1. EMBA 512 Theory of Constraints
December, 2016
Phil Fry
EMBA 512

2. Theory of Constraints Popularized by Eliyahu Goldratt “The Goal”
“Its Not Luck”
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3. Today’s Outline Processes and Process Terminology
Theory of Constraints – Lessons to be Learned
The Goal
The “Hike”
Managing Under a TOC Philospohy
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4. Setting the Stage
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5. Analyzing Process Flows
A few years ago, the Wall Street Journal reported, “… although GM and Toyota are operating with the same number of inventory turns, Toyota’s throughput is twice that of GM’s.” The discrepancy, concluded the writer, “could be due to much faster flow times and lower inventories by virtue of Toyota’s production system.”
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6. Process Flow Analysis
Nearly one billion wafers each year. That’s the number of communion wafers produced by a family-owned business in Rhode Island reports the New York Times (Bread of Life, Baked in Rhode Island, December 24, 2008). When producing wafers, the company turns out wafers at the rate of about 100 per second. After coming out of the oven, wafers spends approximately 15 minutes in a cooling tube that keeps them from becoming brittle. As a part of your process analysis of the baking process, you need to estimate the number of wafers in the cooling tube on average.
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7. Process Flow Analysis
Every process wants to transform inputs into outputs to satisfy customer needs.
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8. Process Flow Analysis
What is a process? A process coverts inputs into outputs. What is a process flow chart? A symbolic representation of the processes and their relationships to each other.
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9. Process Flow Chart Example
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10. Purposes of Process Flow Analysis
Document the process
Evaluate process performance measures
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11. Process Flow Analysis
What is a resource? Resources are those things needed to operate the process.
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12. Process Flow Analysis
Process Capacity The maximum rate at which output can be withdrawn from a process.
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13. Process Flow Analysis
Bottleneck—the resource in the system having the smallest capacity. System Capacity—the capacity of a system is the capacity of the bottleneck.
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14. Process Flow Analysis
Cycle Time
The average time between successive units leaving the process. It is the inverse of the capacity.
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15. Process Flow Measures
The study of process flows requires the answer to 3 questions:
1. On average, how many flow units move through the process per unit of time?
2. On average, how much time does a typical flow unit spend in the process?
3. On average, how many flow units are in the process at any point in time?
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16. Process Flow Measures Throughput Rate
An important measure of process-flow dynamics—the number of flow units that move through a specific point of the process per unit of time
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17. Throughput Rate TR: Demand vs. Capacity Constrained
Demand constrained
Demand constrained
Bottleneck
Bottleneck
Bottleneck
Bottleneck
Input
Input
(Capacity)
(Capacity)
Input
Input
(Capacity)
(Capacity)
Flow Rate
Throughput Rate
Throughput Rate
Flow Rate
Demand
Demand
Excess
Excess
Excess
Excess
capacity
capacity
capacity
capacity
Demand
Demand
Throughput Rate=Min{Demand, Capacity}
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18. Process Flow Measures
Flow Time The total time spent by a flow unit in the system, where the system is the set of all processes viewed as a whole.
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19. Process Flow Measures Inventory
The number of flow units present within the process at time t is the inventory at time t.
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20. Process Flow Measures Relating Throughput Rate, Flow Time, & Inventory
The 3 performance measures are linked by a fundamental relation of process flows known as Little’s Law. It relates average throughput rate TR, average flow time FT, and average inventory I as
I =TR*FT
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21. Process Flow Measures Inventory Turns (Turnover Ratio)
Inventory turns, or turnover ratio, is defined as the ratio of throughput to average inventory
Turns = TR/I
Using Little’s Law the turnover ratio equals the inverse of average flow time.
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22. Process Flow Measures
Of the three related operational-performance measures- throughput rate, flow time, and inventory- a manager can select any two on which to focus, with the third being determined by Little’s Law. The manager has the responsibility of deciding which two measures to manage.
For a given level of throughput in any process, the only was to reduce flow time is to reduce inventory, and vice versa.
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23. Key-points From Process Analysis
Simplify a complex process using a PFD
Bottleneck analysis: analyze the process by looking at the bottleneck
Bottleneck may depend on the product mix
Time to complete X units starting with an empty system Time to make X units= Time through empty system +
- Note: Flow Rate = Throughput Rate
- For continuous flow processes: “(X-1)=X” - If capacity constrained, flow rate is dictated by the bottleneck
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24. In-Class Exercise on Capacity, Bottlenecks, and Throughput
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25. A Process of Ongoing Improvement Eliyahu M. Goldratt and Jeff Cox
The Goal
A Process of Ongoing Improvement
Eliyahu M. Goldratt and Jeff Cox

26. The Goal Alex Rogo – Plant Manager
Characters:
Alex Rogo – Plant Manager
Jonah – Physicist/Production Consultant
Bill Peach – Division VP of Manufacturing
Bob Donovan – Plant Production Manager
Lou ____ - Plant Controller
Stacey Potazenik – Production Control Manager
Ralph Nakamura – data processing manager

27. The Goal City of Bearington – location?
Setting:
City of Bearington – location?
Pennsylvania, Ohio, Indiana manufacturing town
UniCo Corporation Manufacturing Plant –
probably 15 years old
other impressions?

28. The Goal
Introduction: What’s your first impression of the manufacturing plant?
Plant out of control
VP of manufacturing expediting an order
New robots
Controlled chaos
Good at “fighting fires”
Excellent at getting order filled when pressed
Lots of inventory

29. The Goal
Alex travels to corporate meeting with a bunch of “corporate speak”. Alex begins daydreaming.

30. The Goal
Alex/Jonah Chance Meeting in Airport
Alex – “Robots increased productivity by 36% in one department”
Jonah – “Are plant inventories down?” : No
“Is employee expense less?” : No
“Shipping more product?”: No
Alex – “Must keep robots running to maintain efficiencies”.
Jonah – Then “Inventories must be sky high and orders must be late.”

31. The Goal Jonah – “In your own words, what is productivity.”
Alex/Jonah Chance Meeting in Airport – cont.
Jonah – “In your own words, what is productivity.”
Alex – “ Accomplishing your goals”.
Jonah – “Correct, then what is the goal of your company?”
Alex – “To be more productive?” : No
“To produce products?” : No
“To increase market share?”: No
Jonah – “How can you be productive? You don’t know the goal.”

32. The Goal What does Alex determine “The Goal” is? To make money!!
How do you know you are making money (Alex and Lou)?
Net profit (Income-Expenses)
Return on Investment
Cash Flow
Why are each of these important?

33. The Goal
How do the “making money” measures translate to the production environment?
(Jonah’s translation)
Throughput – Is 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 Expenses – all the money the system spends in order to turn inventory into throughput.

34. The Goal
What was the common word in all three measurement definitions?
Money going into the system
Money stuck inside the system
Money flowing out of the system

35. The Goal
Throughput – Is 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 Expenses – all the money the system spends in order to turn inventory into throughput.
Where do the following fit?
Raw materials
Direct labor
Indirect labor
Tooling, machines, building
Knowledge gained by employees

36. The Goal
Alex meets Jonah in New York seeking help to determine steps to take in achieving the goal: Jonah – “Do you run a balanced plant? Do you have any idle workers and is it good or not?” Alex – “We try to keep all our employees productive”

37. The Goal
Jonah – “Impossible to perfectly balance capacity to demand, there even exists a mathematical proof showing if you did, inventories go through the roof?”
Alex – “How’s this possible”
Jonah – “Due to two phenomenon:
Dependent events – a series of events must take place before another begins.
Statistical Fluctuations – the length of events and outcomes are not completely deterministic.
The combination of these phenomenon are the issue.”

38. The Goal
Dependent events – Statistical Fluctuations Q. - Where does Alex first come to grips with this (i.e. sees this first hand)? A. – During the boy scout hike.

39. Analyzing the boy scout hike
The Goal
Analyzing the boy scout hike
Observations:
the walking speed of individuals fluctuate
All may have the same average walking speed, but gaps continue to lengthen, why?
There is no limit to how much an individual can slow down, but your top speed is dependent on the person in front.
Fluctuations are accumulating over time, and the slow fluctuations tend to accumulate faster because they are not limited like the fast ones.

40. Boy scout hike –> Manufacturing Plant
The Goal
Boy scout hike –> Manufacturing Plant
Observations:
Each boy is an operation
The product is “walk the trail”
Each boy/operation is dependent on the one in front.
A “sale” is when the last operation/boy walks the trail.
Throughput is the rate at which the last person walks the trail.
Operating expense is the energy output of each boy.
Inventory (material inside the plant) is the distance between the first and last boy.
Fluctuations in operating speed is causing inventory to increase and causing throughput to decrease. Attempting to reduce gaps is increasing operating expense.

41. The Goal Play the matches game?
Setup: 5 players, 5 bowls, matches, 1 die
Dump all matches in bowl #1
Roll one die (starting with player #1) and pass that many matches from your bowl to the next person down the line
Pass die to next player who rolls die and moves that number of matches from their bowl to next player, cannot pass more matches than what is in your bowl.
Continue for each player, with last player handing die back to player #1.
What is the average number rolled on a die?
After 20 rounds, how many matches should the last player “produce”?

42. Back to the Boy scout hike
The Goal
Back to the Boy scout hike
After lunch the boy scouts “self-arrange” so that the fastest is up front and so on until Herbie is at the rear.
Q. What was the result?
A. Line got even longer.
Q. Did throughput improve (completing more miles)?
A. No, completed miles still dependent on last scout walking the trail, plus “inventory” has increased.
Observation: however, everyone is always walking (no one is idle). But goal is not being achieved.

43. Continuing with the Boy scout hike
The Goal
Continuing with the Boy scout hike
Q. How does Alex fix the boy scout hike?
A. Puts kids in order from slowest first to fastest last. The line then stays compressed (i.e. inventory has gone down and progress has improved because Herbie is setting the pace and doesn’t have to exert energy to catch up).
Q. How do they further improve throughput?
A. Off-loaded Herbie’s backpack. In oherwords, they improved Herbie’s throughput so the entire boy troop’s throughput improved.

44. Alex’s First Chance to Test the Boy Scout Theory
The Goal
Alex’s First Chance to Test the Boy Scout Theory
Hilton Smyth’s order
needs 100 parts by end of day
Parts require 2 operations, fabrication then weld by robot
Each department averages 25 units per hour, with robot working at almost exactly 25 unit pace.
Start fabrication at noon, transferring parts on the hour, every hour.
Fabrication
(25/hour)
Transfer
(once/hour)
Weld
(25/hour)

45. Alex’s First Chance to Test the Boy Scout Theory
The Goal
Alex’s First Chance to Test the Boy Scout Theory
Expectation:
Hourly Part Count
Fabrication
(25/hour)
Transfer
(once/hour)
Weld
(25/hour)
noon
1:00
2:00
3:00
4:00
Fabrication 25
Welding

46. Alex’s First Chance to Test the Boy Scout Theory
The Goal
Alex’s First Chance to Test the Boy Scout Theory
Realization:
100 90
Hourly Part Count
Fabrication
(25/hour)
Transfer
(once/hour)
Weld
(25/hour)
noon
1:00
2:00
3:00
4:00
Fabrication 19 21 28 32
Welding 25

47. The Goal Q. So what have they learned to this point?
A. Have more capacity at downstream operations.

48. The Goal Q. What does Jonah suggest they do next?
A. Distinguish between bottleneck and non-bottleneck resources.
Definition:
Bottleneck – any resource whose capacity is equal to or less than the demand placed upon it.
Non-bottleneck – any resource whose capacity is greater than the demand placed upon it.

49. The Goal
Jonah then suggests balancing the flow of product through the plant with demand from the market. Not to balance the capacities of operations with demand.
Q. What determines the flow of product through the plant.
The bottleneck resources.

50. The Goal
The next step for Alex and company is to identify the bottlenecks (i.e. find Herbie).
Q. So how do you find a bottleneck in a manufacturing plant?
A. Go out on the floor and find the operation with the most inventory sitting in front of it.
Q. Is having a bottleneck a bad thing?
A. Not necessarily, all plants have to have a bottleneck.

51. The Goal
The next step for Alex and company is to identify the bottlenecks (i.e. find Herbie).
Q. Once the bottleneck is identified, can you simply move the machines/operations around like Herbie was moved to the front of the line?
A. No, production steps often cannot be reorganized.
Q. So how do you solve the problem of “moving Herbie to the front”?
A. Find more capacity for the bottleneck, don’t try to move them. Have enough capacity to meet demand.

52. The Goal
The next step for Alex and company is to identify the bottlenecks (i.e. find Herbie).
Q. How do you find more capacity?
Make sure it is never idle (focus your attention on it).
Increase cycle time on the machine
Add another duplicate machine
Outsource to another vendor
Reduce the demand (process change)
Inspect part quality before bottleneck (make sure bottleneck only works on good parts)
Ensure process controls on bottleneck are good so bad parts aren’t produced
Don’t let it work on parts that aren’t needed.

53. The Goal Back to the story:
Q. Where does Alex and company find the bottleneck?
They find two bottlenecks, NCX-10 and Heat Treat
Q. What is thier first approach to improving the flow through the bottlenecks and ultimately improving productivity.
1. Move QC in front of bottlenecks.
2. Make a list of all late jobs and what components from those jobs flow through the bottleneck machines. They then create a schedule/list in due date order and instruct the bottleneck operators to only work on those jobs in that order.

54. The Goal Back to the story:
Q. Does this scheduling system work (e.g. get late jobs completed while always keeping bottleneck running)?
A. No, because the late job components are not always waiting in front of the bottleneck machines.
Q. What do they do to rectify this?
A. Create a red tag (parts that travel through the bottleneck) / green tag system for all jobs throughout the plant such that any job with a red tag which arrives at a machine is given priority. If they are in the middle of a run, then if the run takes longer than 30 minutes to complete, stop that job and start the red tag job. If no red tags, then ok to process green tag jobs. If more than one red (or green tag), then process job with lower number on tag.

55. The Goal Back to the story:
Q. What do they do next to further off-load the Herbies / bust the bottleneck?
Gold tags placed on parts that have traveled through the bottleneck everyone extra careful not to damage.
Dedicate personnel at NCX-10 and Heat Treat even though they are idle much of the time, just don’t let machine idle.
Send out some portion of heat treat parts to vendor in town.
Found old equipment (that is less efficient) to run in parallel to NCX-10.
Fully load furnace when possible (e.g. mix batches).
Reduce setup time with new fixtures.
Were able to process some parts differently so heat treat wasn’t required.

56. The Goal Back to the story:
Q. What were the results of these bottleneck busting tactics?
New monthly shipping record from old record of 2 million to new record of 3 million.
57 customer orders shipped versus old record of 31.
WIP Inventories reduced 12%.

57. The Goal What happens next?
The bottlenecks are apparently expanding… material is backing up at the milling machines, and non-bottleneck parts (green tags) are not reaching assembly even though all bottleneck parts (red tags) are available at assembly.

58. The Goal
Jonah believes the “new bottlenecks” are not real bottlenecks, but self- created bottlenecks. Why?
Material is being “released” to the plant just to keep the non- bottleneck machines busy. This improves these machines efficiency measures, but does not help the goal.
Jonah: “A system of local optimums is not an optimum system at all; it is a very inefficient system”.
Lesson: Do not try to make non-bottlenecks work all the time. They should be idle some of the time!

59. The Goal
So how do you go about fixing the problem of keeping the non-bottleneck machines working at the same rate as the bottleneck?
Recall the boy scout hike: Herbie is in the middle of the line and cannot be moved, so how do you keep the kid in the front walking at the same pace as Herbie?
Alex’s kids: use a rope and a drum.
Rope: Attach a rope from Herbie (bottleneck machine) to the kid at the front (assembly). The length of rope represents inventory.
Drum: Herbie tells the kid at the front to slow down or speed up (beats the drum). Need some kind of signaling or communication between assembly and the bottleneck.

60. The Goal How is the rope and drum concept implemented in the plant?
Identified it takes about 2 weeks from when parts are released to the floor until they get to bottleneck.
Setup system that monitors when inventory is processed at the bottleneck. Material required 2 weeks later is then released to the floor.
Non-bottleneck parts are released according using the same principle but tied to assembly.
Communicate release
Bottleneck
Material Release
2 weeks lead time

61. The Goal What is the result of this new release system? WIP is down.
Revenues are up.
Efficiencies dropped initially, but have come back up.
The backlog of orders is completely gone (satisfied customers).
How does management respond?
Happy
Somewhat skeptical success will last
Wants 15% more revenue next month!!

62. The Goal
In order to improve by another 15% what does Jonah suggest as the “next logical step”?
Cut batch sizes for non-bottleneck parts in half.
What is the impact of reducing these batch sizes?
WIP for non-bottleneck parts reduced by half.
Significantly reduce time parts spend in plant. Leads to increased responsiveness (from 6-8 weeks to 3-4 weeks).
What about the time to handle increased number of setup? Doesn’t matter if occurs on non-bottleneck operations.
Process Time
Setup Time
Queue Time
Wait for Assembly Time
Time parts spend in the plant

63. The Goal
Also to help get the 15%, Alex calls the marketing/sales manager and bets him he can reduce lead time to fill orders. What does Alex expect to gain by reducing lead times to ship from what used to be 4 months to 4 weeks?
Increased sales!!
The bottleneck had moved to customer demand. Quick response on promised due dates should translate to a competitive advantage.

64. The Goal
Everything is going good now except it looks like part costs are going up. However, in reality all costs have gone down. How can this be?
The accounting rules:
Cost per part = raw material + direct labor + burden cost
Burden cost is all the indirect labor costs.
Burden = direct labor x burden factor
Cost per part has risen because more setups are occurring because of smaller batch sizes.
However, workers were idle, so the increased number of setups didn’t really increase costs.

65. The Goal
What other performance measure made them not look as good as they actually were.
Answer: Inventory
Inventory is counted as an asset on the balance sheet. When the plant worked hard to reduce inventories to improve their throughput and responsiveness, it looked as if their assets had fallen.

66. The Goal Sacred Cows Slaughtered: Worker efficiency Optimal batch size
Releasing work to the floor to keep people busy
Accounting rules

67. from the “cost world” to the “throughput world”
The Goal
Why Alex’s plant was successful:
Change in Focus
from the “cost world” to the “throughput world”
Throughput
Cost
Inventory
Throughput
Cost
Inventory

68. The Theory of Constraints
The Goal
What process did they use to shift their focus to the “throughput world”?
The Theory of Constraints
Step 1: Identify the system’s constraints (NCX10 and oven)
Step 2: Decide how to exploit the system’s constraint (don’t take lunch break on bottleneck machines)
Step 3: Subordinate everything else to the above decision (red tags and green tags)
Step 4: Elevate the systems constraint (bring back old Zmegma machine, outsource heat treat)
Step 5: Warning!! If in a previous step, a bottleneck has been broken, go back to step 1 (material release system, marketing), but do not allow inertia to cause a system’s constraint (red and green tags eventually caused problems).

69. The Goal Final words from Alex on “how to be an effective manager”:
Help people to identify:
“what to change?”
“what to change to?”
“how to cause the change?”

70. The Goal Finally some Philosophy:
What approach did Jonah use to help Alex and the plant succeed? Find the answers/solutions by asking questions, the Socratic approach. Let others convince themselves of the answers, don’t just give it to them.
Also used a “common sense” approach which went against “common practice”. In other words, think!!

71. What Theory Does “The Goal” Help Clarify
“The Goal” : Discussion Questions
What Theory Does “The Goal” Help Clarify
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72. The Theory of Constraints (TOC)
A proven method to*:
Reduce Lead times an average of 70%
Reduce inventory an average of 49%
Reduce Operating Expenses
Improve on time delivery performance an average of 44%
Increase Revenue an average of 63%
Better control
TOC delivers ALL of these results AT THE SAME TIME.
*The World of the Theory of Constraints by Mabin & Balderstone, St. Lucie Press 2000
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73. “The Goal” : Discussion Questions
Jonah says, “A System in Which Everyone is Working All The Time is Very Inefficient.” What Does he Mean?
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74. TOC Lessons Through Simulation Exercises
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75. Situation # 1: The Factory Basic Layout
FGI 5 4 5 4 2 5
Product is processed at each of the 6 work stations. Product moves sequentially from station 1 (far left) to station 6 (far right).
Once product has been processed at station 6 , it is completed and ready to go into finished goods inventory
Production output of each work station indicated by number in box.
Process starts in the Empty State
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76. Situation # 1: The Factory Basic Layout
Lesson(s) Learned?
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77. Situation 2: The Factory Add Capacity
FGI 5 5 5 4 2 5
Scenario is as before with capacity added to work station Two. The capacity of work station two has been increased by 1 unit from 4 units to 5 units.
Simulate production.
Explain results.
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78. Situation 3: The Factory Add Resources to Station 5
FGI 5 5 5 4 ? 5
We need to add capacity to work station 5 – the bottleneck. What do you recommend?
Simulate production.
Explain the results.
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79. Situation # 3: The Factory Resources Added to Bottleneck
Lesson(s) Learned?
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80. Situation 4: The Factory Add Complexity
FGI 5 5 5 4 4 5
Component
supplier 2
Scenario is as before. However, in this scenario there are two suppliers to work station 5.
Work Station 5 needs 4 units from Station 4 and 4 units from the component supplier.
Supplier can only produce 2
Simulate production.
Explain results.
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81. Situation # 4: The Factory Component Supplier to the Bottleneck
Lesson(s) Learned?
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82. Situation 5: The Factory Add Customer Demand
FGI 5 5 5 4 4 5 4 1
Scenario is as before with complexity.
Component Supplier Output increased to match WC 5
Add Customer Demand
Demand is 1 unit per day
Simulate production and demand.
Explain results.
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83. Situation # 5: The Factory Add Customer Demand
Lesson(s) Learned?
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84. Situation 6: The Factory Increased Customer Demand
FGI 5 5 5 4 4 5 4 4
Scenario is as before with complexity and customer demand. However, in this scenario the customer’s demand has increased to 4 per day
Simulate production and increased demand.
Explain results.
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85. Situation # 6: The Factory Increased Customer Demand
Lesson(s) Learned?
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86. “The Goal” : Discussion Questions
During the Hike, Alex says, “If I could get capacity perfectly balanced with demand, wouldn’t my excess inventory go away?” Was he Right?
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87. Dealing With Variability
Controllable Variation – results from decisions
Random variation – outside our control.
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88. Causes of Variability Natural Variability Random Outages Setups
Preemptive (No control)
Non-preemptive (Have Some control)
Setups
Operator Availability
Re-work
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89. Situation 7: The Factory Add Variability
FGI
1-6
1-6
1-6
1-6
1-6
1-6
Return to the simple process we had initially. However, unlike, our initial scenario, each work station exhibits variability in its output.
The process begins with 4 units in WIP at each station (Unlimited going into station 1
A work station’s output is uniformly distributed between 1 & 6. Average output is 3.5
Customer demand rotates between 3 and 4 (Average is 3.5)
Simulate process and explain results.
Explain results.
3 or 4
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90. Situation # 7: The Factory Variability
Balanced Capacity or Balanced Flow?
Lesson(s) Learned?
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91. Situation # 8: The Factory Basic Layout – Reduced Variability
FGI
3 or 4
3 or 4
3 or 4
3 or 4
3 or 4
3 or 4
All work stations produce 3 or 4 with equal probability. Output is independent between work stations
Average output is 3.5 units at each work station
Demand varies between 3 and 4 with equal probability
Beginning WIP is 4 at each work station
3 or 4
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92. Situation # 8: The Factory Balanced Flow - Reduced Variability
Lesson(s) Learned?
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93. Paying the Price for Variability
Lost throughput
Wasted Capacity
High Cycle times
High Inventory
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94. After Reading “The Goal”, What is the Goal??
“The Goal” : Discussion Questions
After Reading “The Goal”, What is the Goal??
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95. The Goal
TOC recognizes that only the “owners” of a company can choose THE goal. However, once chosen, the other 2 become conditions necessary to achieving the goal.
Make money now
and in the Future
Satisfy customers
now and in the future.
Satisfy employees
now and in the future
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96. “The Goal” : Discussion Questions
The Issue of Efficiency comes up several times in “The Goal”. How would you measure efficiency?
Is Efficiency a useful measure under the TOC Pholosophy?
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97. “Are you using the right measurements?”
Conventional Wisdom
Net profit?
Efficiency?
Utilization?
Return on Investment?
Cash Flow?
“Are you using the right measurements?”
Jonah in The Goal
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98. Measurements TOC Wisdom Throughput Inventory Operating Expense
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99. What Does Throughput Really Mean?
“The Goal” : Discussion Questions
What Does Throughput Really Mean?
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100. Throughput
The rate at which the system generates money through sales. (Or, the money coming into the organization.)
Building inventory is not throughput
Only $ generated by the system get counted; e.g., raw materials and purchased parts are not throughput.
Throughput = Selling Price – Materials Cost
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101. How Would Jonah Define Inventory?
“The Goal” : Discussion Questions
How Would Jonah Define Inventory?
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102. Inventory
All the money the system has invested in purchasing things which it intends to sell.
Inventory is a liability (not an asset)
Raw materials, work in process, finished goods and scrap are “I”
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103. What About Operating Expense?
“The Goal” : Discussion Questions
What About Operating Expense?
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104. Operating Expense
All the money the system spends in order to turn inventory into throughput. (Or, the money leaving the organization.)
All employee time is “OE” (direct, indirect, operating, etc.)
Materials
Depreciation of a machine is “OE”
Operating supplies are “OE”
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105. “The Goal” : Discussion Questions
Is “Drum-Buffer-Rope” a 60’s Rock Band? If Not, What Is The Purpose Behind the “Drum-Buffer-Rope” concept?
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106. Theory of Constraints Sets the tempo for other operations
Based on the concepts of drum, buffer and ropes
Drum
Output of the constraint is the drumbeat
Sets the tempo for other operations
Tells upstream operations what to produce
Tells downstream operations what to expect
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107. Theory of Constraints
Buffer
Stockpile of work in process in front of constraint
Precaution to keep constraint running if upstream operations are interrupted
Ropes
Limitations placed on production in upstream operations
Necessary to prevent flooding the constraint
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108. Drum Buffer Rope Drum-Buffer-Rope for Shop Floor Control Buffer 60 70
Drum: The Pace Setting Resource - constraint
Buffer: The amount of protection in front of the resource
Rope: The scheduled staggered release of material to be in line with the Drum’s schedule.
A Pull System
Buffer 60 70 40 60
Rope
Constraint (Drum)
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109. “The Goal” : Discussion Questions
Based on Your Take-aways From The Goal, What Steps Should Be Taken to Attack Constraints in a System?
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110. Theory of Constraints Six Steps Of TOC 2. Identify the bottlenecks
3. Use bottlenecks properly
1. Identify the appropriate measures of value
4. Synchronize all other processes to the bottlenecks
6. Avoid inertia and return to Step #1
5. Increase the bottleneck’s capacity
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111. Another Perspective on Process Flow
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112. Always Remember… Never Starve Your Constraints!!!
and don’t overfeed anything else.
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