THEORY OF CONSTRAINTS
Nikhil Acharya
Chinweike Eseonu
Ganapathy Natarajan
Chaitanya Polumetla
AGENDA
TOC Introduction
Statistical Fluctuations and Dependent
Events
TOC Measurements
TOC VS Push, Pull and ConWIP
TOC in Project Management
INTRODUCTION
TOC – Business Philosophy
TOC is the invention of Dr Eliyahu
Goldratt, an Israeli Physicist,
Educator, and Management specialist.
Problem Solving and
Management/Decision-Making Tools
called the Thinking Processes (TP).
Introduction to “THE GOAL”
“The Goal” – 1992
Synchronous Manufacturing (techniques)
Alex Rogo- Plant Manager (UniCo plants )
Jim Peach – Division Head
The Scout Troop Analogy
Application Of Jonahs measurements
Turn around of the plant
SYSTEM-ATIC APPROACH
• Default Thought: Break Problems into fragments to solve it
•Makes complex tasks manageable.
•We don’t see the consequences of actions
• Loose intrinsic sense of connection of the larger picture
Where do you put yourself?
Beginning MIDDLE NEAR-THE-END End
HOW TO START?
TOC is applied to logically and systematically answer these
3 questions essential to any process of ongoing improvement
"What to change?"
“What to change to?"
"How to cause the change?"
DETAIL AND DYNAMIC COMPLEXITY
Detail complexity – The sort where
there are very many different variables
to consider.
Dynamic complexity – The sort where
cause and effect are subtle and the
effect over time is not obvious.
DETAIL COMPLEXITY
17 different ways to grind a drill
shank ?
When someone tells you there are
3000 stock items, again they are
telling you about ??!
DYNAMIC COMPLEXITY
When an action has different effects over the
short run and the long run
Consequences locally - different from
consequences in another part of the system
The real leverage in most management
situations lies in understanding dynamic
complexity, not detail complexity.” (Cause
and effect dependency and variation)
Dynamic and Detail complexity with the
Global Objective VS Local objective
Detail Dynamic
Complexity Complexity
Local REDUCTIONIST
Optimization
Global SYSTEMIC
Optimization
DEPENDENCY AND VARIATION
Playing Cards-Example done in class
Scout Troup Example
Herbie moved (Bottleneck)
Global Optimization
THE PROBLEM
Variations in Individual processes!
Variability Compounds – Increases Inventory
(Distance between the scouts)
SYNCHRONOUS SYSTEM
Working synchronously considering the
weakest link (bottleneck – Herbie)
Work at the weakest links pace (Herbie
placed at start of line)
Importance of systemic approach
(consider entire line)
The last kid completing the hike is the
throughout
SYSTEM STRENGTH
THE STRENGHT OF THE CHAIN = STRENGHT OF THE WEAKEST LINK
Management Measures
Return of Investment (ROI)
Maintain Cash flow
Net profit
TOC Measurements
Throughput :The rate at which the system
generates money through sales (The Quantity
Sold – not produced)
Inventory : The money the system has spent on
things which it intents to sell (Minimize WIP and
Finished goods)
Operating Expense : Money Used to convert
Inventory to Throughput (Minimize material,
labor and overhead)
All the costs in a manufacturing company can be
expressed in the terms of above Measurements
Plant is an Inventory by itself
Machine depreciation value is an
Operational expense
Maintainance is Operational Expense
Labor is Operational Expense
and so on we can express any cost in
the terms of Measurements.
TOC Measurements Applied
to Scout Example
Throughput = When the last scout
reaches the finish line
Inventory = The Gap between the scouts
Operating Expense = Energy Spent by
the scouts
Solution for Scout Example
Place Herbie in the front
Take some weight off from Herbie
Scouts to hold hands
TOC Principles
Balance flow (synchronize)
Local Optimization not enough,
Optimize Globally
Dynamically identify bottlenecks
Bottlenecks limit throughput – An hour
lost at the bottleneck is an hour lost in
production (Bottleneck hour = System
hour)
What is the Goal ?
What is the Goal of a Manufacturing
Company ?
To produce as many products as you
can ?
Utilize all the machines in the factory
to their maximum capacity?
The Goal is:
Maximize Throughput
Minimize Inventory
Minimize Operating Expense
Doing one of the above is not enough,
all the goals should be achieved at the
same time.
To Sum up the Goal is to MAKE
MONEY
How to achieve the Goal
Identify the Bottleneck (Constraint)
Exploit the Bottleneck
Subordinate the other processes
Elevate the Bottleneck
Repeat if new bottlenecks appear
Identify the Bottleneck
Finding Largest WIP Inventory.
Observing where the shortage of parts
takes place.
Remember it could be dynamic.
Exploit the Bottleneck
Find more capacity.
Use the bottleneck only if necessary.
Put measures like QC before
bottleneck.
Load to 100%.Do not keep the
bottleneck idle, keep it running
Give Maintenance High Priority
Subordinate Other Tasks
Schedule based on the bottleneck
Synchronize production to bottleneck
Small lots
Smooth flow
Inventory only to support bottleneck
Elevate the Bottleneck
Improve equipment
Reduce statistical variations
Reduce dependencies
Repeat the Steps
New Bottleneck Emerges
Repeat the Steps and continue
improving the system.
Shim Example
Identify the Bottleneck
Exploit the Bottleneck
Subordinate other tasks
Elevate the Bottleneck
Repeat the Steps