MGMT 339 Ch. 7 - Theory of Constraints

Constraint

Any factor that limits the performance of a system and restricts its output.

Bottleneck (Capacity Constrained Resource).

A resource whose available capacity limits the organization's ability to meet product volume, product mix, or demand fluctuation requirements.

What is the primary goal of the Theory of Constraints (TOC)?

A systematic management approach focused on managing constraints to maximize profits and effectively utilize resources.

What is the core principle regarding flow versus capacity in TOC?

The focus should be on balancing flow, not on balancing capacity.

Why is maximizing the efficiency of every resource not always ideal?

Maximizing the output of every resource may not maximize the throughput of the entire system.

What is the significance of an hour lost at a bottleneck?

An hour lost at a bottleneck is an hour lost for the entire system.

Why is saving an hour at a non-bottleneck resource considered a 'mirage'?

Because it does not make the whole system more productive.

Where should inventory be maintained according to TOC?

Inventory should be kept in front of bottlenecks to prevent idle time and in front of assembly/shipping points to protect customer schedules.

How should work be released into a system based on TOC?

Work should be released only as frequently as needed by the bottlenecks, matching bottleneck flows to market demand.

How should capital investments be evaluated in TOC?

Every investment must be viewed from the perspective of its global impact on overall throughput, inventory, and operating expense.

List the five steps of the Theory of Constraints.

1. Identify the system bottleneck(s)

2. Exploit the bottleneck(s)

3. Subordinate all other decisions to step 2

4. Elevate the bottleneck(s)

5. Do not let inertia set in.

What is throughput time?

The total elapsed time from the start to the finish of a job or a customer being processed at one or more work centers.

How do you identify a bottleneck in a process flow?

The bottleneck is the step in the process that takes the longest time to complete, thereby limiting the total capacity.

If a bottleneck takes 15 minutes to process one customer, what is the capacity in customers per hour?

60 minutes / 15 minutes = 4 customers per hour

Where do waiting lines typically form in a process?

In front of bottlenecks or steps where the preceding activities have a higher output rate than the current step.

What factors affect the size of lots traveling through manufacturing batch processes?

Setup times and their associated costs.

How is a bottleneck identified in a manufacturing process with multiple products?

By computing the aggregate workload at each workstation and comparing it to the available production time.

What is the formula for calculating the workload at a workstation?

(Product 1 Station Processing Time * # Units Demanded per Week) + (Product 2 Station Processing Time * # Units Demanded per Week) + …. + (Product # Station Processing Time * # Units Demanded per Week)

What happens if a non-bottleneck resource is activated beyond the needs of the bottleneck?

It does not increase throughput or improve system performance; it merely creates excess inventory.

What does 'subordinating' other decisions mean in TOC?

It means aligning all other non-bottleneck resources to support the schedule and requirements of the bottleneck.

What does 'elevating' the bottleneck mean?

Increasing the capacity of the bottleneck resource to improve the overall system output.

Why is 'Do not let inertia set in' the final step of TOC?

Because once a bottleneck is improved, the constraint may shift to another part of the system, requiring a continuous process of identification and management.

How does market demand relate to bottleneck management?

Bottleneck flows should be synchronized with market demand to avoid overproduction or missed sales.

Is it possible for a system to have multiple bottlenecks?

Yes, a system can have one or more bottlenecks depending on the process flow and resource availability.

What is the definition of a bottleneck in a production process?

A workstation where the aggregate workload exceeds the maximum available capacity.

How is contribution margin defined in the context of product mix decisions?

The amount each product contributes to profits and overhead, excluding fixed costs.

What is the traditional method for selecting a product mix?

Accepting as much of the highest contribution margin product as possible until capacity is exhausted, then moving to the next highest.

What is the primary goal of the bottleneck-based method for product mix decisions?

To maximize the dollar contribution margin per minute of processing time at the bottleneck workstation.

Why is the bottleneck method often more profitable than the traditional method?

It prioritizes products that generate the most value per unit of time at the constrained resource, rather than just per unit of product.

What is the definition of line balancing?

The assignment of work to stations in a line to achieve a desired output rate with the smallest number of workstations.

What are 'work elements' in the context of line balancing?

The smallest units of work that can be performed independently.

What are 'immediate predecessors' in a production process?

Work elements that must be completed before a specific subsequent element can begin.

What is the purpose of a precedence diagram?

To visualize the sequence of work elements and their immediate predecessors.

How is cycle time defined in line balancing?

The maximum time allowed for work on a unit at each workstation.

What is the first step in assigning tasks to workstations when balancing a line?

Identify eligible tasks (those with no remaining predecessors) and select the one with the greatest number of following tasks.

If two tasks have the same number of following tasks during line balancing, how is the tie broken?

By choosing the task with the greatest positional weight (total time of all following tasks plus the task's own time).

What is the rule for starting a new workstation in line balancing?

Start each workstation with the established cycle time.

When should a workstation be closed during the line balancing process?

When the next task in the sequence will not fit within the remaining time of the current workstation.

Positional Weight Formula

Positional Weight = Task's own time + total time of all following tasks.

In the Dominic Electronics example, how did the bottleneck method affect profits?

It increased weekly profits by $930, representing an almost 60 percent improvement over the traditional method.

In the bottleneck method, why might a product with a lower unit contribution margin be prioritized?

Because it may consume significantly less time at the bottleneck, resulting in a higher contribution margin per minute.

True or False: Fixed costs are considered when making product mix decisions using the contribution margin approach.

False. Only the contribution margin is considered; fixed costs are ignored.

What is the final step in the line balancing assignment process?

Calculate or add the idle time for each workstation.

What does the 'theoretical number of workstations' represent?

The minimum number of stations required to achieve the desired output rate based on total work time and cycle time.

Why is it important to identify the bottleneck resource?

Because the bottleneck limits the total output and profitability of the entire system.

What happens to the remaining time at a workstation when a task is assigned?

The task time is subtracted from the cycle time or the remaining workstation time.

Line Process Cycle Time

The maximum time allowed for work on a unit at each station.

How is cycle time calculated based on output rate?

Cycle time (c) = 1 / desired output rate (r) in units per hour.

What is the 'theoretical minimum' (TM) in line balancing?

A benchmark for the smallest number of workstations possible, calculated as the total time required to assemble each unit divided by the cycle time.

How is idle time defined in an assembly line?

The total unproductive time for all stations in the assembly of each unit, calculated as (number of stations * cycle time) - total time required to assemble each unit.

Efficiency Formula

Efficiency = (Total productive time / Total time) expressed as a percentage.

How is balance delay calculated?

Balance delay (%) = 100 - Efficiency.

What is the primary goal when clustering work elements into workstations?

To minimize the number of workstations required while ensuring precedence and cycle-time requirements are not violated.

What are the two criteria for a work element to be a candidate for assignment to a workstation?

All of its predecessors must have been assigned, and adding the element must not cause the workstation's workload to exceed the cycle time.

What is 'pacing' in a production line?

The movement of product from one station to the next as soon as the cycle time has elapsed.

What are some common behavioral factors that can increase after installing production lines?

Absenteeism, turnover, and grievances.

What factors can complicate scheduling on a production line?

The number of different models produced on the same line.

What is a bottleneck in a process flowchart?

The step with the lowest capacity that limits the total output of the entire system.

How do you convert 'minutes per customer' at a process step into 'customers per hour'?

Divide 60 minutes by the time taken per customer at that step.

If a process step has parallel resources (e.g., two clerks), how is the step's capacity determined?

By summing the individual capacities of each resource working in parallel.

Why is actual throughput time often longer than the sum of individual processing times?

Due to nonuniform arrival of applications, variations in actual processing times, and other related operational factors.

How can management increase the flow of a process constrained by a bottleneck?

By increasing the capacity of the bottleneck step until another step becomes the new bottleneck.

What is the relationship between desired output rate and staffing/production plans?

Ideally, the desired output rate should be matched to the staffing or production plan.

If a solution requires five stations and the theoretical minimum is five, what does this indicate?

That the solution is optimal.

What is the consequence of having a high balance delay?

It indicates that the line is inefficient, with a significant amount of idle time across workstations.

What is the first step in calculating the cycle time for a new production line?

Convert the desired weekly output rate to an hourly rate by dividing by the number of operating hours per week.

What happens if a workstation's workload exceeds the cycle time?

The line will not be able to meet the desired output rate, causing a bottleneck at that station.

How does the number of models produced affect line management?

It necessitates good communication and complicates the scheduling process.

What does a precedence diagram illustrate?

The sequence and dependencies of work elements required to assemble a unit.

Can a theoretical minimum number of stations always be achieved?

No, it is a benchmark that may not be achievable due to precedence constraints and indivisible work elements.

Cycle Time and Desired Output Rate Relationship

They are inversely related; as the desired output rate increases, the cycle time must decrease.