toc scf 1 final

8/8/2019 Toc Scf 1 Final

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HISTORY

In 1970, Eliyahu Goldratt, began to produce

his ideas on production scheduling, that

software program was known as ³Optimised

Production Technique´ (OPT)

In 1980, E. Goldratt brought the concept of

the ³Theory of Constraints´, which includes

a management philosophy on improvement based on identifying the constraints to

increasing profits.



RESULTS

Materials moving smoothly andcontinuously from one operation to another

Reduction of lead time and inventory

waiting in queues

Identifying the bottlenecks

Managing bottleneck effectively

Managing related constraints It also includes market, capacity, managerial

and behavioral constraints



5 STEPS

Identify the system¶s constraints

Describe how to exploit the system¶sconstraints

Subordinate everything else to theabove decision

levate the system¶s constraints

If in the previous steps a constraint has

been broken, go back to step 1



GODRATT·S RULE

1) Do not balance capacity, balance the flow2) The level of utilisation of a non-bottleneck is determined

by some other constraint.

3) Utilization and activation of a resource are not the same

4) An hour lost at a bottleneck is an hour lost for the entiresystem

5) An hour saved in at a non-bottleneck is a mirage

6) Bottlenecks govern both throughput and inventory

7) The transfer batch doesn¶t have to equal to the process

batch

8) A process batch should be variable

9) Priorities can be set only by examining the system¶sconstraints



BOTTLENECKS

AND

NON-BOTTLENECKS RESOURCESTwo building blocks X and Y

Assume:

40 hours available per week Product that flows takes

10min per unit on X

6min per unit on Y

Per week throughput of

X = 240 units

Y = 400 units



5 basic interactions

1. Y to X: flow from non-bottleneck to

bottleneck

2. X to Y: flow from bottleneck to non-bottleneck

3. Y1 to Y2: flow from one non-bottleneck to

another

Y X

X Y

Y1 Y2



4. X1 to X2: flow from one bottleneck to another.

5. X and Y to assembly: a bottleneck and a non-

bottleneck fed into an assembly operation.

X1 X2

ASSEMBLY

X Y



Illustration of TOC

Identify Constraint: Use diagnostic tools to calculate and identify the constraint as Resource C.

Exploit the constraint: It will focus all attention and improvement tools to increase the capacity of C (Run them/c during break hours, doing quick change-over activities

on C, improving cycle time of C Subor dinate other operations: Other operations produce only

what the constraint can consume. Producing more will onlyincrease the inventory cost.

Elevate the constraints: If the demand continues to growinvest on adding m/c at C.

A 450pcs/hr B 460pcs/hr C 430pcs/hr D 500pcs/hr



TOC in Finance

TOC measurements are called Throughput Accounting

³Cost accounting in productivity¶s public enemy number

one´- Goldratt

Define the system¶s global goal and the measurementsthat will enable us to judge the impact of any sub-system

and any local decision.

To see if the company is meeting with its goal it must

answer 3 questions:

How much money is the company generating?

How much money is actually absorbed by the company?

How much do I spend to operate my company?



Contd..

In throughput accounting we use 3 measures:

Throughput (T)

Investment (I)

Operating Expense (OE)

T=SR-VC (Sales Revenue ± Variable Cost)

ROI=T-OE/I

I

f system¶s goal is to be achieved

:

InvestmentsThroughput Operating

Expense



Ill str ti T r it s f di s

Per son A: Time = 2 seconds (Throughput = 30 boxes/minute)

Per son B: Time = 20 seconds (Throughput = 3

boxes/minute) «« Bottleneck

Per son C: Time = 5 seconds (Throughput = 12 boxes/minute)

Considering the Effect of Inventory

If only one box is sent through the value chain, the total time taken by the

box to be serviced is the sum of the activities of all three participants, i.e.,

2 + 20 + 5 = 27 seconds.

Considering the Effect of Throughput

Little¶s law: Inventory = Throughput x Flow Time

For 5 boxes flow time is 100 sec. Assume the 3 per sons r epr esent 3 business units.

Sometimes the wor k that an entity does is non-value-added - Person

C was transporting the boxes and did not provide any value to the overall

process



Contd..

Implications on Inventory:

Adding inventory to a system can greatly increase the lead time for a

customer.

Since inventory is usually a function of external demand, at some point

it may be feasible to limit the number of units that can enter into the

system. However, this may result in lost revenue opportunities.

An alternative may be to put more resources to the bottleneck which

will have a cost implication to the process but may speed up delivery.

Implications on throughput:

Person B is the bottleneck. At this point all efforts should be focused on

alleviating the bottleneck.

This can be done in a number of ways,

Putting more resources on the bottleneck activity

Standar dizing

Flexible resourcing

Job levelling



TOC to Improve Distribution

Throughput at Intel

Intel Fights Order Cycle Time Variance:

Intel was facing challenges with both the length and variability of or der cycle times ± from the time the or der was dropped to the warehouseuntil the time it was shipped.

Made or der promising to customers difficult.

Increased the time of the promised ship date to customers.

TOC Analysis:

Packaging operation was the key constraint.

Or der picking and consolidation steps before the packing operation,

and shipment preparation after packing, could all operate at muchhigher rates per hour.

System as a whole could only process as many or ders per hour as thepacking station no matter how many or ders could be picked beforepacking or processed on the back end.

Too much ³buffer´ inventory



Contd..

Typically, to improve throughput, a company usingTOC would seek to improve the processingcapability of the constraint.

That often then causes another process tobecome the constraint.

In Intel, Physical limitations in the distributionarea.

No budget to add any sort of automation.

Packing process throughput would have to staystatic for now.



Contd..

Drum Buffer Rope Approach: Identify the constraint (Drum) Packaging process.

Buffer ´Work in Process´ before the constraint.

The constraint has to be fed consistently. Too much buffer inventory is not good.

That can clog up the operation, and actually again reducethe output of the constrained process.

Rope Monitor the process and send feedback upstream

Intel used several tools to send the demand signals-walkie-talkies, Radio Frequency devices.



Contd..

Flow, not utilization:Issues:

Distribution centres focus heavily on worker utilization ±

keeping associates fully busy and minimizing ³indirect

time´.

Rewar ding the pickers for their output, even though the

downstream packing process couldn¶t handle that volume.

Suggestion: Operations would benefit from a stronger focus on

product flow ± even at the ³cost´ of sometimes letting

workers in certain areas be idle for periods of time.



Contd..

Result: Average or der cycle times decreased by 75%

Variability in cycle times decreased at a similar level

Total throughput actually increased somewhat, as theconstrained packing area was more fully utilized by better buffer management

Initially Intel used a three-hour buffer before the packing

stations.

Over time was able to reduce it to just a one hour planned buffer



Contd..

The initial project focused on reducing cycle times and variability

with or ders after they had been dropped to the warehouse.

Intel¶s system ³locked´ inventory when an or der had availableinventory and a known ship date.

A few days before the ship date, the or der was dropped to thewarehouse.

Using TOC principles, it was determined Intel should decouple thisprocess, and not tie up the inventory so far in advance.

Changing the process led to a reduction in the inventory needed tosupport distribution from 2.5 days previously to 1.5 days.

Lessons Learned:

³You can decr ease inventory levels

&

r esponsiveness by tackling cycle time.´



Lean + TOC

TOC Primarily focuses on the bottleneck

Lean Focused on reducing waste at all levels and in

the process of doing so, it uncovers additional capacity

that could be deployed for further growth.

Lean compliments TOC to remove the bottle-neck

constraint by uncovering additional capacity.



TOC+ SIX-SIGM A

SIX-SIGM A:

5 transformational phases:

DMAIC

TOC:

5focusing steps to eliminate the constraint



TOC+ SIX-SIGM A

TOC could serve as the framework for

continuous improvement

Six Sigma could provide specific

statistical tools and engineering

techniques for implementing changes.



TOC+ SIX-SIGM A



TOC+ SIX-SIGM A

4 Phases of the Integr ated Fr amewor k

Phase 1: Identify the constraint and determine theprocess to be improved

Phase 2: Measure current performance and identify theroot cause

Phase 3: Exploit the constraint by improving the

process

Phase 4: Subor dinate the systems to sustain theimprovement



Application of TOC + SIX-SIGM A

Framework in Ashley Alteams

One of the divisions of Alteams, Axle facility, manufactures avariety of axle products.

Phase 1- Identify the constraint and determine the process tobe improved.

Sales eroded by 23% due to a declining production target.

Need to increase asset capacity without incurring additionalcapital expenditure.

Traditional unit cost reduction /local operations productivity

increase not used to determine the improvement effort.

Feedback from the customers and capacity analysis - gear cutter operation improvement chosen.

increasing the gear cutting capacity would increase the plant

throughput





Phase 2: Measure current performance and identify the root cause

Labour utilization used as the measure to drive the improvementeffort on the cutting operation.

Labour utilization was about 65 percent.

The performance outcome established for this process was 85 percent labour utilization.

RCA on poor labour utilization- Cutter- Grinder downtime was high.Cutting heads did not reach their maximum shelf life.

low labour utilization was due to the idleness of the cutters created bythe dullness of the blades.

Oil coolants used during the cutting process were being deflected from the blades that cut the coastline of the ring.





Phase 3: Exploit the constraint by improving the process

Cutter Grind to keep up with production schedules.

Critical Element-

Increase the blade efficiency,

Reducing the downtime

Increasing the labour utilization.

Project team found that little coolant reached the blades.

Pressure and flow were important to the life of the cutter

body Install coolant lines that would feed coolants to the coast

side of the cut.

Locally manufactured muffler pipe that discharged an equal

flow of coolants to all faces of the cutting operation.





Phase 4: Subor dinate the systems to sustain the

improvement

Statistical process control method-document and

monitor the new process conditions.

Employee training was held on the job

Gain-sharing plan

Employee-sharing benefits reduced most of the

resistance to the changes.

Results:

Utilization increased from 65% to 85%

No need to elevate the cutting capacity.



Conclusion

³ The sum of the local optimums is not

equal to the global optimum ´

1) An hour lost at a bottleneck is an hour

lost for the entire system

2) An hour saved in at a non-bottleneck is a

mirage

3) Bottlenecks govern both throughput and

inventory

toc scf 1 final

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