Theory of Constraints
- 1. Submitted by :- Anshika Roll No 3 M.Com (Honours) Sem II THEORY OF CONSTRAINTS AND SYNCHRONOUS MANUFACTURING & TECHNOLOGICAL INNOVATIONS IN MANUFACTURING
- 2. Introduction Theory of constraints was developed by Eli Goldratt 1984. He based this management theory that every system has at least one constraint limiting it from getting more of what it strives for.
- 3. Firms’ Goal Increase Profits Reducing Operating Cost Reducing Inventory Cost
- 4. Process
- 5. Performance Measures To adequately measure a firm’s performance, two sets of measurements should be used. Operational Throughput Inventory Operating expense Financial Net Profit Return on Investment Cash Flow
- 6. Net Profit= T-OE ROI= (T-OE)/ I From the operational standpoint, the goal of a firm is to :- INCREASE THROUGHPUT WHILE SIMULTANEOUSLY REDUCING INVENTORY AND OPERATING EXPENSES.
- 7. Throughput T is the rate at which the system generates money through sales (not production). An inventory of finished goods is not throughput but inventory. Actual sales must occur.
- 8. Inventory I is all the money the system invests in purchasing things that the system intends to sell. It is valued only at the cost of the materials it contains. Labor costs and machine hours are ignored. Using just raw materials cost also avoids the problem of determining which costs are direct and which are indirect and their allocation.
- 9. Operating Expenses OE is all the money the system spends in turning inventory into throughput. Operating expenses include production costs (such as direct labor, indirect labor, inventory carrying costs, equipment depreciation and materials and supplies used in production) and administrative costs.
- 10. Capacity Typically, manufacturing tries to balance capacities across a sequence of processes in an attempt to match capacity with market demand. A bottleneck is defined as any resource whose capacity is less than the demand placed upon it. A bottleneck is a constraint within the system that limits output. A bottleneck can be a machine, scarce or highly skilled labor or a specialized tool. A non-bottleneck, on the other hand, is any resource whose capacity is greater than the demand placed on it. A non-bottleneck, therefore, should not be working constantly because it can produce more than is needed. A non-bottleneck contains idle time. Goldratt designates bottleneck resources with X and non-bottleneck resources with Y.
- 11. Capacity Constraint Resource A capacity-constrained resource (ccr) is one whose utilization is close to capacity and could be a bottleneck if not scheduled properly.
- 12. Types of Constraints Market constraints- it may prevent the full utilization of the manufacturing resources available. Material constraints- it may prevent the utilization of the resources. Logistical constraints- it includes planning and control functions such as order entry or material control systems.
- 13. Continue… Managerial constraints- those strategies and policies that prevent the system from improving performance. Behavioral constraints- idle workers and machines are perceived to be wastes of labor time and valuable assets, when in reality they may indicate that product flow is being synchronized.
- 14. Synchronous Manufacturing The flow of material through a system, not the capacity of the system, should be balanced. This results in materials moving smoothly and continuously from one operation to the next and thus lead times and inventory waiting in queues should be reduced. It will reduce total cost and speed up customer delivery and company will compete more effectively.
- 16. Inventories are too high Lead times are too long Too much overtime Poor productivity Too much expediting Frequent materials and parts shortages Unable to quickly and easily respond to urgent customer requirements Poor customer service, in terms of on-time delivery or service-from- stock
- 17. Drum-Buffer-Rope Approach Drum-Buffer-Rope (DBR) is a method of synchronizing production to the constraint while minimizing inventory and work-in-process. The Drum is the system’s constraint that sets the pace for the entire organization. In DBR terminology, the drum is also the schedule of the constraint. “Buffer” is the level of inventory needed to maintain consistent production. It ensures that brief interruptions and fluctuations in non- constraints do not affect the constraint. Buffers represent time that work- in-process should arrive in advance of being used to ensure steady operation of the protected resource.
- 18. Continue… The Shipping Buffer is also a time offset that helps protect the customer due-date. By including it in our model we will try to get products to the shipping area at or earlier than the expected delivery date/time. The Assembly Buffer is a time offset placed at the levels of the main production converging points and helps synchronize production. By placing assembly buffers on the lines, we will help better synchronize our production system and also reduce unnecessary WIP.
- 19. Continue… The “Rope” is a signal generated by the constraint indicating that some amount of inventory has been consumed. This in turn triggers an identically sized release of inventory into the process. The role of the rope is to maintain throughput without creating an accumulation of excess inventory.
Editor's Notes
- #3: to aid manufacturers schedule their production better and make better use of their resources and inventories. Every organization has constraints that prevents it from achieving a higher level of performance.