Chase - Shankar - Jacobs

14
e
Operations and
Supply Chain
Management
CHASE | SHANKAR | JACOBS
231
THEORY OF
CONSTRAINTS
McGraw-Hill/Irwin
Chapter TwentyThree
Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

232
LO231: Explain the Theory of Constraints

(TOC).
LO232: Analyze bottleneck resources and apply
TOC principles to controlling a process.
LO233: Compare TOC to conventional
approaches.
Copyright 2014 by McGraw Hill Education (India) Private Limited. All rights
reserved.
Learning Objectives
LO234: Evaluate bottleneck scheduling

problems by applying TOC principles.
233
Do not balance capacity, balance the flow.

The level utilization of a non-bottleneck
resource is not determined by its own potential
but by some other constraint in the system.
Utilization and activation of a resource are not
the same.
An hour lost at a bottleneck is an hour lost for
the entire system.
An hour saved at a non-bottleneck is a mirage.
reserved.
Goldratts Rules of Production

Scheduling
234
Bottlenecks govern both throughput and

inventory in the system.
Transfer batch may not, and many times
should not, be equal to the process batch.
A process batch should be variable both
along its route and in time.
Priorities can be set only by examining the
systems constraints, and lead time is a
derivative of the schedule.
reserved.
Goldratts Rules of Production

Scheduling (continued)
235
Identify the system constraints.

Decide how to exploit the system
constraints.
Subordinate everything else to that decision.
Elevate the system constraints.
If, in the previous steps, the constraints have
been broken, go back to step 1, but do not
let inertia become the system constraint.
reserved.
Goldratts Theory of
Constraints (TOC)
236
The goal of a firm is to make

money.
reserved.
Goldratts Goal of the

Firm
237
Net profit
An absolute measurement in dollars
Return on investment
A relative measure based on investment
Cash flow
reserved.
Performance Measurement
Financial
A survival measurement
238
Throughput
The rate at which money is generated by the
system through sales
Inventory
All the money that the system has invested in
purchasing things it intends to sell
reserved.
Performance Measurement
Operational
Operating expenses
All the money that the system spends to turn
inventory into throughput
239
Productivity typically measured in terms of

output per labor hour.
Does not guarantee profitability.
Has throughput increased?
Has inventory decreased?
Have operational expenses decreased?
reserved.
Productivity
Productivity is all the actions that bring a

company closer to its goals.
2310
In earlier chapters, we discussed balancing

assembly lines.
The goal was a constant cycle time across all
stations.
Synchronous manufacturing views constant

workstation capacity as a bad decision.
reserved.
Unbalanced Capacity
Random variations must be handled using

inventory.
When one process takes longer than the average,
the time can not be made up.
2311
Capacity: the available time for production

Bottleneck: what happens if capacity is less than
demand placed on resource
Non-bottleneck: what happens when capacity is
greater than demand placed on resource
Capacity-constrained resource (CCR): a resource
where the capacity is close to demand on the
resource
reserved.
Bottlenecks and CapacityConstrained Resources
2312
reserved.
Basic Manufacturing Building

Blocks
2313
reserved.
Methods for Control
2314
Setup time: the time that a part

spends waiting for a resource to be
set up to work on this same part
Process time: the time that the part
is being processed
Queue time: the time that a part
waits for a resource while the
resource is busy with something else
reserved.
Time Components
2315
Wait time the time that a part waits

not for a resource but for another
part so that they can be assembled
together
Idle time the unused time that
represents the cycle time less the
sum of the setup time, processing
time, queue time, and wait time
reserved.
Time Components of
Production Cycle (Continued)
2316
Run a capacity resource profile

Obtained by looking at the loads placed
on each resource by the products that
are scheduled through them
Use your knowledge of the particular

plant
reserved.
Finding the Bottleneck
Look at the system in operation

Talk with supervisors and workers
2317
Bottlenecks govern both throughput

and inventory in the system.
An hour lost at a bottleneck is an
hour lost for the entire system.
reserved.
Saving Time
An hour saved at a non-bottleneck is

a mirage.
2318
reserved.
Drum, Buffer, Rope
2319
More tolerant than JIT systems

Excess capacity throughout system
Except for the bottleneck

Quality control needed before
bottleneck
reserved.
Importance of Quality
2320
What is the batch size?

One?
Infinity?
Larger batch sizes require fewer setups

and therefore leave more time for
processing.
Desirable for bottleneck resources.
reserved.
Batch Sizes
For non-bottleneck resources, smaller

batch sizes are desirable.
Reduces WIP inventory.
2321
A bottleneck
With no setup required when changing from one
product to another
Process jobs in the order of the schedule.
Without setups, only sequence is important.
With setup times required to change from one

product to another
Large batch sizes combine separate jobs into the
sequence.
reserved.
How to Determine Process

Batch and Transfer Batch Sizes
This means reaching ahead in the schedule.

Some jobs will be done early.
Large batches saves setup and increases throughput.
2322
A capacity constrained resource (CCR)

With no setup required to change from one
product to another
With setup time required when changing
from one product to another
Handling similar to a non-bottleneck
reserved.
How to Determine Process Batch

and Transfer Batch Sizes (Continued)
Smaller batches so there can be more

frequent changes of product
Decreased lead time
2323
Traditional view is the only negative

impact of inventory is carrying cost.
However, can also lengthen lead
times and create problems with
engineering changes.
Less WIP reduces the number of
engineering changes.
reserved.
How to Treat
Inventory
2324
Marketing
Discourages holding large amounts of finished goods
inventory
Purchasing
Discourages placing large purchase orders that, on the
surface, appear to take advantage of quantity discounts
Manufacturing
Discourage large work-in-process and producing earlier
than needed
reserved.
Benefits from Dollar Day

Measurement
Project management
Quantify a projects limited resource investment as a
function of time
2325
MRP
Uses backward scheduling.
Schedules through a BoM explosion.
MRP develops capacity utilization profiles.
Trying to smooth capacity is difficult.
Synchronous manufacturing
reserved.
Comparing Synchronous
Manufacturing to MRP and JIT
Uses forward scheduling.

This ensures a feasible schedule.
Batch sizes can vary.
2326
JIT is limited to repetitive manufacturing.

JIT requires a stable production level.
JIT does not allow very much flexibility in the
products produced.
JIT still requires work-in-process when used
with Kanban so that there is something to
pull.
reserved.
JIT Drawbacks
Vendors need to be located nearby because

the system depends on smaller, more frequent
deliveries.
2327
Accountings influence
Global measurements show net profits, ROI, and
cash flow.
Local cost accounting measurements show
efficiency or utilization rates.
Marketing and production

Marketing and production should work in harmony.
reserved.
Relationship with Other

Functional Areas
In practice, they act independently.

Data for evaluating marketing and manufacturing
are different.
2328
For a set of production processes

described in Exhibit 23.14, with the data
given in the table below, what should be
the products produced and what should be
the quantities of those products?
Product
Time
Limiting
Required
Resources
(min)
Number
produced
per hour
Selling
price ($)
Sales
revenue
per hour
($)
10
50
300
10
75
750
12
60
720
reserved.
Theory of Constraints Problems

about What to Produce
2329
reserved.
Exhibit 23.14: Prices and

Production Requirements
2330
Solution
Three different objectives could exist that lead
to different conclusions
1. Maximize sales revenue because marketing
personnel are paid commissions based on total
revenue.
2. Maximize per unit gross profit.
3. Maximize total gross profit.
reserved.
Theory of Constraints Problems

about What to Produce (Continued)
In this example, we use gross profit as the

objective and provide a solution. Other
objectives can be worked out similarly.
2331
We can solve this problem by finding either

Total gross profit for the period
Rate at which profit is generated
We use rate to solve the problem both because

it is easier and because it is a more appropriate
measure. We use profit per hour as the rate.
Note that each product has a different work
center that limits its output. The rate at which
the product is made is then based on this
bottleneck work center.
reserved.
Objective 3 Maximize Total

Gross Profit
2332
Conclusion: It is clear that product C

provides the highest profit per hour
and in order to maximize total gross
profit, one should produce as much
of the C as possible.
Produc
t
Limitin
g
Workce
n-ter
Time
Require
d (min)
Number
produce
d per
hour
Selling
price
($)
Raw
materi
al
cost($)
Profit
per
unit
($)
Profit
per
hour
($)
10
50
20
30
180
10
75
60
15
150
12
60
40
20
240
reserved.
Profit per Hour

Calculations
2333

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14

Copyright 2014 by The McGraw-Hill Companies, Inc. All rights reserved.

LO231: Explain the Theory of Constraints

LO234: Evaluate bottleneck scheduling

Do not balance capacity, balance the flow.

Goldratts Rules of Production

Bottlenecks govern both throughput and

Goldratts Rules of Production

Identify the system constraints.

The goal of a firm is to make

Goldratts Goal of the

Productivity typically measured in terms of

Productivity is all the actions that bring a

In earlier chapters, we discussed balancing

Synchronous manufacturing views constant

Random variations must be handled using

Capacity: the available time for production

Bottlenecks and CapacityConstrained Resources

Basic Manufacturing Building

Methods for Control

Setup time: the time that a part

Wait time the time that a part waits

Run a capacity resource profile

Use your knowledge of the particular

Finding the Bottleneck

Look at the system in operation

Bottlenecks govern both throughput

An hour saved at a non-bottleneck is

Drum, Buffer, Rope

More tolerant than JIT systems

Except for the bottleneck

What is the batch size?

Larger batch sizes require fewer setups

For non-bottleneck resources, smaller

With setup times required to change from one

How to Determine Process

This means reaching ahead in the schedule.

A capacity constrained resource (CCR)

Handling similar to a non-bottleneck

How to Determine Process Batch

Smaller batches so there can be more

Traditional view is the only negative

Benefits from Dollar Day

Uses forward scheduling.

JIT is limited to repetitive manufacturing.

Vendors need to be located nearby because

Marketing and production

Relationship with Other

In practice, they act independently.

For a set of production processes

Theory of Constraints Problems

Exhibit 23.14: Prices and

Theory of Constraints Problems

In this example, we use gross profit as the

We can solve this problem by finding either

We use rate to solve the problem both because

Objective 3 Maximize Total

Conclusion: It is clear that product C

Profit per Hour

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