Optimized Production Technology (OPT) Prepared by Clint Ward Brigham Young University This presentation discusses Optimized Production Technology along with its importance to a manufacturing organization.

Brainstorming Activity A Brief Overview OPT Defined Importance Operational Measures Goal of OPT Brainstorming Activity Nuts & Bolts Real World Example Rules of OPT Exercise

(Precursor to Theory of Constraints) OPT Defined Optimized Production Technology is a planning & production system focused on throughput maximization by alleviating bottlenecks (Precursor to Theory of Constraints) OPT was software developed and sold by Israeli physicist Eliyahu Goldratt. The Theory of Constraints states, “The key to maximizing throughput is to alleviate the bottleneck, keeping it operating at maximum capacity all the time.” Supply Chain Management: From Vision to Implementation (pg. 411)

Why is OPT important? “A chain is no stronger than its weakest link” An organization can only speed up the length of the entire process if the bottleneck is alleviated Bottleneck: where the performance of a system is constrained by capacity of a process. Often find WIP inventory piled up at this location. Actual cost of a bottleneck is the total expense of the system divided by the number of hours the bottleneck produces (The cost of adding an hour to the bottleneck is not simply the material cost of the inventory waiting, it’s much more). Source for picture: http://www.google.com/imgres?q=a+chain+is+no+stronger+than+its+weakest+link&hl=en&safe=active&client=safari&sa=X&tbo=d&rls=en&biw=1201&bih=709&tbm=isch&tbnid=0kQ4U7j7tyDkzM:&imgrefurl=http://blog.onlycollege.com.cn/722/viewspace-5771&docid=86OyKn9UYrtdZM&imgurl=http://blog.onlycollege.com.cn/attachments/2010/07/722_201007211300141T99E.thumb.jpg&w=300&h=250&ei=Xwq2UJGkNKSDyAHsq4HACw&zoom=1&iact=hc&dur=747&sig=105275214102322809524&page=3&tbnh=147&tbnw=176&start=58&ndsp=34&ved=1t:429,r:84,s:0,i:342&tx=143&ty=96&vpx=702&vpy=315&hovh=200&hovw=240

OPT Operational Measures Throughput = “the rate at which the system generates money through sales” Inventory = “all the money that the system has invested in purchasing things which it intends to sell” Operational Expense = “all the money the system spends to turn inventory into throughput” The goal of any organization is to make money. Popular measurements are net profit, return on investment, and cash flow. Ask how these measurements are evident at your facility. How do the processes contribute to these measurements? Ask if they can identify more applicable measurements. Reveal the three bullet points. Everything you manage in the plant is covered by these three measurements. “Inventory is the money in the system, operational expense is the money we have to pay out to make throughput happen. One measurement for the incoming money, one for the money still stuck inside, and one for the money going out.” The Goal by Goldratt

The Goal of OPT “Increase throughput while simultaneously reducing both inventory and operational expense” We are not looking for “local optimums.” High efficiency doesn’t mean we are making money. Increasing efficiency typically increases inventory. However, how much improvement do we have if our cost per part goes down, but our operational expenses increase? We need to look at improvements as it affects every process. Similar to what we would do in TCO analysis. Source for picture: http://www.google.com/imgres?q=reduce+inventory&num=10&um=1&hl=en&safe=active&client=safari&tbo=d&rls=en&biw=1201&bih=709&tbm=isch&tbnid=MC2DDSyYRpPYKM:&imgrefurl=http://leanmanufacturingtools.org/106/waste-of-inventory-causes-symptoms-examples-solutions/&docid=AL7ZT8YNyUTXuM&imgurl=http://leanmanufacturingtools.org/wp-content/uploads/2011/06/Inventory-Sea-reduced-level.gif&w=960&h=720&ei=Sgy2UPPLD_GEygHGn4D4AQ&zoom=1&iact=hc&vpx=402&vpy=151&dur=10239&hovh=194&hovw=259&tx=113&ty=75&sig=105275214102322809524&sqi=2&page=1&tbnh=138&tbnw=184&start=0&ndsp=24&ved=1t:429,r:2,s:0,i:89

Brainstorming Exercise Pull out a piece of paper Identify all of the area or processes on the floor Jot down bottlenecks Take 3-4 minutes; allow more time if needed to visit floor and find bottlenecks

OPT Nuts & Bolts Dependent Events: all processes count on the completion of sequential operations Statistical Fluctuations: process times fluctuate around an average Due to these facts, a plant’s capacity must be unbalanced and bottlenecks are inevitable Production should be contingent upon consumption by the bottleneck. A buffer should exist. Bottlenecks determine capacity of the plant. Statistical fluctuations cannot be determined precisely.

OPT Nuts & Bolts (cont.) First, Identify bottlenecks Second, Increase capacity of bottlenecks by minimizing machine idle time, avoid processing defective parts, avoid processing outside current demand Third, Shift work off of bottlenecks and give it to non-bottlenecks Bottlenecks have a huge pile of WIP sitting in front of it. Increasing capacity of bottlenecks (narrow gap to demand); idea is not to make the bottleneck a non-bottleneck. Example: Break time should be while the machine is running, not during set-up time. Idle time is ok in non-bottleneck areas. Put quality control in front of the bottleneck (otherwise lost time on a bottleneck means you have lost throughput). Look for other machines to take load of bottleneck or look to outside vendors (this will typically be cheaper than the lost sales). Explain diagram picture. Source from picture: http://www.google.com/imgres?q=Shift+load+from+bottleneck&hl=en&sa=X&tbo=d&biw=1201&bih=709&tbm=isch&tbnid=rDFQw2zn1nlHbM:&imgrefurl=http://www.firstedgesolutions.com/systematically-eliminating-manufacturing-bottlenecks/&docid=xEDOEI0V7G1qKM&imgurl=http://www.firstedgesolutions.com/wp-content/uploads/2012/09/bottlenecks.jpg&w=793&h=349&ei=i0K2UPb8FdDhigLzx4CIBQ&zoom=1&iact=hc&vpx=592&vpy=258&dur=9582&hovh=149&hovw=339&tx=135&ty=58&sig=105275214102322809524&page=2&tbnh=114&tbnw=260&start=20&ndsp=25&ved=1t:429,r:33,s:0,i:190

Obstacles Knowing what to change What to change to How to institute the change These three issues are essential to success in implementing OPT. However, these are the most difficult things to identify. You can visualize every process as having a switch. Through evaluation and renewed focus on bottlenecks, you can determine which switches need to be flipped. Granted change is not as easy as “flipping the switch.” This is why every employee needs to know which process is being changed and assist in brainstorming what the process should be changed to and how it should be changed. Source for picture: http://www.google.com/imgres?q=What+to+change&hl=en&client=safari&tbo=d&rls=en&biw=1201&bih=709&tbm=isch&tbnid=yqPbEYKja-P58M:&imgrefurl=http://tolerosolutions.com/do-i-really-want-to-work-here-whats-your-culture-telling-me/&docid=qTZLeoukwAeo7M&imgurl=http://tolerosolutions.com/wp-content/uploads/2012/09/change-same.jpg&w=462&h=500&ei=Z0O2UMDeHMGuigLuyICgCg&zoom=1&iact=hc&vpx=704&vpy=27&dur=22817&hovh=234&hovw=216&tx=135&ty=151&sig=105275214102322809524&page=1&tbnh=139&tbnw=121&start=0&ndsp=24&ved=1t:429,r:4,s:0,i:96

Real World Example: Dow Corning Corporation “Our plant’s on-time delivery was 50% and we were carrying over 100 days of inventory. We had six months to turn things around. Within my unit we identified the bottleneck and began to focus our resources there. By the time the six months were up, we had started to make significant changes using ‘The Goal’ as a reference. When I left the department cycle time had reduced 85%, operator headcounts reduced 35% through attrition, WIP were down 70%. On-time delivery was increased to 90%.” -The Goal by Eli Goldratt See “The Goal” by Eli Goldratt for a more detailed account.

Ten Rules of OPT Utilization and activation of a resource are not the same The level of utilization of a non-bottleneck is determined not by its own potential but by some other constraint in the system An hour lost at a bottleneck is an hour lost for the total system Effectiveness is more important than being active Non-bottleneck processes should support bottleneck processes.

Ten Rules of OPT 4. An hour saved at a non-bottleneck is just a mirage 5. Bottlenecks govern both the throughput and inventory in the system 6. The transfer batch may not and often should not be equal to the process batch 7. The process batch should be variable, not fixed 4. Saving time at a non-bottleneck is not what our focus should be. It doesn’t decrease the overall time of the system 7. Batch sizes should be adjusted for efficiency

Ten Rules of OPT 8. Capacity and priority should be considered simultaneously, not sequentially 9. Balance flow, not capacity 10. The sum of local optima is not equal to the global optimum

Break-out Exercise Pull out your brainstorm lists of bottlenecks Gather in groups of 3-4 Round-robin through everyone’s lists (3 min) Everyone pick 1 bottleneck (should have duplicates) and jot down ways to increase capacity Discuss effects of the changes

Summary Any process can be improved! Focus on the bottlenecks! Identify ways to increase bottleneck capacity! Never forget the goal: “Increase throughput while simultaneously reducing both inventory and operational expense” Gemba- Go out and see the process. Process improvements will not be thought of sitting around in an office. Go to where the work is done. Employees know the process better than anyone. Empower them to solve the bottleneck problems. Always consider throughput alongside inventory and operational expense.

Readings List Ellram, L., Fawcett, S., Ogden, J. (2007), Supply Chain Management, Pearson Education, Inc., Upper Saddle River, New Jersey. Goldratt, E., Cox, J. (2004), The Goal, North River Press, Great Barrington, MA. http://blog.jackvinson.com/archives/2010/12/20/the_rules_of_opt_-_precursor_to_theory_of_constraints.html http://bulatov.org.ua/teaching_courses/logistics_files/Logistics%20Lec2%20OPT.pdf http://en.wikipedia.org/wiki/Eliyahu_M._Goldratt http://www.angelfire.com/ca2/jlui/thegoal.html http://www.blackwellreference.com/subscriber/uid=1129/tocnode?id=g9780631233176_chunk_g978140511096919_ss7-1 http://www.tangram.co.uk/TI-Glazing-Manstrat_04.html