03 100919 ABB OPEX Advanced Course Constraints Management 2 4

ABB OPEX Advanced Skills Development
Constraints Management
© ABB
Month DD, YYYY | Slide 1
Training Objectives
 Understand the concept that a system constraint is

the limiting factor in a value chain
 Understand and how best to exploit it
 Be able to apply the 5 Focusing Steps of the Theory
of Constraints (TOC)
 Learn how to apply TOC with Pull Systems
© ABB
| Slide 2
Contents
 What is the Theory of Constraints?

 Guitar Factory Game
 The 5 Focusing Steps of the Theory of Constraints
 Pull Systems
 Throughput Accounting
© ABB Group
October 23, 2023 | Slide 3
What is the Theory of Constraints?
 The Theory of Constraints (TOC) is a philosophy and

concept developed by Dr. Eliyahu M. Goldratt that provides
tools and roadmaps for radically improving the
performance of organisations.
 Popularized in his business novel The Goal
 TOC states that:
 every real system such as a profit-making organization
must have at least one constraint (bottleneck)
 if this were not true, then the system would produce an
infinite amount of whatever it is designed for, its goal
 In the case of a profit-making organization, the goal is
profits
 The constraint alone determines the output of the
organization
© ABB Group
Constraints in our everyday lives
Happens whenever demand exceeds capacity
© ABB Group
Benefits of TOC
 TOC is good for your Key Performance Indicators*

 TTPT: 70% reduction
 TPT: 65% reduction
 OTD: 44% improvement, often to 100%
 Inventory: 49% reduction
 Production capacity: 23% increase without investments
 ABB implementations
 WIP: 50% reduction
 TPTT and TPT: 50% reduction
 Production capacity: 30% increase without investments
* Mabin & Balderstone, The World of the Theory of Constraints
© ABB
ROI of 20 Large TOC Projects in ABB
 These projects modify value streams more than improve individual process
steps
 Average project duration 16,6 months
 Average net present value 14,3 MUSD
 Average total cost including investment was 0,57 MUSD
 Average payback period was less than 3 months.
© ABB
Why Do We Need TOC?
 Standard cost based metrics promotes undesirable

behavior
 Work to keep people busy
 Local efficiency optimization
 Inventory is produced regardless of need
 Negative impacts of high WIP and inventory

 Less free cash
 Long throughput time (lead-time) and poor on-time-delivery
(OTD) due to queuing effects
 Quality problems difficult to trace and solve
 Factory floor chaos - difficult to expedite
 Financial accounting metrics and KPIs are not useful for
shop-floor improvement tactics
© ABB
Guitar Factory


© ABB
What are the problems in your factory?
 What problems do you have with:

 In production?
 In engineering?
 With customers?
 With deliveries?
 With factory workers?
 With marketing and sales?
 With overhead expenses?
 Take 5 minutes, discuss with your neighbor and write down some things
from your own experience
 Share with the rest of the group
Typical problems with production
 Some actual problems from an ABB factory:

 Customers change requirements after engineering start
 Suppliers do not deliver material on time
 Variability in cycle times
 Productivity is low
 Lack of critical workers
 Engineering changes during production
 Production does not stick to the schedule
 Products are finished late, poor on-time-delivery
 How do your problems compare?
Guitar Factory, the Perfect Factory
 No problems …
 In production, everything is working, no down time
 In engineering, the design never changes
 With customers, they always order the same amount each week
 With deliveries, all material is at the workstation when you want it
 With factory workers, they are never sick, never complain
 With marketing and sales, we have none!
 With overhead expenses, low and fixed
 Everything is predictable!
Guitar Factory
Guitar Factory
 BOM & Direction of Flow
 How to start and pause
 Production speed
 Assigning resources
to tasks
 Set-up time
 Process times
 2 workers on 1 task
 Purchasing Materials
 Material costs
 Customer demand
 Prices of products
 Cash and operating
expense
 Starting WIP
 See notes page for more detail
Guitar Factory Round #1
 Run the factory for a week

 When you get to this screen, do not close it! Tell me how you did
Team Profit Inventory Standard Custom

Tiger -6140 6120 50 (87) 28
Buffalo -2250 1200 0 75 (80)
Elk 150 3100 50 (60) 45
Dragon 2740 1560 50 52
…
Constraints Demo
TOC Flash
Demo.EXE
TOC Flash Demo courtesy of: Ensemble Partners Pty Ltd

Foundation of Theory of Constraints
 The maximum throughput of a system is the throughput of

the slowest operation, called the constraint or bottleneck
 Any effort to increase the throughput of a system will be

wasted unless the constraint is opened up
What is the maximum system throughput / day?

20 / day 16 / day 10 / day 14 / day 18 / day
Courtesy of: Ensemble Partners Pty Ltd

The Five Focusing Steps of TOC
1. Identify the system constraint

2. Decide how to exploit the constraint
3. Subordinate all other activities to the constraint
4. Elevate the constraint
5. Go back to step one, the constraint may have
moved
Warning, DO NOT let inertia (laziness and
complacency) become the new constraint
1. Identify – Where is the constraint?
What is a constraint?
 A constraint is the part of the value stream that has a

capacity that is less than the demand upon it
© ABB
The 5 Focusing Steps of TOC
Reasons for constraints
 Internal  External
 Process constraints  Material constraints
 Machine down time  Not enough raw materials
 Quality  Poor material quality
 Manpower  Market constraints
 Procedure  Missing information
 Policy constraints  Not enough demand
 Local optimization
 Empowerment causing
multitasking
 No overtime
© ABB Group
1. Identify the constraint
 By examination
 Go to the factory and observe the workflow
 See where WIP is accumulating
 The most WIP will accumulate in front of the constraint
 By calculation
 Document the current Value Stream Map of the system
 Calculate the throughput per period for each operation
 Calculate the market demand for the final product
 Any operation with a throughput less than the market demand is a
constraint
 The operation with the lowest throughput should be targeted first
1. Identify the constraint?
See notes for additional information

2. Exploit – How we should do it?
2. Exploit the constraint
 Make it work at 100%
 Ensure the constraint’s time is not wasted
 Do not process defective parts on the constraint
 Offload work that can be done by non-constraint work centers
 Make to order first (get the cash fast) before make to stock
 Maximize the generating of profit or “Goal units”
 What is the optimal product mix in terms of profit?
2. Exploit – Optimal Product Mix
Standard Custom
 Selling Price €400 €550
 Raw Material €130 €180
 Margin (throughput) €270 €370
 Time on constraint (Electrician) 10 min 25 min
 Throughput/min at constraint 27,00 €/min 14,80 €/min
 TOC does not use product component costing to determine
product profitability
Go to Throughput Accounting to learn more

3. Subordinate - Schedule
 Plan upstream production to keep the constraint working at 100%
 Provide an input stock feeding buffer to protect the constraint from
upstream stoppages
 Do not produce more upstream than the constraint needs + a buffer of input
stock to protect against upstream stoppages
 Work processed by the constraint does not wait to be completed to
generate throughput (Goal units or Money)
 A space buffer is placed after the constraint to allow it to produce (prevent
blockage)
 Assembly / integration buffers
 Make upstream batch sizes optimal for the constraint
 Not optimal for the upstream processes
 Not to maximize efficiency at upstream processes
 Orders are split up to have even load on the constraint
3. Subordinate
 The constraint only processes non-defective inputs
 The constraint processes work that will generate throughput in the
short term
 Produce FG only after customer orders
 Reduce total setup time at the constraint and non-constraints that are
close to becoming a constraint
 Ensure that it does not process work that could be completed by
another resource
 Sales are accepted according to constraint availability
 Capacity Checking
 Use throughput accounting to maximize the profit from the available
orders in the market
3. Subordinate – How we should do it?
See notes for additional information

4. Elevate the Constraint
 Spend more money to increase the capacity of the constraint
 Increase equipment efficiency with investments
 Work more shifts or overtime *
 Hire more people
 Buy more new or used equipment
 Subcontract
 Modify the design to need less of the constraint can be done by
component suppliers *
 Offload to modified non-constraint processes
 Calculate ROI using Throughput Accounting principles
* See notes for examples

5. Go Back to Step 1
After going through the first four steps,

the constraint may have moved, so go
back and identify the constraint…
 Taking the constraint and market into consideration, what is the optimal
product mix?
 Create a production schedule and run it
 Record how you did for Round #2
Team Profit Inventory Standard Custom

Tiger 6810 2060 50 63
Buffalo 4590 2640 50 57
Elk 7920 720 50 66
Dragon 8660 540 50 68
…
Pull Scheduling Systems
 Drum-Buffer-Rope (DBR) and

 ConWIP Scheduling
© ABB
DBR Production Scheduling
 How to schedule production to maximize profit through effective constraint

utilization
 Protect the constraint by providing it with a reserve of work large enough to
keep the constraint working even if there is a problem upstream
 But not too much to extend throughput time
 Drum – Buffer – Rope
 Drum is the constraint. The tempo is the constraint production rate
 The Buffer is actually the time buffer needed between job release and the
Drum to prevent the drum from starving. This results in a reserve of work in
front of Drum
 The Rope is the time calculated from the drum to the release of work. The
Rope is the scheduled “start no earlier than” date
Signal the release of more work
 Create a signal (Rope) from the constraint (Drum) to the start of production to
release new work
 When one unit is finished, one unit is released
 WIP never grows larger than the buffers
All WIP before the Drum is the Buffer All WIP in and after the Drum
is the Shipping Buffer

DBR Production Scheduling
Rope = Schedule
Material release signal
Job Job Customer

pool Drum exit demand
Work Buffer Shipping Buffer

(Time) (Time)
Drum = The Capacity Constrained Resource that is scheduled
Rope = Material is released only ‘a time buffer’ before it is needed on the

Drum. Keeps WIP and cycle time in control.
Buffers = ‘Shock absorbers’ against variability and Murphy. Dimensioned just to
protect the Drum from starvation and protecting delivery due dates.
Time buffers outperform inventory buffers because they improve
protection and reduces lead time by aggregating the safety and also
adapt to changes in consumption.
DBR in Waterford three-phase distribution transformer line
Info of # of units tanked daily Targets/shift displayed.
# of Takt time! Even output

jobs Core
Core
to s
tart
Frozen order
sequence Testing
Testing
Scheduling
Scheduling Winding
Winding Assly
Assly Oven
Oven Tanking
Tanking Dispatch
Dispatch
&&Finish
Finish
Buffer before
Decide WIP level & Insulation oven
Insulation CP
Release of next jobs
BOM ok Oven = Constraint
Materials ok; (Available
& quality ok) Tank
Tank
mfg
mfg
Order sequence frozen
Constant
Work In Progress
Buffer Management
Job Job Customer

pool Drum exit Demand
= jobs with color according to buffer condition
= Not expected or needed at the Drum or exit

= Should be near the Drum. Watch & Plan
= Should be at the Drum. If not, then expedite
 Buffer Management is an monitoring system for

 early warnings,
 priorities and
 information for continuous improvement
Is WIP and Asset or Liability?
This is the level of WIP that
allows us to protect the Drum
and have low TPT
Asset
Return on Capital Employed (ROCE)
WIP Level
When WIP is too high,

TPT increases.
It takes longer to get the
cash from the customer
When WIP drops too low we for each order.
Liability have to wait between jobs.
The Drum is wasted and we lose
throughput.
Vaasa, Special Transformers - Production Control
Amount of Kanban cards Assembly queue

WoL WoM
Core 10 .
15
Windings 16 .
CONWIP 102
Tank 17 15
101
Drying 13 10 100
Assy
Down
G0 G1 G2 G3
Core
G4 stream G5
Assy
Mec.
Offer El.design Material Winding
Design
Assy
Tank
Assy
38 Model Freezing
Transformers Point
Buffer of finished designs: Wind on leg = 20 CONWIP
Wind on mandrel = 40
FROZEN PERIOD
= Buffer
= Logical gate
See notes for explanation
Planning and Follow-up of Drum
Today
See notes for explanation

Traffic lights
Traffic lights at gates 3 and 4, give a visual view
of the production situation.
Assy finished
Assy started
Part in buffer
Part not awailable
SUPPLY MATERIAL
CONTR: CARDS
DRAWINGS
WINDINGS
COVER
CORE
TANK
START OF QUEUE PROJ. TYPE
ASSEMBLY NR NR
12.2.2004 58 421354 KTRP 24 NC 18000
16.2.2004 61 421456 KTRM36NC 3993
16.2.2004 62 421457 KTRM36NC 3993
17.2.2004 63 421355 KTRP 24 NC 18000
20.2.2004 69 421386 KTRP/T36NC15000/330
23.2.2004 72 421235 KTMU12NC 3600*938
24.2.2004 73 421387 KTRP/T36NC15000/330
24.2.2004 74 421458 KTRM36NC 3993
25.2.2004 75 421459 KTRM36NC 3993
25.2.2004 76 421388 KTRP/T36NC15000/330
26.2.2004 77 421460 KTRM36NC 5270
26.2.2004 78 421465 KTRP/T36NC20000
27.2.2004 79 421461 KTRM36NC 5270
27.2.2004 80 421462 KTRM36NC 3993
1.3.2004 81 421463 KTRM36NC 3993
1.3.2004 82 421466 KTRP/T36NC20000
2.3.2004 83 421070 KCRP24NC 4700*184

Meeting point in the Factory
Rules of the game
 It is not allowed to schedule 2 or more transformers that need high labor hours
in a row (for example only every fourth transformer can be complicated)
 There is a change freezing period between design & start of production
 Cover needs to be ready before tank
 Takt time 2 + 2 trafos/day
 Every transformer has an queue number
(1, 2, 3, 4, ….), which shows in which
order to assemble
 Traffic lights are used to monitor buffer
size
 Only projects that have a Kanban
card are allowed to start
 Except in Assembly, where
transformers are assembled in the
queue number order
 If work does not have Kanban card, work
cannot start
Kanban card and kits
Simple Pull Execution: ConWIP (Constant WIP)
 Constant Work In Progress

 Rope (Kanban) is around a larger part of the workflow
 Production is not tightly coupled to customer demand
 Build to stock
 Allow limited WIP to accumulate in front of the constraint
KK

ConWIP in SECOM – GOB Bushings
Job queue
.
100 cards .
102
(4d TPT x 25 units/d) 101
100
Vacuum &
Winding Assembly Test room Packing
Oil filling
Results:
TPT GOB TTPT GOB No GOB´s tested
12.0 20.0 200
10.0 150
15.0
8.0
Weeks
100
Days
6.0 10.0
4.0 50
5.0
2.0 0
0.0 0.0
w 345
w 421
w 425
w 434
w 438
w 442
w 446
w 450
Goal
Goal
w 345
w 421
w 425
w 434
w 438
w 442
w 446
w 450
w 345
w 421
w 425
w 434
w 438
w 442
w 446
w 450
No. units tested 3 weeks average
TPT and TTPT reduction by 50 %

WIP reduction by 50 %
while having an output increase by 30 %
TOC Summary
Simple Strategy
 TOC in a word is about FOCUS. The few things you need to

focus your attention on to quickly improve performance.
 There is no limit to the Throughput you can bring into your
factory. Always create strategies that maximize Throughput.
 Operating Expense and Investment are relatively fixed for all
organizations, so there is a limit to how much cash you free up
through savings.
 Throughput is limited by the constraint
 Apply the 5 Focusing Steps to increase Throughput
 Focus Lean tool application on the constraint first for fast ROI!
© ABB Group
Reference
 Content created and / or edited by: Alex D’Anci

 Reference literature
 Goldratt; The Goal
 Goldratt; The Race
 Theory of Constraints Handbook; Cox & Schleier
editors
 Reference Links inside.abb
 Reference Links internet:
 http://www.dbrmfg.co.nz/
 http://en.wikipedia.org/wiki/Theory_of_Constraints
 http://www.tocca.com.au/
http://www.ensemblepartners.com.au/
© ABB
Reference
Flash TOC Demo courtesy of:

Ensemble Partners Pty Ltd
Level 15, Tower 2 Westfield Towers
101 Grafton Street
Bondi Junction
NSW Australia 2022
http://www.ensemblepartners.com.au/
Telephone: +61 2 9387 3955
Fax: +61 2 9387 4637
© ABB
Excel Solver
 Solver in Excel can be used to find solutions for Guitar

Factory and calculate the ROI of improvement projects.
TOC Solver for

NOTE: Solver plug in needs to be enabled in Excel for this to work
Guitar Factory
© ABB
 Throughput Accounting
Cost Accounting
 Cost Accounting is a management accounting tool to help make tactical

decisions about investments, product pricing and production mix.
 Cost Accounting assumes that all costs associated with producing a unit of
product or service are totally variable down to the individual unit level.
 This is why local efficiency and productivity are important
 Cost Accounting assumes that all the company’s resources are equally
important, and for that reason, can be divided equally over all products and
services produced.
 This is where allocation comes from
Throughput Accounting
 Throughput Accounting is a management accounting tool to help make tactical

decisions about constraints.
 Remember the 5 Focusing Steps?
 Throughput Accounting assumes that only some costs are totally variable, and
the rest are not variable
 Applications include:
 Constraint identification
 Determine the optimal product mix for maximum profit
 Make – Buy decisions
 Easy and realistic ROI calculations for improvement projects
Definitions – T, I and OE
 Throughput – T – is the rate at which the company generates money
through sales. It is the price minus the truly variable costs.
 If it has not been sold to somebody outside the company, it does not count as
throughput.
 Always try to maximize Throughput
 Investment – I – is all the money the company invests in things it needs to
create throughput.
 Cash tied up in assets
 Includes machines, buildings, development costs and other assets
 WIP held for more than one accounting cycle
 Always try to minimize Investment
 Operating Expense – OE – is all the money the company spends turning
raw material into throughput.
 Includes fixed costs, direct labor, sales & marketing, administration, cost of
capital, utilities and other overheads
 Always try to minimize Operating Expense
The Factory
 Throughput Accounting uses a global model for a factory
RM T+RM
Money to Suppliers Money from Customers
Operating Expense
Money to cover
non-variable costs
and labor
Net income = T – OE
Net income and OE only have meaning at the global level
Simple Strategy
 There is no limit to the Throughput you can bring into your factory. Always
create strategies that maximize Throughput.
 Operating Expense and Investment are fixed for all organizations, so there is a
limit to how much cash you can get through savings.
 Throughput is limited by the constraint
 Concentrate on the 5 Focusing Steps to increase Throughput!
Example
 Pizza Shop
 Sells 2800 pizzas per month
 Pizza is sold for €5 each ( T + RM = €5 )
 Raw material for each pizza RM = €1
 Throughput per pizza T = €4
 Loaded salaries for 2 employees = €8000 per month
 Rent on shop = €1000 per month
 Advertising = €500 per month
 Electricity, water, telephone, waste = €500 per month
 Loans, insurance, security and other fixed cost = €1000 per month
 OE = €8000 + €1000 + €500 + €500 + €1000 = €11.000 per month
 T = €4 x 2800 = €11.200 per month
 Net income = €200 per month

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03 100919 ABB OPEX Advanced Course Constraints Management 2 4

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ABB OPEX Advanced Skills Development

 Understand the concept that a system constraint is

 What is the Theory of Constraints?

 The Theory of Constraints (TOC) is a philosophy and

 TOC is good for your Key Performance Indicators*

* Mabin & Balderstone, The World of the Theory of Constraints

 Standard cost based metrics promotes undesirable

 Negative impacts of high WIP and inventory

 What problems do you have with:

 Some actual problems from an ABB factory:

 Run the factory for a week

Team Profit Inventory Standard Custom

TOC Flash Demo courtesy of: Ensemble Partners Pty Ltd

 The maximum throughput of a system is the throughput of

 Any effort to increase the throughput of a system will be

What is the maximum system throughput / day?

Courtesy of: Ensemble Partners Pty Ltd

1. Identify the system constraint

 A constraint is the part of the value stream that has a

Courtesy of: Ensemble Partners Pty Ltd

See notes for additional information

Go to Throughput Accounting to learn more

See notes for additional information

* See notes for examples

After going through the first four steps,

Team Profit Inventory Standard Custom

 Drum-Buffer-Rope (DBR) and

 How to schedule production to maximize profit through effective constraint

Courtesy of: Ensemble Partners Pty Ltd

Material release signal

Job Job Customer

Work Buffer Shipping Buffer

Drum = The Capacity Constrained Resource that is scheduled

Rope = Material is released only ‘a time buffer’ before it is needed on the

Info of # of units tanked daily Targets/shift displayed.

# of Takt time! Even output

Job Job Customer

= jobs with color according to buffer condition

= Not expected or needed at the Drum or exit

 Buffer Management is an monitoring system for

When WIP is too high,

Amount of Kanban cards Assembly queue

See notes for explanation

12.2.2004 58 421354 KTRP 24 NC 18000

16.2.2004 61 421456 KTRM36NC 3993

16.2.2004 62 421457 KTRM36NC 3993

17.2.2004 63 421355 KTRP 24 NC 18000

20.2.2004 69 421386 KTRP/T36NC15000/330

23.2.2004 72 421235 KTMU12NC 3600*938

24.2.2004 73 421387 KTRP/T36NC15000/330

24.2.2004 74 421458 KTRM36NC 3993

25.2.2004 75 421459 KTRM36NC 3993

25.2.2004 76 421388 KTRP/T36NC15000/330

26.2.2004 77 421460 KTRM36NC 5270

26.2.2004 78 421465 KTRP/T36NC20000

27.2.2004 79 421461 KTRM36NC 5270

27.2.2004 80 421462 KTRM36NC 3993

1.3.2004 81 421463 KTRM36NC 3993

1.3.2004 82 421466 KTRP/T36NC20000

2.3.2004 83 421070 KCRP24NC 4700*184

 Constant Work In Progress

Courtesy of: Ensemble Partners Pty Ltd

TPT and TTPT reduction by 50 %

 TOC in a word is about FOCUS. The few things you need to