ricardo ernst top management program in logistics & supply chain management (tmplsm) production...
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Ricardo Ernst
Top Management Program in Logistics & Supply Chain Management (TMPLSM)
Production and Operations ManagementProduction and Operations Management
66: The: Theory of Constraintsory of Constraints
3
Financial Measures
• Net Profit– an absolute measure
• Return on Investment (ROI)– a relative measure (profit relative to
investment)
• Cash Flow– a survival measure
4
Productivity Measures
1. Has throughput increased?
Throughput rate = the sales rate
2. Has inventory decreased?
Inventory = $$ invested in things it intends to sell
3. Have operational expenses decreased?
Operating expenses = $$ spent to turn inventory into throughput
• Net profitan absolute measurement in dollars
• Return on investmenta relative measure based on investment
• Cash flowa survival measurement ....
• Throughputthe rate at which money is generated by the system through sales
• Inventoryall the money that the system has invested in purchasing things it intends to sell
• Operating expensesall the money that the system spends to turn inventory into throughput ....
Performance MeasurementFinancial
5
6
Du-Pont Ratio Analysis
MarketBook
Objective: Maximize Market/Book ratio
IncomeSales
SalesAssets
AssetsEquity (book)
Market valueIncome=
MarketBook = (ROS) (Turnover) (Leverage) (P/E ratio)
7
“A plant in which everyone is working all the time is very
inefficient”
“A plant in which everyone is working all the time is very
inefficient”
What do you think?
8
The Statistics of Dependent Events
• Per Goldratt, Rather than balancing capacities, the flow of product through the system should be balanced
Process Time (B)Process Time (A)
9
0
2
4
6
8
10
Inve
nto
ry (
L)
1.0Utilization,
0.80.60.2 0.4
Variability can create long queues when (utilization) approaches 1
Variability can create long queues when (utilization) approaches 1
L goes sky-high
Terminology Usedin “The Goal”
• Capacity• Expected output in period of time
• Bottleneck• Capacity less than (or at most equal to) demand
• Non-bottleneck• Capacity is greater than demand placed on resource
• Capacity-Constrained Resource (CCR)• Capacity is close to demand
Upstream BottleneckDemand < or = Bottleneck Capacity
X YBottleneck Nonbottleneck
Demand / reqs 200 units 200 unitsProcess time/unit 1 hour 40 minsSched. time 200 hours 200 hours
X Y Market
Case A
What happens ?
Upstream BottleneckDemand > Bottleneck Capacity
X YBottleneck Nonbottleneck
Demand / reqs 300 units 300 unitsProcess time/unit 1 hour 40 minsSched. time 200 hours 200 hours
X Y Market
Case B
What happens ? How to manage ?
Y X Market
Case C
X YBottleneck Nonbottleneck
Demand / reqs 200 units 200 unitsProcess time/unit 1 hour 40 minsSched. time 200 hours 200 hours
Downstream BottleneckDemand < or = Bottleneck Capacity
What happens ?
Y X Market
Case D
X YBottleneck Nonbottleneck
Demand / reqs 300 units 300 unitsProcess time/unit 1 hour 40 minsSched. time 200 hours 200 hours
Downstream BottleneckDemand > Bottleneck Capacity
What happens ? How to manage ?
16
A B C D E F
Bottleneck (Drum)
InventorybufferCommunication
(rope)
Market
Pull from the bottleneck
“Drum & Rope”
Managing with Constraints
• Identify pacing operations• Bottlenecks & capacity constrained resources
• Balance throughput across operations• Drive CCRs to max capacity• Manage idle time on non-CCRs
• Supplement CCR output to level of demand • Overtime• Alternate routings• Multiple-sourcing
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