Theory of Constraints Part II: TOC Concepts

1. Theory of ConstraintsPart II: TOC Concepts

2. Drum – Buffer – Rope (DBR) • DBR is the TOC concept of production scheduling. • Drum: • Comes from a story in Eli Goldratt’s book “The goal”. • Q: In a production facility, who sets the pace of the output? • Ans.: The weakest link!

3. Drum – Buffer – Rope (DBR) • In a group of scouts on a journey, the slowest boy is referred to as the Drum. • Dictates the pace for the entire group.

4. Drum – Buffer – Rope (DBR) • On the shop floor, bottleneck sets the pace. • What if there are no bottlenecks on the shop floor? • Ans.: Market demand is the drum! • Once the drum is identified, the maximum pace can be determined.

5. Drum – Buffer – Rope (DBR) Concepts • If the drum is a physical constrained resource, overall planning depends on the capabilities of the resource. • That is, planning around the drum/bottleneck. • Difference with MRP: • MPS (Master Production Schedule) is created first! • In TOC, MPS is the result of bottleneck planning. • If drum is the market, MPS is generated from demand without considering capacity vs. load!

6. Drum – Buffer – Rope (DBR) • Buffer: represents a protection for the drum. • Ensures the drum never runs out of work. • Can contain raw material to feed the drum. • Can also contain ‘time’. • Means providing enough time for the drum to finish its tasks. • All resources that prepare input must be given enough time (including waiting and moving time) to overcome any delays.

7. Drum – Buffer – Rope (DBR) • Difference between Buffer and Lead Time: • Lead time* here applies to a single production step. • Time Buffer covers area between Raw Materials to the Drum. • If no bottleneck exists, it spans between Raw Materials and Shipping. Lead Time*- The total amount of time between the recognition of a required task, operation or process and its completion. Elements of lead time can include order entry, material accumulation, machine setup, queue, processing, move and other activities.

8. Drum – Buffer – Rope (DBR) • Rope: • Implements the buffer. • A procedure to release materials only when the schedule dictates to do so. • Prevents early release of material before it is due. • Prevents accumulation of WIP. Materials

9. DBR Summary • Once found, the constraint becomes the DRUM. • Constraint should always be protected by a BUFFER. • ROPES link constraint to control points for release of raw materials into the factory.

10. DBR Summary • Give upstream (non-constraint) operations extra protective capacity to allow for surge capacity to feed the buffer in front of the constraint. • Execute downstream operations asap to avoid any delays in the output of the constraint. • In theory, flow of constrained parts should never stop until they reach the customer.

11. Analysis • If decisions are made such that the organization can: • Increase overall Throughput • Decrease overall Inventory • Decrease overall Operating Expense then, Decisions will be good for the business in general.

12. Throughput Analysis Decision Making • Key elements: • System Throughput • System Constraints Cost Based Continuous Improvement of Processes

13. Are the Organization’s Operations Moving Towards the Goal? • Three operational measurements: • Throughput (TP) • The rate at which the system makes money through sales; • TP = Selling Price – Cost of Raw Materials • Excludes labor  operating expense.

14. Are the Organization’s Operations Moving Towards the Goal? • Three operational measurements: • Inventory • The money the system spends on things it intends to sell. • Includes: • Conventional inventory. • Land. • Vehicles, plant, equipment. • Excludes: • WIP Labor added.

15. Are the Organization’s Operations Moving Towards the Goal? • Three operational measurements: • Operating Expense† • Moneys spent by the system turning Inventory into throughput. • Includes moneys poured into a system to keep it operational. • Heat, power, scrap materials, depreciation. † Those expenses in to the normal operation of the business, excluding interest expense and one-time charges. The actual expense a company incurs while maintaining a business. Also referred to as Overhead.

16. How to Compute Results for the Organization? • Net Profit (NP) NP = Throughput – Operating Expense • Return on Investment (ROI) ROI= (Throughput – Operating Expense) Inventory • Productivity (P) P = Throughput / Operating Expense • Turnover (T) T = Throughput / Inventory

17. Example

18. TOC Relationship between JIT TQM

19. TOC - TQM - JIT • All created in the 80’s and 90’s. • All claim to be the solution to existing management problems. • At the end, they are different facets to the same philosophy!

20. TOC - TQM - JIT • TQM • Uses the concept of System • System Thinking • Process Measurement • Never ending Process Improvement.

21. TOC - TQM - JIT • TOC • Is a focused methodology to perform SYSTEMS THINKING on the business entity as a whole. • Focuses on making changes to constraints that limit System profitability

22. TOC - TQM - JIT • JIT • Emphasizes reduction of inventory and resource scheduling. • Really an application of TOC to one aspect of the business.

23. TOC - TQM - JIT How does TOC fit with TQM? • TQM • involves techniques for improvement. • TOC • Helps focus and follow through. • TOC helps focus quality improvement efforts on the right place to improve.

24. TOC - TQM – JIT Relationship TQM TOC JIT MRP

25. Theory of Constraints:TOC ConceptsEnd of Part II

26. Adapted from: • Schragenheim, Eli “The Theory of Constraints”, Lionheart Publishing, 1998. • http://www.managementsupport.com/leantools.htm • THE THEORY OF CONSTRAINTS: Making Process Decisions Under Conditions of Limited Resources, Capacities, or Demand - http://www.sytsma.com