THEORY OF CONSTRAINT Basic Concepts of Constrained Optimization - —a Linear programming model: expresses a constrained optimization problem as a linear objective function subject to a set of linear constraints ‘A feasible solution is a solution that satisfies the constraints in the linear programming model, Linear programming is a method that searches among possible solutions unti it finds the optimal solutionTheory of Constraints (TOC) + Goal - to make money now and in the future by managing constraints + Recognizes that the performance of any organization is limited by its constraints + TOC focuses on three operational measures of systems performance + Throughput = (sales revenue ~ unit level variable expenses)/time + Inventory is all the money the organization spends in turning materials into throughput + Operating expenses defined as all the money the organization spends in turning inventories into throughput and represent all other money that an organization spends Theory of Constraints (TOC) ~ aa —— — Five Step Method for Improving Performance 1) Identify an organization's constraints 2) Exploit the binding constraints 3) Subordinate everything else to the decisions made in Step 2 4) Elevate the organization's binding constraints 5) Repeat the process as a new constraint emerges to limit outputOne Variable ‘Schaller Company produces two types of machine parts: X and Y, contribution marg! ‘Assume initially that Schaller can sell that is pr part. Part X requires 1 hour of drilling, and part Y requires 3 hours of drilling. The firm owns 3 machines that together provide 120 driling hours per week Required: 1. Express the objetive of maximizing total contribution margin Subject to the dfiling -hour constraint. 2. Identify the optimal amount that should be produced of each machine part and the total contribution margin associated with this mix. 3. What if market conditions are such that Schaller can sell at most 60 units of part X and 100 units of part Y? Express the objective function with Its associated constraints for this case and identify the optimal mix and its associated total contribution s olution Objective function: Max Z = $300X + $600Y ‘Subject to X+3¥-$-120 (drilling-hour-constrain' —_—— 2. Contribution margin (CM) per unit of scarce resource for Part X = $300 and for part Y = $200 ($800:3). Thus, 120 unit of Part X should be produced and sold for a total contribution margin of $36,000 ($300 x 120). None of part Y should be produced 3. Max Z = $300X + $600 Y Subject to: X + 3 Y < 120 (driling-hour constraint) X= 60 (demand constraint for part X) Y £100 (demand constraint for part Y) ‘The maximum amount of Part X should be produced: 60 unit, using 60 driling hours. This leaves 60 driling hours so that 20 units, of Part Y (60:3) can be produced Total CM = ($300x60) + ($600 x 20) = $30,000 7Two Variables Dring ‘Palishing’ laborho ii i Market demand: 60 unit “unit O units art X ‘wareldenant! Hota ne Express Schaller Companys' constrained optimization problem as a linear programming model. 2. Using a graphical approach, solve the linear programming model expressed in Req 1. 3. What if Schaller Company had 5 additional drilling hours with all other resources held constant? What is the new optimal mix and associated total contribution margin?Solution nS Max Z = $300X + $600Y Subject to Internal constraint X +Y $80 (grinding) X + 8Y $120 (drilling) 2X + Y $ 90 (polishing) External constraint X<60 Y < 100 Nonnegativity constraint X20 Y20The binding constraints are driling and polishing, Driling = 30 + 3 (30) = 120 Polishing = 2 (30) + 30 = 90 3. The only feasible corner point affected is C. Solving = X+3Y = 125 2X+¥=90 9 =32 27,900 Incremental benefit is $ 900 ($27,900-$27,000) which is $ 180 par Griling hour (total CM increase by $180 for each additional driling hour) T Jaya Terang Abadai (JTA) memproduksi dua jenis barang yaitu X-1 dan X-2. Berikut adalah data biaya-produksi terkait-dengan-kecmarfanisms produk tersebut: Upah lengsung (Biay ofaHka sek iengeung(eRvO EE” ae TalPT JTA memiliki kapasitas sebanyak 31.000 jkm untuk memproduksi kedua jenis produk tsb, sedangkan kebutuhan PT JTA atas kedua jenis produk tsb adalah 8.000 unit X-1 dan 11.000 unit X-2 per tahun. PT UNI adalah produsen penghasil produk yang sama dengan yang dihasilkan oleh PT JTA dengan harga penawaran sebesar Rp.135.000 per unitnya. Untuk memperoleh laba yang maksimal, berapakah uniLX-T-danX-2-yang sebaiknya ciprodukspaledyttias UNI berdasarkan kapasitas mesin yang tersedia? Jika PT JTA memutuskan untuk memproduksi semua kebutuhan produk X-1 nya dan sisa jam kerja mesin yang ada akan digunakan untuk memproduksi Sebagian dari X-2, sedangkan kekurangan X-2 akan dibeli dari PT UNI, berapakah unit X-2 yang harus dibeli dari PT UNI? ._ Jika PT JTA membeli seluruh kebutuhan produknya dari PT UNI, maka Fixed Overhead PT JTA akan berkurang sebesar Rp.300 juta. Apakah sebaiknya PT. J7Amembeliselurun kebutufan produknya dari PT UNI?Case Calen Company manufactures and sells three products in a factory of three departments. Both labor and machine time are applied to the products as they pass through each department. The nature of the machine processing and of the labor skills required in each department is such that neither machines nor labor can be switched from one department to another. Celen’s management is attempting to pian its production schedule for the next several months, The planning is complicated by the fact that labor shortages exist in the community and some machines will be down several months for repairs. Following is information regarding available machine and labor time by department and the machine hours and direct labor hours required per unit of product. These data should be valid for at least the next six months, z Memibly Capacity ‘hor boars wale 3700 4500-2750 Mucinchosmwaiable 3000-5100 2700 Predset por Unit Predced ao Labor boars 2 3 2 Machine boars 1 1 2 eo Labor hoore 1 2 = “Machine hort 2 pisses 03 Labor boere 2 2 2 Machine boars 2 2 i ‘Cale tives thr te mney demand Soe dhe near se mance wil be a fale Peder Lain Sold 401 ‘500 or 400 03 14900‘ovcaory keh wll aoe be incre ce decreed Sarin dhe next moot, The sic ct and pe ae er each pores et i Pedaet 5 ry “a a = er ee a Unt oe ‘Die ert s7 50 sz Bee uber & Es a Varable overhead 7 2 33 Fuel eraieas 6 ie a Via ning 3 ag. ‘Tool ue cox ae ms ip ‘Uni seting pce ase r se Required: 1 Cae te my enn x maine hee ad ec or ba frolong Fedo ol TOK tl tS cin eacsaroe ‘Semcon ai nea 2. Bas ie geno ty 10, and 403 ddl prc monly ‘eimaiane fest, Prat a whee drome occa a poke erence 3: Rea th eich be wba degen te 500 fecal of 2270 Gain ec irl mom gras ie ula pion erga 10 ier promwnaing Haqse sete he dane ee Lyoeten op i Cd oa Answers ~ —— rn Dept Dep2 Depts Product 404 (500 units): ‘Labor hours* 14000 4,500 41,500 Machine hours ‘500 ‘500 1,000 Product 402 (400 units): Labor hours! 400 300 7 Machine hours! 400 400 = Product 403 (1,000 units): ‘Labor hours’ 2000 2,000 2,000, Machine hours 2000 2,000 ‘000 Total labor hours... 3400 4,300 3,500 Total machine hours... 2,900 2,900, 2,000 22 x 500; 3 x 500; 3 x 500 #1» 400; 4 x 400 4 x S00; 4 x 500; 2 500 $2 4,000; 2» 1,000; 2» 4,000 1 » 400; 2x 400 "2% 4,000; 2 «1,000; 1 » 4,000 ‘The demand can be metin all epartments except for Department 3. Production requires 3,500 labor hours in Department 3, but oly 2.750 hours ara avaiable, aProduct 401: CMIUnit= $198 - $103 = $93 CMIDLH= $8313 = $31 Direct labor hours needed (De| Product 403: CiiUnit = § Requires no hours in Department 3 Product 403; CMIUnit = $167 - $97 = $70 CMIDLH = $70/2 = $35 Direct labor hours needed (Dept. 3): 2 4,000 = 2,000, Production should be equal to demand for Product 403 as it has the highest contribution margin per unit of scarce resource. Aftor meeting demand, any adcitional labor hours in Department 3 should be used to Produce Product 401 (2,780 ~ 2,000 = 750; 750/3 = 250 units of Product Contribution to profits: Product 404: Product 402: Product 403: Total contribution margi z ue 3, Let X = Number of Product 404 produced ‘Let W= Number of Product 402 produced = 400 units Let ¥ = Number of Product 403 produced i Sars SOW Obie — Max 13X + $70Y + $501 (objective function) subject to: 2X + ¥ $1800 (machine constraint) ‘3X + 2Y $2,750 (labor constraint) XS 500 (domand constraint) Y $1,000 (demand constraint) we 400 GomerPoint XValue Y.value W.Value Z= $88X $70¥+ $50 A 0 0 400 $ 20,000 8 500 ° 400 66,500 c 500 500400 101,500 oD 260 1,000 400 113,250" E ° 4000 400 90,000 s; 1,000 units a heal 10At this output, the contibullon to profs is $113,250. 1600 a0 1090 00 20 | oA fa NS © 190 290 300 48000 6c0 Toate 000 "