constraint management for operational management

8/13/2019 CONSTRAINT MANAGEMENT FOR OPERATIONAL MANAGEMENT

http://slidepdf.com/reader/full/constraint-management-for-operational-management 1/15

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

INDEPENDENT UNIVERSITY,

BANGLADESH (IUB)

School of BusinessMGT 330: Introduction to Operations andProduction Management

Chapter 07: Constraint Management



7 – 2

Managing Constraints

Constraints are factors that limit performance

Capacity is the maximum rate of output

Three types of constraints A bottleneck is any resource whose capacity

limits the organization’s ability to meetvolume, mix, or fluctuating demand

requirements



7 – 4

Theory of Constraints

TABLE 7.1 | HOW THE FIRM’S OPERATIONAL MEASURES RELATE TO ITS | FINANCIAL MEASURES

OperationalMeasures

TOC View Relationship to FinancialMeasures

Inventory (I) All the money invested in a system in

purchasing things that it intends to sell

A decrease in I leads to an

increase in net profit, ROI,and cash flow.

Throughput (T) Rate at which a system generates moneythrough sales

An increase in T leads to anincrease in net profit, ROI,and cash flows.

OperatingExpense (OE)

All the money a system spends to turninventory into throughput

A decrease in OE leads to anincrease in net profit, ROI,and cash flows.

Utilization (U) The degree to which equipment, space,or workforce is currently being used,and is measured as the ratio of averageoutput rate to maximum capacity,expressed as a percentage

An increase in U at thebottleneck leads to anincrease in net profit, ROI,and cash flows.



7 – 5


TABLE 7.2 | SEVEN KEY PRINCIPLES OF THE THEORY OF CONSTRAINTS

1. The focus should be on balancing flow, not on balancing capacity.

2. Maximizing the output and efficiency of every resource may not maximize the

throughput of the entire system.

3. An hour lost at a bottleneck or a constrained resource is an hour lost for the whole

system. In contrast, an hour saved at a nonbottleneck resource is a mirage because

it does not make the whole system more productive.

4. Inventory is needed only in front of the bottlenecks in order to prevent them fromsitting idle, and in front of assembly and shipping points in order to protect

customer schedules. Building inventories elsewhere should be avoided.

5. Work, which can be materials, information to be processed, documents, or

customers, 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.

6. Activating a nonbottleneck resource (using it for improved efficiency that does not

increase throughput) is not the same as utilizing a bottleneck resource (that does

lead to increased throughput). Activation of nonbottleneck resources cannot

increase throughput, nor promote better performance on financial measures

outlined in Table 7.1.

7. Every capital investment must be viewed from the perspective of its global impact

on overall throughput (T), inventory (I), and operating expense (OE).



7 – 6


TOC involves the implementation of these fivesteps

1. Identify the System Bottleneck(s)

2. Exploit the Bottleneck(s)

3. Subordinate All Other Decisions to Step 2

4. Elevate the Bottleneck(s)

5. Do Not Let Inertia Set In


http://slidepdf.com/reader/full/constraint-management-for-operational-management 7/157 – 7


Bottlenecks can both be internal or external to the firmand are typically a process or step with the lowestcapacity

Throughput time is the total elapsed time from the start to

the finish of a job or a customer being processed at one ormore work centers

A bottleneck can be identified in several different ways

1. If it has the highest total time per unit processed

2. If it has the highest average utilization and total workload3. If a reduction of processing time would reduce the average

throughput time for the entire process



Identifying the Bottleneck

EXAMPLE 7.1Managers at the First Community Bank are attempting to shorten thetime it takes customers with approved loan applications to get theirpaperwork processed. The flowchart for this process, consisting of severaldifferent activities, each performed by a different bank employee, is

shown in Figure 7.1. Approved loan applications first arrive at activity orstep 1, where they are checked for completeness and put in order. At step2, the loans are categorized into different classes according to the loanamount and whether they are being requested for personal or commercialreasons. While credit checking commences at step 3, loan application dataare entered in parallel into the information system for record-keeping

purposes at step 4. Finally, all paperwork for setting up the new loan isfinished at step 5. The time taken in minutes is given in parentheses.




Complete paperworkfor new loan

(10 min)

Check for credit rating(15 min)

Enter loan applicationinto the system

(12 min)

Categorize loans(20 min)

Check loan documentsand put them order

(15 min)

Figure 7.1 – Processing Credit Loan Applications at First Community Bank

Which single step is the bottleneck? The management is alsointerested in knowing the maximum number of approved loansthis system can process in a 5-hour work day.




SOLUTIONWe define the bottleneck as step 2, where a single-minute reduction in itstime reduces the average throughput time of the entire loan approvalprocess. The throughput time to complete an approved loan application is15 + 20 + max(15, 12) + 10 = 60 minutes. Although we assume no waiting

time in front of any step, in practice such a smooth process flow is notalways the case. So the actual time taken for completing an approvedloan will be longer than 60 minutes due to nonuniform arrival ofapplications, variations in actual processing times, and the related factors.

The capacity for loan completions is derived by translating the“minutes per customer” at the bottleneck step to “customer perhour.” At First Community Bank, it is 3 customers per hourbecause the bottleneck step 2 can process only 1 customerevery 20 minutes (60/3).




Services may not have simple line flows anddemand may vary considerably

Bottlenecks can be identified by using averageutilization

Variability creates floating bottlenecks

Variability increases complexity



Application 7.1

Two types of customers enter Barbara’s Boutique shop for customizeddress alterations. After T1, Type A customers proceed to step T2 and thento any of the three workstations at T3, followed by steps T4 and T7. Afterstep T1,Type B customers proceed to step T5 and then steps T6 and T7.The numbers in the parentheses are the minutes it takes that activity to

process a customer.

a. What is the capacity per hour of Type A customers?

b. If 30 percent of the customers are Type A customers and 70percent are Type B customers, what is the average capacity?

c. When would Type A customers experience waiting lines,assuming there are no Type B customers in the shop?Where would Type B customers have to wait, assuming noType A customers? Tomorrow



Application 7.1

a. For Type A customers, step T2 can process (60/13) = 4.62customers per hour. T3 has three work stations and acapacity of (60/14) + (60/10) + (60/11) = 15.74 customer perhour. Step T4 can process (60/18) = 3.33 customers per hour.The bottleneck for type A customers is the step with thehighest processing time per customer, T4.

T1

(12)

T7

(10)

T4

(18)

T3-a(14)

T3-c

(11)

T3-b

(10)

Type

A or B?

Type A

Type B

T2

(13)

T6

(22)T5

(15)



Application 7.1

b. The bottleneck for Type B customers is T6 since it has thelongest processing time per customer. The capacity for TypeB customers is (60/22) = 2.73 customers per hour. Thus theaverage capacity is 0.3(3.33) + 0.7(2.73) = 2.9 customers perhour

T1

(12)

T7

(10)

T4

(18)

T3-a(14)

T3-c

(11)

T3-b

(10)

Type

A or B?

Type A

Type B

T2

(13)

T6

(22)T5

(15)


http://slidepdf.com/reader/full/constraint-management-for-operational-management 15/157 15

Application 7.1

before T2 and T4 because theactivities immediately preceding them have a higher rate ofoutput.

c. Type A customers would wait

before steps T5 and T6 for thesame reason. This assumes there are always new customersentering the shop.

Type B customers would wait

T1

(12)

T7

(10)

T4

(18)

T3-a(14)

T3-c

(11)

T3-b

(10)

Type

A or B?

Type A

Type B

T2

(13)

T6

(22)T5

(15)

constraint management for operational management

Documents