operations and production management group 6: –travis lawrence –david evans –kerry savoury

Operations and Production Operations and Production ManagementManagement

Group 6:Group 6:

– Travis LawrenceTravis Lawrence– David EvansDavid Evans– Kerry SavouryKerry Savoury

Operations and Production Operations and Production ManagementManagement

THEORY OF CONSTRAINTS THEORY OF CONSTRAINTS (TOC)(TOC)

What is TOC?What is TOC?

““An approach to management that focuses An approach to management that focuses on whatever impedes progress toward the on whatever impedes progress toward the goal of maximizing the flow of total value-goal of maximizing the flow of total value-added funds or sales, less discounts and added funds or sales, less discounts and variable costs”variable costs”

History of TOCHistory of TOC

A relatively recent development (20 years)A relatively recent development (20 years)

Developed by Eliyahu Moshe Goldratt, an Developed by Eliyahu Moshe Goldratt, an Israeli physicist, educator, and Israeli physicist, educator, and management specialistmanagement specialist

Became involved to help a friend who Became involved to help a friend who operated a plant that made chicken coops operated a plant that made chicken coops to design a scheduling systemto design a scheduling system

His system tripled the output of the plantHis system tripled the output of the plant

Goldratt released (1984) the philosophy Goldratt released (1984) the philosophy underlying the scheduling algorithmunderlying the scheduling algorithm in in a a book, book, The Goal: A Process of On going The Goal: A Process of On going ImprovementImprovement

History of TOC (cont’d)History of TOC (cont’d)

What is a Constraint?What is a Constraint?

A constraint is anything in an organisation A constraint is anything in an organisation that limits it from moving toward or that limits it from moving toward or achieving its goal achieving its goal

For most business organisations the goal For most business organisations the goal is to make moneyis to make money

Two basic types of constraints: Two basic types of constraints:

– Physical constraintsPhysical constraints something like the physical capacity of a machinesomething like the physical capacity of a machine

– Non-physical constraintsNon-physical constraintssomething like demand for a product or a something like demand for a product or a corporate procedurecorporate procedure

Types of ConstraintsTypes of Constraints

Examples of Constraints:Examples of Constraints:

Demand ConstraintsDemand Constraints– A constraint on outputA constraint on output – Symptoms include:Symptoms include:

large amounts of final product inventorylarge amounts of final product inventory

a production line running at a fraction of full a production line running at a fraction of full capacity productioncapacity production


Demand Constraints (cont’d)Demand Constraints (cont’d)– A demand constraint means that the system A demand constraint means that the system

has excess capacity given the demand for its has excess capacity given the demand for its productproduct

– Possible problems for demand might include:Possible problems for demand might include:a problem with marketing in which the customers a problem with marketing in which the customers are unaware of the system’s high quality productare unaware of the system’s high quality product

the system may have a low quality productthe system may have a low quality product

the system may be producing an obsolete productthe system may be producing an obsolete product


Demand Constraints (cont’d)Demand Constraints (cont’d)

– In order to resolve the issue of excess In order to resolve the issue of excess capacity, each of the previous three problems capacity, each of the previous three problems need to be examined and resolvedneed to be examined and resolved


Production ConstraintsProduction Constraints

– Production constraints are issues that Production constraints are issues that impeded a systems ability to achieve its impeded a systems ability to achieve its maximum capacitymaximum capacity

– In-process inventories between production In-process inventories between production steps is often a symptom of a production steps is often a symptom of a production constraintconstraint


– Production Constraints are categorised into Production Constraints are categorised into three typesthree types::

Policy constraintsPolicy constraints– Company or union policies or practice create the Company or union policies or practice create the

constraint and impede its long-term solutionconstraint and impede its long-term solution – It is the most frequent constraintIt is the most frequent constraint

Machine capacity constraintsMachine capacity constraints– When a single (or small number of machines) on a line When a single (or small number of machines) on a line

form a bottleneckform a bottleneck


Labour constraintsLabour constraints– Insufficient labour (not having a skilled operator) Insufficient labour (not having a skilled operator) – The general labour pool is insufficient to run a line to full The general labour pool is insufficient to run a line to full

capacity, including extra shifts if neededcapacity, including extra shifts if needed


Raw Material ConstraintsRaw Material Constraints

Raw material constraints are shortages in the raw Raw material constraints are shortages in the raw materials necessary in making the productmaterials necessary in making the product

This is why a relationship with one's vendors is so This is why a relationship with one's vendors is so importantimportant


Applying TOCApplying TOC

The Theory of Constraints has been used The Theory of Constraints has been used at three different levels:at three different levels:

– Production ManagementProduction Management

Initially applied here to solve problems of Initially applied here to solve problems of bottlenecks, scheduling, and inventory reductionbottlenecks, scheduling, and inventory reduction

– Throughput AnalysisThroughput Analysis

TOC has caused a shift from “cost-based” decision TOC has caused a shift from “cost-based” decision making to decision making based on “continuous making to decision making based on “continuous improvement of processes”improvement of processes”Some key elementsSome key elements are: are:

– System throughputSystem throughput– System constraintsSystem constraints– Statistically determined protective capacities at critical Statistically determined protective capacities at critical

pointspoints


– Logical ProcessesLogical Processes

A general application to attack a variety of A general application to attack a variety of process process problemsproblems within organizations within organizations

It is It is applied:applied:– To identify what factors are limiting an organization from To identify what factors are limiting an organization from

achieving its goals, achieving its goals, – To developing a solution to the problem, To developing a solution to the problem, – To get the individuals in the process to invent the To get the individuals in the process to invent the

requisite changes for themselvesrequisite changes for themselves


The traditional approach to a process The traditional approach to a process change shows that local optimization does change shows that local optimization does not work well for good of the overall not work well for good of the overall systemsystem

A system can only operate as fast as it’s A system can only operate as fast as it’s bottleneckbottleneck

The Process of ChangeThe Process of Change

Goldratt briefly outlined a process of Goldratt briefly outlined a process of change in 1990change in 1990

He characterized it as:He characterized it as:

– What to changeWhat to change– What to change toWhat to change to– How to cause the changeHow to cause the change


Approached by the 5 following rulesApproached by the 5 following rules::

– Define the system.Define the system.– Define the goal of the system.Define the goal of the system.– Define the necessary conditions.Define the necessary conditions.– Define the fundamental measurements.Define the fundamental measurements.– Define the role of the constraint(s).Define the role of the constraint(s).


Implementing TOCImplementing TOC

There are five steps involved in There are five steps involved in implementing TOC:implementing TOC:

1.1. IdentifyIdentify

2.2. ExploitExploit

3.3. SubordinateSubordinate

4.4. ElevateElevate

5.5. RepeatRepeat

1.1. Identify the system's constraintsIdentify the system's constraintsPrioritize the processes so that just the Prioritize the processes so that just the constraints that really limit the system’s progress constraints that really limit the system’s progress are identifiedare identified


Identify – find the neck in

our hourglass

2.2. Decide how to exploit the system's Decide how to exploit the system's constraintsconstraints

Decide how to manage the constraint within Decide how to manage the constraint within the systemthe system

Then manage the resources to provide what is Then manage the resources to provide what is needed to match the output of the constrained needed to match the output of the constrained resourcesresources

Never let them supply more output than is Never let them supply more output than is neededneeded


Expoit – remove any blockages from the

neck

Exploit – improve the value of the output

2.2. Decide how to exploit the system's constraintsDecide how to exploit the system's constraints

3.3. Subordinate everything else to the system’s Subordinate everything else to the system’s constraintconstraint

The constraints are keeping us from moving The constraints are keeping us from moving toward our goaltoward our goal

Apply all of the resources that we can to assist in Apply all of the resources that we can to assist in breakingbreaking the constraint the constraint


Subordinate – there is no point in forcing more in. It won’t come out any quicker

4.4. Elevate the system's constraintsElevate the system's constraintsContinue to work toward breaking a constraint Continue to work toward breaking a constraint (also called elevating a constraint) (also called elevating a constraint)

At some point the constraint will no longer be a At some point the constraint will no longer be a constraintconstraint

The constraint will be brokenThe constraint will be broken


Elevate: Make the hole bigger!!

5.5. If the constraint is broken, return to Step 1If the constraint is broken, return to Step 1

There will be another constraint, somewhere else There will be another constraint, somewhere else in the system that is limiting progress to the goalin the system that is limiting progress to the goal


Concluding:Concluding:

The process must be reapplied, perhaps The process must be reapplied, perhaps many timesmany times

TOC does not try to eliminate all problems, TOC does not try to eliminate all problems, only those that threaten the constraintonly those that threaten the constraint

Excessive effort in problem elimination is a Excessive effort in problem elimination is a wastewaste


Advantages:Advantages:

– Improves capacityImproves capacity– Avoids build-up of inventoryAvoids build-up of inventory– Avoids local optimizationAvoids local optimization– Improves communication between Improves communication between

departmentsdepartments


Disadvantages:Disadvantages:

– Negative impact on non-constrained areasNegative impact on non-constrained areasDiverts attention from other areas that may be the Diverts attention from other areas that may be the next constraintnext constraint

– The constraint must be kept operating at its The constraint must be kept operating at its full capacityfull capacity


Operational MeasurementsOperational Measurements

TOC defines three operational TOC defines three operational measurements that measure whether measurements that measure whether operations are working toward that goaloperations are working toward that goal

1.1. ThroughputThroughput

The rate at which the system generates money The rate at which the system generates money through salesthrough sales

2.2. InventoryInventory

All the money the system invests in things it All the money the system invests in things it intends to sellintends to sell

This is the total system investment, which This is the total system investment, which includes not only conventional inventory, but also includes not only conventional inventory, but also buildings, land, vehicles, plant, and equipmentbuildings, land, vehicles, plant, and equipment


3.3. Operating ExpensesOperating Expenses

All the money the system spends in turning All the money the system spends in turning inventory into throughputinventory into throughput

This includes all of the money constantly poured This includes all of the money constantly poured into a system to keep it operating, such as heat, into a system to keep it operating, such as heat, light, scrap materials and depreciationlight, scrap materials and depreciation


Current ResearchCurrent Research

It is currently being refined and expanded It is currently being refined and expanded at the Avraham Y. Goldratt Institute at the Avraham Y. Goldratt Institute (named after Dr. Goldratt's late father) (named after Dr. Goldratt's late father)

The Goldratt Institute publishes The The Goldratt Institute publishes The Theory of Constraints Journal on an Theory of Constraints Journal on an irregular, approximately quarterly, basisirregular, approximately quarterly, basis

Theory of ConstraintsTheory of Constraints

Thank YouThank You

Questions???Questions???

operations and production management group 6: –travis lawrence –david evans –kerry savoury

Documents

physical capacity

production managementgroup

production steps

demand constraintsa

issue of excess capacity

decision making

low quality productthe

systems high quality