During later discussions with one of his plant executives Alex comes up with three performance measurements for an organization: Net Income, ROI and Cashflow. The aim of an organization should be to make money by increasing profit while simultaneously increasing return on investment, and simultaneously increasing cash flow. However Jonah suggests alternate measurements which express the goal of making money perfectly well, but which also permit you to develop operational rules for running your plant: 1. Throughput- Is the rate at which the system generates money through sales. 2. Inventory: Inventory is all the money that the system has invested in purchasing things which it intends to sell. Any investment that we can sell is inventory 3. Operational expense is all the money the system spends in order to turn inventory into throughput. Any money we've lost is operational expense AIM: The strategy of an organization in order to attain its goal should be to increase throughput while simultaneously reducing both inventory and operating expense.
2. while inventory goes through the roof. and attempts to measure productivity. Make sure the least rejects are coming out of this i. and one for the money going out. A plant in which everyone is working all the time is inefficient. Dependent events are a series of events that must take place prior to another one beginning. . While trying to maximize the utilization of this bottleneck the following learning were acquired: 1. Also don t use bottleneck to create spare parts unless there is enough capacity to meet the demand.dependent events and statistical fluctuations. His figures out the accumulative effect of statistical fluctuations. Make sure bottleneck time is not wasted whether on lunch break or anytime. And operational expense is the money one has to pay out to make throughput happen. Jonah talks about balancing capacity of the plan to meet the market demand. In any way. the subsequent event depends on the ones prior to it. 2. Two specific phenomena are identified which cause this effect . Cost per hour cannot be calculated by using standard accounting procedures. One measurement is for the incoming money. no more and no less.Throughput is the money coming in. the carrying cost of inventory which is operational expense goes up and the entire cycle repeats itself by further delays in customer orders and more reduction in orders. The idea is to make the flow through the bottleneck equal to demand from the market. The maximum deviation of a preceding operation will become the starting point of a subsequent operation.e. If we've got a Herbie. throughput goes down. High Quality control not only for the output of it but also the input to the bottlenecks because they just waste time of the resource. market demand estimates. Alex understands this concept during the Walk Trail with his son. Money is most important to management over efficiency. Effects of trimming capacity to meet market demand. He came to the following conclusions: 1. 3. Add capacity to it. The ones at the end of the line should have more than the ones at the beginning sometimes a lot more. The next target of Alex was to target the bottleneck NCX-10. one for the money still stuck inside. Jonah also tells Alex about the following points which are unthinkable in the business world: 1. Cost accounting is the number one enemy of productivity. or in other words. 2. 3. Statistical fluctuations are the result of certain types of predictive information that cannot be determined precisely. it's probably going to have a huge pile of work-in-process sitting in front of it. Outsource it. The cost of a bottleneck per hour would be the total system loss of one hour. And because inventory goes up. Some resources have to have more capacity than others. These fluctuations influence prediction of error percentages. Inventory is the money currently inside the system. Use older machines or other methods.
What to change to? 3. IDENTIFY the system's constraint(s). ELEVATE the system's constraint(s). The idle time in Non-bottleneck can be used with reducing the batch sizes so that the idle time can now be used for setup times. The queue will be in front of the bottleneck and the wait time is at the assembly area waiting for the product of a bottleneck. 2. A system of local optimums is not an optimum system at all. They may have an idea on how to improve its productivity. 3. it is a very inefficient system. Also get feedback from the resources working on bottleneck. 4.3. 5. Training sessions should be organized so people can learn those procedures. WARNING!!!! If in the previous steps a constraint has been broken. Assign dedicated resources in such a way that it is continuously monitored. . but do not allow INERTIA to cause a system's constraint. SUBORDINATE everything else to the above decision. The chain is only as strong as its weakest link. 4. 2. What to change: Use Theory of Constraints. No need to keep them utilized at 100%. They should just meet the demand which in other words is the constraints of the bottleneck as the BN will be utilized to meet demand. Decide how to EXPLOIT the system's constraint(s). 6. Meaning that not every system has to be optimized. Furthermore Alex learnt that simply taking care of Bottlenecks wasn t sufficient. He also came to the following conclusions regarding: 1. Alex also realizes that even without experience in a particular area or domain one must have a scientific approach to thinking and must ask the following questions: 1. go back to step 1. There should be some leeway to make priority for inputs to BN resources. Every shop floor worker should know about bottlenecks and the priorities associated with it. 5. How to cause the change: Change things smoothly without creating resistance but rather enthusiasm. In the end Alex and his team of plant executives come up with the following standard operating procedure to help any system attain its goal: 1. 2. If you run BN for efficiency you will end up exceeding demand and increased inventory. Thus bottleneck dictates inventory and throughput. specify that the existing procedures be doublechecked for accuracy on the bottleneck routes. For the short term. But that's obviously going to take some time. Bottlenecks dictate the queue and wait times again.
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