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© 2007 Pearson Education Constraint Management Chapter 7
© 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
© 2007 Pearson Education Eastern Financial Florida Credit Union What was the problem? How did they solve it?
© 2007 Pearson Education Capacity Planning Capacity is the maximum rate of output of a process or system. Output Measures Input Measures Utilization
© 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
© 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.
© 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.
© 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.
© 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).
© 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.
© 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
© 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.
© 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.
© 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
© 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?
© 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
© 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
© 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)
© 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.
© 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
© 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
© 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
© 2007 Pearson Education Competitive Priorities Quality Process Design Aggregate Planning Linking Process Capacity and Other Decisions
© 2007 Pearson Education Constraint Management Chapter 7.
7 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Constraint Management (Short-term Capacity Planning) 7.
7 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Constraint Management 7 For Operations Management, 9e by Krajewski/Ritzman/Malhotra.
1/44 Constraint Management. 2/44 How Constraint Management fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy.
Constraint Management Students should be able to: 1.Assess the capacity of a process 2.Define the Theory of Constraints and explain how to use it. 3.Identify.
POM - J. Galván 1 PRODUCTION AND OPERATIONS MANAGEMENT Ch. 8: Capacity Planning.
KR: Chapter 8 Capacity. Chapter Outline Introduction Measures of capacity Capacity unit Peak capacity vs. effective capacity Bottleneck Economies of scale.
6 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Capacity Planning (Long-Term Capacity Planning) 6.
Capacity After deciding what products/services should be offered and how they should be made, management must plan the capacity of its processes. Capacity.
McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved. 5 Capacity Planning For Products and Services.
McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc., All Rights Reserved. 1.
© 2004 by Prentice Hall, Inc., Upper Saddle River, N.J S 7-1 Operations Management Capacity Planning Supplement 7.
© The McGraw-Hill Companies, Inc., Chapter 17 Synchronous Manufacturing and the Theory of Constraints.
Operations Management For Competitive Advantage 1 Synchronous Manufacturing and Theory of Constraints Operations Management For Competitive Advantage Chapter.
Capacity is the ability of a process or system to hold, receive, store or accommodate. In business terms, it is the amount of output that a system.
© The McGraw-Hill Companies, Inc., Synchronous Manufacturing and Theory of Constraints.
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Seventh Edition © 2004 Prentice Hall, Inc. All rights reserved. Process.
Capacity Planning. Capacity Capacity (A): is the upper limit on the load that an operating unit can handle. Capacity (A): is the upper limit on the load.
CHAPTER 8 CAPACITY. THE CONCEPT Maximum rate of output for a process Inadequate capacity can lose customers and limit growth while excess capacity can.
1 Chapter 18 Synchronous Manufacturing and the Theory of Constraints Goldratt’s Rules Goldratt’s Goal of the Firm Performance Measurement.
TOC 1 Theory Of Constraints. TOC 2 Theory of Constraints How does TOC differ from the conventional shop control theory? Throughput definition * Emphasis.
23–1. 23–2 Chapter Twenty-Three Copyright © 2014 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin.
1 Theory of Constraints Short-term Capacity Optimization.
C A P A C I T Y Dr. Dewi Nusraningrum, M.Si. CAPACITY PLANNING - Capacity is the maximum rate of output for a facility. - Capacity planning is central.
To Accompany Krajewski & Ritzman Operations Management: Strategy and Analysis, Sixth Edition © 2002 Prentice Hall, Inc. All rights reserved. Chapter 8.
Constraint Management Chapter 7 Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
Strategic Capacity Planning for Products and Services.
To Accompany Ritzman & Krajewski, Foundations of Operations Management © 2003 Prentice-Hall, Inc. All rights reserved. Chapter 6 Capacity.
© 2012 Pearson Prentice Hall. All rights reserved. Balanced Scorecard: Quality, Time, and the Theory of Constraints.
Adeyl Khan, Faculty, BBA, NSU Ceiling on the amount of load Capacity at NSU.
Capacity Management Planning the resource capacity that a firm will need to meet its demand.
S7 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall S7 Capacity and Constraint Management PowerPoint presentation to accompany Heizer and.
CAPACITY LOAD OUTPUT. Learning Objectives Explain the importance of capacity planning. Discuss ways of defining and measuring capacity. Describe.
Capacity Planning. How much long-range capacity is needed When more capacity is needed Where facilities should be located (location) How facilities should.
Managing Processes and Capabilities CHAPTER THREE McGraw-Hill/Irwin Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.
© 2012 Prentice Hall Inc Copyright ©2013 Pearson Education, Inc. publishing as Prentice Hall. 1-1 Copyright ©2013 Pearson Education, Inc. publishing.
Capacity Planning Capacity Planning Pertemuan 04 Mata kuliah: J Manajemen Operasional Tahun: 2010.
CHAPTER 19 Balanced Scorecard: Quality, Time, and the Theory of Constraints.
CHAPTER 4 Product and Service Design. -2 Major factors in design strategy Cost Quality Time-to-market Customer satisfaction Competitive advantage Product.
Based on Anupindi 1 Chapter 5 Flow Rate and Capacity Analysis.
S7 - 1© 2011 Pearson Education, Inc. publishing as Prentice Hall Process Strategies ( process, repetitive, product) The objective of the process strategy.
8-1 Chapter 8 Overview of Working Capital Management © Pearson Education Limited 2004 Fundamentals of Financial Management, 12/e Created by: Gregory A.
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