Improvement Toc

8/8/2019 Improvement Toc

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IMPROVEMENT

Theory of constraints

6/25/2010 TOC, presented by Nickolay Shaposhnikov 1


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TOC


Bachelor of Science

from Tel Aviv University

Masters of Science,

and Doctorate of Philosophy

from Bar-Ilan University

The Theory of Constraints (TOC) is a QualityManagement System originally introduced by

Dr. Eliyahu M. Goldratt in the book called

The Goal (1984)Eliyahu Moshe Goldratt

(born March 31, 1948)

is an Israeli physicist

Goldratt founded the Abraham Y. Goldratt Institute in 1996

the strength of any chain, process, or system is dependent upon its

weakest link


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TOC


Any manageable system is limited in achieving more of its goal by a very

small number of constraints, and that there is always at least one constraint.

The TOC process seeks to identify the constraint and restructure the rest of

the organization around it, through the use of the Five Focusing Steps.

A constraint is anything that limits a systems performance,

relative to the system goal


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CONSTRAINT

Constraints may appear in the form of capacity,

material,

logistics,

the market demand,

time

behavior,

or even management policy


TOC thinking regards all progress toward the goal of making money as relating directlyto management attention toward the constraint(s).


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PERFORMANCE MEASURES

Throughput is defined as the rate at which the system generates money

through sales, not through production. Goods are not considered an asset

until sold.

Inventory is defined as the money invested in goods that the firm intendsto sell or material that the firm intends to convert into salable items.

Operating expense includes all the money the firm spends converting

inventory into throughput.

TOC emphasizes the use of these three global operational measures rather

than local measures (e.g., efficiency and utilization)



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THE OBJECTIVE OF THE FIRM

Throughput

Inventory

Operating expense

should lead to the accomplishment of the firm's goal:

TO MAKE MONEY NOW AS WELL IN THE FUTURE!

Anything that prevents a firm from reaching this goal is labeled as aconstraint.



7/23

P&Q Company


Operating Expenses (OE) = 6000$

Product MarketOpportunity

/Week

SellingPrice/

piece

Cost ofMaterials/

piece

Directlabor

/piece

P 100pcs 90$ 45$ 55min

Q 50pcs 100$ 40$ 50min

-includes 2400$ direct labor

-does not include material cost

A2400min/week

P-15min

Q-10min

B2400min/week

P-15min

Q-30min

C2400min/week

P-15min

Q-5min

D2400min/week

P-10min

Q-5min

RM for Ps

RM for Qs

FG

Ps&Qs


8/23

Trying to satisfy entire demand : produce all Ps

and all Qs


Product Market

Demand

/Week

Selling

Price/

piece

Cost of

Materials

/piece

Could Yield a total of

P 100pcs 90$ 45$ (90-45)*100=4500$

Q 50pcs 100$ 40$ (100-40)x50=3000$

=7500$

Profit = 7500- 6000 =

= 1500$/week


Assumption that we did : infinite capacity at any given point in time and

that all resources are equal


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Not all resources are equal!


It leads to the Five Focusing steps in the Theory of Constraints!

1st Step : Identify the systems constraints Look at the company as if it were a chain

Indentify the weakest link

Why cant we satisfy the entire demand?

Where is inventory piling up?

What the load on the resources would be if we were able to take all of the market

demand and turn it into Orders?

Resource

/Product

A

2400min

/week

B

2400min

/week

C

2400min

/week

D

2400min

/week

100P 1500min 1500min 1500min 1000min

50Q 500min 1500min 250min 250min

2000min 3000min 1750min 1250min


10/23

1st Step : Identify the systems constraints


A

2000min

of2400min

84%

B

3000min

of2400min

125%

C

1750min

of2400min

73%

D

1250min

of2400min

52%

There is a physical internal capacity constraint in this company : Resource B.


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2nd Step : Exploit the systems constraints

Includes looking for the most profitable product mix, scheduling decisions,

and working rules

! We want to make sure we set B to work at 100% of capacity

on the most profitable product !

Product Market

Opportunity

/Week

Selling

Price/piece

Cost of

Materials/piece

Yield/

piece

Direct labor

/piece

P 100pcs 90$ 45$ 45$ 55min

Q 50pcs 100$ 40$ 60$ 50min

Determination of the most profitable product

Qs give us the higher contribution and consumes less direct labor than Ps .

A conventional approach to product cost prioritizing suggests producing as many Qs

as possible and filling up the rest with Ps.


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producing as many Qs

as possible and filling up the rest with Ps


Resource

/Product

Demand

A

2400min

/week

B

2400min/week

C

2400min

/week

D

2400min

/week

Yield/week

60P of

100P

900min 900min/15min=

60pcs

900min 600min 60pcsX45*$=2700$*Yield/piece=90-45

50Qof

50Q

500min 1500min=50pcs 250min 250min 50pcsX60*$=3000$*Yield/piece=100-40

1400min

=58%

2400min

=100%

1150min

=48%

850min

=35%5700$

5700$-6000$= - 300$ Operating Expenses (OE) = 6000$

Net Loss of 300$

This calculations ignore the fact that all recourses are not equal.

In the decision making process itself, we are not recognizing constraint B

Go back and try to exploit the constraint

still 2nd Step


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Again the 2nd Step : Exploit the systems

constraints

We want B to squeeze the most dollars out of the system that it can!

B is a limited resource

How much each product is contributing relative to the time they are demanding

on the constraint.

!CAPACITY OF THE CONSTRAINT IS THE CAPACITY OF THE COMPANY!

If product P consumes 15 minutes of resource Bs time and contributes 45$ ->

company is making 3$ per minute producing Ps.

Qs consumes 30min of Bs time for 60$, or 2$ per minute.

PRIORITIES CHANGE! First all Ps then fill up the rest with Qs.

There is a difference between constraints and non-constraints in the impact on

our companies!


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Resource/Product

Demand

A2400min

/week

B2400min/week C2400min

/week

D2400min

/week

Yield/week

100P of

100P


30Qof

50Q


1800

=75%

2400min

=100%

1650min

=69%

1150min

=48%6300$

6300$-6000$= 300$

producing as many Ps

as possible and filling up the rest with Qs


Net Profit of 300$

No physical changes!

Just understanding how to maximize the capabilities we already have.

still 2nd Step


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3rd Step: Subordinate everything else to the

decisions made in 2nd Step


Synchronizing the outputs of all other links in the chain to that of the constraint.

Load the B to 100% of its available time every week

A

1800minof2400min

75%

B

2400minof2400min

100%

C

1650minof2400min

69%

D

1150minof2400min

48%

FG

Ps&Qs

RM for

100Ps

RM for

30Qs

Apply Drum-Buffer-Rope (DBR) production planning methodology


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DBR


Designed to regulate the flow of work-in-process (WIP) through

a production line at or near the full capacity of the most restricted resourcein the manufacturing chain.

The drum is the rate or pace of production set by the system'sconstraint.

The rope is communication device that connects the most restrictedresource ( constraint ) to the material release point and ensures that RM

is not inserted into the production process at a rate faster than the constraint can

accommodate it. Purpose of rope is to protect the constraint from being

overloaded with WIP.

To protect the constraint from being starved for productive work to do,

a Time Buffer is created to ensure that WIP arrives at the resource

well before it is scheduled to be processed.

.... 3rd Step


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DBR


A 75%

B

100%

C 69% D 48%

RM for100Ps

RM for

30Qs

FG

Ps&QsTIMEBUFFER

DRUM

ROPE

ROPE

We want A to feed BWe do not want to load A with any more than 100P and 30Q

-> avoid excess inventory

We do not want A giving B less than B needs

.... 3rd Step


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TIME BUFFER


Source: Standing on the shoulders of giants ,Figure 1, E. Goldratt, 2008

Ford used space

Ohno level of

inventory

Considerable time

buffer ( earlier RM is

released )

-> more orders are

simultaneously the shop

floor, traffic jams,more management

attention to sort

priorities, queues, high

inventory, poor due-date

performance (wrongly leads torelease more orders!

.... 3rd Step ,

SUBORDINATION

THROUGH THE DBR

TOOL


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4th Step : Elevate the systems constraint

To make the weak link stronger .

Buying another B machine

Paying for overtime

Improving process

Cross-training

In our case, extra 30min /day (+5%) of restricted resource B, through

improving process, allowing us to produce 5 more Qs per week and adding

another 300$ to the bottom line - > 100% more profit every week!

5th Step :

If the constraint is broken go back to the 1st step


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THE FIVE FOCUSING STEPS OF TOC

I. Identify (choose) the systems constraint.

II. Decide how to exploit the systems constraint.

III. Subordinate everything else to the above decision.

IV. Elevate the systems constraint.

V. If the constraint is broken go back to step one



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THE EVALUATION OF TOC OVER 30 YEARS


Source: http://goldrattschools.org/toc/
http://goldrattschools.org/toc/http://goldrattschools.org/toc/


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Industry sectors

Manufacturing

Distribution

Projects

Financial Services Health care

Defense

Government


Aerospace

Automotive

Construction

Education Semiconductors

Telecommunications

etc

Clients: 3M, Boeing, Intel, Procter & Gamble, United States Air Force.


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References


1. Eliyahu Goldratt, The Goal: A Process of Ongoing Improvement,

North River Press Publication, 1984

2. Eli Schragenheim and H. William Dettmer, Simplified Drum-Buffer-Rope.

A whole system approach to high velocity manufacturing, 2000

3. Eliyahu Goldratt , Standing on the shoulders of Giants,

Goldratt consulting, 20084. Lisa J. Schneinkopf, The Theory of Constraints, CCI, 2002

5. Nadav Cohen, What is TOC. Retrieved May, 2010

from http://goldrattschools.org/toc/

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