Operations and Production Management

1. Operations and Production Management • Group 6: • Travis Lawrence • David Evans • Kerry Savoury

2. Operations and Production Management THEORY OF CONSTRAINTS (TOC)

3. What is TOC? • “An approach to management that focuses on whatever impedes progress toward the goal of maximizing the flow of total value-added funds or sales, less discounts and variable costs”

4. History of TOC • A relatively recent development (20 years) • Developed by Eliyahu Moshe Goldratt, an Israeli physicist, educator, and management specialist • Became involved to help a friend who operated a plant that made chicken coops to design a scheduling system

5. History of TOC (cont’d) • His system tripled the output of the plant • Goldratt released (1984) the philosophy underlying the scheduling algorithm in a book, The Goal: A Process of On­going Improvement

6. What is a Constraint? • A constraint is anything in an organisation that limits it from moving toward or achieving its goal • For most business organisations the goal is to make money

7. Types of Constraints • Two basic types of constraints: • Physical constraints • something like the physical capacity of a machine • Non-physical constraints • something like demand for a product or a corporate procedure

8. Types of Constraints Examples of Constraints: • Demand Constraints • A constraint on output • Symptoms include: • large amounts of final product inventory • a production line running at a fraction of full capacity production

9. Types of Constraints • Demand Constraints (cont’d) • A demand constraint means that the system has excess capacity given the demand for its product • Possible problems for demand might include: • a problem with marketing in which the customers are unaware of the system’s high quality product • the system may have a low quality product • the system may be producing an obsolete product

10. Types of Constraints • Demand Constraints (cont’d) • In order to resolve the issue of excess capacity, each of the previous three problems need to be examined and resolved

11. Types of Constraints • Production Constraints • Production constraints are issues that impeded a systems ability to achieve its maximum capacity • In-process inventories between production steps is often a symptom of a production constraint

12. Types of Constraints • Production Constraints are categorised into three types: • Policy constraints • Company or union policies or practice create the constraint and impede its long-term solution • It is the most frequent constraint • Machine capacity constraints • When a single (or small number of machines) on a line form a bottleneck

13. Types of Constraints • Labour constraints • Insufficient labour (not having a skilled operator) • The general labour pool is insufficient to run a line to full capacity, including extra shifts if needed

14. Types of Constraints • Raw Material Constraints • Raw material constraints are shortages in the raw materials necessary in making the product • This is why a relationship with one's vendors is so important

15. Applying TOC • The Theory of Constraints has been used at three different levels: • Production Management • Initially applied here to solve problems of bottlenecks, scheduling, and inventory reduction

16. Applying TOC • Throughput Analysis • TOC has caused a shift from “cost-based” decision making to decision making based on “continuous improvement of processes” • Some key elements are: • System throughput • System constraints • Statistically determined protective capacities at critical points

17. Applying TOC • Logical Processes • A general application to attack a variety of process problems within organizations • It is applied: • To identify what factors are limiting an organization from achieving its goals, • To developing a solution to the problem, • To get the individuals in the process to invent the requisite changes for themselves

18. The Process of Change • The traditional approach to a process change shows that local optimization does not work well for good of the overall system • A system can only operate as fast as it’s bottleneck

19. The Process of Change • Goldratt briefly outlined a process of change in 1990 • He characterized it as: • What to change • What to change to • How to cause the change

20. The Process of Change • Approached by the 5 following rules: • Define the system. • Define the goal of the system. • Define the necessary conditions. • Define the fundamental measurements. • Define the role of the constraint(s).

21. Implementing TOC • There are five steps involved in implementing TOC: • Identify • Exploit • Subordinate • Elevate • Repeat

22. Identify – find the neck in our hourglass $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Implementing TOC • Identify the system's constraints • Prioritize the processes so that just the constraints that really limit the system’s progress are identified

23. Implementing TOC • Decide how to exploit the system's constraints • Decide how to manage the constraint within the system • Then manage the resources to provide what is needed to match the output of the constrained resources • Never let them supply more output than is needed

24. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ • Decide how to exploit the system's constraints Expoit – remove any blockages from the neck Exploit – improve the value of the output

25. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Implementing TOC • Subordinate everything else to the system’s constraint • The constraints are keeping us from moving toward our goal • Apply all of the resources that we can to assist in breaking the constraint Subordinate – there is no point in forcing more in. It won’t come out any quicker

26. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Implementing TOC • Elevate the system's constraints • Continue to work toward breaking a constraint (also called elevating a constraint) • At some point the constraint will no longer be a constraint • The constraint will be broken Elevate:Make the hole bigger!!

27. Implementing TOC • If the constraint is broken, return to Step 1 • There will be another constraint, somewhere else in the system that is limiting progress to the goal

28. Implementing TOC Concluding: • The process must be reapplied, perhaps many times • TOC does not try to eliminate all problems, only those that threaten the constraint • Excessive effort in problem elimination is a waste

29. Implementing TOC • Advantages: • Improves capacity • Avoids build-up of inventory • Avoids local optimization • Improves communication between departments

30. Implementing TOC • Disadvantages: • Negative impact on non-constrained areas • Diverts attention from other areas that may be the next constraint • The constraint must be kept operating at its full capacity

31. Operational Measurements • TOC defines three operational measurements that measure whether operations are working toward that goal • Throughput • The rate at which the system generates money through sales

32. Operational Measurements • Inventory • All the money the system invests in things it intends to sell • This is the total system investment, which includes not only conventional inventory, but also buildings, land, vehicles, plant, and equipment

33. Operational Measurements • Operating Expenses • All the money the system spends in turning inventory into throughput • This includes all of the money constantly poured into a system to keep it operating, such as heat, light, scrap materials and depreciation

34. Current Research • It is currently being refined and expanded at the Avraham Y. Goldratt Institute (named after Dr. Goldratt's late father) • The Goldratt Institute publishes The Theory of Constraints Journal on an irregular, approximately quarterly, basis

35. Theory of Constraints Thank You Questions???