THE GOAL(Managing by Common Sense)

BYEliyahu Goldratt

What does it mean to be productive?

Productivity is every activity that brings the company closer to its goal.

GVS SARMA

THE GOAL OF ANY BUSINESS?

Better efficiency?Low cost of production?Better quality?Improved customer relations?Low cost of Raw materials?High market share?

GVS SARMA

The GOAL of any business is to make MONEY.

Any activity towards achieving this goal is PRODUCTIVE!

GVS SARMA

How do you know you are making money?

Net profitROICash flow??How much sense do they make to a production man ?These conventional ways of measurement do not lend themselves very well to the daily operations of the manufacturing organisation.

GVS SARMA

How do we measure?Throughput: It is the rate at which the system generates money through sales– Not production.If you produce and do not sell it is not throughput.

Inventory: It is all the money that the system has invested in purchasing things which it intends to sell.

GVS SARMA

How do we measure?

Operational Expenses: It is all the money the system spends in order to turn inventory into through put. Inventory carrying cost is an operational expense.Value added to the product by way of direct labor is not taken into account anywhere.

GVS SARMA

If the goal is to be expressed in terms of these parameters then

“The goal of any business is to increase throughput while simultaneously reducing

the inventory and the operational expenses”

GVS SARMA

In money terms“ Throughput is the money coming in,

Inventory is the money in the system and Operational expense is the money we have

to pay out to make the throughput happen(inventory carrying cost is a part of

operational expense)”

GVS SARMA

The challenge to any manager will be to balance all the three parameters.

A balanced plant is essentially a plant where the capacity of every resource is

balanced exactly with the market demand.

GVS SARMA

What does that mean?

If we don’t have enough capacity we lose potential throughput.

If we have more than enough capacity, we are wasting money by increased operational expense.

GVS SARMA

What does that mean?

The tendency for most managements is to trim the capacity wherever they can so that no resource is idle and everybody has something to work on.The Goal is not to improve one parameter at a time but make the whole system productive.

GVS SARMA

Balancing is a myth???A perfectly balanced plant is a myth!When capacity is trimmed exactly to market demand, throughput goes down and inventories build up, the carrying cost of inventory which is an operational expense also goes up.Reducing manpower during low demand, reduces operational expense but does not improve the throughput or inventory.

GVS SARMA

Why cant we balance ??Because of a combination of two phenomena which are found in every process.Dependent events & Statistical fluctuationsDependent events are those events that are determined by the events prior them.Statistical fluctuations are those parameters of a process that cannot be predicted precisely all the time, they vary from one instance to another.

GVS SARMA

The Hike with Herbie

GVS SARMA

Consider a manufacturing set-up where processing takes place in a sequenceThe processing at each step fluctuates in speed, faster & slower.But the ability to process faster than average is limited by others in the process. If one step goes faster but the downstream is slower, then the processing rate in this step has to be reduced.If the downstream is not a limitation, still upstream steps can be limiting, starving off this step. These are dependant events

GVS SARMA

Statistical fluctuations & Dependency

Do they average out?Yes if your speed can go up & down without limitations.But in a manufacturing set-up your ability to speed up is limited, but you can slow down or even stop altogether.

GVS SARMA

Statistical fluctuations & Dependency

Dependency limits the opportunities for higher fluctuations.The end result is an accumulation of slowness and an increase in the processing time, reduction in throughput and an increase of inventory.The processing rate of the slower step decides the system throughput.

GVS SARMA

A day at the plant.

100pieces of a product has to be manufactured in 5 days in a Two step process.Step1 feeds step2 in batches of 25.Step1produces at an average rate of 25 per day but can go up to 35 per day. Step2 can process a maximum of 25per day but consistently.

GVS SARMA

The production plan is as follows:

Day1 Day2 Day3 Day4 Day5Step1 25 25 25 25 0 Total 100 Step2 0 25 25 25 25 Total 100

GVS SARMA

The actual production - step1

Day1 Day2 Day3 Day4 Day5Step1 19(-6) 21(-4) 28(+3) 32(+7) 0Total 19(-6) 40(-10) 68(-7) 100(0)

Target achieved despite upsets

GVS SARMA

The actual production-step2

Day1 Day2 Day3 Day4 Day5Step2 0 19(-6) 21(-4) 25(-3) 25(-7) Total 0 19(-6) 40(-10) 65(-10) 90(-10)

Shortfall of 10.

GVS SARMA

The actual productionDay1 Day2 Day3 Day4 Day5

Step1 19(-6) 21(-4) 28(+3) 32(+7) 0Total 19(-6) 40(-10) 68(-7) 100(0) 0

Step2 0 19(-6) 21(-4) 25(-3) 25(-7)Total 0 19(-6) 40(-10) 65(-10) 90(-10)

The maximum deviation of the preceding operation will become the starting point for the subsequent operation.

GVS SARMA

The actual production

Every time step1 was slow it got passed on to the next step, but when step1 went faster step2 was still at 25.For a continuous process the production loss is permanent and in a batch process it means increased cycle time.It also means that the inventories accumulate between the two steps.

GVS SARMA

Resources in your plant!

Bottlenecks: Those whose capacity is equal to or less than the demand placed on them.

Non-Bottlenecks: Those whose capacity is greater than the demand placed on them.

GVS SARMA

Resources in your plant!Bottlenecks are a reality and can keep changing their location depending on the demand placed on the system.Running a plant is the balancing of these resources.The bottleneck decides the throughput of the plant.Market demand is never to be balanced by changing the capacity but by changing the throughput only.

GVS SARMA

What to do with bottlenecks?

Identify them.There is bound to be some hidden capacity in each bottleneck. Check if you can increase their capacity (Not de-bottlenecking).Find enough capacity for the bottleneck to become more or equal to the demand.

GVS SARMA

Finding Herbie!!

GVS SARMA

How to deal with bottlenecks?

Bottlenecks should never be idle or run at lower capacity.An hour lost on the bottleneck is an hour lost forever not just for that resource but for the entire system.The loss due to an hour lost on the bottleneck is the throughput for the entire plant in that one hour.

GVS SARMA

How to deal with bottlenecks?

If the bottleneck produces off-spec. material the result is a loss of throughput, make sure the process control is very good.

At the same ensure that the bottlenecks work on on-spec. material, by placing QC before them.

GVS SARMA

What to do with Non-bottlenecks?

The level of utilisation of a non-bottleneck is not determined by its own potential but by other constraints in the system.

A non- bottleneck, upstream of a bottleneck, if made to do more work ends up creating more inventory.

GVS SARMA

What to do with Non-bottlenecks?Running a non-bottleneck for the sake of not keeping it idle is counter productive, some percentage of the non-bottleneck’s time is bound to be idle.

Activating a resource and utilising a resource are entirely different.

A system of local optimums is not an optimum system at all.

GVS SARMA

Done!

GVS SARMA

The next logical step – Lead time!Four elements of lead timeSetup time: Time the material spends waiting for a resource, while the resource is preparing itself to work on the material.

Processing time: Time the material spends being modified into a new valuable form.

GVS SARMA

Lead time!

Queue time: Time spent by the material in queue while the resource is busy working on other materials ahead of it.

Wait time: Time spent by the material not waiting for any resource but for other parts or material so that they can be joined together.

GVS SARMA

Lead time!Setup & process time are a small fraction of the total elapsed time for any process, queue & wait time take up the majority time.For parts going through the bottlenecks the queue time is dominant.For parts through the Non-bottlenecks the wait time is dominant.Either way bottlenecks dictate both the throughput and the inventory.

GVS SARMA

Lead time!Cut the batch sizes to half.That reduces the queue and wait time by half and the lead time also reduces.Batch sizes based on EBQ formula have certain flawed assumptions!

GVS SARMA

Lead time!Number of setups will increase, but for a bottlenecks the queue time is dominant. Transportation costs will increase. An hour saved on a non-bottleneck is not an hour saved!

GVS SARMA

Got it!

GVS SARMA

What was different?

Measurement?A cultural change?Policy change?Procedural changes?Process change?

GVS SARMA

What was different?A switch from the cost world to the throughput world.In the past cost improvement was first, throughput was second and inventory was the last of the concerns, in the new system the throughput came first, inventory second and operating expenses last.Inventory was accounted as an asset, inventory is a liability.Changing the measurements’ scale of importance is a cultural change.

GVS SARMA

The Process ?STEP1: Identify the bottlenecks

(Capacity less than or equal to the demand placed on them)

STEP2: Decide how to exploit the bottlenecks.(No idle time, tighten process control, QC before bottleneck, prioritise the flow)

STEP3: Subordinate everything to the above decision.(All other resources adjusted to ensure maximum throughput from the bottlenecks)

STEP4: Elevate the systems’ bottlenecks.(By pass, reroute, outsource the work)

STEP5: If in a previous step the bottleneck has been broken, go back to step1.

GVS SARMA

Constraints – The theorySTEP1: Identify the constraints

STEP2: Decide how to exploit the constraints.

STEP3: Subordinate everything to the above decision.

STEP4: Elevate the systems’ constraints.

STEP5: If in a previous step a constraint has been broken, go back to step1. Do not allow inertia to cause a system’s constraint.

GVS SARMA

Wandering bottlenecks!

Do bottlenecks wander?When the demand on the system changes new bottlenecks might appear.When a constraint is broken, re-examine the conditions put in place to elevate the constraint or else you are likely to hit a new constraint elsewhere.

GVS SARMA

The Propylene - PP circuit3 Feeds to GC decide the production rate of Propylene.Propylene is stored in spheres and then pumped to PP or to PTD for tanker loading.Propylene can also be imported/exported by road tankers.PP can produce powder at a higher rate than can be extruded, there is a powder storage in between.The pellets are stored in silos and are bagged and sent

to the ware house.They are then transported out to the market/ users.

GVS SARMA

The Propylene - PP circuit

GC Storage PP

Bagging

C2/C3

Propane

FCCC3

Export

C3’- 1950 MT max.

16.0 TPH15.3TPh 14.5 TPH

Powder silos(450 MT)

Extruder

GVS SARMA

The Propylene - PP circuit

If extruder is the bottleneckMinimum Powder production required is14.5TPH.Propylene to PP should be 15.2 TPHWhat should be the storages in between?

C3' TO PP

GVS SARMA

The Propylene - PP circuitInventory before a bottleneck gives the upstream non-bottlenecks time for fluctuations.

At the same time the capacity of this non-bottleneck resource should be enough to feed the bottleneck and buildup the inventory also.

GVS SARMA

The Propylene - PP circuit

For a 16hour shutdown of PP, we require 232MT of powder stocks to keep the extruder running.Once powder stocks are depleted, in the event of an upset in PP the extruder has to be stopped.Even if there is no upset, how long does it take to build up the powder stocks back to the same level and at the same time continue running the extruder at full load?

GVS SARMA

Did we reach ‘The Goal’?

THANK YOU