Download - Epyp 15-theory of constraints
THEORY OF CONSTRAINTS
Prof. Preetam BasuIIM Calcutta
Constrained Production System
A B C D E
Capacity
60 units/hr
40 units/hr
50 units/hr
30 units/hr
80 units/hr
Assuming there is infinite supply of raw materials, how many units would this system produce per hour?
Constrained Production System
A B C D E
Capacity
60 units/hr
40 units/hr
50 units/hr
30 units/hr
80 units/hr
Assuming there is infinite supply of raw materials, how many units would this system produce per hour?
This system will produce 30 per hr. Here resource D is the bottleneck. Bottleneck determines the system output
Does not guarantee profitability Has throughput increased?
Has inventory decreased?
Have operational expenses decreased?
Productivity
The Theory of Constraints
Eli Goldratt, a physicist.
OPT: a scheduling package.
The Goal and the Theory of
Constraints.
Goldratt challenges the conventional approach to managing organizations.
Theory of Constraints
Significance of bottlenecks
Maximum speed of the process is the speed of the slowest operation
Any improvements will be wasted unless the bottleneck is relieved Bottlenecks must be identified and improved if
the process is to be improved
The Theory of Constraints
The Theory of Constraints (TOC) is based on two premises: The Goal of a business is to make more
money, … in the present and in the future.
A system’s constraint(s) determine its
output.
Goldratt’s Rules of Production Scheduling Do not balance capacity, balance the flow
The level of utilization of a non-bottleneck resource is not determined by its own potential but by some other constraint in the system
An hour lost at a bottleneck is an hour lost for the entire system
An hour saved at a non-bottleneck is a mirage
Bottlenecks govern both throughput and inventory in the system
Transfer batch may not and many times should not be equal to the process batch
A process batch should be variable both along its route and in time
Priorities can be set only by examining the system’s constraints and lead time is a derivative of the schedule
TOC vs. Sig Sigma and Lean TOC vs. Sig Sigma and Lean ManufacturingManufacturing
Six Sigma and Lean Manufacturing focus on cost reduction through elimination of waste and reduction of variability at every step in a process
TOC concentrates its improvement efforts only on the operation that is constraining a critical process or on the weakest component that is limiting the performance of the system (bottleneck)
Goldratt’s Five Focusing Steps in TOC
Identify the system constraints
Decide how to exploit the system constraints
Subordinate everything else to that decision
Elevate the system constraints
If, in the previous steps, the constraints have been broken, go back to Step 1, but do not let inertia become the system constraint
To Identify the Resource Constraint
Compute the load on each production resource assuming market demands.
Compare the resource loads with the resource capacities.
Those resources for which the loads exceed the capacities are constraints (bottlenecks).
If no production resource load exceeds its capacity, the market demands are the constraints. the constraints are external to the
manufacturing system.
Compute the loads and compare with capacities.
A: Load =2000, Capacity = 2400 B: Load =3000, Capacity = 2400 C: Load =1750, Capacity = 2400 D: Load =1250, Capacity = 2400 What is the constraint?
P roduct A P roduct B0.4 hrs ./un it 0 .2 hrs ./un it
P roductB
P roductA
U nlim ited
P rofit/un it = $80M arket dem and =
100/w eek
P rofit/un it = $50
M arket dem and =200/w eek
P roduction process
A va ilab ility : 60 hrs ./w eek
R aw m ateria ls
A Constrained Production ProcessA Constrained Production Process
Product Mix (without TOC)
A has a higher profit/unit max. A Production process for A:
100 units x 0.4 hours/unit = 40 hours Remaining time for B:
60 hours - 40 hours = 20 hours 20 hours / (0.2 hours/unit) = 100 units
Profit: For A: 100 units x $80/unit = $8,000 For B: 100 units x $50/unit = $5,000 Total = $13,000
Constrained Resource Utilizationfor Each Product
Product Mix (with TOC)
B has a higher profit/hour maximize B. Production process for B:
200 units x 0.2 hours/unit = 40 hours Remaining time for A:
60 hours - 40 hours = 20 hours 20 hours / (0.4 hours/unit)= 50 units
Profit: For A: 50 units x $ 80/unit = $4,000 For B: 200 units x $50/unit = $10,000 Total = $14,000 vs. $13,000 (without TOC)
Drum, Buffer, Rope
A B C D E F
Bottleneck (Drum)
Inventorybuffer
(time buffer)Communication
(rope)
Market
Keep a buffer inventory in front of the bottleneck to make sure that it always has something to work on Communicate back upstream to A what D has produced so that A only provides the reqd. amount. This communication is called rope.
Importance of Quality
What happens if a defective part is produced upstream of the bottleneck?
Where do you think stringent quality checks should be put in synchronous manufacturing?
TOC Applied to Services
Example: Bank Loan Application Processing Step 1: Identify the system’s constraints
Loan officers are unable to process all the loan applications in a timely manner
Step 2: Decide how to exploit the system constraints: Calculate the throughput yield per unit time for each type of
loan request eg. home loans, auto loans, small business loans
Sequence of loans processed would be based on the profitability of each type of loan
Step 3: Subordinate everything else to the preceding decisions Need to change the other processes so that there is always
adequate supply of loan requests for the officers to work on Step 4: Elevate the constraint if possible Step 5: Monitor the system to check if other processes become
bottlenecks.
By Eliyahu M. Goldratt
By Robert C Newbold
By Willian H. Dettmer
How can you Learn More?How can you Learn More?