Understand the differences and similarities between techniques of Lean Manufacturing and Theory of Constraint (TOC) as applied to field of manufacturing management.

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TOC Insights - Operations
Sep 18, 2012
2

Basics 01 - Part 01
3
Only 20% of the Japanese Companies
have implemented Lean/Six Sigma/TQM/TPM
Its not that the remaining 80%didn't try.
These firms tried, but failed repeatedly.
Did they fail because
of lack of seriousness?
lack of efforts?
lack of Knowledge?Not really!!

Basics 01 - Part 02
4
The firms tried and failed repeatedly because:
Their Production Environment were
fundamental different from Toyota.
TPS was developed for Toyota.
You cannot “Copy Paste” solution of one
environment to the other environment!

©2012 Vector Consulting Group. All Rights Reserved. 5
Reality of implementation of
Lean / Six Sigma / TQM / TPM

An Insight
6
Application is specific, do
not force them on your
production environments.
01
Concepts are general, learn
them and design application
for your environment.
02

Basics 02
7
The assembly line
developed for the Ford Model T
began operation on December 1,
1913. It had immense influence
on the world.
Assembly Lines (FORD)
Features
• Flow line concept introduced for Mass Production.
• Flow means inventories in the operation are moving.
• Inventories are controlled by limiting space
between work-stations.
What happens
when space is
full?
Production stops i.e. in
essence local efficiencies
are abolished (Against
conventional wisdom of
100% efficiency).
Limitations
Single Product lines
where facilities are
dedicated for each
component.
Output is
lost when
production
stops?
Focusing mechanism
now available to
eliminate shortages.

Basics 02
8
AssemblyLines
(FORD)
Part
02
Generic Concepts
Improving flow (or equivalently lead time) is the
primary objective of operations.
This primary objective should be translated into a
practical mechanism that guides operation when not
to produce (i.e. prevent over-production).
Local efficiencies must be
abolished.
A focusing process to
balance flow must be
in place.

Basics 02
9
LEAN / TPS (TOYOTA)
Challenges
to introduce
FORD
system to
TOYOTA
Demand for small quantities of a
variety of cars, hence dedicated
lines could not be justified.
Space cannot be used to limit
inventories because:
If components are unavailable,
then Assembly would stop.
If space is full, feeder
lines would stop.
Solution was realized when Taichi Ohno heard about Super-Markets

Basics 02
10
Part
02
LEAN/TPS
(TOYOTA)
Features
• Flow is the most important element of TPS
• In place of Space, Kanban System introduced to limit
the inventory
• Only when an allocated container is used, production of
that container is triggered (No Card ..... No Production)
Frequent switching for small lots means
more set-ups and hence loss of production
• Just-in-time Evolved i.e. produce only those items which are
required in the very short-term.
• Set-up reduction techniques were developed (called Lean).
• Kanban was further used to guide process improvement efforts.
• Gradual reduction in Containers (FIVE WHYs introduced to guide
improvement efforts).

Basics 02
11
Part
03
LEAN/TPS
(TOYOTA)
Almost
everyone has
implemented
TPS, but still
no one has
achieved the
same
Productivity
numbers as
Toyota ...
Why?
Answer lies in the process of
choosing local improvements
Conventional companies use cost savings as
the parameter to decide local improvements
whereas Toyota uses “Flow Improvement”.
E.g. Setup Reduction was never done to
gain cost savings, rather it was done to
create better availability at a faster rate.
E.g. Quality was not improved to save trivial
costs, rather it was improved to remove
disruptions caused by defective part.
No focus on squeezing better prices from
supplier or cut payroll cost (manpower
reduction), rather full energy is spent on
improving the flow.

Basics 02
12
Part
04
LEAN/TPS
(TOYOTA)
End Results
Focusing on Flow instead of local cost considerations
resulted in a much better lower cost per unit.
Abolishing local efficiencies resulted in much higher
efficiency of the workforce.
Important Insight
All cost reductions have a ceiling
(can cost be made ZERO?).
Improvement efforts have diminishing returns.

Basics 02
13
Part
05
LEAN/TPS
(TOYOTA)
Generic
Concepts
Improving flow (or equivalently lead time)
is a primary objective of operations.
This primary objective should be
translated into a practical mechanism that
guides the operation when not to produce
(prevents overproduction).
Ford used space; Ohno used inventory.
Local efficiencies must be abolished.
Ford used dedicated lines; Ohno
introduced JIT & Lean techniques.
A focusing process to balance flow must
be in place. Ford used direct observation.
Ohno used gradual reduction of the
number of containers and then gradual
reduction of parts per container.

Basics 02
14
Part
06
LEAN/TPS(TOYOTA
ProductionSystem)
Boundaries
of TPS
Works in Stable environments i.e.
the processes and the products
do not change significantly for a
considerable length of time.
Demand over time per product
should be relatively stable.
E.g. Toyota has
only 1 time
change yearly
per model.
Combine specific
techniques of
Lean with cost
saving programs.
Total load placed by orders on
the various types of resources
must be relatively stable.
Imagine holding
containers for items which
have sporadic demand.
When load changes
frequently, promising firm
due dates is challenging.
Typical way of
implementing
Lean in most
companies
Is this
really a true
implementa-
tion of Lean?

©2012 Vector Consulting Group. All Rights Reserved. 15
Theory of Constraint
Way of Production

Basics 03 - TOC way of Production - Part01
16
Core
Principles
Flow is the most important
objective of Operations.
Practical Mechanism to
avoid Over-Production.
Achieved by ensuring
synchronization from everywhere
achieved by reducing lead times
cross the chain.
Local Efficiencies are
abolished.
Restrict release of material ahead
of time (suitable for unstable
environments as it is less sensitive
to disruptions in flow.
Buffer Management (BM) and Load
control are put in place.
Focusing process to balance
flow must be in place.
Analysis of Blacks & Reds guide
the improvement efforts.

Bottleneck
17
Abolishment of Local Efficiencies
If C is to be used 100%
• There has to be Continuous bank of work in front of “C”.
• Whenever, there are disruptions in “A” or “B”; not only they have to ensure
that “C” is fed but also the Bank is rebuilt. Which means “A” / “B” should
have excess capacity than “C”.
• Similarly, incase of disruptions in “D”; not only it has to produce what “C”
is producing, “D” also has to clear the backlog created by “C”. Which again
means “D” has excess capacity than “C”.
A B C D
By this very definition, “A” / “B” / “D” should have much more capacity than “C” just
to keep “C” 100% busy. If so then local efficiencies at places other than “C” have to be
abolished otherwise inventory will hit the roofs.

18
Time Based Mechanism to control WIP
Problem of using Space to control WIP between Workstations
• E.g. Conveyers, Trolleys, etc.
• When space is full, production stops which may not mean 100% utilization
of Bottleneck (“C”) resource.
• WIP in front of Bottleneck and Space after the Bottleneck is a function of
the “Normal Disruptions” at upstream & downstream resources.
o Typically the WIP is designed to be kept to bare minimum which
can result in production loss.
A B C D

19
Time Based Mechanism to control WIP
In TOC,
• WIP in the system is not artificially restrained between every 2 work
centers; rather it is controlled for the entire system allowing the effects of
Murphy to be absorbed throughout the system and yet protect the due
dates.
• Unlike Kanban, WIP is not maintained everywhere in the system. Rather it
is maintained only where needed i.e. to ensure 100% utilization of
bottleneck.
A B C D

20
Concept of Lead Time
• Most of the time, order is waiting in queues in front of the
resources.
• Generally the time actually spent working on an order is less
than 10% of the total lead time.
• Therefore at times of Urgency, material can moved very fast
through the system.
Total Lead Time
Waiting TimeTouch Time

21
Choke The Release
• Small lead times cause too much expediting (termed as “Hand-2-mouth”)
• Large lead times cause Jams, missed priorities
• Stables zone is in the middle and hence “Choke the Release” is done by
cutting WIP by half
ManagementAttention
Time Buffer Size
Insufficient
Reaction
time
Jams,
Missed
priorities

22
Priority System
• Just “Choking the Release” i.e. reducing WIP by half will not result in
more than 90% due date performance.
• Therefore a simple yet robust priority system is needed to guide
operations.
• Buffer Management gives clear priority to all the work-centers to
effectively plan and execute orders.
Reduced Lead Time

23
Focusing Mechanism (POOGI)
• Analysis of RED orders every week.
• Identifying the top reason for REDs and eliminating it.
40%
30%
20%
10%
Material availability Manpower availability Machine availability Utilities availability
Red Reasons

Understand the differences and similarities between techniques of Lean Manufacturing and Theory of Constraint (TOC) as applied to field of manufacturing management.

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Understand the differences and similarities between techniques of Lean Manufacturing and Theory of Constraint (TOC) as applied to field of manufacturing management.