Theory Of Constraints.pdf

THEORY OF CONSTRAINTS

INTRODUCTION

“A chain is no stronger than its weakest link”

Organizations are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the outcome

INTRODUCTION (2)  Any manageable system is limited in achieving more of its goals by a very small number of constraints, and that there is always at least one constraint.  TOC process seeks to identify the constraint and restructure the rest of the organization around it  Approach  Five Focusing Steps

ULTIMATE GOAL OF TOC

MAKE MONEY!! Make Money Now AND in The Future

MEASUREMENT

Organizations can be measured and controlled by variations on three measures:  Throughput  the rate at which the system generates money through sales Calculation: (Sales Rev – Var Exp) / Time

 Operational Expense  all the money that the system has invested in purchasing things which it intends to sell  Inventory  all the money the system spends in order to turn inventory into throughput

MEASUREMENT Performance is measured as the achievement of:  Increased throughput  Lower operational expense  Minimal inventory level Financial measures:  Profit  Return on Investment  Cash Flow

KEY ASSUMPTIONS  The rate of goal achievement is limited by at least one constraining process  Only by increasing flow through the constraint can overall throughput be increased  Usually applicable ONLY in manufacturing or trading

KEY ASSUMPTIONS  Convergence - Inherent Simplicity; The more complex a system is to describe, the simpler it is to manage  Consistency - There are no conflicts in nature; If two interpretations of a natural phenomenon are in conflict, one or possibly both must be wrong  Respect - People are not stupid; Even when people do things that seem stupid they have a reason for that behavior

CONSTRAINTS  A constraint is anything that prevents the system from achieving more of its goal  Constraints can be internal or external to the system  Only a few elements (constraints) in a business control the results of the entire organization  In TOC, the constraint is used as a focusing mechanism for management of the system

INTERNAL vs EXTERNAL CONSTRAINT  An internal constraint is in evidence when the market demands more from the system than it can deliver  focus on: discovering that constraint and following the five focusing steps to open it up (and remove it)

 An external constraint exists when the system can produce more than the market will bear  focus on: mechanisms to create more demand for its products or services

TYPES OF CONSTRAINT Types of (internal) constraints:  Equipment: The way equipment is currently used limits the ability of the system to produce more salable goods/services  People: Lack of skilled people limits the system. Mental models held by people can cause behaviour that becomes a constraint  Policy: A written or unwritten policy prevents the system from making more

OTHER TYPES OF CONSTRAINT  A Loose Constraint is evident when limited resources are not fully used by the product mix  A Binding Constraint is evident when available resources are used at their full capacity

TOC APPLICATION: Five Focusing Steps  Step 1: Identify the system constraint. In the first step, an organization identifies the part of the system that constitutes the weakest link. Then determine whether it is a physical constraint or a policy-related issue

 Step 2: Decide how to exploit the constraint. Organizations “ exploit”the constraint by utilizing every bit of the constraining component without committing to potentially expensive changes and/or upgrades

TOC APPLICATION: Five Focusing Steps  Step 3: Subordinate everything else. With a plan in place for exploiting the constraint, the organization adjusts the rest of the system to enable the constraint to operate at maximum effectiveness. Evaluate the results to see if the constraint still holds back system performance. If it is, the organization proceeds to Step 4. It not, the constraint has been eliminated and the organization skips ahead to Step 5

TOC APPLICATION: Five Focusing Steps  Step 4: Elevate the constraint. If an organization reaches Step 4, it means that Steps 2 and 3 were not sufficient in eliminating the constraint. At this point, the organization elevates the constraint by taking whatever action needed to eliminate it. This may involve major changes to the existing system, such as reorganization, divestiture, or capital improvements.

TOC APPLICATION: Five Focusing Steps  Step 5: Go back to Step 1. After a constraint is broken, the organization repeats the steps all over again, looking for the next thing constraining link. At the same time, the organization needs to monitor how the changes related to subsequent constraints impact the already improved constraints

TOC OPERATIONS: DRUM – BUFFER – ROPE (1) THE DRUM  The drum is the physical constraint of the plant: the work center or machine or operation that limits the ability of the entire system to produce more.  The rest of the plant follows the beat of the drum.  They make sure the drum has work and that anything the drum has processed does not get wasted.

TOC OPERATIONS: DRUM – BUFFER – ROPE (1) THE BUFFER  The buffer protects the drum, so that it always has work flowing to it.  Buffers in DBR have time as their unit of measure, rather than quantity of material.  This makes the priority system operate strictly based on the time an order is expected to be at the drum.

TOC OPERATIONS: DRUM – BUFFER – ROPE (1) THE ROPE  The rope is the work release mechanism for the plant.  Orders are released to the shop floor at one "buffer time" before they are due.  In other words, if the buffer is 5 days, the order is released 5 days before it is due at the constraint.