Theory of Constraints

IF: Clients never changed their minds And Vendors always supply, whatever we ask for, on time, And We do not have any absenteeism problems with our workforce And They are excellently trained and disciplined And Our processes are reliable And Our machines never break down And Our quality is always superb And Data is readily available and accurate And You can decide on whatever policies you want Then Managing production would be a piece of cake. From: TOC – Eli Goldratt

The Theory of Constraints “Just as the strength of a chain is governed by the weakest link, so is the strength of an organization of interdependent resources.” - Eli Goldratt

What is The Goal ? - to make money for the organization – pg & 60 Corporate components: Corporate components: oROI - increase oCash Flow - increase oNet Profit - increase Operations components: Operations components: oThroughput – increase - pace at which the system generates units of the goal oInventory – decrease - all the money the system invents to purchase goods oOperating expense – decrease - all the money spent to transform inventory into throughput

The Efficiency Syndrome - Good global results are not equal to the sum of good local results If a worker doesn’t have something to do, let’s find something for him to do. If a worker doesn’t have something to do, let’s find something for him to do. Worker’s don’t want to be caught standing idle. Worker’s don’t want to be caught standing idle. Supervisors look for work for their people. Supervisors look for work for their people. Managers strive to have high efficiency numbers Managers strive to have high efficiency numbers Corporate will interfere is the efficiencies are too low. Corporate will interfere is the efficiencies are too low.

Five-Step Process of TOC 1. Identify the system constraint(s)/bottlenecks (find the ‘weakest link’) 2. Exploit the constraint. 3. Subordinate all else to the constraint. 4. Elevate the constraint. 5. If the constraint is no longer a bottleneck, find the next constraint and repeat the steps.

Nine guidelines: 1.Flows rather than capacity should be balanced 2.Utilization of a non-bottleneck is determined by other constraints in the system. 3.Utilizing a workstation is not the same as activation 4.An hour lost at a bottleneck is an hour lost for the whole shop.

5.An hour saved at a non-bottleneck is a mirage. 6.Bottlenecks govern shop throughput and work-in-process inventories. 7.The transfer batch need not be the same size as the process batch. 8.The size of the process batch should be variable, not fixed. 9.A facility schedule should be set by examining all the shop constraint simultaneously.

Critical Aspects –Focus on the bottleneck workstations –Do not overload the other workstations –Split batches as necessary

Major Obstacles to Implementation of the Goal 1.Lack of ability to propagate the message throughout the company. 2.Lack of ability to translate what they learned from the book into workable procedures for their plant. 3.Lack of ability to persuade decision makers to allow the change of some of the measurements.

Corporations using TOC –Delta Airlines –National Semiconductor –ITT –Bethlehem Steel –Johnson Controls –United Airlines

Goal Concepts: Coding system Coding system Setups times Setups times Buffers Buffers Bottlenecks Bottlenecks Balancing flow versus capacity Balancing flow versus capacity Small lot sizes Small lot sizes Process of ongoing improvement Process of ongoing improvement

Deming versus Goldratt In common: In common: –Both have systems based approaches to management –Both seek out the profound roots that are the origin of the process of ongoing improvement Assumptions challenged by both: Assumptions challenged by both: –An organization is hierarchical and not systemic –The pursuit of local optimization at the expense of global optimization –Approach oriented toward cost reduction rather that process improvement

More Common Characteristics Essential element of a manager’s job is to recognize and manage the interdependencies among the components of the system Essential element of a manager’s job is to recognize and manage the interdependencies among the components of the system First you must establish the goal of the organization and communicate it to everyone First you must establish the goal of the organization and communicate it to everyone Continuous learning at all levels Continuous learning at all levels Continuous scanning of the environment Continuous scanning of the environment Understanding the customer Understanding the customer Understanding the need for innovation and role it plays Understanding the need for innovation and role it plays Abandon the idea that performance can be improved by isolated efforts in single functions Abandon the idea that performance can be improved by isolated efforts in single functions

TPK (Deming) versus 1. Appreciation for a system 2. Knowledge about variation 3. Theory of knowledge 4. Psychology of individuals, society and change 1. Identify the system constraint(s)/bottlenecks 2. Exploit the constraint. 3. Subordinate all else to the constraint. 4. Elevate the constraint. 5. If the constraint is no longer a bottleneck, find the next constraint and repeat the steps. TOC ( Goldratt )