Constraints Management Intro to the Theory of Constraints

(A lecture introducing a portion of the Physical side of the Theory of Constraints) James R. Holt, Ph.D., PE
Associate Professor Engineering Management
holt@vancouver.wsu.edu http://www.cea.wsu.edu/engrmgt/
1 © Washington State University-2004

The Goal by Eliyahu Goldratt
• The goal of a manufacturing company?

Make money!

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Measuring the goal
• Net profit • Cash • Return on Investment (ROI)
For a manufacturing enterprise, the goal can also be measured by • Throughput • Inventory • Operating expenses

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Definitions
 Throughput: The rate at which the system generates money through sales.

• Note that the money is generated through sales and not production because if you produce something and don’t sell it, you have not really had throughput. (You’ve just put it into inventory).

 Inventory: All the money that the system has invested in purchasing things which it intends to sell.  Operational Expense: All the money the system spends in order to turn inventory into throughput.
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Note that all the definitions have “money” in them
 Throughput: The rate at which the system generates money through sales.  Inventory: All the money that the system has invested in purchasing things which it intends to sell.  Operational Expense: All the money the system spends in order to turn inventory into throughput.

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Definition
• Bottleneck: Any resource whose capacity is

equal to or less than the demand placed upon it. • Optimization of a plant: Balance flow, not capacity.

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Definition
• Types of elapsed time:
 Setup time ― The time a part spends waiting for a resource, while the resource is preparing itself to work on the part.  Process time ― The amount of time the part spends being modified into a new, more valuable form.  Queue time ― The time the part spends in line for a resource while the resource is busy working something else ahead of it.  Wait time ― The time the part waits, not for a resource, but for another part so that they can be assembled together.
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The Theory of Constraints (TOC)
• TOC IS:
 A set of Proven Solutions
• Drum Buffer Rope (DBR), Critical Chain Project Management (CCPM), Replenishment, Sales/Marketing, Human Behavior, Measurements, Strategy

 An Approach to Problems
• Five Steps of Continuous Improvement

 Tools for Discovery of New Solutions
• What to Change, What to Change to, How to Cause the Change (The Thinking Process Tools)
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Process Theory
Input
Larger Process

Output

Input

Process

Output

Input

Process

Output

Input

Process

Output

Input

Process

Output

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Systems Concepts
• Organizations / Systems exist for a purpose • That purpose is better achieved by cooperation of
multiple, independent elements linked together upon the other links.

• Each Inter-linked event depends in some detail • The system owner determines purpose

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There is a “Weakest Link”
• Different link capabilities, normal • • •
variation and changing workload make it impossible to balance everything. One element of the system is more limited than another. When the whole system is dependent upon the cooperation of all elements, the weakest link determines the strength of the chain. An exactly balanced chain (system) is stronger than a non-homogeneous chain, but when close to the breaking point, all links must be managed

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Interconnections are non-Trivial
• Every System has relatively few constraints
 To operate at maximum efficiency, the generic problem with physical systems must be identified  The Five Focusing Steps help identify and improve the constraint (called The Generic Physical Solution)

• Physical and Non-Physical Processes
 Flow system structures: straight line (I), assembly (A), one material divided into several products (V), a product given minor changes at the end (T)  Distribution and Supply Chain  Management control of these systems
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Flow System Structures
RM
Raw Material

FG Linear or “I” system
FG
Finished Goods

Aircraft assembly is more of an “A” Plant
RM RM RM

RM RM RM RM RM RM
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Interconnections are Non-Trivial
• • •
A simple chain over-simplifies reality Link 1 may have a relationship with Link 5 Link 5 may have a different relationship with 1

1 2 3 4 5 6 7 8 9

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Management of the Links Vs. Linkages
• Maybe the Simple Chain isn’t so simple
Link 8 and 9 can combine to push on both Link 6 and Link 7 Link 1 and 2 can get together and lean on Link 3 or Link 8

1 2 3 4 5 6 7 8 9

There are 40,000 first order effects and 1,000,000+ second and higher order effects!

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Traditional Approach: Divide and Conquer
• Division of Labor breaks down linkages
complex systems into manageable chunks. • Which is harder to manage? Left or Right?

Left

Right
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We Measure Operational Efficiency
• Work flows from left to right through
processes with capacity shown.
Market Request 11

Process

A

B

C

D

E

RM
Capability Parts per Day

FG

7

9

5

8

6

Too Much Overtime
Chronic Complainer Excellent Efficiency--Near 100%
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Reward Based on Efficiency
• Work flows from left to right.
Process A B C D E

RM
Capability P/D

FG

7

9

5

8

6

Both found ways to look busy and appear to have a capacity of 5 parts/day.

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In reality...
• Processes A and B won’t produce
more than Process C for long.

Process

A

B

C

D

E

RM
Potential P/D Reality 7 5 9 5 5 5 8 5 6 5

FG

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Then Variability Sets In
• Processing times are just
AVERAGE Estimates

Process

A

B

C

D

E

RM
Reality 5±2 5±2 5±2 5±2 5±2

FG

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What’s an Average? 50%
• Half the time there are 5 or more per day at
each process--Half the time less
Process A B C D E

RM
Reality Probability Two at a time: Over all: 5±2 0.5 0.25 5±2 0.5 5±2 0.5 5±2 0.5 0.25 5±2 0.5

FG

3% Chance of 5 per day
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Previous Solution: Inventory
• Put a day of inventory at each process!
WIP 5 Process A 5 B C 5 D 5 E 5 Total 25

RM

FG

Variable Process

5±2

5±2

5±2

5±2

5±2

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System Variability Takes Over-Chaos
Inventory (WIP) quickly shifts position. Inventory manager/expediter tries to smooth it out. Distribution problems result. Costs go up. Process WIP 3 A 0 B 10 C 8 D 4 E Total 25

RM
Variable Process 5±2 5±2 5±2 5±2 5±2

FG

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System Variability Takes Over-Chaos
An Average of 5 means sometimes 3 and some times 7 Process WIP 3 A 0 B 10 C 8 D 4 E Total 25

RM
Variable 5±2 5±2 5±2 5±2 5±2

FG

Process Shifting work-in-process creates large queues at some locations. This makes work wait longer to be processed.

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System Variability Takes Over-Chaos
Process WIP 3 A 0 B 10 C 8 D 4 E Total 25

RM
Variable 5±2 5±2 5±2 5±2 5±2 Process Shifting work-in-process creates large queues at some locations. This makes work wait longer to be processed. Other workstations can be starved for work. The work they could be doing is delayed because it is not there. They can’t take advantage of their extra capability. So...

FG

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System Variability Takes Over-Chaos
Process WIP 3 A 5 B 10 C 8 D 4 E Total 25

X 30
FG

RM

Variable 5±2 5±2 5±2 5±2 5±2 Process So… Management Helps! Management puts in more work (Inventory) to give everyone something to do! Result: It takes longer and longer from time of release until final shipping. More and more delay!
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Attempts to Control WIP
• Put a lid on it-Use Kanban Cards-JIT
WIP 5 Process A 5 B C 5 D 5 E 5 Total 25

RM
Variable 5±2 5±2 5±2 5±2 5±2 Process Just-In-Time uses Kanban Cards to limit the queues building in the system. No more than 5 parts are allowed at any station. Looks good, but is it?

FG

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Effects of Inventory Limits on Production
• What does a Kanban card of 5 Mean?
WIP 5 Process A 5 B C 5 D 5 E 5 Total 25

RM
Variable Process Before Kanban 5+/-2 Average = 5 5±2 5±2 5±2 After Kanban 5±2 5±2

FG

Can’t exceed 5

5+/-2 Average = 3.5
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Operation’s Dilemma

Produce a lot Manage production effectively Costs & delivery in control

Increase work-inprocess

Assumption: We can’t both increase WIP and decrease WIP at the same time.

Decrease work-inprocess

Injection: Put a large inventory where its needed and low everywhere else!
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Continuous Improvement
Step 0. Identify the Goal of the System/Organization Step 0.5 Establish a way to measure progress to Goal

TOC Steps to

Step 1. Identify the system’s constraint. Step 2. Exploit the system’s constraint. Step 3. Subordinate everything else to the above decision. Step 4. Elevate the system’s constraint. Step 5. If a constraint is broken (that is, relieved or improved), go back to Step 1. But don’t allow inertia to become a constraint.
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Five Steps Applied to Flow Operations
WIP A

12
B C D E

Total

12

RM
7 Five Focusing Steps Step 1. Identify the Constraint (The Drum) Step 2. Exploit the Constraint (Buffer the Drum) Step 3. Subordinate Everything Else (Rope) Step 4. Elevate the Constraint ($?) Step 5. If the Constraint Moves, Start Over 9 X 5 5.5 XXX 7 8 6

FG

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Understanding Buffers
WIP A B C
Total 12parts/5parts per day=2.5 Days

D

E

RM
7 9 5 8 6

FG

• The “Buffer” is Time! • In general, the buffer is the total time from work release until the work arrives at the constraint. • Contents of the buffer ebb and flow within the buffer • If different items spend different time at the constraint, then number of items in the buffer changes • but Time in the buffer remains constant.
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We need more than one Buffer

Raw Material Buffer

A

B

C

D

E

Finished Goods Buffer

RM
7 9 5 8 6

FG

There is variability in the Constraint. To protect our delivery to our customer we need a finished goods buffer. There is variability in our suppliers. We need to protect ourselves from unreliable delivery.
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Buffer Time is ConstantPredictable
Raw Material Buffer

A

B

C

D

E

Finished Goods Buffer

RM
Raw Material Buffer 2 Days 7 9 5 8 6

FG

Constraint Buffer 2.5 Days

Finished Goods Buffer 1 Day

Processing Lead Time is Constant
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Buffer Management
Constraint Buffer WIP Total 12/5=2.5 Days

A RM 7 WO21 WO20 WO19 WO18 2.5 Days

B

C

D

E

FG
9 WO17 WO16 WO15 WO14 5 WO13 WO12 WO11 WO10 0 8 6

• The Constraint is scheduled very carefully • Buffer Managed by location • Individual activities in the buffer are not scheduled

Time until Scheduled at Constraint
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Problem Identification
RM

A RM WO19 Delayed Parts 7 WO21 WO20 WO19 WO18 2.5 Days

B

C

D

E

FG
9 WO17 WO16 WO15 WO14 5 WO13 WO12 WO11 WO10 0 8 6 Constraint schedule is in jeopardy! (Red Zone Hole) Watch WO14 (Yellow) WO19 OK (Green) Green

Time until Scheduled at Constraint

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Additional Buffers
• Constraint Buffer (as we discussed)
 Protects the Constraint from running out of work

• Finished Goods Buffer
 Protects customer delivery from Constraint variation

• Raw Material Buffer
 Protects the Release of material from suppliers

• Assembly Buffer
 Facilitates speedy flow of products

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Additional Buffers
Buffer Types: Constraint FG RM Assembly RM 7 F RM 8 Raw Material
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Ropes
WIP Constraint Finished goods A B C D E FG 9 G 7 5 H 6 8 6

Assembly

Manufacturing is an integrating discipline
TOC Thinking Processes Physical Systems Behavior Finance Capital Projects Uncertainty Investment Measures People Organizations Performance Measurement Assignments Quality Projects Full Theory Scheduling Manage Quality Design for Experiments Operations Optimization Simulation Decisions Reliability Supply Chain Strategy Corporate Departmental Subordination Focus
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Thank You
Manage the constraints.

© Washington State University-2004

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