7 – 1 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Constraint Management (Short-term Capacity Planning) 7

7 – 2 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Planning Management Chapter 6 – Capacity planning (long-term capacity planning)  Economies and diseconomies of scale  Capacity timing and sizing strategies  Systematic approach to capacity decisions Chapter 7 – Constraint management (short-term capacity planning)  1. Theory of constraints  2. Identification and management of bottlenecks  3. Product mix decisions using bottlenecks  4. Managing constraints in a line process Capacity management

7 – 3 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Theory of Constraints TABLE 7.1| HOW THE FIRM’S OPERATIONAL MEASURES RELATE TO ITS | FINANCIAL MEASURES Operational Measures TOC ViewRelationship to Financial Measures Inventory (I)All the money invested in a system in purchasing things that it intends to sell A decrease in I leads to an increase in net profit, ROI, and cash flow. Throughput (T)Rate at which a system generates money through sales An increase in T leads to an increase in net profit, ROI, and cash flows. Operating Expense (OE) All the money a system spends to turn inventory into throughput A decrease in OE leads to an increase in net profit, ROI, and cash flows. Utilization (U)The degree to which equipment, space, or workforce is currently being used, and is measured as the ratio of average output rate to maximum capacity, expressed as a percentage An increase in U at the bottleneck leads to an increase in net profit, ROI, and cash flows.

7 – 4 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Theory of Constraints TABLE 7.2 | SEVEN KEY PRINCIPLES OF THE THEORY OF CONSTRAINTS 1.The focus should be on balancing flow, not on balancing capacity. 2.Maximizing the output and efficiency of every resource may not maximize the throughput of the entire system. 3.An hour lost at a bottleneck or a constrained resource is an hour lost for the whole system. In contrast, an hour saved at a nonbottleneck resource is a mirage because it does not make the whole system more productive. 4.Inventory is needed only in front of the bottlenecks in order to prevent them from sitting idle, and in front of assembly and shipping points in order to protect customer schedules. Building inventories elsewhere should be avoided. 5.Work, which can be materials, information to be processed, documents, or customers, 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. 6.Activating a nonbottleneck resource (using it for improved efficiency that does not increase throughput) is not the same as utilizing a bottleneck resource (that does lead to increased throughput). Activation of nonbottleneck resources cannot increase throughput, nor promote better performance on financial measures outlined in Table Every capital investment must be viewed from the perspective of its global impact on overall throughput (T), inventory (I), and operating expense (OE).

7 – 5 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Identifying the Bottleneck Product A $5 Raw materials Purchased parts Product:A Price:$75/unit Demand:60 units/wk Step 1 at workstation V (30 min) Finish with step 3 at workstation X (10 min) Step 2 at workstation Y (10 min) $5 Product C Raw materials Purchased parts Product:C Price:$45/unit Demand:80 units/wk Finish with step 4 at workstation Y (5 min) Step 2 at workstation Z (5 min) Step 3 at workstation X (5 min) Step 1 at workstation W (5 min) $2 $3 Product B Raw materials Purchased parts Product:B Price:$72/unit Demand:80 units/wk Finish with step 2 at workstation X (20 min) Step 1 at workstation Y (10 min) $3 $2 Product D Raw materials Purchased parts Product:D Price:$38/unit Demand:100 units/wk $4 Step 2 at workstation Z (10 min) Finish with step 3 at workstation Y (5 min) Step 1 at workstation W (15 min) $6 Figure 7.2Flowchart for Products A, B, C, and D

7 – 6 Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall. Drum-Buffer-Rope Systems BufferDrum Market Demand 650 units/wk Shipping Schedule Rope Shipping Buffer Finished Goods Inventory Nonconstraint PROCESS C Capacity 700 units/wk PROCESS B Capacity 800 units/wk CCR (Bottleneck) Constraint Buffer Time Buffer Inventory Nonconstraint PROCESS A Capacity 800 units/wk Material Release Schedule Figure 7.3 – Drum-Buffer-Rope Systems