1. © Washington State University- 2010 1 Intro to the Theory of Constraints (A lecture introducing a portion of the Physical side of the Theory of Constraints) Constraints Management jholt@wsu.edu http://www.engrmgt.wsu.edu/ James R. Holt, Ph.D., PE Professor Engineering & Technology Management

2. © Washington State University-20102 Welcome to the TOC! TOC IS:  A set of Proven Solutions DBR, CCPM, Replenishment, Sales/Marketing, Human Behavior, Measurements, Strategy  An Approach to Problems Five Steps of Continuous Improvement  Tools for Discovery of New Solutions What to Change, What to Change to, How to Cause the Change (The TP)

3. © Washington State University-20103 Larger Process Input Output Input Process OutputInput Process OutputInput Process Output Process Theory Input Process Output

4. © Washington State University-20104 Systems Concepts Organizations / Systems exist for a purpose That purpose is better achieved by cooperation of multiple, independent elements linked together Each Inter-linked event depends in some detail upon the other links. The system owner determines purpose

5. © Washington State University-20105 There is a “Weakest Link” Different link capabilities, normal variation and changing workload make it impossible to balance everything. One element of the system is more limited than another. When the whole system is dependent upon the cooperation of all elements, the weakest link determines the strength of the chain. 100 Load

6. © Washington State University-20106 Interconnections are Extensive Every Systems have relatively few constraints and Many Interconnected relationships.  The generic problem with physical systems  The Five Focusing Steps  The Generic Physical Solution Physical and Non-Physical Processes  Flow systems (I, A, V, T structures / combinations)  Distribution and Supply Chain  Project Management  Management control of these systems

7. © Washington State University-20107 Interconnections are non-Trivial A simple chain over simplifies reality Link 1 has a relationship with Link 5 Link 5 has a different relationship with 1 1 2 3 4 5 6 7 8 9

8. © Washington State University-20108 Management of the Links Vs. Linkages 1 2 3 4 5 6 7 8 9 Even with the many links and linkages, there is only one constraint. Link 1 and 2 can get together and lean on Link 3 or Link 8 Link 8 and 9 can combine to push on both Link 6 and Link 7 There are 40,000 first order effects and 1,000,000+ second and higher order effects!

9. © Washington State University-20109 Traditional Approach: Divide and Conquer Division of Labor breaks down linkages complex systems into manageable chunks. Which is harder to manage? Left or Right? Left Right

10. © Washington State University-201010 We Measure Operational Efficiency Work flows from left to right through processes with capacity shown. ProcessABCDE RM FG Capability Parts 79586 per Day Excellent Efficiency--Near 100% Chronic Complainer Too Much Overtime Market Request 11

11. © Washington State University-201011 Reward Based on Efficiency Work flows from left to right. ProcessABCDE Capability P/D 79586 Both found ways to look busy and appear to have a capacity of 5 parts/day. RM FG And soon, A & B slow

12. © Washington State University-201012 In reality... Process ABCDE Potential P/D 79586 Reality55555 Processes A and B won’t produce more than Process C for long. RM FG

13. © Washington State University-201013 Then Variability Sets In Processing times are just AVERAGE Estimates ProcessABCDE Reality 5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 RM FG

14. © Washington State University-201014 What’s an Average? 50% ProcessABCDE Reality 5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 Probability0.50.50.50.50.5 Half the time there are 5 or more per day at each process--Half the time less Two at a time: 0.250.25 Over all:3% Chance of 5 + per day RM FG

15. © Washington State University-201015 Previous Solution: Inventory WIP 5 5 5 5 5 Total 25 ProcessABCDE Variable 5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 Process Inventory (WIP) acts as a buffer between processes. Inventory manager/expediter tries to smooth it out. But, flow though the line slows down. Costs go up. Put a day of inventory at each process! RM FG

16. © Washington State University-201016 System Variability Takes Over-- Chaos WIP 3 0 10 8 4 Total 25 Variable 5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 Process And, the work-in-process can shift around creating large queues at some locations. RM FG An Average of 5 means sometimes 3 and some times 7 Process ABCDE

17. © Washington State University-201017 System Variability Takes Over-- Chaos WIP 3 0 10 8 4 Total 25 Variable 5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 Process Other workstations can be starved for work. The work they could be doing is delayed because it is not there. They can’t take advantage of their extra capability. So... RM FG Process ABCDE

18. © Washington State University-201018 System Variability Takes Over-- Chaos WIP 3 5 10 8 4 Total 25 Variable 5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 Process So… Management Helps! Management puts in more work(Inventory) to give everyone something to do! Result: More and more delay happens! It takes longer and longer from time of release to final shipping. RM FG Process ABCDE X 30

19. © Washington State University-201019 Attempts to Control WIP WIP 5 5 5 5 5 Total 25 ProcessABCDE Variable 5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 Process Just-In-Time uses Kanban Cards to limit the queues building in the system. No more than 5 parts are allowed at any station. Looks good, but is it? “Put a lid on it”-Use Kanban Cards-JIT RM FG

20. © Washington State University-201020 Effects of Inventory Limits on Production WIP 5 5 5 5 5 Total 25 ProcessABCDE Variable 5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 Process What does a Kanban card of 5 Mean? RM FG 5+/-2 Average = 5 Before Kanban 5+/-2 Average = 3.5 Can’t exceed 5 After Kanban

21. © Washington State University-201021 Operation’s Dilemma Injection: Put a large inventory where it’s needed and low everywhere else! Manage production effectively Produce a lot Costs & delivery in control Increase work-in- process Decrease work-in- process Assumption: We can’t both increase WIP and decrease WIP at the same time.

22. © Washington State University-201022 TOC Steps to Continuous Improvement Identify Step 1. Identify the system’s constraint. Decide how to Exploit Step 2. Decide how to Exploit the system’s constraint. Subordinate Step 3. Subordinate everything else to the above decision. Elevate Step 4. Elevate the system’s constraint. Inertia Step 5. Warning!!! If a constraint is broken, go back to Step 1. But don’t allow Inertia to become a constraint.

23. © Washington State University-201023 Five Steps Applied to Flow Operations ABCDE 79586 79586 WIP Total Step 3. Subordinate Everything Else (Rope) Step 4. Elevate the Constraint ($?) X 5.5 Step 5. If the Constraint Moves, Start Over XXX 7 Five Focusing Steps RM Step 1. Identify the Constraint (The Drum) FG Step 2. Exploit the Constraint (Buffer the Drum) 12

24. © Washington State University-201024 FG Understanding Buffers ABCDE 79586 79586 RM The “Buffer” is Time! In general, the buffer is the total time from work release until the work arrives at the constraint. Contents of the buffer ebb and flow within the buffer If different items spend different time at the constraint, then number of items in the buffer changes Time in the buffer remains constantbut Time in the buffer remains constant. WIP Total 12/5=2.5 Days

25. © Washington State University-201025 We need more than one Buffer FG ABCDE 79586 79586 RM There is variability in the Constraint. To protect our delivery to our customer we need a finished goods buffer. Finished Goods Buffer There is variability in our suppliers. We need to protect ourselves from unreliable delivery. Raw Material Buffer

26. © Washington State University-201026 Buffer Time is Constant- Predictable FG ABCDE 79586 79586 RM Finished Goods Buffer Constraint Buffer 2.5 Days Raw Material Buffer Finished Goods Buffer 1 Day Processing Lead Time is Constant Raw Material Buffer 2 Days

27. © Washington State University-201027 FG Buffer Management ABCDE 79586 79586 RM Constraint Buffer WIP Total 12/5=2.5 Days Time until Scheduled at Constraint 0 2.5 Days WO17 WO14 WO15 WO16 WO10 WO11 WO12 WO13 WO18 WO19 The Constraint is scheduled very carefully Buffer Managed by location Individual activities in the buffer are not scheduled WO21 WO20

28. © Washington State University-201028 ABCDE FG Problem Identification 79586 79586 RM Time until Scheduled at Constraint 0 2.5 Days WO10 WO20 WO12 WO13 WO21 WO15 WO16 WO17 WO18 WO19 Delayed Parts WO11 WO14 WO19 Green WO19 OK (Green) Yellow) Watch WO14 (Yellow) Constraint schedule is in jeopardy! (WO 11 is in the Red Zone! A Red Zone Hole) RM

29. © Washington State University-201029 Additional Buffers Constraint Buffer (as we discussed)  Protects the Constraint from running out of work Finished Goods Buffer  Protects customer delivery from Constraint variation Raw Material Buffer  Protects the Release of material from suppliers Assembly Buffer  Facilitates speedy flow of products

30. © Washington State University-201030 Additional Buffers Buffer Types: Constraint FG RM Assembly ABCDEABCDE RM FG 7958679586 RM FGHFGH 876876 Constraint Finished goods Raw Material Assembly Ropes Note: The Assembly Buffer is not used in S-DBR anymore. The concept is included here to help you understand Feeder Buffers in Projects (which you will see later).

31. © Washington State University-201031 DBR and Human Behavior Issues Drum-Buffer-Rope overcomes the problems of system structure  DBR de-couples interdependency  DBR allows variability to work in our favor  Protects the throughput capacity of the system Measurements should be in place to encourage the right behaviors  Maintain Buffers, Increase throughput, Reduce variability, …

32. © Washington State University-201032 Distribution System Unlike a Factory, there is no single person managing all the movements. Retail Systems include time delay between demand cycles. Production occurs to forecast. Delivery Systems focus on efficiency--Transfer in large batches (long time between shipments). Errors in forecast are magnified ten fold. Too much of the wrong inventory, too little of the right. Magnitude of Missed Sales is not Known.

33. © Washington State University-201033 Forecast Accuracy Now ---> Future Accuracy of Forecast 100% Point where the world changes Effective Response Zone Death Response Zone

34. © Washington State University-201034 Pushing Inventory to the Retail Store Manufacturing Warehouse Distribution Stores BEFORE

35. © Washington State University-201035 Locate Inventory Where it Provides Best Protection After-Fast Production-Fast Delivery Aggregated Variability Manufacturing Warehouse Distribution Stores

36. © Washington State University-201036 Supply Chain Processes Supply Chain is made up of many independent links (Businesses or Business Units) Individual links do not provide a completed product There is significant interface problems  Timing, Quality, Price, Value Links are in competition with each other / Leverage each other

37. © Washington State University-201037 Typical Supply Chain Raw Materials Refine / Prepare ProduceTransport DistributeRetailCustomer

38. © Washington State University-201038 Long and Short Duration Supply Chains Dairy Cows CreameryDeliverRetail Customer FarmerCanneryWholesaleRetail Customer

39. © Washington State University-201039 Complex Combinations Brakes Tires Bumpers Upholstery Engine Transmission Manuf. Car Lot Car Lot Car Lot

40. © Washington State University-201040 Dedicated Chains MineSmelter Rolling Mill Product Steel Sales Independent Business Unit Single Firm - Totally Owned Industry - Sole Source Transfer Prices Fixed by Policy

41. © Washington State University-201041 Competitive Chains Oil Well Refinery Chemical Plant Cloth Mill Dress Factory Customer Cloth Mill Cloth Mill Chemical Plant Chemical Plant Oil Well Refinery Dress Factory Customer Oil Well Refinery Dress Factory Customer Transfer Prices at Market Prices

42. © Washington State University-201042 Simple Measures Drive Behavior These two measures drive the behavior we want in the production line: Throughput Dollar Days (TDD) Says, “Don’t miss a delivery (avoid failure). And, if you do, fix it fast!” Inventory Dollar Days (IDD) Says, “Don’t let Inventory sit around idle in places where it does no good. Quickly move it to where it protects TDD and then reduce it both in quantity and in time held.” TDD and IDD become a Drill Sargent Mentality: MOVE IT! MOVE IT! MOVE IT!

43. © Washington State University-201043 But, what if A and B were grouped? And they were measured at a Team, would there be even better performance? TDD and IDD Help Track Down Problems ProcessABCDE RMFG Capability 7 9 5 8 6 parts/day If A caused the problem, it shows in A’s measures If B caused the problem, it shows in B’s measures.

44. © Washington State University-201044 D and E team to deliver to the customer. A missed customer delivery is TDDs. The IDD (Inventory held * time held) tells how effective the D and E Team is! And What About D and E? ProcessABCDE RMFG Capability 7 9 5 8 6 parts/day Then, what is the logical measure for D and E?

45. © Washington State University-201045 We really could treat (measure) the effectiveness of the whole line as one big team. TDD=Effectiveness in Delivery IDD =Effective use of resources (and tracking improvements) What if the Customer is the Constraint? ProcessABCDE RMFG Capability 7 9 5 8 6 parts/day Market wants 4 parts per day We still use strategic placement of protective inventory internally We protect our distribution with Finished Goods

46. © Washington State University-201046 Jobs Process Flow Projects Are Handled the Same Way AB CD Type I A->B->C->D Type III A->B->B->D Type IV C->B->A->B Resources A, B, C, D each receive work as it flows in different patterns Each Job type has four days of processing for the four resources. Hum? Release one job per day and every body stays busy. Right? Type II C->A->B->D

47. © Washington State University-201047 TDD=Effectiveness in Delivery IDD =Effective use of resources (and tracking improvements) Projects Are Handled the Same Jobs Process Flow AB CD Type I A->B->C->D Type II C->A->B->D Type III A->B->B->D Type IV C->B->A->B There are 16 processes on the 4 job times but 6 of them go through B. C and D only have 3 processes. Hum? Internally, B is the constraint. We can treat it just like the product line

48. © Washington State University-201048 Projects are Balancing Acts! Quality and Scope Timing and Schedule Budgeted Costs 3 Goals:

49. © Washington State University-201049 Then, Things Combine … Precedence Structure Statistical Variation Human Behavior Quality and Scope Timing and Schedule Budgeted Costs Slippery Slope of Structure / Behavior

50. © Washington State University-201050 And, Reality Appears … Quality and Scope Timing and Schedule Budgeted Costs Precedence Structure Statistical Variation Human Behavior Bumpy Road of Reality In an Every Changing Environment

51. © Washington State University-201051 The Project Dilemma It Looks Like a Lose-Lose Situation. Meet Original Commitments Meet needs of Commitment in Danger Compensate for Early Mis-Estimates Not Jeopardize Other Original Commitments Not Compensate for Early Mis-estimates

52. © Washington State University-201052 Resolving Project Problem Options Meet Original Commitments Meet any Commitment in Danger Compensate for Early Mis- Estimates Not Jeopardize Other Original Commitments Not Compensate for Early Mis- estimates Add more time & money and decrease scope Use our Safety Buffer Correctly

53. © Washington State University-201053 Consider the Aspects of Projects Good Statistics Central Limit Theorem (add enough things together and everything looks normal)

54. © Washington State University-201054 Typical Activity Duration Mean Standard Deviation Normal Duration Time Median 50% Probable 85-90% Probable Project Task Duration Time

55. © Washington State University-201055 So, what is the Behavior? Engineering Pessimism: Estimate a safe value (85%) Assigned Date Time--> Parkinson's Law: Work Expands to full the time available (Just keep tweaking! More is better!) Engineering Optimism: I’m good, I can beat 50%. Level of Effort Student Syndrome: “Why start now? It isn’t due until Friday?” (There is more urgent homework or parties.) Empirical evidence shows most tasks complete on or after the due date

56. © Washington State University-201056 Engineering Perpetual Motion (overtime) Assigned Date Time--> Level of Effort Normal Work Load Actual Work Load

57. © Washington State University-201057 The result is Bad Multi- Tasking A1 A2 A3 B1 B2 B3 Ten Days Each Task Project Manager A Project Manager B Your Work Others Awaiting You Your Work

58. © Washington State University-201058 Politically Correct Schedule A1 A2A3 B1B2B3 1020 3040 30 Days Flow 50

59. © Washington State University-201059 More Like Actual Schedule A1 A2A3 B1B2 B3 1020 3040 40 Days Flow 50

60. © Washington State University-201060 Elements of the Project Management Solution Prioritize Don’t Schedule Conflicts Avoid Bad Multi-Tasking Don’t Release Too Early/Too Late Buffer Critical Chain  Buffers: Project / Feeding / Resources Schedule 50% Estimate Completion Communicate “Time Remaining” Negotiate Capability Not Dates No Milestones

61. © Washington State University-201061 TOC Flow Time A1A2A3 B1B2B3 1020 3040 20 Days Flow 50

62. © Washington State University-201062 Don’t Schedule Conflict Before After TOC Leveling

63. © Washington State University-201063 Buffer the Project and NOT Individual Activities Before with 85% Estimates TOC Aggregated Schedule with a Project Buffer Task Task Task Task Buffer Task Buffer The original Estimats with 50% Individual Buffers

64. © Washington State University-201064 Protect the Critical Chain Project Buffer Feeding Buffer

65. © Washington State University-201065 Communication Buffer for Resources on the Critical Chain Project Buffer Feeding Buffer Lt. Green be ready Buffer Pink get ready Green be ready Cyan Resource be ready Blue be ready Buffer

66. © Washington State University-201066 The Simple Line Diagram Was Too Simplistic RMFG Aircraft assembly is more of an “A” Plant RM FG

67. © Washington State University-201067 The “A” Plant Has Some Long Duration Processes RM FG

68. © Washington State University-201068 Pull Tight the Longest Path (and Shake) RM FG RM Fastest Possible Flow Time Critical Assembly Joins

69. © Washington State University-201069 How Could we Fairly Measure Feeder Chains? RM FG RM TDD-On Missed Delivery to main line IDD-On Effective Use of Resources (and monitoring improvements) Could this also apply to suppliers?

70. © Washington State University-201070 Washington State University’s Engineering Management Program Teaches All This and More People Organizations Performance Measurement Assignments Quality Finance Capital Projects Uncertainty Investment Measures Projects Full Theory Scheduling Manage Quality Design for Experiments Operations Optimization Simulation Decisions Reliability Supply Chain Strategy Corporate Departmental Subordination Focus TOC Thinking Processes Physical Systems Behavior

71. © Washington State University-201071 WSU-Engineering & Technology Management “Engineering Business” Lectures in Evenings over the Internet (Education in your Kitchen!) Mature, experienced Faculty Mature, experienced Students Compliments Undergraduate and Graduate Programs Provide VALUE to the Student and Corporation (80+ projects averaged $70,000 each) (11 Projects over $1,000,000 each) http://www.engrmgt.wsu.edu/ jholt@wsu.edu