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December 13, 2012 Patrick Shannon Phil Fry

EMBA 512 Theory of Constraints. December 13, 2012 Patrick Shannon Phil Fry. Theory of Constraints. Popularized by Eliyahu Goldratt “The Goal” “Its Not Luck”. Today’s Outline. Processes and Process Terminology Theory of Constraints – Lessons to be Learned The Goal The “Hike”

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December 13, 2012 Patrick Shannon Phil Fry

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  1. EMBA 512Theory of Constraints December 13, 2012 Patrick Shannon Phil Fry EMBA 512

  2. Theory of Constraints • Popularized by Eliyahu Goldratt “The Goal” “Its Not Luck” EMBA 512

  3. Today’s Outline • Processes and Process Terminology • Theory of Constraints – Lessons to be Learned • The Goal • The “Hike” • Managing Under a TOC Philospohy EMBA 512

  4. Analyzing Process Flows A few years ago, the Wall Street Journal reported, “… although GM and Toyota are operating with the same number of inventory turns, Toyota’s throughput is twice that of GM’s.” The discrepancy, concluded the writer, “could be due to much faster flow times and lower inventories by virtue of Toyota’s production system.” EMBA 512

  5. Process Flow Analysis Nearly one billion wafers each year. That’s the number of communion wafers produced by a family-owned business in Rhode Island reports the New York Times (Bread of Life, Baked in Rhode Island, December 24, 2008). When producing wafers, the company turns out wafers at the rate of about 100 per second. After coming out of the oven, wafers spends approximately 15 minutes in a cooling tube that keeps them from becoming brittle. As a part of your process analysis of the baking process, you need to estimate the number of wafers in the cooling tube on average. EMBA 512

  6. Process Flow Analysis • Every process wants to transform inputs into outputs to satisfy customer needs. EMBA 512

  7. Process Flow Analysis What is a process? A process coverts inputs into outputs. What is a process flow chart? A symbolic representation of the processes and their relationships to each other. EMBA 512

  8. Process Flow Chart Example EMBA 512

  9. Purposes of Process Flow Analysis • Document the process • Evaluate process performance measures EMBA 512

  10. Process Flow Analysis What is a resource? Resources are those things needed to operate the process. EMBA 512

  11. Process Flow Analysis Process Capacity The maximum rate at which output can be withdrawn from a process. EMBA 512

  12. Process Flow Analysis Bottleneck—the resource in the system having the smallest capacity. System Capacity—the capacity of a system is the capacity of the bottleneck. EMBA 512

  13. Process Flow Analysis Cycle Time The average time between successive units leaving the process. It is the inverse of the capacity. EMBA 512

  14. Process Flow Measures • The study of process flows requires the answer to 3 questions: • 1. On average, how many flow units move through the process per unit of time? • 2. On average, how much time does a typical flow unit spend in the process? • 3. On average, how many flow units are in the process at any point in time? EMBA 512

  15. Process Flow Measures • Throughput Rate • An important measure of process-flow dynamics—the number of flow units that move through a specific point of the process per unit of time EMBA 512

  16. Throughput Rate TR: Demand vs. Capacity Constrained Capacity constrained Demand constrained Demand constrained Bottleneck Bottleneck Bottleneck Bottleneck (Capacity) (Capacity) (Capacity) (Capacity) Input Input Input Input Throughput Rate Throughput Rate Flow Rate Flow Rate Demand Demand Excess Excess Excess Excess capacity capacity capacity capacity Demand Demand Throughput Rate=Min{Demand, Capacity} EMBA 512

  17. Process Flow Measures Flow Time The total time spent by a flow unit in the system, where the system is the set of all processes viewed as a whole. EMBA 512

  18. Process Flow Measures • Inventory • The number of flow units present within the process at time t is the inventory at time t. EMBA 512

  19. Process Flow Measures • Relating Throughput Rate, Flow Time, & Inventory • The 3 performance measures are linked by a fundamental relation of process flows known as Little’s Law. It relates average throughput rate TR, average flow time FT, and average inventory I as I =TR*FT EMBA 512

  20. Process Flow Measures • Inventory Turns (Turnover Ratio) • Inventory turns, or turnover ratio, is defined as the ratio of throughput to average inventory Turns = TR/I Using Little’s Law the turnover ratio equals the inverse of average flow time. EMBA 512

  21. Process Flow Measures • Of the three related operational-performance measures- throughput rate, flow time, and inventory- a manager can select any two on which to focus, with the third being determined by Little’s Law. The manager has the responsibility of deciding which two measures to manage. • For a given level of throughput in any process, the only was to reduce flow time is to reduce inventory, and vice versa. EMBA 512

  22. Key-points From Process Analysis • Simplify a complex process using a PFD • Bottleneck analysis: analyze the process by looking at the bottleneck • Bottleneck may depend on the product mix • Time to complete X units starting with an empty systemTime to make X units= Time through empty system + - For continuous flow processes: “(X-1)=X”- If capacity constrained, flow rate is dictated by the bottleneck EMBA 512

  23. TOC Lessons ThroughSimulation Exercises EMBA 512

  24. Situation # 1: The FactoryBasic Layout 1 2 3 4 5 6 FGI 5 4 5 4 2 5 • Product is processed at each of the 6 work stations. Product moves sequentially from station 1 (far left) to station 6 (far right). • Once product has been processed at station 6 , it is completed and ready to go into finished goods inventory • Production output of each work station indicated by number in box. • Process starts in the Empty State EMBA 512

  25. Situation 1: Data Collection

  26. Situation # 1: The FactoryBasic Layout Lesson(s) Learned? EMBA 512

  27. Situation 2: The FactoryAdd Capacity 1 2 3 4 5 6 FGI 5 5 5 4 2 5 • Scenario is as before with capacity added to work station Two. The capacity of work station two has been increased by 1 unit from 4 units to 5 units. • Simulate production. • Explain results. EMBA 512

  28. Situation 2: Data Collection

  29. Situation 3: The FactoryAdd Resources to Station 5 1 2 3 4 5 6 FGI 5 5 5 4 ? 5 • We need to add capacity to work station 5 – the bottleneck. What do you recommend? • Simulate production. • Explain the results. EMBA 512

  30. Situation 3: Data Collection

  31. Situation # 3: The FactoryResources Added to Bottleneck Lesson(s) Learned? EMBA 512

  32. Situation 4: The FactoryAdd Complexity 1 2 3 4 5 6 FGI 5 5 5 4 4 5 Component supplier 2 • Scenario is as before. However, in this scenario there are two suppliers to work station 5. • Work Station 5 needs 4 units from Station 4 and 4 units from the component supplier. • Supplier can only produce 2 • Simulate production. • Explain results. EMBA 512

  33. Situation 4: Data Collection

  34. Situation # 4: The FactoryComponent Supplier to the Bottleneck Lesson(s) Learned? EMBA 512

  35. Situation 5: The FactoryAdd Customer Demand 1 2 3 4 5 6 FGI 5 5 5 4 4 5 4 1 • Scenario is as before with complexity. • Component Supplier Output increased to match WC 5 • Add Customer Demand • Demand is 1 unit per day • Simulate production and demand. • Explain results. EMBA 512

  36. Situation 5: Data Collection

  37. Situation # 5: The FactoryAdd Customer Demand Lesson(s) Learned? EMBA 512

  38. Situation 6: The FactoryIncreased Customer Demand 1 2 3 4 5 6 FGI 5 5 5 4 4 5 4 4 • Scenario is as before with complexity and customer demand. However, in this scenario the customer’s demand has increased to 4 per day • Simulate production and increased demand. • Explain results. EMBA 512

  39. Situation 6: Data Collection

  40. Situation # 6: The FactoryIncreased Customer Demand Lesson(s) Learned? EMBA 512

  41. Dealing With Variability • Controllable Variation – results from decisions • Random variation – outside our control. EMBA 512

  42. Causes of Variability • Natural Variability • Random Outages • Preemptive (No control) • Non-preemptive (Have Some control) • Setups • Operator Availability • Re-work EMBA 512

  43. Situation 7: The FactoryAdd Variability 1 2 3 4 5 6 FGI 1-6 1-6 1-6 1-6 1-6 1-6 • Return to the simple process we had initially. However, unlike, our initial scenario, each work station exhibits variability in its output. • The process begins with 4 units in WIP at each station (Unlimited going into station 1 • A work station’s output is uniformly distributed between 1 & 6. Average output is 3.5 • Customer demand rotates between 3 and 4 (Average is 3.5) • Simulate process and explain results. • Explain results. 3 or 4 EMBA 512

  44. Situation 7: Data Collection

  45. Situation # 7: The FactoryVariability Balanced Capacity or Balanced Flow? Lesson(s) Learned? EMBA 512

  46. Situation # 8: The FactoryBasic Layout – Reduced Variability 1 2 3 4 5 6 FGI 3 or 4 3 or 4 3 or 4 3 or 4 3 or 4 3 or 4 • All work stations produce 3 or 4 with equal probability. Output is independent between work stations • Average output is 3.5 units at each work station • Demand varies between 3 and 4 with equal probability • Beginning WIP is 4 at each work station 3 or 4 EMBA 512

  47. Situation 8: Data Collection

  48. Situation # 8: The FactoryBalanced Flow - Reduced Variability Lesson(s) Learned? EMBA 512

  49. Paying the Price for Variability • Lost throughput • Wasted Capacity • High Cycle times • High Inventory EMBA 512

  50. Lessons from “The Goal” EMBA 512

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