ch05_cm(2011-spring)class

Outlines
1 Introduction to Theory of Constraints
Operations Management
2 Principles and Methodologies of TOC
Lecture 5: Constraint Management
3 The Implementation of TOC in OM - DBR
2
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L5 Constraint Management
TOC Thinking
The constraint is anything in an organization that limits it from moving toward or achieving its goal. There are two basic types of constraints:
The physical constraint is something like the physical capacity of a facility. The non-physical constraint might be something like demand nonfor a product, a corporate procedure, or an individual's paradigm for looking at the world.
- Market - Capacity - Resources - Suppliers - Finance - Knowledge Or Competence - Policy
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Evolution from OPT to TOC
The Goal: A Process of Ongoing Improvement Eliyahu M. Goldratt, Jeff Cox OPT, Optimized Production Technology TOC, Theory Of Constraints – Drum-Buffer-Rope – Critical Chain – TOC Thinking
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L5 Constraint Management
Outlines
1 Introduction to Theory of Constraints
What is the Goal of the Firm?
To increase stockholder value To increase productivity and match supply with
2 Principles and Methodologies of TOC
demand To improve customer satisfaction and increase
3 The Implementation of TOC in OM - DBR
market share To increase employee satisfaction To support the city, state and national economy ……
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L5 Constraint Management
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L5 Constraint Management
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Goldratt: The Goal of the Firm Goldratt stated that the sole business goal of firms is To Make Money Now and in the Future
How do We Measure Progress toward the Goal?
Financial Measurements Operational Measurements
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L5 Constraint Management
What Financial Measures Describe the Goal of Making Money?
Net profit (NP)
–
Cons of Financial Measures
Lagging expectation of decision-making Inconsistency of the partial standard and total optimization Unfitness of direct guidance
an absolute measurement in dollars
Return on investment (ROI)
–
a relative measure based on investment
Cash flow (CF)
–
a survival measurement
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L5 Constraint Management
Operational Measurement
Throughput
–
Throughput
Throughput，is the rate at which money Throughput is generated by the operations system through sales.
(MONEY MADE THROUGH SALES RATE)
Inventory
– (MONEY INVESTED TO PURCHASE WHAT WILL BE SOLD)
Operating expenses
– (MONEY SPENT TO TURN INVENTORY INTO THROUGHPUT)
Goldratt：
T = Sales Revenue - Raw Material Expense
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L5 Constraint Management
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L5 Constraint Management
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Inventory
Inventory，is all the money that the operations Inventory，
system has invested in purchasing things it intends to sell. - In operational measurement’s terminology, inventory is carried as the cost of the raw materials. materials
Operating Expenses
Operating Expenses ，is all the money that the operations system spends to convert inventory into throughput .
- This includes direct and indirect labor, equipments, depreciation, administrative costs, etc.
Goldratt：
What is inventory? A liability or an asset?
- anything we must do and don't like to do is a liability. - anything we must do and don't like to do is a liability. - liabilities are the chains around our necks and we are - liabilities are the chains around our necks and we are always delighted to get rid of liabilities. always delighted to get rid of liabilities.
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L5 Constraint Management
?Dr. Rong WANG Antai College of Economics & Management.SJTU
L5 Constraint Management
Mini-Case: HP Laptops
In this case, the RMs costs for HP laptops are $1,000 per unit.
– In June, total purchasing quantity of RMs is 500 laptops;
Financial vs. Operational Measurement
NP = T - OE ROI = NP / I CF is OK, if
– Cumulative income + Initial cash > Cumulative costs.
Per unit operating expenses are $500.
– In June, the output quantity of FGs is 500 laptops;
The selling price is $3,000 per unit.
– In June, the sales quantity of FGs is 400 laptops;
What operational measures describe the June-process toward the goal of making-money?
– Throughput (T) – Inventory (I) – Operational Expense (OE)
How do these measures relate financial measures?
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L5 Constraint Management
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L5 Constraint Management
How do the measures relate to decisions for the Goal?
The operational goal is to reduce operating expense, reduce inventory while simultaneously increasing throughput. The most powerful effect is to increase throughput. throughput
NP ROI CF
How do the measures relate to decisions for the Goal?
Goldratt：
除非消费者买走了产品，否则没有任 The Goal, It's Not Luck, The Simple Solution is 何人在供应链中卖出了任何东西。
T
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I
OE
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TOC Thinking.
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L5 Constraint Management
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The Core Idea of TOC
The core idea in TOC， is that every profit making enterprise must have at least one constraint. The constraints will determine the output of the system whether they are acknowledged and managed or not.
The Core Concept of TOC
Bottleneck , is defined as any resource whose capacity is less than demand placed on resource. Capacity Constrained Resource, is one whose utilization is close to capacity and could be a bottleneck if it is not scheduled carefully.
Bottleneck (Capacity)
Input
Flow Rate
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Demand
L5 Constraint Management
Flow-Control Process Focused Bottleneck
Flow-Control Process Focused Bottleneck
YYcan be only can be only used 75% of used 75% of capacity or WIP capacity or WIP will build up! will build up!
X
X
Y
Market
Y
No extra No extra product! product!
Y
X
X
Market
Y
Bottleneck Demand/week Process time/unit Avail. Time/week Utilization 200 units 1h 200 h
200 × 1h 200units = = 100% 200 h 200units
Non-bottleneck 200 units 45 min 200 h
200 × 45min 200units = = 75% 200h 267units
L5 Constraint Management
Bottleneck Demand/week Process time/unit Avail. Time/week Utilization 200 units 1h 200 h
Non-bottleneck 200 units 45 min 200 h
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?Dr. Rong WANG Antai College of Economics & Management.SJTU
200 × 1h = 100 % 200 h
200 × 45 min = 75 % 200 h
L5 Constraint Management
Flow-Control Process Focused Bottleneck
Market Assembly X
X Bottleneck Demand/week Process time/unit Avail. Time/week Utilization 200 units 1h 200 h
YYcan be only can be only used 75% of used 75% of capacity or parts capacity or parts will build up! will build up!
Flow-Control Process Focused Bottleneck
Market X
X Bottleneck Demand/week Process time/unit Avail. Time/week Utilization 200 units 1h 200 h
Market Y
Y
YYcan be only can be only used 75% of used 75% of capacity or FGs capacity or FGs will build up! will build up!
Y
Y
Non-bottleneck 200 units 45 min 200 h
Non-bottleneck 200 units 45 min 200 h
200 × 1h = 100 % 200 h
200 × 45 min = 75 % 200 h
L5 Constraint Management
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?Dr. Rong WANG Antai College of Economics & Management.SJTU
200 × 1h = 100 % 200 h
200 × 45 min = 75 % 200 h
L5 Constraint Management
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The OPT Principles of TOC
1. Do not balance capacity balance the flow 2. The level utilization of a non-bottleneck resource
Mini-case: Unbalanced Capacity
In this case, we wanted to process five items that could come from the two distributions. The processing sequence is from A to B with no space for inventory in between.
– Process A has a mean of 10 hours and a standard deviation of 2 hours. This means that we would expect 95.5 percent of the processing time to be between 6 hours and 14 hours ((±2σ). – Process B has a constant processing time of 10 hours.
is not determined by its own potential but by some other constraint in the system
3. Utilization and activation of a resource are not
the same
4. An hour lost at a bottleneck is an hour lost for
the entire system
5. An hour saved at a non-bottleneck is a mirage
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L5 Constraint Management
?Dr. Rong WANG Antai College of Economics & Management.SJTU
L5 Constraint Management
Mini-case: Unbalanced Capacity
In this case, we wanted to process five items that could come from the two distributions. The processing sequence is from A to B with no space for inventory in between.
– Process A has a mean of 10 hours and a standard Op. deviation of 2 hours. This means that we would expect 95.5 percent of the processing time to be
Mini-case: Unbalanced Capacity
Process A 3＃ 4＃ 5＃ 6 8 Op. A 10 Time
L5 Constraint Management
2＃
2σ
1＃ 10 12 1＃ 14 14 2＃ 12 10
hrs 6 3＃ 10 10
Process B 5＃ 4＃ 3＃ 2＃ hrs 1＃ 8 10 12 14 4＃ 8 10 5＃ 6 10 10 Time
L5 Constraint Management
A 10 between 6 hours and 10 hours ((±2σ). 10 14 10 10
– Process B has a constant processing time of 10 hours.
B
10
10
10
10
B
T = 60min
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T = 66min
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The OPT Principles of TOC
6. Bottlenecks govern both throughput and
The Theory of Constraints
1、Identify the system constraint（s）. 2、Exploit the system constraint（s）. 3、Subordinate everything else to that decision of step 2. 4、Elevate the system constraint（s）. 5、Go Back to Step 1 if, in the previous steps, the constraints have been broken, but do not let inertia become the system constraint. 1、 Identify 2、 Exploit 3、 Subordinate 4、 Elevate ?Dr. Rong WANG Antai College of EconomicsGo Back 5、 & Management.SJTU
inventory in the system
7. Transfer batch may not and many times should
not be equal to the process batch
8. A process batch should be variable both along its
route and in time
9. Priorities can be set only by examining the
system’s constraints and lead time is a derivative of the schedule
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L5 Constraint Management
L5 Constraint Management
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Mini-Case: Constraint Management at Skateboard Co.
In Skateboard Co., two products (P and Q) are sold in the market at $90 and $100 per unit, respectively. Four workstations (A, B, C and D) process the above two products. Weekly available work time for each workstation is 2,400 minutes. Processing times for each workstation are shown as the following exhibit . Note raw materials, parts, and components are added at each workstation to produce each product. The per unit cost of these materials is shown as RMs. Weekly operating expenses are $6,000.
Workstation A~ D: Each Available Work Time 2,400 min/week Operating Expenses not including RM $6,000/week
Mini-Case: Skateboard
Demand 100 Units/Week Demand 50 Units/Week
Product P
Sales Price: $90/Unit
Product Q
Sales Price: $100/Unit
Workstation D
15 Minutes
Workstation D
5 Minutes
Assembly
Workstation C
10 Minutes
Workstation C
5 Minutes
Workstation B
15 Minutes
Manufacturing
Workstation A
15 Minutes
Workstation B
15 Minutes
Workstation A
10 Minutes
Manufacturing
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Raw Material 1 $20/Unit
Raw Material 2 $20/Unit
Raw Material 3 $20/Unit
L5 Constraint Management
Standard Accounting Procedure
Maximize sales revenue or maximize per unit gross profit
Product Product P Q Workstation A (Min) Workstation B (Min) Workstation C (Min) Workstation D (Min) Total (Min) 15 15 15 15 60 10 30 5 5 50 100 Units P 1500 1500 1500 1500 6000 50 Units Q 500 1500 250 250 2500 Total Prod. Time 2000 3000 1750 1750 -
Standard Accounting Procedure
Maximize sales revenue or maximize per unit gross profit
Product P Sales Price (Per Unit ) Material Cost (Per Unit Per Unit Gross Profit $90 $40 $50 Product Q $100 $40 $60
Demand Weekly Throughput Weekly Total Gross Profit Operations Expenses Total Net Profit
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100 60 $3,000
50 50 $3,000 $6,000 $6,000 $0
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Available Work Time 2,400 Min/week
L5 Constraint Management
TOC Procedure
Identify Exploit Subordinate Elevate Go Back
Workstation A (Min) Workstation B (Min) Workstation C (Min) Workstation D (Min) Total (Min)
(1) Identify
What is the constraint?
Product P 15 15 15 15 60 Product Q 10 30 5 5 50 100 Units P 1500 1500 1500 1500 6000 50 Units Q 500 1500 250 250 2500 Total Prod. Time 2000 3000 1750 1750 -
Available Work Time 2,400 Min/week
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(2) Exploit
(3) Subordinate
TOC rates the attractiveness of making a product Product P Product Q $100 $40 $60 30 minutes $2 per minute
L5 Constraint Management
– Based on its throughput per unit of working time at the bottleneck
Sales Price (Per Unit ) Material Cost (Per Unit Per Unit Gross Profit
$90 $40 $50
Workstation A Workstation B Workstation C Workstation D Total
Processing time on constraints -Workstation B 15 minutes (Min/Unit) Gross profit per minute ($/Min)
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$3.3 per minute
Sales Price Per Unit Material Cost Per Unit Gross Profit Per Unit GP at the bottleneck Demand Weekly Throughput Weekly Total Gross Profit Operations ?Dr. Rong WANG Expenses Antai College of Economics & Management.SJTU Total Net Profit
Product P 15 15 15 15 60 Product P $90 $40 $50 $3.3 100 100 $5,000
Product Q 10 30 5 5 50 Product Q $100 $40 $60 $2 50 30 $1,800
100P 1500 1500 1500 1500 6000
50Q 500 1500 250 250 2500
$6,800 $6,000 $800 L5 Constraint Management
(4) Elevate
Add another workstation of type B.
Product Product P Q Workstation A Workstation B Workstation C Workstation D Total 15 15 15 15 60 10 30 5 5 50
Outlines
1 Introduction to Theory of Constraints
100P 1500 1500 1500 1500 6000
50Q 500 1500 250 250 2500
Total 2000 3000 1750 1750
Utilization 83% 63% 73% 73%
2 Principles and Methodologies of TOC
3 The Implementation of TOC in OM - DBR
Available Work Time of A,C,D: 2,400 Min/week
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Available Work Time of B: 4,800 Min/week
L5 Constraint Management
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L5 Constraint Management
Drum-Buffer-Rope System
Drum-Buffer-Rope (DBR), is a planning and scheduling solution derived from the TOC.
– The goal is to schedule the bottleneck for full utilization and subordinate the rest of the system to the needs of the bottleneck.
Drum
Drum, identify that in any operations system there
will be Bottleneck or Capacity Constrained Resource which effectively determines operations throughput and regulates the flow of materials throughout the entire system.
Bottleneck (Drum) Customer Raw Materials
Drum Raw Materials
Customer
Buffer Rope
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Communication (Rope)
Inventory (Buffer)
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Buffer
Buffer, identify that it must buffering the
constraint because capacity lost at the constraint can never be regained, which involves time buffer and inventory buffer. buffer
Buffer
If the drum is not a bottleneck but a CCR (and thus it can have a small amount of idle time), we might want to create two buffer inventories: - one in front of the CCR - the second at the end as finished goods.
Bottleneck (Drum) Raw Materials Raw Materials
CCR (Drum) Customer Customer
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Communication (Rope)
Inventory (Buffer)
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Communication (Rope)
Inventory (Buffer)
Buffer of FGS
L5 Constraint Management
Rope
Rope, is the synchronization that it must
be synchronized to the rate that product flows through the constraints and gateway operations. operations
Mini-Case: DBR
1. Op. Time in workstation A = 9 minutes 2. Op. Time in workstation B = 6 minutes 3. Op. Time in workstation C = 12 minutes 4. Op. Time in workstation B = 4 minutes 5. Op. Time in workstation D = 8 minutes
9 Raw Materials
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6 B1
12 C
(Lot Size = 25)
4 B2
8 D Finished Goods
A
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L5 Constraint Management
Mini-Case: DBR
What is the drum? What is the buffer? What is the rope? How do we select the length (time) of the rope? 9 Raw Materials A
Mini-Case: DBR
6 B1 12 C
(Lot Size = 25)
Rope Buffer A B A
(225) (418)
4 B2
8 D Finished Goods
B
(150)
B 25
(300) (100)
9 Raw Materials A
6 B1
12 C
(Lot Size = 25)
4 B2
8 D Finished Goods
C D
D
(200)
0
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L5 Constraint Management
400
800
1200
L5 Constraint Management
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Readings & Discussion
1、Reading:
The Goal , Eliyahu M. Goldratt ，Jeff Cox, North River Press, Inc., 1999.12
– – – – – – – – –
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Summary: Key Points
KEY WORDS Bottleneck Capacity Constrained Resource Drum Buffer Rope Flow-Control Process Focused Bottleneck Functions of Inventory in TOC Financial Measures and Operational Measurement Analysis Standard Accounting Procedure and TOC Procedure Analysis
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QUALITATIVE ANALYSIS
QUANTITATIVE ANALYSIS
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The End of Lecture 5
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