Supply Chain Ch15: Theory of Constraints

Theory of Constraints

a systematic management approach that focuses on actively managing those constraints that impede a firm's progress toward its goal

Synchronous manufacturing

A production process coordinated to work in harmony to achieve the goals of the firm.

Bottleneck

a machine or some other part of a process that limits the total output of the entire system

Capacity-constrained resource (CCR)

A resource that is not a constraint but will become a constraint unless scheduled carefully. Any resource that, if its capacity is not carefully managed, is likely to compromise the throughput of the organization.

Non-Bottleneck

any resource whose capacity is greater than the demand placed on it

Goldratt's Theory of Constraints (TOC)

1) Identify the system bottleneck

2) Decide how to exploit the system bottleneck

3) Subordinate everything else to improve the bottleneck

4) Elevate the system bottleneck until it is no longer a constraint

5) Go back to step 1, when the bottleneck has been eliminated

Addressing Bottlenecks

1) keep the bottleneck busy (don't let the machine wait)

2) Buy another machine (more production capacity)

3) Use a better processing tool (improves production efficiency)

4) Utilize higher-quality labor (pay for efficiency and throughput)

5) Use larger constraint batch sizes (reduce setup time)

Three measurements of financial performance

Net profit to stay in business, Cash to pay expenses, and return on investment to prove the company is making the right decisions.

Throughput

The amount of work performed by a system during a given period of time (money made)

Inventory

Money invested in materials, only considers raw materials, not the cost of production.

Operating Expenses

Money needed to operate the system (direct labor, indirect labor, inventory carrying costs, etc.)

Goldratt's Rule of Production Scheduling

1) Do not balance capacity; balance the entire production flow

2) The level of utilization of any non-bottleneck resource is not determined by its own potential but by the single bottleneck in the system

3) Time lost at a bottleneck is time lost for the entire system

4) Bottlenecks govern both throughput and inventory in the system

5) Process Batch Sizes should be variable both along their route and in time.

Drum-Buffer-Rope

a concept in the theory of constraints where the drum sets the pace of production, a buffer is placed in front of the bottleneck, and the rope communicates changes

Why was Herbie the problem, and what changed to make him the solution?

Herbie had a lot of weight in his backpack, which made him lag behind the others. Instead, the troop divided up his backpack items, and Herbie set the pace for the group and became the solution, leading everyone at a steady pace.