MGSC 395 Chapter 5 (Test 2)

Types of Constraints

Physical: Machine, labor, or workstation capacity or material shortages, but could be space or quality Market: Demand is less than capacity Managerial: Policy, metrics, or mind-sets that create constraints that impede work flow

Bottleneck

any resource whose available capacity limits the organization's ability to meet the service or product volume, product mix, or fluctuating requirements demanded by the market place Special type of constraint that relates to the capacity shortage of a process Bottlenecks should be schedule to maximize their throughput of services or products while adhering to promised completion dates *A business system or a process would have at least one constraint or a bottleneck; otherwise, its output would be limited only by market demand

Constraint

any factor that limits the performance of a system and restricts its outputs Can occur up or down the supply chain, with either the firm's suppliers or customers or within one of the firm's processes like service or product development or order fulfillment

Practical application of the TOC involves the implementation of...

#1 Identify the System Bottleneck #2 Exploit the Bottleneck o Create schedules that maximize the throughput of the bottlenecks o Make sure that only good quality parts are passed on to the bottleneck #3 Subordinate All Other Decisions to Exploit the Bottleneck o Non-bottleneck resources should be scheduled to support the schedule of the bottleneck and not produce more than the bottleneck can handle #4 Evaluate the Bottleneck o After the steps 1-3 have been exhausted, and the bottleneck is still a constraint to throughput, management should consider increasing the capacity of the bottleneck #5 Do Not Let Inertia Set In o Actions taken in steps 3 and 4 will improve the welder throughput and may alter the loads on the other processes. o Consequently, the system constraints may shift. Then, the practical application of steps 1-4 must be repeated to identify and manage the new constraints

Finding a Solution

• Goal is to cluster the work elements into workstations so that 1) the number of workstations required is minimized, and 2) the precedence and cycle-time requirements are not violated Idea is to assign work elements to workstations subject to the precedence requirements so that the work content for the station is equal the cycle time for the line

Seven Key Principles of the TOC

1) The focus should be on balancing flow, not on balancing capacity 2) Maximizing the output and efficiency of every resource may not maximize the throughput of the entire system 3) An hour lost at a bottleneck or a constrained resource is an hour lost for the whole system. In contrast, an hour saved at a non-bottleneck resource is a mirage, because it dos not make the whole system more productive 4) Inventory is needed only in front of the bottlenecks to prevent them from sitting idle and in front of assembly and shipping points to protect customer schedules. Building inventories elsewhere should be avoided 5) Work, which can be materials, information to be processes, documents, or customers, should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to market demand. Pacing everything to the slowest resource minimizes inventory and operating expenses 6) Activating a non-bottleneck resource (using it for improved efficiency that does not increase throughput) is not the same as utilizing a bottleneck resource (that does lead to increased throughput). Activation of non-bottleneck resources cannot increase throughput, nor promote better performance on financial measures 7) Every capital investment must be viewed from the perspective of its global impact on overall throughput, inventory, and operating expense

Precedence Diagram

Allows one to visualize immediate predecessors better; work elements are denoted by circles, with the time required to perform the work shown below each circle Activity-on-Node (AON) Network: nodes represent activities and arcs represent the precedence relationships between them

Managing Bottlenecks in Service Processes

Bottlenecks can both be internal or external to the firm, and typically represent a process, a step, or a workstation with the lowest capacity Throughput Time: total elapsed time from the start to the finish of a job or a customer being processed at one or more work centers Where a bottleneck lies in a given service or manufacturing process can be identified in two ways: 1) If it has the highest total time per unit processes 2) It has the highest average utilization and total workload Floating Bottlenecks: variability in workloads; increases the complexity of day-to-day scheduling Management prefers lower utilization rates, which allow greater slack to absorb unexpected surges in demand

Applying the Theory of Constraints to Product Mix Decisions

Contribution Margin: amount each product contributes to profits and overhead; no fixed costs are considered when making the product mix decision (traditional method) Issues: the firm's actual throughput and overall profitability depend more upon the contribution margin generated at the bottleneck than by the contribution margin of each individual product produced (bottleneck method)

Cycle Times (Managerial Considerations)

Depends on the desired output rate Maximum line efficiency varies considerably with the cycle time selected Thus, exploring a range of cycle times make sense

The Theory of Constraints

Developed by Eli Goldratt A systematic management approach that focuses on actively managing those constraints that impede a firm's progress toward its goal of maximizing profits and effectively using its resources; outlines a deliberate process for identifying and overcoming constraints Increase the firm's profits more effectively by focusing on making materials flow rapidly through the entire system; help firms look at how processes can be improved to increase overall work flows, and how inventory and workforce levels can be reduced while still effectively utilizing critical resources

Desired Output Rate

Goal of line balancing is to match the output rate to the staffing or production plan Managers should avoid rebalancing a line too frequently because each time a line is rebalanced many workers' jobs on the line must be redesigned, temporarily hurting productivity and sometimes even requiring a new detailed layout for some stations

Idle time, Efficiency, and Balance Delay

Minimizing n automatically ensures 1) minimal idle time, 2) maximal efficiency, and 3) minimal balance delay Idle time: total unproductive time for all stations in the assembly of each unity Efficiency: ratio of productive time to total time Balance Delay: amount by which efficiency falls short of 100 percent

Behavioral Factors (Managerial Considerations)

Most controversial aspect of line-flow layouts Installing production lines increase absenteeism, turnover, and grievances Paced production and high specialization lower job satisfaction Workers generally favor inventory buffers as a means of avoiding mechanical pacing

Goal of Line Processing

Obtain workstations with well-balanced workloads Analyst begins by separating the work into work elements. Then obtains the time standard for each element and identifies the immediate predecessors Work Elements: the smallest units of work that can be performed independently Immediate Predecessors: work elements which must be done before the next element can begin

Drum-Buffer-Rope Systems (DBR)

Planning and control system based on the TOC that is often used in manufacturing firms to plan and schedule production Works by regulating the flow of work-in-process materials at the bottleneck or the capacity constrained resource (CCR) Drum: the bottleneck schedule, sets the beat or the production rate for the entire plant and is linked to market demand Buffer: time buffer that plans early flows to the bottleneck and thus protects it from disruption; ensures that the bottleneck is never starved from work Rope: the tying of material release to the drumbeat, which is the rate at which the bottleneck controls the throughput of the entire plant; a communication device to ensure that raw material is not introduced into the system at a rate faster than what the bottleneck can handle Buffer Management: constantly monitors the execution of incoming bottleneck work Strives to improve throughput by better utilizing the bottleneck resource and protecting it from disruption through the time buffer and protective buffer capacity elsewhere Can be an effective system to use when the product the firm produces is relatively simple and the production process has more line flows

Managing Bottlenecks in Manufacturing Processes

Processes differ in their design, strategic intent, and allocation of resources. Identification and management of bottlenecks will also differ accordingly with process type Identifying Bottlenecks A) If multiple services or products are involved, extra setup time at a workstation is usually needed to change over from one service or product to the next, which in turn increases the overload at the workstation being changed over B) Setup times: affect the size of the lots traveling through the job or batch processes C) One way to identify bottlenecks is by its utilization D) When the setup time is large, the operation with the highest total time per unit processed would typically tend to be the bottleneck E) Variability in the workloads will again likely create floating bottlenecks, especially if most processes involve multiple operations, and often their capacities are not identical

Differences between TOC and Line Balancing

TOC a) Takes on new customer orders to best use bottleneck capacity b) Scheduling so that bottleneck resources are conserved Line Balancing a) Creates workstations with workloads as evenly balanced as possible b) Applies only to line processes that do assembly work, or to work that can bundle in many ways to create the jobs for each workstation in the line

Operating Expense (OE)

TOC View: all the money a system spends to turn inventory into throughput Relationship to Financial Measures: a decrease leads to an increase in net profit, ROI, and cash flows

Inventory (I)

TOC View: all the money invested in a system in purchasing things that it intends to sell Financial Measures: a decrease leads to an increase in net profit, ROI, and cash flow

Utilization (U)

TOC View: degree to which equipment, space, or workforce is currently being used; it is measured as the ratio of average output rate to maximum capacity, expressed as a percentage Relationship to Financial Measures: an increase at the bottleneck leads to an increase in net profit, ROI, and cash flows

Throughput (T)

TOC View: rate at which a system generates money through sales Relationship to Financial Measures: an increase leads to an increase in net profit, ROI, and cash flows

Line Balancing

The assignment of work to stations in a line process so as to achieve the desire output rate with the smallest number of workstations

Relieving Bottlenecks

The key to preserving bottleneck capacity is to carefully monitor short-term schedules and keep bottleneck resource as busy as is practical When a changeover or setup is made at bottleneck, the number of units or customers processed before the next changeover should be large compared to the number processed at less critical operations For long-term capacity of bottleneck operations... 1) Investments can be made in new equipment and in brick-and-mortar facility expansions 2) Can be expanded by operating it more hours per week, such as hiring more employees and going from a one-shift operation to multiple shifts, or by hiring more employees and operating the plant six or seven days per week versus five days per week 3) By redesigning the process, either through process reengineering or process improvement, or by purchasing additional machines that can handle more capacity

Cycle Time

The maximum time allowed for work on a unit at each station If the time required for work elements at a station exceeds the line's cycle time, the station will be a bottleneck, preventing the line from reaching its desired output rate

Theoretical Minimum

To achieve the desired output rate, managers use line balancing to assign every work element to a station, making sure to satisfy all precedence requirements and to minimize the number of stations, n, formed. If each station is operated by a different worker, minimizing n also maximizes worker productivity

Rebalancing the Assembly Line

While the product mix or demand volume do not change as rapidly for line processes as for job or batch processes, the load can shift between work centers in a line as the end product being assembled is changed from one product to another, or when the total output rate of the line is altered Constraints arising out of such actions can be managed by either rebalancing the line or by shifting workers across different lines in the manufacturing plant to reduce waste and create a more balanced allocation of workloads and available worker capacity

Number of Models Produced (Managerial Considerations)

a line that produces several items belonging to the same family Enables a plant to achieve both high-volume production and product variety Complicates scheduling and increases the need for good communication about the specific parts to be produced at each station

Capacity

maximum rate of output of a process or a system

Pacing (Managerial Considerations)

movement of product from one station to the next as soon as the cycle time has elapsed Pacing manufacturing processes allows materials handling to be automated and requires less inventory storage area Less flexible in handling unexpected delays that require either slowing down the entire line or pulling the unfinished work off the line to be completed later