Theory of Constraints Flashcards
main elements of theory of constraints
- continuous improvements philosophy
- raw materials turned into products and shipped to customer immediately
- labour treated as a fixed cost
differences between JIT and ToC
- production rate of the entire factory is set at the pace of the bottleneck
- buffer stock needed before the bottleneck to ensure employees never have to wait for components
ToC production system
- pull system
- finite capacity planning (bottlenecks often limit output)
- Drum ( sets the pace of the system), Buffer (stock before the bottleneck), Rope (demand pulls the rope through the factory)
5 steps to improvement
- identify the bottleneck
- decide how to exploit the bottlenecks
- subordinate everything else to the above decision (inspections, continuous running)
- elevate the systems bottlenecks (increase efficiency)
- if bottleneck has been broken, go back to 1
Throughput formula
sales- materials
operating expenses
all expense system spends turning inventory into throughput
- all expenses minus materials
Goldratt’s view on inventory
- Does not perceive inventory as an asset and says its on the wrong side of the balance sheet
goldratt Return on investment formula
(throughput - operating expenses)/ inventory
cost accounting emphasis
- emphasis on costs first, throughput second and inventory third
Toc emphasis
- throughput first, inventory second and costs third
- says you can reduces costs to 0 but throughput has no limits whilst simultaneously reducing costs and inventory
throughput accounting ratio
return per factory hour/ cost per factory hour
return per factory hour
(sales price- material cost) / time on key resource
cost per factory hour
total factory cost / total time available on key resource
product mix decisions
make the products with the highest throughput per limiting factor
marketing/ pricing decisions
non bottleneck products can be priced as low as marginal cost
