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Theory of Constraints

The document discusses key concepts in the Theory of Constraints (TOC), including three measurements of financial performance (profit, return on investment, cash flow) and three measurements of operational performance (throughput, inventory, operating expenses). It notes that increasing productivity does not necessarily lead to higher profitability and discusses how TOC differs from just-in-time manufacturing by focusing on balancing the flow of products through a system rather than balancing workstation capacities. Key TOC scheduling rules are outlined, emphasizing the importance of the bottleneck work center in determining overall throughput. The core steps of the TOC approach are identified as finding constraints, deciding how to exploit them, and repeating the analysis to eliminate constraints.

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Deepthi Nadimpalli
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41 views

Theory of Constraints

The document discusses key concepts in the Theory of Constraints (TOC), including three measurements of financial performance (profit, return on investment, cash flow) and three measurements of operational performance (throughput, inventory, operating expenses). It notes that increasing productivity does not necessarily lead to higher profitability and discusses how TOC differs from just-in-time manufacturing by focusing on balancing the flow of products through a system rather than balancing workstation capacities. Key TOC scheduling rules are outlined, emphasizing the importance of the bottleneck work center in determining overall throughput. The core steps of the TOC approach are identified as finding constraints, deciding how to exploit them, and repeating the analysis to eliminate constraints.

Uploaded by

Deepthi Nadimpalli
Copyright
© © All Rights Reserved
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
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THEORY OF CONSTRAINTS

Performance Measurement Financial

1.

Profit
an absolute measurement in dollars
2. Return on investment
a relative measure based on investment
3. Cash flow
a short-term survival measurement
Performance Measurement Operational

1. Throughput
the rate at which money is generated by the system through sales
2. Inventory
all the money that the system has invested in purchasing things it intends
to sell
3. Operating expenses
all the money that the system spends to turn inventory into throughput
Productivity does not guarantee profitability
Has throughput increased?
Has inventory decreased?
Have operational expenses decreased?
Earlier, we discussed balancing assembly lines in JIT.
The goal was constant cycle time across all stations
Synchronous manufacturing views constant workstation capacity as a bad decision
a waste.
Rather than balancing capacities, the flow of product through the system should
be balanced.
Also, it may not be necessary or advisable to re-layout the plant as in the JIT
solution.
Some Capacity Related Terminology
Capacity
Available time for production
Bottleneck Work Center (BNWC)
Capacity is less than demand placed on resource
Nonbottleneck
Capacity is greater than demand placed on resource
Capacity-constrained resource (CCR)
Capacity is close to demand placed on resource, almost a BNWC.

TOC RULES OF PRODUCTION SCHEDULING


DO NOT BALANCE CAPACITY - BUT BALANCE FLOW.
AN HOUR LOST AT A BOTTLENECK IS AN HOUR LOST FOR THE
ENTIRE SYSTEM.
AN HOUR SAVED AT A NONBOTTLENECK IS A MIRAGE.
BOTTLENECKS GOVERN THROUGHPUT AND INVENTORY.
TRANSFER BATCHES AND PROCESS BATCHES DO NOT HAVE TO BE
THE SAME.
PRIORITIES CAN BE SET ONLY BY LOOKING AT THE CONTRAINTS OF
THE SYSTEM.
THESE RULES ARE IN STARK CONTRAST TO JIT AND JOB SHOPS.
THEORY OF CONSTRAINTS
IDENTIFY SYSTEM CONSTRAINTS.
DECIDE HOW TO EXPLOIT CONSTRAINTS.
ABOVE STRATEGIES ARE DOMINANT.
INCREASE CAP OF BNWC AS NECESSARY.
REPEAT THIS ANALYSIS EFFECTIVELY ELIMINATING CONSTRAINTS.
ALWAYS KEEP THE BNWC BUSY, IT DETERMINES THE OUTPUT OF THE
FIRM.

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