Study Notes for Operations Management: Constraint Management

Operations Management: Processes and Supply Chains - Chapter 7: Constraint Management

Learning Goals

• 7.1 Explain the theory of constraints.

• 7.2 Identify and manage bottlenecks in service processes.

• 7.3 Identify and manage bottlenecks in manufacturing processes.

• 7.4 Apply the theory of constraints to product mix decisions.

• 7.5 Describe how to manage constraints in line processes and balance assembly lines.

Definitions

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

• Bottleneck: A capacity constraint resource (CCR) whose available capacity limits the organization’s ability to meet the product volume, product mix, or demand fluctuation required by the marketplace.

The Theory of Constraints (TOC)

General Overview

• The Theory of Constraints (TOC) is a systematic management approach focused on actively managing constraints that impede a firm’s progress toward maximizing profits and effectively using its resources.

Operational Measures and Their Financial Relationships

Key Principles of the TOC

Principles Overview

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

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

3. An hour lost at a bottleneck or constrained resource is lost for the entire system; an hour saved at a non-bottleneck resource is irrelevant.

4. Inventory is necessary only in front of bottlenecks and for assembly/shipping points to protect customer schedules.

5. Work should be released into the system aligned to bottleneck operations.

6. Activating a non-bottleneck resource does not equate to utilizing a bottleneck resource.

7. All capital investments must be evaluated based on their global impact on throughput, inventory, and operating expense.

Steps in TOC Application

1. Identify the system bottleneck(s).

2. Exploit bottleneck(s).

3. Subordinate all other decisions to step 2.

4. Elevate the bottleneck(s).

5. Do not let inertia set in.

Managing Bottlenecks in Service Processes

• Throughput Time: The total elapsed time from the initiation to completion of a job or the customer's processing across work centers.

Example 1: Keith’s Car Wash

1. Process Flow: Different process steps for Standard and Deluxe washes through various stages (A1, A2, A3/A5, A4/A6, and drying station A8) with respective processing times.

2. Bottlenecks:

   • Standard Wash: Bottleneck at Step A4.

   • Deluxe Wash: Bottleneck at Step A6.

3. Capacities:

   • Standard washes: 4 customers/hour (Step A4 takes 15 minutes per customer).

   • Deluxe washes: 3 customers/hour (calculated similarly).

4. Average Capacity: Percentage of customer types influences overall capacity; 60% Standard and 40% Deluxe impacts waiting times at process steps.

Managing Bottlenecks in Manufacturing Processes

Identifying Bottlenecks

• Factors such as setup times and costs influence workflow and lot sizes in job or batch processes.

Example 2: Diablo Electronics

1. Products and Process: Four products (A, B, C, D) made using five workstations (V, W, X, Y, Z) in a small batch process.

2. Workstation Utilization: Aggregate workload at each workstation is calculated from processing times and unit demands to identify bottlenecks.

3. Total Load Calculation:

   • Each workstation’s total load = sum of workloads from products processed.

   • Maximum load capacity per workstation is 2,400 minutes per week.

4. Identified Bottleneck: Workstation X has the highest workload exceeding capacity, making it the bottleneck for all operations.

Capacity Analysis

Example Scenario: Sandwich Production

1. Production Setup: Two identical sandwich lines, processing time of each step identified; bottlenecks at the toaster.

2. Bottleneck Calculation: Overall throughput impacted by each station's capacity leading to an optimal throughput time.

3. Final Capacity Calculation:

   • Capacity per hour: $rac{3600 ext{ seconds}}{37.5 ext{ seconds/sandwich}} = 96 ext{ sandwiches/hour}$.

   • Total throughput time for multiple operations calculated to be 142.5 seconds.

Drum-Buffer-Rope Systems

Concept Overview

• Drum: Represents the bottleneck schedule that regulates production rates linked to market demand.

• Buffer: Time buffer protecting the bottleneck from disruptions by planning early flows.

• Rope: Material release is tied to the production rate of the drum, ensuring synchronization of production flow.

• Buffer Management: Constantly monitors incoming bottleneck work to ensure stability and efficiency.

Applying TOC to Product Mix Decisions

• Contribution Margin: The profit contribution by each product considered without fixed costs impacting the product mix decision.

Example 3: Product Mix Calculation at Diablo Electronics

1. Traditional Decision Method: Establishing a product mix based on contribution margin without considering bottleneck constraints.

   • Initial calculation per product reveals the sequence of profitability (B > A > C > D).

   • Overall product mix computed with a weekly profit of $1,560.

2. Bottleneck Method:

   • Products are prioritized based on their contribution margin per minute of processing time at the bottleneck (workstation X).

   • Identifying the sequence as D > C > A > B.

   • Reevaluation of resource allocation at workstations proceeds until bottlenecks are encountered, leading to revised product mix and increased profit.

3. Profitability Improvements:

   • Final profit for rearranged product mix calculated as $2,490 per week, a $930 increase (or nearly 60%) versus the traditional method.

Conclusion

• The Theory of Constraints serves as a valuable framework for managing processes by emphasizing bottleneck identification and management to optimize throughput and profitability.