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© 2007 Pearson Education Constraint Management Chapter 7.

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Presentation on theme: "© 2007 Pearson Education Constraint Management Chapter 7."— Presentation transcript:

1 © 2007 Pearson Education Constraint Management Chapter 7

2 © 2007 Pearson Education How Constraint Management fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy Project Management Process Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean Systems Supply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling

3 © 2007 Pearson Education Eastern Financial Florida Credit Union What was the problem? How did they solve it?

4 © 2007 Pearson Education Capacity Planning Capacity is the maximum rate of output of a process or system. Output Measures Input Measures Utilization

5 © 2007 Pearson Education Output and Capacity What is a Constraint? Any factor that limits system performance and restricts its output. A Bottleneck An output constraint that limits a companys ability to meet market demand. Also called Capacity Constraint Resource or CCR

6 © 2007 Pearson Education Theory of Constraints (TOC) Short-Term Capacity Planning Theory of Constraints Identification and management of bottlenecks Product Mix Decisions using bottlenecks Long-term Capacity Planning Economies and Diseconomies of Scale Capacity Timing and Sizing Strategies Systematic Approach to Capacity Decisions Constraint Management A systematic approach that focuses on actively managing constraints that are impeding progress.

7 © 2007 Pearson Education 7 Key Principles of TOC 1.The focus is on balancing flow, not on balancing capacity. 2.Maximizing output and efficiency of every resource will not maximize the throughput of the entire system. 3.An hour lost at a bottleneck or constrained resource is an hour lost for the whole system. An hour saved at a non-constrained resource does not necessarily make the whole system more productive.

8 © 2007 Pearson Education 7 Key Principles of TOC 4.Inventory is needed only in front of the bottlenecks to prevent them from sitting idle, and in front of assembly and shipping points to protect customer schedules. Building inventories elsewhere should be avoided. 5.Work should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to the market demand. Pacing everything to the slowest resource minimizes inventory and operating expenses.

9 © 2007 Pearson Education 7 Key Principles of TOC 6.Activation of non-bottleneck resources cannot increase throughput, nor promote better performance on financial measures. 7.Every capital investment must be viewed from the perspective of its global impact on overall throughput (T), inventory (I), and operating expense (OE).

10 © 2007 Pearson Education Application of TOC 1.Identify The System Bottleneck(s). 2.Exploit The Bottleneck(s). 3.Subordinate All Other Decisions to Step 2 4.Elevate The Bottleneck(s). 5.Do Not Let Inertia Set In.

11 © 2007 Pearson Education Bal Seal Engineering Managerial Practice 7.1 Bal Seal had problems with excessive inventory, long lead times and long work hours. They were operating above capacity but on-time shipment rate was 80-85% Bal Seal implemented TOC with dramatic and almost immediate results. Excessive inventory dried up Extra capacity was experienced everywhere but at the constraint Total production increased over 50% Customer response time decreased from 6 weeks to 8 days On-time shipments went up to 97% Theory of Constraints in Practice

12 © 2007 Pearson Education Identification and Management of Bottlenecks A Bottleneck is the process or step which has the lowest capacity and longest throughput. Throughput Time is the total time from the start to the finish of a process. Bottlenecks can be internal or external to a firm.

13 © 2007 Pearson Education Setup Time If multiple services or products are involved, extra time usually is needed to change over from one service or product to the next. This increases the workload and could be a bottleneck. Setup Time Setup Time is the time required to change a process or an operation from making one service or product to making another.

14 © 2007 Pearson Education Where is the Bottleneck? Example Check loan documents and put them in order (10 minutes) 2. Categorize loans (20 minutes) 3. Check for credit rating (15 minutes) 6. Complete paperwork for new loan (10 minutes) 4. Enter loan application data into the system (12 minutes) Customer 5. Is loan approved? (5 min) Yes No

15 © 2007 Pearson Education Barbaras Boutique Application 7.1 T1 (12) T6 (22 ) T5 (15 ) T2 (13 ) T7 (10) T4 (18) T3-a (14) T3-c (11) T3-b (10) Type Type A Type B Two types of customers enter Barbaras Boutique shop for customized dress alterations. After T1, Type A customers proceed to T2 and then to any of the three workstations at T3, followed by T4, and then T7. After T1, Type B customers proceed to T5 and then T6 and T7. The numbers in the circles are the minutes it takes that activity to process a customer. What is the capacity per hour for Type A customers? If 30% of customers are Type A customers and 70% are Type B, what is the average capacity? When would Type A customers experience waiting lines, assuming there are no Type B customers in the shop? Where would Type B customers have to wait, assuming no Type A customers?

16 © 2007 Pearson Education Long-Term Capacity Planning Short-Term Capacity Planning Theory of Constraints Identification and management of bottlenecks Product Mix Decisions using bottlenecks Long-term Capacity Planning Economies and Diseconomies of Scale Capacity Timing and Sizing Strategies Systematic Approach to Capacity Decisions Constraint Management

17 © 2007 Pearson Education Long-Term Capacity Planning Deals with investment in new facilities and equipment. Plans cover a minimum of two years into the future. Economies of scale are sought in order to reduce costs through Lower fixed costs per unit Quantity discounts in purchasing materials Reduced construction costs Process advantages

18 © 2007 Pearson Education Economies of Scale Economies of scale occur when the average unit cost of a service or good can be reduced by increasing its output rate. Diseconomies of scale occur when the average cost per unit increases as the facilitys size increases 250-bed hospital 500-bed hospital 750-bed hospital Economies of scale Diseconomies of scale Output rate (patients per week) Average unit cost (dollars per patient)

19 © 2007 Pearson Education Capacity Timing and Sizing Strategies 1.Sizing Capacity Cushions 2.Timing and Sizing Expansions 3.Linking Process Capacity and other operating decisions.

20 © 2007 Pearson Education Capacity Cushions reserve capacity a firm has available. A capacity cushion is the amount reserve capacity a firm has available. Capacity Cushion = 100% Utilization Rate (%) How much capacity cushion depends on The uncertainty and/or variability of demandThe uncertainty and/or variability of demand The cost of lost businessThe cost of lost business The cost of idle capacityThe cost of idle capacity

21 © 2007 Pearson Education Capacity Expansion Expansionist Strategy Planned unused capacity Time Capacity Forecast of capacity required Time between increments Capacity increment Staying ahead of demand

22 © 2007 Pearson Education Capacity Expansion Wait-and-See Strategy Time Capacity Forecast of capacity required Planned use of short-term options Time between increments Capacity Increment Chasing demand

23 © 2007 Pearson Education Competitive Priorities Quality Process Design Aggregate Planning Linking Process Capacity and Other Decisions


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