Operations and Production Management

Group 6:
Travis Lawrence David Evans Kerry Savoury

Operations and Production Management

THEORY OF CONSTRAINTS (TOC)

What is TOC?
An approach to management that focuses on whatever impedes progress toward the goal of maximizing the flow of total valueadded funds or sales, less discounts and variable costs

History of TOC
A relatively recent development (20 years) Developed by Eliyahu Moshe Goldratt, an Israeli physicist, educator, and management specialist Became involved to help a friend who operated a plant that made chicken coops to design a scheduling system

History of TOC (contd)

His system tripled the output of the plant Goldratt released (1984) the philosophy underlying the scheduling algorithm in a book, The Goal: A Process of Ongoing Improvement

What is a Constraint?
A constraint is anything in an organisation that limits it from moving toward or achieving its goal For most business organisations the goal is to make money

Types of Constraints
Two basic types of constraints:
Physical constraints
something like the physical capacity of a machine

Non-physical constraints
something like demand for a product or a corporate procedure

Types of Constraints
Examples of Constraints: Demand Constraints
A constraint on output Symptoms include:
large amounts of final product inventory a production line running at a fraction of full capacity production

Types of Constraints
Demand Constraints (contd)
A demand constraint means that the system has excess capacity given the demand for its product Possible problems for demand might include:
a problem with marketing in which the customers are unaware of the systems high quality product the system may have a low quality product the system may be producing an obsolete product

Types of Constraints
Demand Constraints (contd)
In order to resolve the issue of excess capacity, each of the previous three problems need to be examined and resolved

Types of Constraints
Production Constraints
Production constraints are issues that impeded a systems ability to achieve its maximum capacity In-process inventories between production steps is often a symptom of a production constraint

Types of Constraints
Production Constraints are categorised into three types:
Policy constraints
Company or union policies or practice create the constraint and impede its long-term solution It is the most frequent constraint

Machine capacity constraints

When a single (or small number of machines) on a line form a bottleneck

Types of Constraints
Labour constraints
Insufficient labour (not having a skilled operator) The general labour pool is insufficient to run a line to full capacity, including extra shifts if needed

Types of Constraints
Raw Material Constraints
Raw material constraints are shortages in the raw materials necessary in making the product This is why a relationship with one's vendors is so important

Applying TOC
The Theory of Constraints has been used at three different levels:
Production Management
Initially applied here to solve problems of bottlenecks, scheduling, and inventory reduction

Applying TOC
Throughput Analysis
TOC has caused a shift from cost-based decision making to decision making based on continuous improvement of processes Some key elements are:
System throughput System constraints Statistically determined protective capacities at critical points

Applying TOC
Logical Processes
A general application to attack a variety of process problems within organizations It is applied:
To identify what factors are limiting an organization from achieving its goals, To developing a solution to the problem, To get the individuals in the process to invent the requisite changes for themselves

The Process of Change

The traditional approach to a process change shows that local optimization does not work well for good of the overall system A system can only operate as fast as its bottleneck

The Process of Change

Goldratt briefly outlined a process of change in 1990 He characterized it as:
What to change What to change to How to cause the change

The Process of Change

Approached by the 5 following rules:
Define the system. Define the goal of the system. Define the necessary conditions. Define the fundamental measurements. Define the role of the constraint(s).

Implementing TOC
There are five steps involved in implementing TOC:
1. 2. 3. 4. 5. Identify Exploit Subordinate Elevate Repeat

Implementing TOC
1. Identify the system's constraints
Prioritize the processes so that just the constraints that really limit the systems progress are identified
Identify
find the neck in our hourglass

Implementing TOC
2. Decide how to exploit the system's constraints
Decide how to manage the constraint within the system Then manage the resources to provide what is needed to match the output of the constrained resources Never let them supply more output than is needed

2. Decide how to exploit the system's constraints

Expoit remove any blockages from the neck Exploit improve the value of the output

Implementing TOC
3. Subordinate everything else to the systems constraint
The constraints are keeping us from moving toward our goal Apply all of the resources that we can to assist in breaking the constraint
Subordinate there is no point in forcing more in. It wont come out any quicker

Implementing TOC
4. Elevate the system's constraints
Continue to work toward breaking a constraint (also called elevating a constraint) At some point the constraint will no longer be a constraint The constraint will be broken
Elevate: Make the hole bigger!!

Implementing TOC
5. If the constraint is broken, return to Step 1
There will be another constraint, somewhere else in the system that is limiting progress to the goal

Implementing TOC
Concluding: The process must be reapplied, perhaps many times TOC does not try to eliminate all problems, only those that threaten the constraint Excessive effort in problem elimination is a waste

Implementing TOC
Advantages:
Improves capacity Avoids build-up of inventory Avoids local optimization Improves communication between departments

Implementing TOC
Disadvantages:
Negative impact on non-constrained areas
Diverts attention from other areas that may be the next constraint

The constraint must be kept operating at its full capacity

Operational Measurements
TOC defines three operational measurements that measure whether operations are working toward that goal
1. Throughput
The rate at which the system generates money through sales

Operational Measurements
2. Inventory
All the money the system invests in things it intends to sell This is the total system investment, which includes not only conventional inventory, but also buildings, land, vehicles, plant, and equipment

Operational Measurements
3. Operating Expenses
All the money the system spends in turning inventory into throughput This includes all of the money constantly poured into a system to keep it operating, such as heat, light, scrap materials and depreciation

Current Research
It is currently being refined and expanded at the Avraham Y. Goldratt Institute (named after Dr. Goldratt's late father) The Goldratt Institute publishes The Theory of Constraints Journal on an irregular, approximately quarterly, basis

Theory of Constraints

Thank You Questions???