M. Karthik,Lean Manufacturing Engineer.Karthik.mirthipati@live.com

Session 1/8, Theory Of Constraints

Topics

Intro to Theory Of ConstraintsWhy TOC?What is Your Goal?DefinitionsKey Terms in TOCBasic Model of TOCProblems with Current Accounting Methods

Intro - Problem Solving.

"Problems exist because people believe they exist. If there were no people there would be no problems. People are also the ones who decide that a problem has been solved. Problem solving is the most typical human behavior.”

Introduction to TOC

Developed By Dr. Eliyahu Goldratt in 1984.

First published in book ‘The Goal’

What is TOC?

TOC: A methodology for identifying the most important limiting factor.

‘A Thinking Process that enables people to invent simple solutions to seemingly complex problems.' “A system is strong as

its weakest link”

TOC?

TOC states that every system must have at least one constraint limiting output.

There is no choice in the matter; either you manage the constraints or they mange you.

The constraint will determine the output of the system.

Why TOC?

Improves flow of product through the system

This increases throughput.

And reduces variation, improves quality

Low-disruption, sustainable way to change

What is the goal of TOC ?

What is the goal of TOC ?

Make Money Now and in the future.

Key Terms In TOC

Organisations can be measured and controlled by variations on three measures

Throughput

Operational Expense

Inventory

Definitions

Throughput: The rate at which the system generates money. This is sales minus cost of raw materials and purchased parts

Inventory: All the money the system invested in purchasing things which it intends to sell.

Operating Expense: All the money the system spends in order to turn inventory to throughput.

Productivity

Productivity is an average measure of the efficiency of production.

It can be expressed as the ratio of output to inputs used in the production process, i.e. output per unit of input.

Does not guarantee profitability. Has the throughput increased? Has inventory decreased? Have Operational expenses decreased?

Problems with Current Accounting Methods

Overhead rates can be very high, and if it is allocated to labour it makes labour look expensive.

It also encourages people to keep busy and often make to stock.

Basic Model of TOC

The basic model focuses on increasing “Throughput”; and reducing “Inventory” and “Operating expense” a secondary priority.

The potential for increasing “Throughput” tends to be much higher than the potential for decreasing “Inventory” and “Operating expense" .

Summary

Intro to Theory Of ConstraintsWhy TOC?What is Your Goal?Definitions & Key TermsBasic Model of TOCProblems with Current Accounting Methods