1. Fundamental Exam Review
The Theory of Constraints
Fundamental Exam Review
TOC Philosophy Segment
James R. Holt, Ph.D., PE
Professor
Engineering Management
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Process Theory
Larger Process
Input
Output
Process
Input
Output
Input
Process
Output
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Systems Concepts
Organizations / Systems exist for a purpose
That purpose is better achieved by cooperation of multiple, independent elements linked together
Each Inter-linked event depends in some detail upon the other links.
The system owner determines purpose
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4. There is a “Weakest Link”
100
Different link capabilities, normal variation and changing workload make it impossible to balance everything.
One element of the system is more limited than another.
When the whole system is dependent upon the cooperation of all elements, the weakest link determines the strength of the chain.
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5. Interconnections are non-Trivial
Every Systems have relatively few constraints
The generic problem with physical systems
The Five Focusing Steps
The Generic Physical Solution
Physical and Non-Physical Processes
Flow systems (I, A, V, T structures / combinations)
Distribution and Supply Chain
Management control of these systems
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6. Interconnections are non-Trivial
A simple chain over simplifies reality
Link 1 has a relationship with Link 5
Link 5 has a different relationship with 1
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7. Management of the Links Vs. Linkages
Maybe the Simple Chain isn’t so simple
Link 8 and 9 can combine to push on both Link 6 and Link 7
Link 1 and 2 can get together and lean on Link 3 or Link 8
There are 40,000
first order effects
and 1,000,000+ second and higher order effects!
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8. Traditional Approach: Divide and Conquer
Division of Labor breaks down linkages complex systems into manageable chunks.
Which is harder to manage? Left or Right?
Left
Right
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9. Complexity  Simplicity
Controlling many independent parts requires many independent control mechanisms.
Controlling many interconnected parts only requires controlling the one part (for few parts) that determine the resulting actions of the rest of the parts (Steering, Accelerator and Brake).
Find the Constraint to the System and Every System is Simple.
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10. The Five Focusing Steps
Step 1. Identify the system’s constraint.
Step 2. Decide how to Exploit the system’s constraint.
Step 3. Subordinate everything else to the above decision.
Step 4. Elevate the system’s constraint.
Step 5. WARNING, WARNING! If a constraint is broken, go back to Step 1. But don’t allow Inertia to become a constraint.
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11. The Problem: People Measure Operational Efficiency
Work flows from left to right through processes with capacity shown.
Market Request 11
Process A B C D E RM FG
Capability
Parts per Day
Excellent Efficiency--Near 100%
Chronic Complainer
Too Much Overtime
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12. Reward Based on Efficiency
Work flows from left to right.
Process A B C D E RM FG
Capability
P/D
Both found ways to look busy and appear to have a capacity of 5 parts/day.
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13. What Happens In Reality...
Processes A and B won’t produce more than Process C for long.
Process A B C D E RM FG
Potential
P/D
Reality
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14. Then, Variability Sets In
Processing times are just AVERAGE Estimates
Process A B C D E RM FG
Reality / / / / /-2
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15. Over all: 3% Chance of 5 per day
What’s an Average? 50%
Half of the time there are 5 or more per day at each process--Half the time less
Probability of being 5 or more on the same day:
Process A B C D E RM FG
Reality / / / / /-2
Probability
0.25
Two at a time:
Over all: 3% Chance of 5 per day
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16. Traditional Solution: Add Inventory
Put a day of inventory at each process!
WIP Total 25
Process A B C D E RM FG
Variable 5+/-2 5+/ / / /-2
Process
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17. System Variability Takes Over--Chaos
An Average of 5 means sometimes 3 and some times 7
Process A B C D E
WIP Total 25 RM FG
Variable 5+/-2 5+/ / / /-2
Process
Inventory (WIP) quickly shifts position.
Inventory manager/expediter tries to smooth it out.
Shifting work-in-process creates large queues at some locations. This makes work wait longer to be processed.
Distribution problems result.
Costs go up.
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18. System Variability Leads to Starvation
Process A B C D E
WIP Total 25 RM FG
Variable 5+/-2 5+/ / / /-2
Process
Some workstations can be starved for work. Management hates to pay for idle resources. So...
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19. Starvation Leads to More Inventory
Process A B C D E
WIP Total 25
X 30 RM FG
Variable 5+/ / / / /-2
Process
So… Management Helps! Management puts in more work
(Inventory) to give everyone something to do!
Result: It takes longer and longer from time of release
until final shipping. More and more delay!
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20. Attempts to Control WIP
Put a Lid on It-Use Kanban Cards-JIT
WIP Total 25
Process A B C D E RM FG
Variable 5+/-2 5+/ / / /-2
Process
Just-In-Time uses Kanban Cards to limit the queues
building in the system.
No more than 5 parts are allowed at any station.
Looks good, but is it?
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21. Effects of Inventory Limits on Production
What does a Kanban card of 5 Mean?
WIP Total 25
Process A B C D E RM FG
Variable 5+/-2 5+/ / / /-2
Process
5+/-2 Average = 3.5
Can’t exceed 5
After Kanban
5+/-2 Average = 5
Before
Kanban
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22. Operation’s Dilemma Increase work-in- process Produce a lot
Assumption:
We can’t both increase WIP and decrease WIP at the same time.
Manage production
effectively
Costs & delivery in control
Decrease work-in-process
Injection: Put a large inventory where its needed and low inventory everywhere else!
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23. The Five Focusing Steps
Step 1. Identify the system’s constraint.
Step 2. Decide how to Exploit the system’s constraint.
Step 3. Subordinate everything else to the above decision.
Step 4. Elevate the system’s constraint.
Step 5. WARNING, WARNING! If a constraint is broken, go back to Step 1. But don’t allow Inertia to become a constraint.
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24. The Five Focusing Steps Applied to Flow Operations
Step 3. Subordinate Everything Else (Rope)
Step 2. Exploit the Constraint (Buffer the Drum) 12
WIP Total
A B C D E
Step 1. Identify the Constraint (The Drum) RM FG
Step 4. Elevate the Constraint ($?)
X 5.5
Step 5. If the Constraint Moves, Start Over
XXX 7
Five Focusing Steps
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25. Understanding Buffers
WIP Total 12/5=2.5 Days
A B C D E FG RM
The “Buffer” is Time!
In general, the buffer is the total time from work release until the work begins work at the constraint.
Contents (positions of the WIP) in the buffer ebb and flow over time.
If different items spend different time at the constraint, then number of items in the buffer changes depending upon product mix.
But, the “Time in the buffer remains constant”.
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26. We need more than one Buffer
There is variability in our suppliers. We need to protect ourselves from unreliable delivery.
Raw Material Buffer
There is variability in the Constraint. To protect our delivery to our customer we need a finished goods buffer.
Finished Goods Buffer
A B C D E RM FG
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27. Buffer Time is Constant-Predictable
Raw Material Buffer
Finished Goods Buffer
A B C D E RM FG
Raw Material
Buffer
2 Days
Constraint Buffer 2.5 Days
Finished Goods Buffer 1 Day
Processing Lead Time is Constant!
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28. Capacity Constrained Resource Buffer Management
Constraint Buffer WIP Total 12/5=2.5 Days
A B C D E FG RM
WO21
WO17
WO13
The Constraint is scheduled very carefully
Buffer Managed by location
Individual activities in the buffer are not scheduled
WO20
WO16
WO12
WO19
WO15
WO11
WO18
WO14
WO10
2.5 Days
Time until Scheduled at Constraint
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29. Problem IdentificationRM
Watch WO14 (Yellow)
A B C D E
Constraint schedule is in jeopardy! (Red Zone Hole)
WO19 OK (Green) FG RM
WO19 Delayed Parts
WO21
WO17
WO13
WO20
WO16
WO12
WO19
WO15
WO11
WO18
WO14
WO10
2.5 Days
Time until Scheduled at Constraint
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30. The TOC Approach to Solving Problems
The Five Focusing Steps are a Subset of the Three Main Questions
What to Change?
This question deals with finding the Constraint of the System.
What to Change to?
This question deals with what is needed to solve the problems.
How to Cause the Change?
The emphasis on the last question is ‘cause’. What few actions will we do to cause the system to change itself.
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Conflict Management
Conflicts Exist. They are evidence improvement is needed (conflicts are problems).
What to change?
What to change to?
How to cause the Change?
A well worded Conflict is half the Battle.
Conflict is based upon a mutually desirable Goal
Conflict is based upon different Needs requiring different Actions
The different Actions are opposites (The Conflict)
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The Evaporating Cloud
B. My Need
D. What I Want
A. The Goal
C. Other’s Need
D’. What the Others Want
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33. Creating the Evaporating Cloud
1. What is it that I Want (that I’m having trouble getting)?
D. What I Want
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34. Creating the Evaporating Cloud
1. What is it that I Want (that I’m having trouble getting)?
D. What I Want
D’. What the Others Want
2. What is it that the Others Want (that I don’t want them to have)?
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35. Creating the Evaporating Cloud
1. What is it that I Want (that I’m having trouble getting)?
3. Why do I want what I want? What Need am I trying to fulfill?
B. My Need
D. What I Want
D’. What the Others Want
2. What is it that the Others Want (that I don’t want them to have)?
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36. Creating the Evaporating Cloud
1. What is it that I Want (that I’m having trouble getting)?
3. Why do I want what I want? What Need am I trying to fulfill?
B. My Need
D. What I Want
C. Other’s Need
D’. What the Others Want
4. Why do the Others want what they want? What Need do they have?
2. What is it that the Others Want (that I don’t want them to have)?
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37. Creating the Evaporating Cloud
1. What is it that I Want (that I’m having trouble getting)?
3. Why do I want what I want? What Need am I trying to fulfill?
B. My Need
D. What I Want
5. What Goal do we mutually share? Why are we still arguing?
A. The Goal
C. Other’s Need
D’. What the Others Want
Reading the Cloud: In order to <point> I must have <tail>.
4. Why do the Others want what they want? What Need do they have?
2. What is it that the Others Want (that I don’t want them to have)?
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38. Let’s Do Some Examples B. Learn a lot about what I wnat
D. I want to ask a lot of questions
A. We all are ready for the Fundamental Exam
C. Get through all the topics
D’. Depack doesn’t take over.
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39. The Approach to Solving Problems
There are Three Main Questions
What to Change?
This question deals with finding the Constraint of the System.
What to Change to?
This question deals with what is needed to solve the problems.
How to Cause the Change?
The emphasis on the last question is ‘cause’. What few actions will we do to cause the system to change itself.
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40. Communicating the Evaporating Cloud
5. And you WANT to meet your Need as well.
4. Point out that you also have a significant Need.
B. My Need
D. What I Want
1. Start the Mutual Goal. It is common ground. Both interested.
A. The Goal
C. Other’s Need
D’. What the Others Want
Reading the Cloud: In order to <point> I must have <tail>.
2. Recognize you understand the Other’s Need must be meet to reach the Goal.
3. Acknowledge the Other side Wants to act on meeting their Need.
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41. Evaporating the Evaporating Cloud
Assumption: All machines must be keep busy all the time.
Assumption: We are measured upon our Production Level
B. Produce a Lot
D. Increase the Work-In-Process
Assumption: We can’t increase WIP and Decrease WIP at the same time.
A. Manage Production Effectively
C. Keep Costs and Delivery in Control
D’. Decrease the Work-In-Process
Assumption: Our profits are not high. Customers demand on-time delivery.
Assumption: WIP is expensive. High WIP delays flow time.
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42. Projects Are Handled the Same Way
Jobs Process Flow A B
Type I A->B->C->D
Type II C->A->B->D
Type III A->B->B->D
Type IV C->B->A->B C D
Each Job type has four days of processing for the four resources.
Hum? Release one job per day and every body is busy. Right?
Resources A, B, C, D each receive work as it flows in different patterns
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43. Projects Are Handled the Same
Jobs Process Flow A B
Type I A->B->C->D
Type II C->A->B->D
Type III A->B->B->D
Type IV C->B->A->B C D
Internally, B is the constraint. We can treat it just like the product line
There are 16 processes on the 4 job times but 6 of them go through B. C and D only have 3 processes.
TDD=Effectiveness in Delivery IDD =Effective use of resources (and tracking improvements)
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44. Projects are Balancing Acts
Quality and Scope
Timing and Schedule
Budgeted Costs
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Then things Combine
Quality and Scope
Timing and Schedule
Budgeted Costs
Precedence Structure
Statistical Variation
Human Behavior
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And Reality Sets In
Quality and Scope
Timing and Schedule
Budgeted Costs
Precedence Structure
Statistical Variation
Human Behavior
Bumpy Road of Reality
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47. The Project Dilemma There is Always a Trade-Off
Meet Commitment in Danger
Compensate for Early Mis-Estimates
Meet Original Commitments
Not Jeopardize Other Original Commitments
Not Compensate for Early Mis-estimates
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48. Resolving Project Problem Options
Add more time&money and decrease scope
Meet Commitment in Danger
Compensate for Early Mis-Estimates
Meet Original Commitments
Not Compensate for Early Mis-estimates
Not Jeopardize Other Original Commitments
Use our Safety Buffer Correctly
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49. Consider the Aspects of Projects
Good Statistics
Central Limit Theorem (add enough things together and everything looks normal)
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50. Typical Activity Duration
Normal Duration Time
Standard Deviation
Project Task Duration Time
Mean
Mean 50% Probable
85% Probable
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So, what is the Behavior?
Empirical evidence shows most tasks complete on or after the due date
Level of Effort
Student Syndrome: “Why start now? It isn’t due until Friday?” (There is more urgent work/parties.)
Engineering Pessimism: Estimate a safe value (85%)
Engineering Optimism: I’m good, I can beat 50%.
Assigned Date
Time-->
Parkinson's Law: Work Expands to full the time available (Just keep tweaking! More is better!)
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52. Engineering Perpetual Motion (overtime)
Actual Work Load
Level of Effort
Normal Work Load
Assigned Date
Time-->
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53. The result is Bad Multi- Tasking
Project Manager A A2
Ten Days Each Task B1 B3 B2
Project Manager B
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54. Politically Correct Schedule
30 Days Flow A1 A2 A3 B1 B2 B3 30 40 50 10 20
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55. More Like Actual Schedule
40 Days Flow A1 A2 A3 B1 B2 B3 30 40 50 10 20
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56. Elements of the Project Management Solution
Prioritize
Don’t Schedule Conflicts
Avoid Bad Multi-Tasking
Don’t Release Too Early/Too Late
Buffer Critical Chain
Buffers: Project / Feeding / Resources
Schedule 50% Estimate Completion
Communicate “Time Remaining”
Negotiate Capability Not Dates
No Milestones
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TOC Flow Time
20 Days Flow A1 A2 A3 B1 B2 B3 50 30 40 10 20
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58. Don’t Schedule Conflict
Before
After TOC Leveling
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59. Buffer the Project and NOT Individual Activities
Before with 85% Estimates
Task Buffer
Actual 50% Estimates with Individual Buffers
TOC Aggregated Buffer of Activities
Task Task Task Task Buffer
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60. Protect the Critical Chain
Project Buffer
Feeding Buffer
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61. Buffer Resources on the Critical Chain
Lt. Green be ready Buffer
Blue be ready
Green be ready
Cyan Resource be ready
Project Buffer
Feeding Buffer
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62. The Simple Line Diagram Was Too SimplisticRM FG RM FG
Aircraft assembly is more of an “A” Plant
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63. The “A” Plant Has Some Long Duration ProcessesRM FG
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64. Pull Tight the Longest Path (and Shake)
Fastest Possible Flow Time (Critical Path)
Critical Assembly Joins RM FG RM RM RM RM RM RM RM RM
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65. How Could we Fairly Measure Feeder Chains?RM FG RM RM RM RM RM
TDD-On Missed Delivery to main line RM RM
IDD-On Effective Use of Resources (and monitoring improvements) RM
Hum? Could this also apply to suppliers?
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66. There is an Injection for Every Conflict
Arrow Assumption Injection
AB Productive Deliver Max Capacity
AC Cost Effective Price on Value
BD Busy Machines Keep Constraint 100%
CD’ Expensive WIP Throughput Focus
D/D’ Can’t do Both Buffer Constraint only
Chosen Injection: Focus on the Capacity Constrained Resource. Release work to the system at the rate of the Capacity Constrained Resource a Buffer Time in Advance (no sooner, no later). Use Buffer Management to improve the system.
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67. The Key Points of TOC Solutions
TOC only accepts Win-Win Solutions
Win-Lose, Lose-Win, Lose-Lose are unacceptable.
In the Evaporating Cloud, The Goal is achieved! Usually, both sides needs are met.
Everyone is happy.
Stake Holders, Employees, Customers, Economy, Ecology, Behaviors, Friendships (even competitors benefit).
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68. Sometimes TOC Solutions Are Counter Intuitive
DBR: To get more out, put less in.
CCPM: To finish project sooner, delay the Start.
CCPM: To be safer, remove the safety.
Replenishment: To get your products quicker to the customer, store them farther away.
To Solve the Conflict, Ignore the conflict.
To Make More Money, Sell at below Cost.
If you can’t find an injection, then just do what is opposite of what everyone else is doing (and do whatever it takes to make it work).
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69. Wish to have a meaningful life
This is Efrat’s logic diagram of The Choice as shown at the TOCICO International Conference in Tokyo, Japan, November Recorded by James Holt
This is necessary based logic but the arrows are shown going in the opposite direction (because that is how most people would interpret them. “If you want (tail of arrow) you need to have (head of arrow).”
Wish to have a meaningful life
Enough meaningful successes
Stamina to overcome failures
Collaborate with people
Opportunities
Think clearly
Overcome four obstacles
Overcome perception that reality is complex
Don’t accept conflicts
Don’t think you know it all
Avoid blaming
Core TOC Concepts
There is always a win-win solution
Every situation can be substantially improved.
Every situation is simple
Every conflict can be removed

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Next Topics
TOC Thinking Processes
TOC Applications
Operations
Project Management
Replenishment
TOC Finances and Measures
Some TOC Philosophy will be blended into these additional topics.
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