© 2007 pearson education constraint management chapter 7

© 2007 Pearson Education

Constraint Constraint ManagementManagement

Chapter 7Chapter 7


How Constraint Management fits the Operations Management

Philosophy

Operations As a Competitive Weapon

Operations StrategyProject Management Process Strategy

Process AnalysisProcess Performance and Quality

Constraint ManagementProcess LayoutLean Systems

Supply Chain StrategyLocation

Inventory ManagementForecasting

Sales and Operations PlanningResource Planning

Scheduling


Eastern Financial Florida Credit Union

What was the problem?

How did they solve it?


Capacity Planning

Capacity is the maximum rate of output

of a process or system.Output Measures

Input Measures

Utilization


Output and Capacity

What is a Constraint?

Any factor that limits system performance and restricts its output.

A BottleneckAn output constraint that limits a company’s ability

to meet market demand.Also called Capacity Constraint Resource or CCR


Theory of Constraints (TOC)

Short-Term Capacity Planning

Theory of Constraints Identification and

management of bottlenecks Product Mix Decisions

using bottlenecks

Long-term Capacity Planning

Economies and Diseconomies of Scale

Capacity Timing and Sizing Strategies

Systematic Approach to Capacity Decisions

Constraint Management

A systematic approach that focuses on actively managing constraints that are impeding progress.


7 Key Principles of TOC

1. The focus is on balancing flow, not on balancing capacity.

2. Maximizing output and efficiency of every resource will not maximize the throughput of the entire system.

3. An hour lost at a bottleneck or constrained resource is an hour lost for the whole system. An hour saved at a non-constrained resource does not necessarily make the whole system more productive.



4. Inventory is needed only in front of the bottlenecks to prevent them from sitting idle, and in front of assembly and shipping points to protect customer schedules. Building inventories elsewhere should be avoided.

5. Work 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. Activation of non-bottleneck resources cannot increase throughput, nor promote better performance on financial measures.

7. Every capital investment must be viewed from the perspective of its global impact on overall throughput (T), inventory (I), and operating expense (OE).


Application of TOC

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.


Bal Seal Engineering Managerial Practice 7.1

Bal Seal had problems with excessive inventory, long lead times and long work hours.

They were operating above capacity but on-time shipment rate was 80-85%

Bal Seal implemented TOC with dramatic and almost immediate results. Excessive inventory dried up Extra capacity was experienced everywhere but at the

constraint Total production increased over 50% Customer response time decreased from 6 weeks to 8 days On-time shipments went up to 97%

Theory of Constraints in PracticeTheory of Constraints in Practice


Identification and Management of Bottlenecks

A Bottleneck is the process or step which has the lowest capacity and longest throughput.

Throughput Time is the total time from the start to the finish of a process.

Bottlenecks can be internal or external to a firm.


Setup Time

If multiple services or products are involved, extra time usually is needed to change over from one service or product to the next.This increases the workload and could be a

bottleneck.

Setup TimeSetup Time is the time required to change a process or an operation from making one service or product to making another.


Where is the Bottleneck?Example 7.1

1. Check loan documents and

put them in order

(10 minutes)

2. Categorize

loans(20

minutes)

3. Check for credit rating(15 minutes)

6. Complete paperwork for

new loan(10 minutes)

4. Enter loan application data into the system

(12 minutes)

Customer

5. Is loan

approved?(5 min)

Yes

No


Barbara’s BoutiqueApplication 7.1

T1(12)

T6(22

)

T5(15

)

T2(13

)

T7(10)

T4(18)

T3-a(14)

T3-c(11)

T3-b(10)

Type

Type A

Type B

Two types of customers enter Barbara’s Boutique shop for customized dress alterations. After T1, Type A customers proceed to T2 and then to any of the three workstations at T3, followed by T4, and then T7. After T1, Type B customers proceed to T5 and then T6 and T7. The numbers in the circles are the minutes it takes that activity to process a customer.

• What is the capacity per hour for Type A customers?

• If 30% of customers are Type A customers and 70% are Type B, what is the average capacity?

• 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 no Type A customers?


Long-Term Capacity Planning

Short-Term Capacity Planning

Theory of Constraints Identification and management of

bottlenecks Product Mix Decisions using

bottlenecks

Long-term Capacity Planning

Economies and Diseconomies of Scale


Systematic Approach to Capacity Decisions

Constraint Management


Long-Term Capacity Planning

Deals with investment in new facilities and equipment.

Plans cover a minimum of two years into the future.

Economies of scale are sought in order to reduce costs through Lower fixed costs per unitQuantity discounts in purchasing materialsReduced construction costsProcess advantages


Economies of Scale

Economies of scale occur when the average unit cost of a service or good can be reduced by increasing its output rate.

Diseconomies of scale occur when the average cost per unit increases as the facility’s size increases

250-bed 250-bed hospital hospital 500-bed 500-bed

hospital hospital

750-bed 750-bed hospital hospital

Economies of Economies of scale scale

Diseconomies of Diseconomies of scale scale

Output rate (patients per week)Output rate (patients per week)

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1. Sizing Capacity Cushions

2. Timing and Sizing Expansions

3. Linking Process Capacity and other operating decisions.


Capacity Cushions

A capacity cushion is the amount reserve reserve capacity a firm has available.capacity a firm has available.

Capacity Cushion = 100% Capacity Cushion = 100% −− Utilization Rate (%) Utilization Rate (%)

How much capacity cushion depends on How much capacity cushion depends on

• The uncertainty and/or variability of demandThe uncertainty and/or variability of demand

• The cost of lost businessThe cost of lost business

• The cost of idle capacityThe cost of idle capacity


Capacity ExpansionExpansionist Strategy

Planned unused Planned unused capacity capacity

TimeTime

Ca

pac

ity

Ca

pac

ity

Forecast of Forecast of capacity required capacity required

Time between Time between incrementsincrements

Capacity incrementCapacity increment

Staying ahead of demand


Capacity ExpansionWait-and-See Strategy

TimeTime

Ca

pac

ity

Ca

pac

ity

Forecast of Forecast of capacity required capacity required

Planned use of Planned use of short-term options short-term options

Time between Time between incrementsincrements

Capacity IncrementCapacity Increment

Chasing demandChasing demand


Competitive Priorities

Quality

Process Design

Aggregate Planning

Linking Process Capacity and Other Decisions

© 2007 pearson education constraint management chapter 7

Documents

pearson education output

pearson education setup

capacity constraint

practice slide

system bottlenecks

ccr slide

type type

balancing capacity