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Example: Receiving goods to warehouse Detailed view What is the throughput time for good items?

What is the capacity of each station?

Receive Goods

Where is the bottleneck? What is the cycle time? What is the throughput rate?

Inspect Goods (30)

If there are 15 orders coming in an 8 hr day, what would each stations utilization rate be?

Match order? (10)

Yes

Quality Check (45)

No
Inform Purchasing

Supervisor Report (5)

No

Accept? (2)

Yes

Goods 4 pick up

Solution part 1 (single QC station)


 Throughput Time for good items 30 + 10 + 45 + 2 = 87 minutes  Throughput Time for bad orders 30 + 10 + 5 = 45 minutes  Throughput Time for bad quality 30 + 10 + 45 + 2 + 5 = 92 minutes  Cycle time is 45 minutes  Throughput rate for good orders is 10 orders / day  Inspection capacity 2 orders/ hr = 16 orders / day (assuming 8 hr day) utilization rate = 15/16 = 94%  Matching orders capacity 6 orders / hr = 48 orders / day utilization rate = 15/48 = 31%  Supervisor Reports capacity= 12 orders / hr = 96 orders / day MAX utilization rate = 15/96 = 16%  Quality Check capacity = 480 / 45 = 10 orders / day MAX utilization rate = 15/10 = 150%  Acceptance processing capacity 30 orders / hr = 240 orders / day MAX utilization rate = 15/240= 6%  Bottleneck for good orders is quality check  Bottleneck for bad orders is inspect goods

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Example: Receiving goods to warehouse What is the throughput time for good items? Detailed view
What is the capacity of each station? Receive Goods Where is the bottleneck? What is the cycle time? What is the throughput rate? Inspect Goods (30) Quality Check (45) Goods 4 pick up

Yes
Match order? (10)

Yes

Quality Check (45)

Accept? (2)

No
Inform Purchasing

No
If we get 15 orders in an 8 hr day, what would the utilization rate be for each station?

Supervisor Report (5)

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Solution part 2 (Two QC stations)


 Throughput Time for good items 30 + 10 + 45 + 2 = 87 minutes  Throughput Time for bad orders 30 + 10 + 5 = 45 minutes  Throughput Time for bad quality 30 + 10 + 45 + 2 + 5 = 92 minutes  Throughput rate is 16 orders/ day  Cycle time is 30 minutes  Inspection capacity 2 orders/ hr = 16 orders / day (assuming 8 hr day) utilization rate = 15/16 = 94%  Matching orders capacity 6 orders / hr = 48 orders / day utilization rate = 15/48 = 31%  Supervisor Reports capacity= 12 orders / hr = 96 orders / day MAX utilization rate = 15/96 = 16%  Quality Check capacity = 480 / 22.5 = 21 orders / day MAX utilization rate for each station = 15/21 = 71%  Acceptance processing capacity 30 orders / hr = 240 orders / day MAX utilization rate = 15/240= 6%  Bottleneck for ALL orders is inspect goods

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Chapter 3: Problem 2
T3-a (14) T2 (13) T3-b (10) T3-c (11) T5 (15) T6 (22) T4 (18) T7 (10)

Type A

T1 (12)

Type A or B?

Type B

a. For Type A customers, step T2 can process (60/13) = 4.62 customers per hour. T3 has three work stations and a capacity of (60/14) + (60/10) + (60/11) = 15.74 customer per hour. Step T4 can process (60/18) = 3.33 customers per hour. The bottleneck for type A customers is the step with the highest processing time per customer, T4.
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Chapter 3: Problem 2
T3-a (14) T2 (13) T3-b (10) T3-c (11) T5 (15) T6 (22) T4 (18) T7 (10)

Type A

T1 (12)

Type A or B?

Type B

b. The bottleneck for Type B customers is T6 since it has the longest processing time per customer. The capacity for Type B customers is (60/22) = 2.73 customers per hour. Thus the average capacity is 0.3(3.33) + 0.7(2.73) = 2.9 customers per hour. This of course also the expected throughput rate of the entire process (Theoretically of course since we cant have partial customers)..
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Chapter 3: Problem 2
T3-a (14) T2 (13) T3-b (10) T3-c (11) T5 (15) T6 (22) T4 (18) T7 (10)

Type A

T1 (12)

Type A or B?

Type B

c.

Type A customers would wait before T2 and T4 because the activities immediately preceding them have a higher rate of output. Type B customers would wait before T5 and T6 because of the same reasons. This assumes that new customers are always arriving.

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Another type of problem involving Parallel Processes


Bills Car Wash offers two types of washes: Standard and Deluxe. The process flow for both types of customers is shown in the following chart. Both wash types are first processed through steps A1 and A2. The Standard wash then goes through steps A3 and A4 while the Deluxe is processed through steps A5, A6, and A7. Both offerings finish at the drying station (A8). The numbers in parentheses indicate the minutes it takes for that activity to process a customer.
Standard A3 (12) A4 (15)

A1 (5)

A2 (6)

Standard or Deluxe

A8 (10)

Deluxe

A5 (5)

A6 (20)

A7 (12)

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Another type of problem involving Parallel Processes


a. Which step is the bottleneck for the Standard car wash process? For the Deluxe car wash process? b. What is the capacity (measured as customers served per hour) of Bills Car Wash to process Standard and Deluxe customers? Assume that no customers are waiting at step A1, A2, or A8. c. If 60 percent of the customers are Standard and 40 percent are Deluxe, what is the average capacity of the car wash in customers per hour? d. Where would you expect Standard wash customers to experience waiting lines, assuming that new customers are always entering the shop and that no Deluxe customers are in the shop? Where would the Deluxe customers have to wait, assuming no Standard customers?

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Another type of problem involving Parallel Processes


SOLUTION a. Step A4 is the bottleneck for the Standard car wash process, and Step A6 is the bottleneck for the Deluxe car wash process, because these steps take the longest time in the flow. b. The capacity for Standard washes is 4 customers per hour because the bottleneck step A4 can process 1 customer every 15 minutes (60/15). The capacity for Deluxe car washes is 3 customers per hour (60/20). These capacities are derived by translating the minutes per customer of each bottleneck activity to customers per hour. c. The average capacity of the car wash is (0.60 v 4) + (0.40 v 3) = 3.6 customers per hour.

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Another type of problem involving Parallel Processes


d. Standard wash customers would wait before steps A1, A2, A3, and A4 because the activities that immediately precede them have a higher rate of output (i.e., smaller processing times). Deluxe wash customers would experience a wait in front of steps A1, A2, and A6 for the same reasons. A1 is included for both types of washes because the arrival rate of customers could always exceed the capacity of A1.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

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In class Exercise: Emergency Room Case


 The first thing patients do when they arrive into an emergency room is register with the front desk unless it is a life threatening condition that requires immediate attention. Those are taken immediately inside to one of the exam rooms where they receive care from the ER doctor and nurses to stabilize them. Almost all of these patients will be admitted to the hospital for further tests, observation, or surgery. The non-critical patients have to wait in a lounge until one of the exam rooms empties at which time a nurse invites them in, takes down their vital signs (blood pressure, temperature, heart rate) and then she documents their ailment. At their leisure the ER doctor comes in examines the patient and either orders more tests or prescribes medication and releases the patient. Those requiring more tests have to wait for the test results from the lab or radiology before receiving further treatment. Some of those patients are released while others are admitted to the hospital. Patients released have to settle their bills before heading home.

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END 1 DISCHARGE

PRESCRIBE MEDS NO WAIT REGISTER VITAL SIGNS WAIT MED EXAM MORE TESTS ? YES ER CARE HOSP ADMIT END BLOOD WORK XRAY, OTHERS WAIT

EVALUATE RESULTS YES

EMERGENCY ROOM FLOWCHART

SERIOUS AILMENT ? NO 1

END

DISCHARGE REG PRESCRIBE MEDS NO CHECK VITAL SIGNS MED EXAM MORE TESTS YES PERFORM TESTS WAIT

EVALUATE RESULTS

SERIOUS AILMENT ? YES HOSP ADMIT

NO

IDEAL ER SCENARIO!

END

Process Throughput Time Reduction


 Perform activities in parallel  Change the sequence of activities  Reduce interruptions

7 Key Principles of Bottleneck analysis

1. 2.

The focus is on balancing flow, not on balancing capacity. Maximizing output and efficiency of every resource will not maximize the throughput of the entire system. An hour lost at a bottleneck or constrained resource is an hour lost for the whole system. An hour saved at a non-constrained resource does not necessarily make the whole system more productive.
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3.

7 Key Principles of Bottleneck analysis

4.

Inventory is needed only in front of the bottlenecks to prevent them from sitting idle, and in front of assembly and shipping points to protect customer schedules. Building inventories elsewhere should be avoided. Work should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to the market demand. Pacing everything to the slowest resource minimizes inventory and operating expenses.

5.

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7 Key Principles of Bottleneck analysis

6.

Activation of non-bottleneck resources cannot increase throughput, nor promote better performance on financial measures. Every capital investment must be viewed from the perspective of its global impact on overall throughput (T), inventory (I), and operating expense (OE).

7.

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How Operational Measures Relate to Financial Measures

Operational Measures Inventory (I)

Description

Relationship to Financial Measures A decrease in I leads to an increase in net profit, ROI, and cash flow An increase in T leads to an increase in net profit, ROI, and cash flows A decrease in OE leads to an increase in net profit, ROI, and cash flows An increase in U at the bottleneck leads to an increase in net profit, ROI, and cash flows

All the money invested in the system in purchasing things that it intends to sell Rate at which system generates money through sales All the money the system spends to turn inventory into throughput The degree to which equipment, space, or labor is currently being used, and is measured as the ratio of average output rate to maximum capacity, expressed as a %

Throughput (T)

Operating Expense (OE) Utilization (U)

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Constraint Management Making product choices using bottleneck analysis

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Identifying the Bottleneck MultiMulti-Product Multi-stations MultiEXAMPLE Diablo Electronics manufactures four unique products (A, B, C, and D) that are fabricated and assembled in five different workstations (V, W, X, Y, and Z) using a small batch process. Each workstation is staffed by a worker who is dedicated to work a single shift per day at an assigned workstation. Batch setup times have been reduced to such an extent that they can be considered negligible. Figure 7.2 is a flowchart of the manufacturing process. Diablo can make and sell up to the limit of its demand per week, and no penalties are incurred for not being able to meet all the demand. Which of the five workstations (V, W, X, Y, or Z) has the highest utilization, and thus serves as the bottleneck for Diablo Electronics?

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Identifying the Bottleneck


Product A $5
Step 1 at workstation V (30 min) Step 2 at workstation Y (10 min) Finish with step 3 at workstation X (10 min)

Product: A Price: $75/unit Demand: 60 units/wk

Raw materials $5 Product B $3


Step 1 at workstation Y (10 min) Finish with step 2 at workstation X (20 min)

Purchased parts

Product: B Price: $72/unit Demand: 80 units/wk

Raw materials Product C $2


Step 1 at workstation W (5 min) Step 2 at workstation Z (5 min) Step 3 at workstation X (5 min)

$2

Purchased parts

Finish with step 4 at workstation Y (5 min)

Product: C Price: $45/unit Demand: 80 units/wk

Raw materials Product D $4


Step 1 at workstation W (15 min) Step 2 at workstation Z (10 min)

$3

Purchased parts

Finish with step 3 at workstation Y (5 min)

Product: D Price: $38/unit Demand: 100 units/wk

Raw materials

$6

Purchased parts

Flowchart for Products A, B, C, and D Overhead Costs: $8,500; Labor Costs: $18/hr (8hrs/day; 40 hrs/week)

Identifying the Bottleneck


SOLUTION Because the denominator in the utilization ratio is the same for every workstation, with one worker per machine at each step in the process, we can simply identify the bottleneck by computing aggregate workloads at each workstation. The firm wants to satisfy as much of the product demand in a week as it can. Each week consists of 2,400 minutes of available production time. Multiplying the processing time at each station for a given product with the number of units demanded per week yields the workload represented by that product. These loads are summed across all products going through a workstation to arrive at the total load for the workstation, which is then compared with the others and the existing capacity of 2,400 minutes.

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Identifying the Bottleneck


Workstation V W X Y Z Load from Product A Load from Product B Load from Product C Load from Product D Total Load (min)

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Identifying the Bottleneck


Workstation V W X Y Z Load from Product A 60 v 30 = 1800 0 60 v 10 = 600 60 v 10 = 600 0 Load from Product B 0 0 80 v 20 = 1,600 80 v 10 = 800 0 Load from Product C 0 80 v 5 = 400 80 v 5 = 400 80 v 5 = 400 80 v 5 = 400 Load from Product D 0 100 v 15 = 1,500 0 100 v 5 = 500 100 v 10 = 1,000 Total Load (min) 1,800 1,900 2,600 2,300 1,400

These calculations show that workstation X is the bottleneck, because the aggregate work load at X exceeds the available capacity of 2,400 minutes per week.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Pedro Rodriguez, the newly hired production supervisor, is knowledgeable about the theory of constraints and bottleneckbased scheduling. He believes that profitability can indeed be improved if bottleneck resources were exploited to determine the product mix. What is the change in profits if, instead of the traditional method used by Diablo Electronics, the bottleneck method advocated by Pedro is used to select the product mix? SOLUTION Decision Rule 1: Traditional Method Select the best product mix according to the highest overall contribution margin of each product.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 1: Calculate the contribution margin per unit of each product as shown here.
A Price Raw material and purchased parts = Contribution margin B C D

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 1: Calculate the contribution margin per unit of each product as shown here.
A Price Raw material and purchased parts = Contribution margin $75.00 10.00 $65.00 B $72.00 5.00 $67.00 C $45.00 5.00 $40.00 D $38.00 10.00 $28.00

When ordered from highest to lowest, the contribution margin per unit sequence of these products is B, A, C, D.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 2: Allocate resources V, W, X, Y, and Z to the products in the order decided in step 1. Satisfy each demand until the bottleneck resource (workstation X) is encountered. Subtract minutes away from 2,400 minutes available for each week at each stage.
Work Center V W X Y Z Minutes at the Start Minutes Left After Making 80 B Minutes Left After Making 60 A Can Only Make 40 C Can Only Make 100 D

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 2: Allocate resources V, W, X, Y, and Z to the products in the order decided in step 1. Satisfy each demand until the bottleneck resource (workstation X) is encountered. Subtract minutes away from 2,400 minutes available for each week at each stage.
Work Center V W X Y Z Minutes at the Start 2,400 2,400 2,400 2,400 2,400 Minutes Left After Making 80 B 2,400 2,400 800 1,600 2,400 Minutes Left After Making 60 A 600 2,400 200 1,000 2,400 Can Only Make 40 C 600 2,200 0 800 2,200 Can Only Make 100 D 600 700 0 300 1,200

The best product mix according to this traditional approach is then 60 A, 80 B, 40 C, and 100 D.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 3: Compute profitability for the selected product mix.
Profits Revenue Materials Labor Overhead Profit

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 3: Compute profitability for the selected product mix.
Profits Revenue Materials Labor Overhead Profit (60 v $75) + (80 v $72) + (40 v $45) + (100 v $38) (60 v $10) + (80 v $5) + (40 v $5) + (100 v $10) (5 workers) v (8 hours/day) v (5 days/week) v ($18/hour) = = = = = $15,860 $2,200 $3,600 $8,500 $1,560

Manufacturing the product mix of 60 A, 80 B, 40 C, and 100 D will yield a profit of $1,560 per week.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Decision Rule 2: Bottleneck Method Select the best product mix according to the dollar contribution margin per minute of processing time at the bottleneck workstation X. This method would take advantage of the principles outlined in the theory of constraints and get the most dollar benefit from the bottleneck. Step 1: Calculate the contribution margin/minute of processing time at bottleneck workstation X:

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Product A Contribution margin Time at bottleneck Contribution margin per minute Product B Product C Product D

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Product A Contribution margin Time at bottleneck Contribution margin per minute $65.00 10 minutes $6.50 Product B $67.00 20 minutes $3.35 Product C $40.00 5 minutes $8.00 Product D $28.00 0 minutes Not defined

When ordered from highest to lowest contribution margin/ minute at the bottleneck, the manufacturing sequence of these products is D, C, A, B, which is reverse of the earlier order. Product D is scheduled first because it does not consume any resources at the bottleneck.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 2: Allocate resources V, W, X, Y, and Z to the products in the order decided in step 1. Satisfy each demand until the bottleneck resource (workstation X) is encountered. Subtract minutes away from 2,400 minutes available for each week at each stage.
Work Center V W X Y Z Minutes at the Start Minutes Left After Making Minutes Left After Making Min Left After Making Min Left After Making

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 2: Allocate resources V, W, X, Y, and Z to the products in the order decided in step 1. Satisfy each demand until the bottleneck resource (workstation X) is encountered. Subtract minutes away from 2,400 minutes available for each week at each stage.
Work Center V W X Y Z Minutes at the Start 2,400 2,400 2,400 2,400 2,400 Minutes Left After Making 100 D 2,400 900 2,400 1,900 1,400 Minutes Left After Making 80 C 2,400 500 2,000 1,500 1,000 Min Left After Making 60 A 600 500 1,400 900 1,000 Can Only Make 70 B 600 500 0 200 1,000

The best product mix according to this bottleneck based approach is then 60 A, 70 B, 80 C, and 100 D.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 3: Compute profitability for the selected product mix.
Profits Revenue Materials Labor Overhead Profit

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Determining the Product Mix


Step 3: Compute profitability for the selected product mix.
Profits Revenue Materials Labor Overhead Profit (60 v $75) + (70 v $72) + (80 v $45) + (100 v $38) (60 v $10) + (70 v $5) + (80 v $5) + (100 v $10) (5 workers) v (8 hours/day) v (5 days/week) v ($18/hour) = = = = = $16,940 $2,350 $3,600 $8,500 $2,490

Manufacturing the product mix of 60 A, 70 B, 80 C, and 100 D will yield a profit of $2,490 per week.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
ONeill Enterprises manufactures three unique products (A, B, C) that are fabricated and assembled in four different workstations (W, X, Y, Z) using a small batch process. Each of the products visits every one of the four workstations, though not necessarily in the same order. Batch setup times are negligible. A flowchart of the manufacturing process is shown below. ONeill can make and sell up to the limit of its demand per week, and there are no penalties for not being able to meet all the demand. Each workstation is staffed by a worker dedicated to work on that workstation alone, and is paid $12 per hour. Variable overhead costs are $8000/week. The plant operates one 8-hour shift per day, or 40 hours/week. Which of the four workstations W, X, Y, or Z has the highest total workload, and thus serves as the bottleneck for ONeill Enterprises?

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Flowchart for Products A, B, and C
Product A Step 1 at workstation W (10 min) Step 2 at workstation Y (15 min) Step 3 at workstation X (9 min) Finish with step 4 at workstation Z (16 min) Product: A Price: $90/unit Demand: 65 units/wk

$7

Raw materials

$6

Purchased part

Product B

$9

Step 1 at workstation X (12 min)

Step 2 at workstation W (10 min)

Step 3 at workstation Y (10 min)

Finish with step 4 at workstation Z (13 min)

Product: B Price: $85/unit Demand: 70 units/wk

Raw materials

$5

Purchased part

Product C

$10

Step 1 at workstation Y (5 min)

Step 2 at workstation X (10 min)

Step 3 at workstation W (12 min)

Finish with step 4 at workstation Z (10 min)

Product: C Price: $80/unit Demand: 80 units/wk

Raw materials

$5

Purchased part

Flowchart for Products A, B, and C Overhead Costs: $8,000; Labor Costs: $12/hr (as much as worker works)
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In class - Example
Work Station W X Y Z Load from Product A Load from Product B Load from Product C Total Load (minutes)

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Work Station W X Y Z Load from Product A (65x10)= 650 (65v9)= 585 (65v15)= 975 (65v16)= 1040 Load from Product B (70v10)= 700 (70v12)= 840 (70x10)= 700 (70v13)= 910 Load from Product C (80v12)= 960 (80v10)= 800 (80x5)= 400 (80v10)= 800 Total Load (minutes) 2310 2225 2075 2750

These calculations show that workstation Z is the bottleneck, because the aggregate work load at Z exceeds the available capacity of 2400 minutes per week.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
The senior management at ONeill Enterprises wants to improve the profitability of the firm by accepting the right set of orders. Currently, decisions are made to accept as much of the highest contribution margin product as possible (up to the limit of its demand), followed by the next highest contribution margin product, and so on until no more capacity is available. Since the firm cannot satisfy all the demand, the product mix must be chosen carefully. Jane Hathaway, the newly hired production supervisor, is knowledgeable about the theory of constraints and bottleneck based scheduling. She believes that profitability can indeed be approved if bottleneck resources were exploited to determine the product mix. What is the change in profits if instead of the traditional method that ONeill has used thus far; a bottleneck based approach advocated by Jane is used instead for selecting the product mix?

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
SOLUTION Decision rule 1: Traditional method - Select the best product mix according to the highest overall profit margin of each product. Step 1: Calculate the profit margin per unit of each product as shown below
A Price Raw Material & Purchased Parts Labor = Contribution Profit Margin B C

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
SOLUTION Decision rule 1: Traditional method - Select the best product mix according to the highest overall profit margin of each product. Step 1: Calculate the profit margin per unit of each product as shown below
A Price Raw Material & Purchased Parts Labor = Contribution Profit Margin $90.00 13.00 10.00 $67.00 B $85.00 14.00 9.00 $62.00 C $80.00 15.00 7.40 $57.60

When ordering from highest to lowest, the profit margin per unit order of these products is ABC.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Step 2: Allocate resources W, X, Y, and Z to the products in the order decided in step 1. Satisfy each demand until the bottleneck resource (workstation Z) is encountered. Subtract minutes away from 2400 minutes available for each week at each stage.
Work Center W X Y Z Starting After 65 A After 70 B Can Only Make 45 C

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Step 2: Allocate resources W, X, Y, and Z to the products in the order decided in step 1. Satisfy each demand until the bottleneck resource (workstation Z) is encountered. Subtract minutes away from 2400 minutes available for each week at each stage.
Work Center W X Y Z Starting 2400 2400 2400 2400 After 65 A 1750 1815 1425 1360 After 70 B 1050 975 725 450 Can Only Make 45 C 510 525 500 0

The best product mix is 65 A, 70 B, and 45 C

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Step 3: Compute profitability for the selected product mix.

Profits Revenue Materials Overhead Labor Profit

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Step 3: Compute profitability for the selected product mix.

Profits Revenue Materials Overhead Labor Profit $15400 $2500 $8000 $1920 $2980

Manufacturing the product mix of 65 A, 70 B, and 45 C will yield a profit of $2980.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Decision rule 2: Bottleneck-based approach - Select the best product mix according to the dollar contribution per minute of processing time at the bottleneck workstation Z. This rule would take advantage of the principles outlined in the theory of constraints and get the most dollar benefit from the bottleneck. Step 1: Calculate the contribution/minute of processing time at bottleneck workstation Z:
Product A Contribution Margin Time at Bottleneck Contribution Margin per minute Product B Product C

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Decision rule 2: Bottleneck-based approach - Select the best product mix according to the dollar contribution per minute of processing time at the bottleneck workstation Z. This rule would take advantage of the principles outlined in the theory of constraints and get the most dollar benefit from the bottleneck. Step 1: Calculate the contribution/minute of processing time at bottleneck workstation Z:
Product A Contribution Margin Time at Bottleneck Contribution Margin per minute $67.00 16 minutes 4.19 Product B $62.00 13 minutes 4.77 Product C $57.60 10 minutes 5.76

When ordering from highest to lowest contribution margin/minute at the bottleneck, the manufacturing sequence of these products is CBA, which is reverse of the traditional method order.
Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Step 2: Allocate resources W, X, Y, and Z to the products in the order decided in step 1. Satisfy each demand until the bottleneck resource (workstation Z) is encountered. Subtract minutes away from 2400 minutes available for each week at each stage.
Work Center W X Y Z Starting After 80 C After 70 B Can Only Make 43 A

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Step 2: Allocate resources W, X, Y, and Z to the products in the order decided in step 1. Satisfy each demand until the bottleneck resource (workstation Z) is encountered. Subtract minutes away from 2400 minutes available for each week at each stage.
Work Center W X Y Z Starting 2400 2400 2400 2400 After 80 C 1440 1600 2000 1600 After 70 B 740 760 1300 690 Can Only Make 43 A 310 373 655 2

The best product mix is 43A, 70B, and 80C

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Step 3: Compute profitability for the selected product mix. The new profitability figures are shown below based on the new production quantities of 43A, 70B, and 80C.
Profits Revenue Materials Overhead Labor Profit

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

In class - Example
Step 3: Compute profitability for the selected product mix. The new profitability figures are shown below based on the new production quantities of 43A, 70B, and 80C.
Profits Revenue Materials Overhead Labor Profit $16220 $2739 $8000 $1920 $3561

Manufacturing the product mix of 43 A, 70 B, and 80 C will yield a profit of $3561.

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

A Line Process
 Line Balancing


Assignment of work to stations in a line so as to achieve the desired output rate with the smallest number of workstations Achieving the goal is similar to the theory of constraints but it differs in how it addresses bottlenecks

 Precedence diagram AON network

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

A Line Process
 The desired output rate is matched to the staffing or production plan  Cycle time is the maximum time allowed for work at each station is
1 c= r where c = cycle time in hours r = desired output rate

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A Line Process
 The theoretical minimum number of stations is
7t TM = c where 7t = total time required to assemble each unit

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

A Line Process
 Idle time, efficiency, and balance delay
Idle time = nc 7t where n = number of stations 7t Efficiency (%) = nc (100) Balance delay (%) = 100 Efficiency

Copyright 2010 Pearson Education, Inc. Publishing as Prentice Hall.

Precedence Diagram
EXAMPLE Green Grass, Inc., a manufacturer of lawn and garden equipment, is designing an assembly line to produce a new fertilizer spreader, the Big Broadcaster. Using the following information on the production process, construct a precedence diagram for the Big Broadcaster. Time Immediate Work Description
Element A B C D E F G H I (sec) Predecessor(s) None A A B B C C D, E F, G Bolt leg frame to hopper Insert impeller shaft Attach axle Attach agitator Attach drive wheel Attach free wheel Mount lower post Attach controls Mount nameplate 40 30 50 40 6 25 15 20 18 Total 244

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Precedence Diagram
SOLUTION Figure 4 shows the complete diagram. We begin with work element A, which has no immediate predecessors. Next, we add elements B and C, for which element A is the only immediate predecessor. After entering time standards and arrows showing precedence, we add elements D and E, and so on. The diagram simplifies D interpretation. Work element F, H 40 B for example, can be done 20 anywhere on the line after E 30 element C is completed. 6 A However, element I must F 40 await completion of C 25 elements F and G. 50
I G Figure 4 Precedence Diagram for Assembling the Big Broadcaster 15 18

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Calculating Cycle Time, TM, Efficiency


EXAMPLE (contd) Green Grasss plant manager just received marketings latest forecasts of Big Broadcaster sales for the next year. She wants its production line to be designed to make 2,400 spreaders per week for at least the next 3 months. The plant will operate 40 hours per week. a. What should be the lines cycle time? b. What is the smallest number of workstations that she could hope for in designing the line for this cycle time? c. Suppose that she finds a solution that requires only five stations. What would be the lines efficiency?

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Calculating Cycle Time, TM, Efficiency


SOLUTION a. First convert the desired output rate (2,400 units per week) to an hourly rate by dividing the weekly output rate by 40 hours per week to get units per hour. Then the cycle time is c = 1/r = 1/60 (hr/unit) = 1 minute/unit = 60 seconds/unit b. Now calculate the theoretical minimum for the number of stations by dividing the total time, 7t, by the cycle time, c = 60 seconds. Assuming perfect balance, we have 7t 244 seconds = = 4.067 or 5 stations TM = c 60 seconds

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Calculating Cycle Time, TM, Efficiency


c. Now calculate the efficiency of a five-station solution, assuming for now that one can be found:

7t 244 Efficiency = (100) = = 81.3% nc 5(60)

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Finding a Solution
 The goal is to cluster the work elements into workstations so that
1. The number of workstations required is minimized 2. The precedence and cycle-time requirements are not violated

 The work content for each station is equal (or nearly so, but less than) the cycle time for the line  Trial-and-error can be used but commercial software packages are also available

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Finding a Solution
 The theoretical minimum number of workstations is 5 and the cycle time is 60 seconds, so Figure 5 represents an optimal solution to the problem
D B 30 A 40 C 50 G 15 Figure 5 Big Broadcaster Precedence Diagram Solution
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40 E 6

H 20

F 25 I 18

In class - Example
A plant manager needs a design for an assembly line to assembly a new product that is being introduced. The time requirements and immediate Immediate Work Element Time (sec) Predecessor predecessors for the A 12 work elements are B 60 A as follows:
C D E F G H I J K Total = 36 24 38 72 14 72 35 60 12 435 G, H I F, J C, D B, E

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In class - Example
Draw a precedence diagram, complete I, F, J, and K

Work Element A B C D E F G H I J K

Time (sec) 12 60 36 24 38 72 14 72 35 60 12

Immediate Predecessor A

A B F D E J K

C
C, D B, E

G, H I F, J

Total =

435

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In class - Example
If the desired output rate is 30 units per hour, what are the cycle time and theoretical minimum?

1 c= r =

1 (3600) = 120 sec/unit 30

7t 435 TM = c = = 3.6 120

or 4 stations

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In class - Example
Suppose that we are fortunate enough to find a solution with just four stations. What is the idle time per unit, efficiency, and the balance delay for this solution? Idle time = nc 7t = 4(120) 435 = 45 seconds Efficiency (%) = 7t 435 nc (100) = 480 (100) = 90.6%

Balance delay (%) = 100 Efficiency = 100 90.6 = 9.4%

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In class - Example
Using trial and error, one possible solution is shown below.
Work Elements Assigned

Station 1 2 3 4 5

Cumulative Time

Idle Time (c = 120)

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In class - Example
Using trial and error, one possible solution is shown below.
Work Elements Assigned H, C, A B, D, G E, F I, J, K

Station 1 2 3 4 5

Cumulative Time 120 98 110 107

Idle Time (c = 120) 0 22 10 13

A fifth station is not needed

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Managerial Considerations
 Pacing is the movement of product from one station to the next  Behavioral factors such as absenteeism, turnover, and grievances can increase after installing production lines  The number of models produced complicates scheduling and necessitates good communication  Cycle times are dependent on the desired output rate

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Solved Problem 2
A company is setting up an assembly line to produce 192 units per 8-hour shift. The following table identifies the work elements, times, and immediate predecessors:
Work Element A B C D E F G H I J Time (sec) 40 80 30 25 20 15 120 145 130 115 Total 720 Immediate Predecessor(s) None A D, E, F B B B A G H C, I

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Solved Problem 2
a. What is the desired cycle time (in seconds)? b. What is the theoretical minimum number of stations? c. Use trial and error to work out a solution, and show your solution on a precedence diagram. d. What are the efficiency and balance delay of the solution found? SOLUTION a. Substituting in the cycle-time formula, we get 1 8 hours (3,600 sec/hr) = 150 sec/unit c= r = 192 units

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Solved Problem 2
b. The sum of the work-element times is 720 seconds, so

7t TM = c =

720 sec/unit 150 sec/unit-station

= 4.8

or 5 stations

which may not be achievable.

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Solved Problem 2
c. The precedence diagram is shown in Figure 7.6. Each row in the following table shows work elements assigned to each of the five workstations in the proposed solution.
Work Element Immediate Predecessor(s) None A D, E, F B B B A G H C, I

D 25 B 80 A 40 G 120 H 145 Figure 7.6 Precedence Diagram


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A B C D E F G H I J

E 20 F 15

C 30 J 115

I 130

Solved Problem 2
B 80 A 40 G 120

D 25 E 20 F 15 H 145 I 130 C 30 J 115

Station S1

Candidate(s)

Choice

Work-Element Time (sec)

Cumulative Time (sec)

Idle Time (c= 150 sec)

S2 S3 S4 S5

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Solved Problem 2
B 80 A 40 G 120

D 25 E 20 F 15 H 145 I 130 C 30 J 115

Station S1

Candidate(s) A B D, E, F

Choice A B D G E H I F C J

Work-Element Time (sec) 40 80 25 120 20 145 130 15 30 115

Cumulative Time (sec) 40 120 145 120 140 145 130 145 30 145

Idle Time (c= 150 sec) 110 30 5 30 10 5 20 5 120 5

S2 S3 S4 S5

E, F, G E, F F, H F, I F C J

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Solved Problem 2
d. Calculating the efficiency, we get

Efficiency (%) =

7t 720 sec/unit nc (100) = 5(150 sec/unit)

= 96% Thus, the balance delay is only 4 percent (10096).

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