1. 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 viable capacity strategies for a firm and link them to competitive priorities.

2. Constraint Management Short-Term Capacity PlanningLong-Term Capacity Planning Theory of constraints Identification and management of bottlenecks Product mix decisions with bottlenecks Economies of scale Capacity timing and sizing strategies

3. Competitive Priorities What are the competitive priorities for the three products at Min-Yo? Muscle Shirts Thunder Shirts Dragon Shirts

4. Theory of Constraints (TOC) 1.A Definition “An approach to management that focuses on whatever impedes progress toward the goal of maximizing the flow of total value-added funds.” 2.At Min-Yo, what impeded your progress?

5. HighLow Volume Customization High Low Job process Batch process Line process A Schizophrenic Process?

7. Applying the Theory of Constraints 1.Identify the bottlenecks. 2.Optimize the schedule of the bottleneck. 3.Schedule all other resources to support the bottleneck. 4.If the bottleneck is still restrictive, increase its capacity. 5.Once the bottleneck has been relieved, check for other bottlenecks.

8. How Can I Tell Which Markets Will Be Most Profitable? Contribution per hour c = contribution to profits and overhead per unit s = changeover time (hrs.) p = productivity rate (units per hour) T = total resource hours required for customer order = contribution per hour

9. Contribution Per Hour

10. Contribution Per Hour With No Thunder Shirt Changeover (T) Contribution Per Hour

11. (T) Contribution Per Hour With No Muscle Shirt Changeover Contribution per Hour

12. Min-Yo Memories Companies must recognize their process capabilities when choosing new markets or assessing the profitability of their customers. An important performance measure to use in judging business opportunities, given limited capacity, is the contribution per hour of the limiting resource. Effective scheduling and inventory management can increase the contribution per hour of a limiting resource. Effective performance requires collaboration of all functional areas to execute the “customer relationship” and “order fulfillment” processes.

13. 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

14. Capacity Expansion Expansionist Strategy Planned unused capacity Time Capacity Forecast of capacity required Time between expansions Capacity increase Staying ahead of demand

15. Capacity Expansion Wait-and-See Strategy Time Capacity Forecast of capacity required Planned use of short-term options Time between expansions Capacity Increase Chasing demand