Theory of Constraints(Final)

7/27/2019 Theory of Constraints(Final)

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THEORY OF

CONSTRAINTS

- BYKetan Chaudha


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Theory of constraints (TOC):

Theory of constraints (TOC) is an overall managemenintroduced in 1984 in book TheGoal by Dr. Eliyahu M. Goldra

It is based on the application of scientific principles and logicguide human-based organizations but can be used aoptimization guide.

Constraint in the context of the Theory of constraints is process, resource or anything else that limits the organization

goals.


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Theory of Constraints

Goldratt contends that systems are analogous to chains, chains. Like a chain, the system performance is limited blink.

This means that no matter how much effort you put intoprocesses of a system, only the improvements to the wproduce any detectable system improvement.

Throughput is limited by the weakest link... the constraint!

Theory of Constraints (TOC) takes the systemsapproachthose constraints

TOC focuses on the few critical elements that truly influenproductivity of the system instead of trying to control all of


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Internal Constraint & External Const

An internal constraint is in evidence when the market demandthe system than it can deliver. If this is the case, then the organization should be on discovering that constraint and follofocusing steps to open it up (and potentially remove it).

An external constraint exists when the system can produce m

market will bear. If this is the case, then the organization shomechanisms to create more demand for its products or services


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Types of (internal) constraints:

Equipment: The way equipment is currently used limits the

system to produce more saleable goods/services. People: Lack of skilled people limits the system. Mental m

people can cause behaviour that becomes a constraint.

Policy: A written or unwritten policy prevents the systemmore.


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External Constraints : Material constraints

Insufficient materials

Market constraints

Insufficient demand


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Steps of TOC1. Identify the Constraint

2. Exploit the Constraint

3. Sub ordinate everything

to the Constraint

4. Elevate the Constraint

5. Repeat for the new

Constraint


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Drum - Buffer - Rope?

DRUM - A schedule for the constraint based on demand.

BUFFER - This is the time provided for parts to reach the protecprotected areas are the Drum, the due-dates and the aconstraint parts with non-constraint parts.

ROPE - A schedule for releasing raw materials to the floor.derived according to the Drum and Buffers; its mission is tproper subordination of the non-constraints.


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Evaluation of TOC:

Advantages

Improves capacity decisions in the short-run

Avoids build up of inventory

Aids in process understanding

Avoids local optimization

Improves communication between departments

Disadvantages

Negative impact on non-constrained areas Diverts attention fromay be the next constraint Temptation to reduce capacityconsiderations Introduction of new products Continuous impconstrained areas May lead organization away from strategy Nother accounting methods


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TOC IN SUPPLY CHAIN MANAGEM

TOC can be applied outside of the boundaries of the organizatbackward and forward in the supply chain to reduce

Inventories

Improve throughput

Increase responsiveness to changing customer needs


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Benefits of using TOC in supply cha

management

Reductions in supply chain inventories.

Increased responsiveness and flexibility as inventories aobstacles and barriers to effective production are removed.

Improved on-time delivery performance to the final customer.

Enhanced value creation for customers.

Improved profitability/throughput for the supply chain.


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Reductions in total assets invested in the system as increments to available capacity are added.

Improved competitive position.


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Application of Theory of Constraintsin

Project Management

Projects Are:

Unique

Dependent on Precedence

Activities Not Well Known

Highly Variable

Share Resources

Concurrent with Other Projects

Valued by Scope, Schedule and Cost


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What kinds of things go wrong in proje

Usually original due dates are not met.

Too often resources are not available when needed (even wheNecessary things are not available on time (information, smaterials, designs, authorizations, etc.)

There are fights about priorities between projects.

There are budget over-runs.

There is pressure to begin before specs are written. There achanges etc.


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Late Completion of the project/Project Overrun:

The main reason for project overrun is because of the misuse

time created within the estimated times for each activity.

The three time estimates used in PERT and their weighted mea

for scheduling by CPM, leads to a tendency to overestimate

give a reasonable degree of certainty of completion.

The 3 time estimates are:

Pessimistic time (P)

Optimistic time (O)

Most likely time(M)

Expected Time (TE): O+4M+P

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What leads to overruns?

Because the employees know that safety time is built into the e

think that they do not need to worry about starting on time.

delayed.

If starts are made on time, there is a tendency not to go a

because of the feeling that there is time in hand.

The next cause is that preparation for the next stage is not mad

is not clear when the previous activity will finish. As a result, act

ready to start when the previous activity actually does finish.


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PERT deals with uncertainty in the same way for all activities, whether the critical path.

The approach of the Theory of Constraints is to relocate the safety positions. Time estimates may be reduced but safety buffers of time project, called the `project' buffers are added. This will have the effeclength of the critical path.

The recommendation by TOC principle is that first emphasis should btime, before looking for a reduction in overall time:


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TIME BASED COMPETITION


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Time as a competitive we

Companies need to measure time in order to manage it pro

Two common operational measures of time are:

1) Customer-response time

2) On-time performance


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Customer response time

Amount of time from when:

A customer places an order or

Request service or

Service is delivered

The following are different components of customer-response ti

Receipt time

Manufacturing lead-time

Delivery time


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On Time Performance

It refers to situations

Product or service actually delivered at the time it is scheduled

Customer satisfaction


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Time drivers and costs of time

Change in the factor causes a change in the speed

It requires an understanding of the causes of delays and the resu

Two important drivers of time are:

Uncertainity

Limited capacity and Bottleneck


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Different components of cost time are:

Receipt time

Average waiting time


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New Product Development and Tim

Market

Time to Market

Time to market (TTM) is the length of time it takes from a conceived until its being available for sale

A common assumption -TTM matters most for first-of-a-kind actually the leader often has the luxury of time, while the clock is cfor the followers

There are no standards for measuring TTM

There is great variation in how different organizations define thperiod

Eg: Automotive industry the development period starts when the pris approved, for few others when project is staffed
http://en.wikipedia.org/wiki/Automotive_industryhttp://en.wikipedia.org/wiki/Automotive_industryhttp://en.wikipedia.org/wiki/Automotive_industryhttp://en.wikipedia.org/wiki/Automotive_industry


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New Product Development

Competitive advantage in new product development is having in place that can bring new ideas to market faster than the com

It is no longer the case that "time is money"it is more valuable

A team approach

These realizations have led to a number of new tools, tecbuzzwords over the past few years:

"QFD," "Concurrent Engineering," "Teaming," "Reengineering,"


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Necessary to address the entire scope of the product developm

1980s new product development decisions ignored sever

competitive factors such as the rapid decrease in producincrease in global competition, and the consolidation of lesscompanies

Studies showed that roughly half of all new product investments resulted in products that failed

It became clear that time-to-market is more financially impoother considerations in launching successful new produccompanies


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To win the race to the marketplace, researchers learnecomplement of cross-functional resources must be working w15-25 percent of a project to consistently achieve successful ne

Most management teams have little disagreement about thenew products

Disagreements lie in the different views about company weaknesses and where responsibility should be vested in implementing improvement

Improvement programs are most effective when they

consensus among the employees and senior managementfactual analysis of the performancebaseline.

The Baseline is a set of Metrics and Measures that definperformance of product development activities


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E l


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Examples

1. An example of this is the Apple's Lisa- Macintosh development effo80s. The development project was extremely ambitious and aimed leaps in both product performance (hardware and software) and

process development. The delay, by several quarters, of introduction drove Apple's earnings down dramatically and causethe company to fall to less than half its early 1983 value (Hayes et al

2. Less ambitious improvements in product performance can be achbut they may not attract too many customers. In fact, rushing to tbe disastrous

3. General Electric's introduction of a new refrigerator with a rotawhich failed in the field has been retrospectively explained as a product was launched too early. Over one million refrigerators hadand fixed (The Wall Street Journal 1990). Therefore, there are becosts involved in invoking each of these metrics


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Picking up the project The new product pipeline consists of generating ideas, turning the

concepts, proving feasibility, and funding the best products are

issues 40 to 70 percent of revenues from products that were developed and

the past three years

Initially get the right ideas into the pipeline at an ever increasing rate

Companyfilters have proven effective in selecting products for dev

The filters focus on product goals, financial results, risk, timresponsibilities, required reviews, trade-off analyses, and decision ma

Effective product development processes must balance the needs o

with the realities of time and profit management

1980s Phase-Review processes


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Building the team

Timing of team staffing is crucial to success

If a Contract is properly made with management, so thempowered and authorized, then teams can achieve resucannot achieve working alone

It is important to note, when the results of the product develomeet or exceed the terms of the contract, it is then tim

recognition and possibly financial rewards Aim design reviews at reducing risk, improving the ma

knowledge, and minimizing or eliminating defects in theprocess design

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Theory of Constraints(Final)