Epyp 15-theory of constraints
- 1. THEORY OF CONSTRAINTS Prof. Preetam Basu IIM Calcutta
- 2. 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?
- 3. 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
- 4. Does not guarantee profitability Has throughput increased? Has inventory decreased? Have operational expenses decreased? Productivity
- 5. The Theory of Constraints Eli Goldratt, a physicist. OPT: a scheduling package. The Go aland the Theory of Constraints. Goldratt challenges the conventional approach to managing
- 6. 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
- 7. 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.
- 8. 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
- 9. TOC vs. Sig Sigma and Lean ManufacturingTOC vs. Sig Sigma and Lean Manufacturing 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)
- 10. 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
- 11. 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.
- 12. 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?
- 13. P r o d u c t A P r o d u c t B 0 . 4 h r s . / u n it 0 . 2 h r s . / u n it P r o d u c t B P r o d u c t A U n lim it e d P r o f it / u n it = $ 8 0 M a r k e t d e m a n d = 1 0 0 / w e e k P r o f it / u n it = $ 5 0 M a r k e t d e m a n d = 2 0 0 / w e e k P r o d u c t io n p r o c e s s A v a ila b ilit y : 6 0 h r s . / w e e k R a w m a t e r ia ls A Constrained Production ProcessA Constrained Production Process
- 14. 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
- 15. Constrained Resource Utilization for Each Product
- 16. 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)
- 17. Drum, Buffer, Rope A B C D E F Bottleneck (Drum) Inventory buffer (time buffer) Communication (rope) Market Keep a bufferinventory 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.
- 18. 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?
- 19. 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
- 20. By Eliyahu M. Goldratt By Robert C Newbold By Willian H. Dettmer How can you Learn More?How can you Learn More?