TOC question bank

1. Small questions

a. What is the goal? b. What prevents an organization from achieving the goal?

c. What is a constraint? d. How is a bottleneck defined in TOC?e. Why does Goldratt condemn placing emphasis on the efficiency of non-constraints? f. What is a balanced plant? g. What does Goldratt’s mean by balancing the flow? h. What is the difference between activating and utilizing a resource? i. Why is time saved at a non-constraint resource or non-bottleneck an

illusion? j. What is Goldratt’s prescription for increasing throughput? k. Plant is operating @ 90% efficiencies, but the plan is running in losses. Discuss the

reasons.? l. What is the difference between exploiting and elevating a constraint? m. What do you understand by critical chain method?n. Using Robots in a process will increase efficiency and thus reduce costs: Do you agree

or not?? Justify? o. What is the order of importance of the three methods of increasing net profit in TOC? p. What is the order of importance in traditional cost accounting? q. Goldratt argues that traditional accounting mixes controllable and uncontrollable costs in

cost of goods sold. What does he mean by this?

2. Big questions:

a) Why do we expect statistical fluctuations in a production facility? Explain with an example?

b) What is the drum-buffer-rope method? What do the drums, buffers and ropes represent?

c) What are the five steps to sort out few from the trivial many? Briefly explain?

d) What are the criticisms against using TOC? Are they justified?

e) What is Goldratt’s prescription for increasing throughput? f) According to Goldratt, what is wrong with the concept of a cost center? g) Why does Goldratt advocate placing a quality control emphasis in front of a bottleneck?h) In traditional absorption costing, what happens to NI when the product inventory (i.e.,

work in process and finished goods) increases?  Why?

3. Very big questions:

a. Discuss the concept of drum buffer rope as tools to manage a production facility in general. How would you apply this concept to a specific industry? Take reliance industries refinery for example? of

b. Briefly explain the concept of T, I and OE accounting and the advantages it of offers over conventional accounting. Separately prepare a list of three reasons why T, I and OE accounting cannot replace conventional account for statutory purposes.

c. Discuss the concept of drum buffer rope as tools to manage a production facility in general. How would you apply this concept to a specific industry?

d. What is the Evaporating Cloud Method? What is the purpose and how does it work? e. What is the Effect-Cause-Effect Method? What is the purpose and how does it work? f. What is the goal of the product mix decision in TOC?.g. How is the product mix determined in a TOC system? 

Implementing the Theory of Constraints (TOC) In Productionby Tim Sullivan, CIRAS

The Theory of Constraints was developed and popularized by Eliyahu Goldratt. Most people are first exposed to the concepts through his book, The Goal (North River Press, 1984). TOC, as it is commonly called, recognizes that organizations exist to achieve a goal. A factor that limits a company's ability to achieve more of its goal is referred to as a "constraint." In The Goal, the demand for parts produced by a computer-controlled piece of equipment known as the NCX10 exceeded the machine's capacity. Since the factory could only assemble and sell as many products as they had parts from the machine, the capacity of the factory to make money was tied directly to the output of the NCX10. The NCX10, therefore, was the constraint.

It is imperative for businesses to identify and manage constraints. "Because a constraint is a factor that limits the system from getting more of whatever it strives for, then a business manager who wants more profits must manage the constraints. There really is no choice in the matter. Either you manage constraints or they manage you." Noreen, Smith, and Mackey in The Theory of Constraints and its Implications for Management Accounting (North River Press, 1995).

To manage constraints (rather than be managed by them), Goldratt proposes a five-step Process Of On Going Improvement. The steps in this process are:

1. Identify2. Exploit3. Subordinate4. Elevate, and5. Go back to Step 1

Identify

In order to manage a constraint, it is first necessary to identify it. In The Goal, the NCX10 was identified as the constraint. This knowledge helped the company determine where an increase in "productivity" would lead to increased profits. Concentrating on a non-constraint resource would not increase the throughput (the rate at which money comes into the system through sales) because there would not be an increase in the number of products assembled. There might be local gains  such as a reduction or elimination of the queue of work-inprocess waiting in front of the resource. But if that material ends up waiting longer somewhere else, there will be no global benefit. To increase throughput, flow through the constraint must be increased.

Exploit

Once the constraint is identified, the next step is to focus on how to get more production within the existing capacity limitations. Goldratt refers to this as exploiting the constraint One example from The Goal was when the company and the labor union agreed to stagger lunches, breaks, and shift changes so the machine could produce during times it previously sat idle. This added significantly to the output of the NCX10, and therefore to the output of the entire plant. To manage the output of the plant, a schedule was created for the constraint. The schedule showed the sequence in which orders would be processed and their approximate starting time.

Subordinate

Exploiting the constraint does not ensure that the materials needed next by the constraint will always show up on time. This is often because these materials are waiting in queue at a non-constraint resource that is running a job that the constraint doesn't need yet. Subordination, which is Step 3, is necessary to prevent this from happening. Subordination involves significant changes to current (and generally long-established) ways of doing things at the non-constraint resources.

The most important component of subordination is to control the way material is fed to the nonconstraint resources. Conventional wisdom says that if a resource is idle it is losing money. Conventional practice, then, is to keep efficiencies high by releasing enough material to keep everyone busy - regardless of whether the constraint can process that much material. TOC wisdom says that non-constraint resources should only be allowed to process enough materials to match the output of the constraint. The release of materials is closely controlled and synchronized to the constraint schedule. In contrast to the constraint, non-constraint resources do not have a schedule. Workers are instructed to begin immediately when work arrives at their stations, to work at normal speed (i.e. do not slow down so that work expands to fill the available time), and immediately pass the finished parts on to the next operation. If there is no material waiting to be processed, the nonconstraint resources will be idle, and that is OK. In fact, preventing non-constraint resources from overproducing is necessary to reach the goal of making more money, now and in the future.

Elevate

After the constraint is identified, the available capacity is exploited, and the non-constraint resources have been subordinated, the next step is to determine if the output of the constraint is enough to supply market demand. If not, it is necessary to find more capacity by "elevating" the constraint. In The Goal, schedulers were able to remove some of the load from the constraint by rerouting it across two other machines. They also outsourced some work and brought in an older machine that could process some of the parts made by the NCX10. These were all ways of adding capacity, or elevating the constraint. It is important to note that to "elevate" comes after "exploit" and "subordinate." Following this sequence ensures the greatest movement toward the goal of making more money.

Go Back to Step 1

Once the output of the constraint is no longer the factor that limits the rate of fulfilling orders, it is no longer a constraint. Step 5 is to go back to Step 1 and identify a new constraint -because there always is one. The five-step process is then repeated.

It may appear that implementing TOC involves a never-ending series of trips through the five-step process - a kind of tool to assist in more perfectly balancing a production system. This is not the case. A fundamental principle of the Theory Of Constraints is that the combination of dependent events (such as the steps in a production system) and normal variation (which is always present) makes it literally impossible to ever fully balance a line. There will always be a constraint in the system. What creates chaos is allowing the constraint to move around. For that reason, companies that get the greatest financial benefit from TOC are those that make a strategic choice of where they want the constraint to be. They then manage their entire operation (product design, marketing, capital investment, hiring, etc.) accordingly. This allows the company to manage the constraint to their advantage rather than allowing the constraint to manage them.

Implement

In the past year, CIRAS has helped two manufacturers identify and proactively manage their constraints by implementing the Theory of Constraints in production. Both companies had similar problems: late shipments, long lead times, high work-in-process inventories, and excessive overtime. One company was Percival Scientific, a 110-year-old company located in Boone. Percival Scientific employs about 40 people and produces controlled environment chambers such as incubators and plant growth chambers. The second company was the Monroe Table Company in Colfax. They are an 89-yearold company that employs about 60 people to manufacture folding tables for the institutional furniture market.

Senior managers from both companies attended a one-day workshop sponsored by CIRAS and the Iowa MTC called "What is the Goal? An Introduction to the Theory Of Constraints." Both companies asked for followup visits from the presenter, CIRAS manufacturing specialist, Tim Sullivan. He brought in Dr. David Bergland of Iowa State University's College of Engineering. Bergland is an expert in the field of TOC, and has been trained by the Goldratt Institute. He is also certified to train others.

The implementation process was done in three phases. The first two phases involved a group of about 15 management and key production workers. In Phase I, the group participated in a two-day workshop using Goldratt Institute materials to expose flaws in the conventional methods of managing production and then demonstrated how TOC can eliminate much of the usual chaos. This was a "buy in" phase intended to convince the workers that TOC can address day-to-day problems that tend to create chaos on the production floor.

In Phase II, the group was led through a detailed process of identifying potential obstacles to implementation as well as possible unintended negative consequences. They then developed their own solutions and mapped out a plan to transition from their current methods to TOC. The plan was implemented during Phase III. The remaining workforce attended a half-day workshop which illustrated the basics of  TOC in production. During this phase, Sullivan and Bergland initially made weekly visits to the companies, then bi-weekly, and then monthly visits to check progress and provide guidance.

What have been the results? Percival Scientific reports a 40% increase in throughput, and in the month previous to the preparation of this article, they shipped a record amount of product. Monroe Table Co. was only one month into implementation but it turned out to be one of their best months ever in shipments. The increased throughput was accomplished with 70% less overtime than accrued during Monroe's best month earlier in 1997.

The financial success is gratifying but both companies seem even more excited about the non-financial benefits of implementing TOC. Mike Plater, the President of Percival Scientific says, "Implementing TOC methods has been one of the most rewarding professional experiences many of us has ever experienced. It has been particularly gratifying to witness how this process has encouraged workers at all levels to inject

common-sense solutions in almost every functional area of the plant."

Neil Mann, General Manager of the Monroe Table Co., adds: "The attitude of our workers is very positive. Now when a customer comes to us with a rush order, workers know they can produce it. This program will be a great success for us."

Critical Chain MethodCritical Chain Method, developed by Dr. Eliyahu M. Goldratt (1997), is a schedule network analysis technique that takes account of task dependencies, limited resource availability & buffers. First step in this method is identifying set of activities that results in longest path to project completion which are called critical chains. As it includes resources into consideration, it may be longer than CPM schedule. Resources used in those critical chain activities are critical resources. Set of activities that are in non-critical chain but converging to critical chain are feeders. Next step is shortening the project schedule by reducing the activity duration estimates with effective buffer management. CCM focuses on eliminating project schedule delays due to uncertainties, overestimation of task duration and wasted internal buffers.

Critical chain scheduling is a methodology focused on resource-levelling. Although dependent tasks mostly define the project timelines, the resource utilization plays a key role. A methodology such as critical path may be highly successful in environments, where there is no resource shortage. But in reality, this is not the case.

Projects run with limited resources and resource-levelling is a critical factor when it comes to the practicality. Therefore, critical chain scheduling gives a better answer for resource intensive projects to manage their deliveries.

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