Chapter 15

1. Chapter 15 Constraint Management: Simplifying Complex Systems

2. Learning Objectives • Define a constraint. • Compare utilization and activation from a constraint management perspective. • Describe the global measures of throughput, inventory, and operating expense, and compare them to traditional global measures. • Explain the five-step focusing process of constraint management. • Explain how systems can be protected from disruptions by using time buffers. • Describe how time buffers function and how they affect the exploitation of a constraint. • Explain what is meant by a constraint buffer, a shipping buffer, and an assembly buffer. • Differentiate between a production batch and a transfer batch. • Compute the appropriate product mix for a constrained production system. • Compare the kanban system to the buffering system used in constraint management.

3. Introduction: Maximizing System Output • The early development of constraint management (CM) can be credited to one individual, Eliahu Goldratt. • The 1984 book The Goal brought Constraint Management, or as it is sometimes known “The Theory of Constraints” to the forefront. • Numerous extensions, applications, and associated techniques have been developed since.

4. Defining a Constraint • A constraint is anything that inhibits a system’s progress toward its goals. • It could be a resource (labor, machine capacity, warehouse space, etc.) • It could be a policy (no deliveries on Sunday, no more than 6 hours of overtime per employee, etc.) • It could be inputs (raw material availability, electricity availability, etc.) • It could be an external force (demand) Constraint Management: A framework for managing the constraints of a system in a way that maximizes the system’s accomplishment of its goals.

5. Defining a Constraint • Work center 3 is a constraint. • The system cannot produce at a rate faster than 9 minutes per unit. • If all the other work centers slowed down to match work center 3, the system would not get any slower Exhibit 15.1 Simple Productive System with Constraint

6. Defining a Constraint • Utilization (constraint management definition) • The time a resource is used and contributing to throughput divided by the time the resource was available. • Activation (constraint management definition) • Running a machine or resource when it doesn’t contribute to throughput. Exhibit 15.2 Constraint’s Determination of Work Center Utilization

7. Defining a Constraint • Work center 3 determines the utilization rates of all the other work centers. • Increasing utilization rates for any of the other work centers will not increase system performance. It would only cause inventory to build up. • Speeding up work center 3 from 9 minutes to 8 minutes would increase output. Making work center 3 go any faster than 8 minutes would not help, because work center 3 would no longer be the constraint. Work centers 3 and 4 would be the constraints. Exhibit 15.2 Constraint’s Determination of Work Center Utilization

8. Global Performance Measures • Constraint management uses a unique set of global performance measures. • Throughput • CM definition: Dollars generated by sales • Traditional definition: The rate at which products are produced, regardless of whether or not they are sold • Inventory • CM definition: Money invested in things the system intends to sell. Includes equipment and facilities. • Traditional definition: Does not include equipment and facilities • Operating Expenses • CM definition: Money the system spends turning inventory into throughput

9. Global Performance Measures • The global measures of constraint management can be equated to traditional business performance measures: Exhibit 15.3 Constraint Management Global Measures and Traditional Measures

10. The Constraint Management Focusing Process • The five-step focusing process is: Step 1: Identify the constraint Step 2: Exploit the constraint Step 3: Subordinate all other decisions to step 2 and step 3 Step 4: Elevate the constraint Step 5: If, in steps 2 through 4, the constraint is eliminated, go back to step 1

11. The Constraint Management Focusing Process: Step 1. Identification Identify Exploit Subordinate Elevate Repeat • Some constraints are obvious. • In more complex environments, may need an analysis. • Compare demand for a resource with available capacity. • Any resource that does not have sufficient capacity to meet demand would be considered a constraint • Nonresource constraints can be more difficult to identify.

12. The Constraint Management Focusing Process: Step 2. Exploitation Identify Exploit Subordinate Elevate Repeat • The exploitation of a constraint means it should be used to its fullest extent. • Prevent it from ever being idle • Make sure it never runs out of materials to process • Don’t waste capacity of the constraint on products that already have quality problems • Policy constraints differ- a constraining policy must be eliminated or modified.

13. The Constraint Management Focusing Process: Step 3. Subordination Identify Exploit Subordinate Elevate Repeat • The subordination step means that any system change should be analyzed to make sure it doesn’t inhibit the exploitation done in Step 2. • All decisions should be checked to make sure they do not conflict with efforts to exploit

14. The Constraint Management Focusing Process: Step 4. Elevation Identify Exploit Subordinate Elevate Repeat • If exploitation does not remove the constraint, the constraint must be elevated by actually increasing the capacity of the resource. • Buy additional capacity • If cash is the constraint, take out a loan • If inputs are a constraint, get a new supplier

15. The Constraint Management Focusing Process: Step 5. Repeat Identify Exploit Subordinate Elevate Repeat • Check if the resource is still the constraint. If it is no longer a constraint, stop exploiting and elevating it, go back to Step 1 and identify the new constraint

16. The Role of Disruptions in Productive Systems: Protecting the System • Nonconstraints, because they have excess capacity, can experience a level of disruption without reducing system output. • Constraints have no excess capacity, and so they must be protected from disruptions. • In constraint management, this is done by decoupling the constrained resource: reducing the direct dependency of a process step on its predecessor using inventory

17. The Role of Disruptions in Productive Systems • Random fluctuation is present in many processes. • Variability can cause disruptions because of statistical fluctuation among dependent events • When processes depend on each other, variability in processing times accumulates Exhibit 15.4 Simple System with Processing Variability

18. The Role of Disruptions in Productive Systems: Buffering to Protect Constraints • Disruptions to a system can generally be measured by their duration. So protection must also be measured in time. • Time buffer • A buffer of inventory that will keep a resource busy for a specified amount of time. • How much protection is needed? • The size of the buffer (the amount of time it protects) should be proportional to the size of potential disruptions

19. The Role of Disruptions in Productive Systems: Buffering to Protect Constraints • If work center 1 broke down for eight hours, it would create an eight hour disruption at work center 3 (the constraint). WC3 would be idle for 8 hours. • We would need an eight hour buffer of inventory in front of the constraint for protection • 8 hours = 480 minutes. 480/9 (nine minutes to process a unit) = 53.3, or 54. So inventory of 54 units would protect for eight hours. Exhibit 15.6 Inventory Flow In and Out of a Time Buffer

20. The Role of Disruptions in Productive Systems: Buffering to Protect Constraints • If we have specific orders with due dates, buffers make it necessary to start orders earlier. • If an order of 27 units were due on day 14, it would be started on day 11 without a buffer: It takes half a working day (4 hours) for each work center to process the order, for a total of 3 days. • With a buffer, the order must wait in queue for 8 hours. So it would be started on day 10 instead Exhibit 15.7 Order Processing in System with Time Buffer

21. The Role of Disruptions in Productive Systems: Buffering to Protect Constraints • Time buffers placed immediately prior to a constraint are called constraint buffers. • If there are never disruptions, constraint buffers would always be full. That would mean that they really aren’t needed. • If sized appropriately, a time buffer should be, on average, two-thirds full. Large enough to cover serious disruptions but not so large that most of it is never used • An assembly buffer is a time buffer placed immediately prior to an assembly for nonconstrained components. It ensures that the parts needed to be assembled with a part that has gone through the constraint are ready so that the part that has gone through the constraint is not delayed.

22. The Role of Disruptions in Productive Systems: Buffering to Protect Constraints Protects from disruptions here Protects from disruptions here • The constraint buffer protects orders from being late because of disruptions prior to work center 3. • Another buffer at the end of the line, the shipping buffer, will protect against disruptions after the constraint. Exhibit 15.8 System with Shipping Buffer Added

23. Constraint Management and Batch Sizes • Production batch: The quantity produced at a workcenter before changing over to produce something else. • Larger production batches increase utilization • This is a form of exploitation. Constraints should use larger production batches • For nonconstraints, smaller production batches are more desirable (to lower inventory, improve quality...) All nonconstraint idle time should be used for changeovers, under the best scenario • Transfer batch: The quantity produced at a workcenter before transferring the products to the next step in the process. • Transfer batches should always be as small as possible

24. The Role of the Constraint: A Product Mix Example • A manufacturer makes two products, P and Q: Exhibit 15.9 Production System

25. The Role of the Constraint: A Product Mix Example • There are four work centers (A,B,C, &D). • Each work center must accomplish two tasks. • There are no changeovers required when switching tasks. Exhibit 15.9 Production System

26. The Role of the Constraint: A Product Mix Example • We have the following production system data: Exhibit 15.10 Production System Data

27. The Role of the Constraint: A Product Mix Example Identify Exploit Subordinate Elevate Repeat • What combination of Ps and Qs should be produced to maximize profit? • Step 1. Identify the constraint. • Compute demand requirements on each resource and compare them to availability Exhibit 15.11 Identification of Constraint

28. The Role of the Constraint: A Product Mix Example Identify Exploit Subordinate Repeat Which is best? • Work center B is the constraint: We need 3,000 minutes to meet demand and we only have 2,400. • Step 2. Exploit the constraint • The goal of this system is to maximize profit • What is the best use of the constrained resource: Making Ps or making Qs? Elevate Exhibit 15.12 Calculation of Dollar Return per Constraint Minute Making Ps is a better use of the constrained resource

29. The Role of the Constraint: A Product Mix Example • The solution is to keep making Ps until demand for them is met. Whatever amount of time is left over on the constrained work center can then be used to make Qs. • Produce 100 Ps at 15 minutes each = 1,500 minutes on the constraint • 2,400 – 1,500 = 900 minutes remaining for Q • 900 minutes, at 30 minutes to make one Q = 30 Qs Exhibit 15.13 Profit Calculation

30. The Role of the Constraint: A Product Mix Example • A product mix of 100P and 30Q yields a profit of $300 Exhibit 15.13 Profit Calculation

31. The Role of the Constraint: A Product Mix Example • Basing our decision strictly on contribution margin would have resulted in producing all of the Qs and then using the remaining capacity to make P. • A solution based on contribution margins would actually have resulted in a loss of $300 • Commissions based on selling price would similarly lead to selling more Qs than Ps, which is the wrong thing to do

32. Lean Systems and Constraint Management • Lean systems and constraint management frameworks do not necessarily conflict. • CM buffering is similar to the kanban system • Kanban provides small buffers between work centers, however, while CM buffers only at critical points • Lean systems provide a larger buffer at the finished-goods point, CM has a shipping buffer • A key difference is that lean systems focus on elimination of waste, while constraint management focuses on maximizing throughput.