Theory of Constraint

Constraint Management The Goal of a Company: Make money now and in the future subject to the boundary conditions imposed by: Employees Shareholders Customers Suppliers Government Public TP = Throughput is the rate at which the system generates new money through sales Inv = Investment in Inventory is all the money the system spends on things it holds and intends to sell [convert to Throughput]. OE = Operating Expense is all the money the system spends in order to turn Investment into Throughput but that does not become Throughput itself. TP - OE = Net Profit (TP-OE) / Inv = ROI TP / OE = Productivity TP / Inv = Turns The sum of the local optimums is not equal to the global optimum.

Constraint Management Dependent Events are things that can only happen in a fixed sequence Statistical fluctuations are variations in a system Common and Special Cause Dependent Events and Statistical fluctuations have the affect to reduce Throughput and increase both Inventory and Expenses. Bottleneck - a resource whose capacity is equal to or less than the demand placed on it. Non‑bottlenecks - a resource with a capacity greater than the demand Constraint - That which most severely limits the organization’s ability to achieve higher performance relative to its purpose / goal. Capacity constraint is the internal resource with a capacity most short of demand. Market constraint is the lack of demand with an excess of capacity. Policy constraint are the things we do by policy or procedure because we choose to do them and which limit our throughput

Constraint Management Throughput is determined by the system constraint and the bottlenecks within the system. The only utilization level that is important is that of the constraint. The utilization level of a non-bottleneck is determined by the constraint in the system not the non-bottleneck’s potential capacity. An hour lost at a constraint is an hour lost for the entire system. It costs more than just an hours throughput. An hour saved at a non-constraint is just smoke and mirrors. It saves nothing unless it also impacts the systems constraint. Balance and Manage Flow through the system constraint. Do not balance the capacity of the system or its parts. Subordinate the system to the constraint Keep Continuous Flow running through the System’s Capacity Constraint as long as there is demand.

Constraint Management Constraints govern throughput and inventory They determine where to hold inventory, how much to hold and in what form... Synchronous System is managing and matching human, support and machine capabilities and process time variations so all work together supportively to achieve an increase in throughput, decrease in inventory investment and decrease in operating expense. A synchronous system must allow Throughput to vary to match demand without an increase in inventory or expense. It must allow for continual improvement and a decrease in inventory and operating expense if demand and throughput decrease. A synchronous system will employ all the appropriate and necessary tools and techniques in order to: Enhance Value Minimize Waste Establish Flow Create Pull Reach for Perfection FLOW WHERE YOU CAN; PULL WHERE YOU CAN’T

Constraint Management

Constraint Management The Theory of Constraints likens each system (company) to a chain, or a network of chains. In any chain, there is one weakest link which limits the performance of the entire chain. The weakest link is the system’s constraint. Improving the performance of the chain (throughput) requires strengthening the weakest link. When you have strengthened the weakest link to the point it is no longer the weakest link, you have ‘Broken the Constraint’. You then move to the new system constraint…

Constraint Management

Constraint Management Step 0: Determine the scope of the system or process under review. Determine its beginning and end points Step 1: Identify the system’s constraint. Is there inventory ahead of it? Any behind? Monitor time components of leading candidates Cycle time vs Takt time; Uptime/Downtime; Scrap (FTT / RTY), etc. Step 2: Decide how to exploit the system’s constraint(s) Maximize it (run it) Protect it with buffers Don’t block it - use a space buffer Don’t starve it - use an inventory buffer

Constraint Management Step 3: Subordinate everything else to the decisions made in Step 2. Focus on the constraint Put resources on it Step 4: Elevate the system’s constraint(s) Improve its performance Step 5: If a constraint is broken, don’t allow inertia to become the system’s constraint. Review and change procedures and practices that you created to manage the former constraint. Step 6: If a constraint is broken in Step 4 & 5, go back to Step 1 If you’ve eliminated a constraint, go back to Step 1 and manage the system’s new constraint(s)

Constraint Management What is a Constraint? That which most severely limits the organization’s ability to achieve higher performance relative to its purpose / goal. Types of Constraints: Capacity Constraint - Physical internal Market or Vendor Constraint - Physical external Policy Constraint – Principles internal or external A policy, procedure, practice that we follow that limits our ability to achieve higher performance relative to our goal.

The Lean/Six Sigma/Theory of Constraints Combination Why I am here... Business Strategy Where I am... Customers Product Family Where I Identification want to be... Process Flow Current State Map Suppliers Future State Map How I’m going to get there... 5S 6 Sigma Implementation T P M [When I don’t have the solution] Plan S M E D Lean Tools Continuous Flow [When I know the solution] When I’m going Pull to get there… Standardized Work Constraint Management [Control while I’m Improving] Poka -Yoke

6 Sigma Better Understanding the Magnitude of the Difference... Sigmas Area Area of a medium-sized factory Area of a large supermarket Area of a small hardware store Area of a typical living room Size of the bottom of a telephone set Size of a typical diamond Spelling 170 spelling mistakes per page in one book 25 spelling mistakes per page in one book 1.5 spelling mistakes per page in one book 1spelling mistake in each 30 pages (approx.. 1 book chapter) 1 spelling mistake in one encyclopedia 1 spelling mistake in all books in one small library Time 31.75 years per century 4.5 years per century 3.5 months per century 2.5 days per century 30 minutes per century 6 seconds per century Distance From here to the moon 1.5 laps around the world One trip from North to South Brazil 45-minute drive on a highway A short drive to the closest gas station 4 steps in any direction PPM - 617,075 66,803 6,210 233 3.4