Ch 23 - Theory of constraints

Question 1

Eli Goldratt’s idea

Answer 1

He proposed the idea that managing “constraints” is the key to maximizing the throughput and efficiency of business processes. He argued that a manager should focus on managing the resource that most limits the process from achieving its goal. This resource is called the “bottleneck” and nothing can be achieved beyond the capability of the bottleneck.

He suggests a simple repetitive cycle for improving a process.
Step 1: Find the weakest step in the process, the step that is limiting performance the most.
Step 2: Improve that weakest step so that it is no longer limiting performance.
Step 3: Repeat steps 1 and 2 over and over again making the process better with each cycle.

Question 2

What is the theory of constrains?

Answer 2

The theory of constraints (TOC) is a management paradigm that views any manageable system as being limited in achieving more of its goals by a very small number of constraints. There is always at least one constraint, and TOC uses a focusing process to identify the constraint and restructure the rest of the organization around it. TOC adopts the common idiom “a chain is no stronger than its weakest link”. This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the outcome.

Question 3

the TOC five-step approach:

Answer 3

1. Identify the system constraints. (No improvement is possible unless the constraint or weakest link is found.) 2. Decide how to exploit the system constraints. (Make the constraints as effective as possible.)
2. Subordinate everything else to that decision. (Align every other part of the system to support the constraints even if this reduces the efficiency of nonconstraint resources.)
3. Elevate the system constraints. (If output is still inadequate, acquire more of this resource so it no longer is a constraint.)
4. If, in the previous steps, the constraints have been broken, go back to Step 1, but do not let inertia become the system constraint. (After this constraint problem is solved, go back to the beginning and start over. This is a continuous process of improvement: identifying constraints, breaking them, and then identifying the new ones that result.)

Question 4

Goldratt’s Rules of Production Scheduling

Answer 4

1. Do not balance capacity—balance the flow.
2. The level of utilization of a nonbottleneck resource is determined not by its own potential but by some other constraint in the system.
3. Utilization and activation of a resource are not the same.
4. An hour lost at a bottleneck is an hour lost for the entire system.
5. An hour saved at a nonbottleneck is a mirage.
6. Bottlenecks govern both throughput and inventory in the system.
7. The transfer batch may not, and many times should not, be equal to the process batch.
8. A process batch should be variable both along its route and in time.
9. Priorities can be set only by examining the system’s constraints. Lead time is a derivative of the schedule.

Question 5

Performance Measurements

Answer 5

To adequately measure a firm’s performance, two sets of measurements must be used: one from the financial point of view and the other from the operations point of view.

Question 6

We have three measures of the firm’s ability to make money:

Answer 6

1. Net profit—an absolute measurement in dollars.
2. Return on investment—a relative measure based on investment.
3. Cash flow—a survival measurement. All three measurements must be used together.

For example, a net profit of $10 million is important as one measurement, but it has no real meaning until we know how much investment was needed to generate that $10 million. If the investment was $100 million, this is a 10percent return on investment. Cash flow is important because cash is necessary to pay bills for day-to-day operations; without cash, a firm can go bankrupt even though it is very sound in normal accounting terms. A firm can have a high profit and a high return on investment but still be short on cash if, for example, profit is invested in new equipment or tied up in inventory.

Question 7

Financial measurements work well at the higher level, but they cannot be used at the operational level. We need another set of measurements that will give us guidance:

Answer 7

1. Throughput—the rate at which money is generated by the system through sales. Throughput is specifically defined as goods sold.
2. Inventory—all the money that the system has invested in purchasing things it intends to sell.
3. Operating expenses—all the money that the system spends to turn inventory into throughput.

Question 8

From an operations standpoint, the goal of the firm is to:

Answer 8

INCREASE THROUGHPUT WHILE SIMULTANEOUSLY REDUCING INVENTORY AND REDUCING OPERATING EXPENSE.

Question 9

Typically, productivity is measured in terms of output per labor hour. However, this measurement does not ensure that the firm will make money . What is productivity?

Answer 9

Typically, productivity is measured in terms of output per labor hour. However, this measurement does not ensure that the firm will make money

Question 10

Unbalanced capacity

Answer 10

Historically (and still typically in most firms), manufacturers have tried to balance capacity across a sequence of processes in an attempt to match capacity with market demand. However, this is the wrong thing to do—unbalanced capacity is better.

Rather than capacities being balanced, the flow of product through the system should be balanced.

Question 11

What are the dependent events?

Answer 11

The term dependent events refers to a process sequence. If a process flows from A to B to C to D, and each process must be completed before passing on to the next step, then B, C, and D are dependent events. The ability to do the next process is dependent on the preceding one.

Question 12

What are the statistical fluctuations?

Answer 12

Statistical fluctuation refers to the normal variation about a mean or average. When statistical fluctuations occur in a dependent sequence without any inventory between workstations, there is no opportunity to achieve the average output. When one process takes longer than the average, the next process cannot make up the time. We follow through an example of this to show what could happen.

Question 13

What is a bottleneck?

Answer 13

A bottleneck is defined as any resource whose capacity is less than the demand placed upon it. A bottleneck is a constraint within the system that limits throughput. It is that point in the manufacturing process where flow thins to a narrow stream. A bottleneck may be a machine, scarce or highly skilled labor, or a specialized tool. Observations in the industry have shown that most plants have very few bottleneck operations.

Question 14

What is capacity?

Answer 14

Capacity is defined as the available time for production. This excludes maintenance and other downtime.

Question 15

What is a nonbottleneck?

Answer 15

A nonbottleneck is any resource whose capacity is greater than the demand placed on it. A nonbottleneck, therefore, should not be working constantly because it can produce more than is needed. A nonbottleneck contains idle time.

Question 16

What is capacity-constrained resource (CCR)?

Answer 16

A capacity-constrained resource (CCR) is one whose utilization is close to capacity and could be a bottleneck if it is not scheduled carefully. For example, a CCR may be receiving work in a job-shop environment from several sources. If these sources schedule their flow in a way that causes occasional idle time for the CCR in excess of its unused capacity time, the CCR becomes a bottleneck when the surge of work arrives at a later time. This can happen if batch sizes are changed or if one of the upstream operations is not working for some reason and does not feed enough work to the CCR.

Question 17

What are the kinds of time make up production cycle time?

Answer 17

1. Setup time—the time that a part spends waiting for a resource to be set up to work on this same part.
2. Processing time—the time that the part is being processed.
3. Queue time—the time that a part waits for a resource while the resource is busy with something else.
4. Wait time—the time that a part waits not for a resource but for another part so that they can be assembled together.
5. Idle time—the unused time; that is, the cycle time minus the sum of the setup time, processing time, queue time, and wait time.

Question 18

What are the two ways to find the bottlenecks?

Answer 18

One is to run a capacity resource profile (empirical approach); the other is to use our knowledge of the particular plant, look at the system in operation, and talk with supervisors and workers (theoretical, hypothesized approach).

Question 19

Number of ways in which we can save time on bottlenecks?

Answer 19

• better tooling,
• higher-quality labor,
• larger batch sizes,
• reduction in setup times, and so forth

Question 20

How valuable is extra time related to bottleneck and capacity? Recall that a bottleneck is a resource whose capacity is less than the demand placed on it. Because we focus on bottlenecks as restricting throughput (defined as sales), a bottleneck’s capacity is less than the market demand.

Answer 20

AN HOUR SAVED AT THE BOTTLENECK ADDS AN EXTRA HOUR TO THE ENTIRE PRODUCTION SYSTEM.

Question 21

How about time saved on a nonbottleneck resource?

Answer 21

AN HOUR SAVED AT A NONBOTTLENECK IS A MIRAGE AND ONLY ADDS AN HOUR TO ITS IDLE TIME.

Question 22

What is the control point of a system called and where is it located?

Answer 22

Every production system needs some control point or points to control the flow of product through the system. If the system contains a bottleneck, the bottleneck is the best place for control. This control point is called the drum because it strikes the beat that the rest of the system (or those parts that it influences) uses to function.

If there is no bottleneck, the next-best place to set the drum would be a capacity- constrained resource (CCR).

If neither a bottleneck nor a CCR is present, the control point can be designated anywhere.

Question 23

How can we view a inventory?

Answer 23

he buffer inventory in front of a bottleneck operation is a time buffer. We want to make sure that Workcenter D always has work to do, and it does not matter which of the scheduled products are worked on. We might, for example, provide 96 hours of inventory in the buffer as shown in the sequence A through P .

Question 24

In an assembly line, what is the batch size?

Answer 24

Some would say “one” because one unit is moved at a time; others would say “infinity” because the line continues to produce the same item. Both answers are correct, but they differ in their point of view. The first answer, “one,” in an assembly line focuses on the part transferred one unit at a time. The second focuses on the process. From the point of view of the resource, the process batch is infinity because it is continuing to run the same units. Thus, in an assembly line, we have a process batch of infinity (or all the units until we change to another process setup) and a transfer batch of one unit.

Question 25

A useful performance measurement is the concept of dollar days, a measurement of the value of inventory and the time it stays within an area. To use this measure, we could simply multiply the total value of inventory by the number of days inventory spends within a department. Dollar day measurements also could be used in other areas:

Answer 25

∙ Marketing—to discourage holding large amounts of finished-goods inventory. The net result would be to encourage the sales of finished products.
∙ Purchasing—to discourage placing large purchase orders that on the surface appear to take advantage of quantity discounts. This would encourage just-in-time purchasing.
∙ Manufacturing—to discourage large work-in-process and producing earlier than needed. This would promote rapid flow of material within the plant.
∙ Project management—to quantify a project’s limited resource investments as a function of time. This promotes the proper allocation of resources to competing projects. See the OSCM at Work box titled “Critical Chain Project Management” for Goldratt’s ideas on scheduling projects.

Question 26

What are the drawbacks of JIT?

Answer 26

1. JIT is most often used in repetitive manufacturing environments.
2. JIT requires a stable production level (usually about a month long).
3. JIT does not allow very much flexibility in the products produced. (Products must be similar with a limited number of options.)
4. JIT still requires work-in-process when used with kanbans so that there is “something to pull.” This means that completed work must be stored on the downstream side of each workstation to be pulled by the next workstation.
5. Vendors need to be located nearby because the system depends on smaller, more frequent deliveries.

Question 27

The production system must work closely with other functional areas to achieve the best operating system. Which are the areas where conflicts can occur and where cooperation and joint planning should occur.?

Answer 27

• Accounting’s Influence: Sometimes we are led into making decisions to suit the measurement system rather than to follow the firm’s goals.
• Problems in Cost Accounting Measurements: Cost accounting is used for performance measurement, cost determinations, investment justification, and inventory valuation.
• Marketing and Production: Marketing and production should communicate and conduct their activities in close harmony. In practice, however, they act very independently. There are many reasons for this. The difficulties range from differences in personalities and cultures to unlike systems of merits and rewards in the two functions. Marketing people are judged on the growth of the company in terms of sales, market share, and new products introduced. Marketing is sales oriented. Manufacturing people are evaluated on cost and utilization. Therefore, marketing wants a variety of products to increase the company’s position, whereas manufacturing is trying to reduce cost.