IE 376

PRODUCTION INFORMATION SYSTEMS

Course Notes
Lecture # 9
Theory of Constraints

IE 376
Bilkent University
 The Goal -
Synchronous Operations
• Optimized Production Technology (OPT) developed by Eliyahu Goldratt
• The Goal: Goldratt illustrated the concepts of OPT in the form of a novel.
• The Race: written to overcome difficulties encountered in the
implementations.
• THE GOAL OF A FIRM IS TO MAKE MONEY
(As per Goldratt - making money allows guaranteed long-term survival and
prosperity. With money, other goals can be achieved.)

• To ensure that all elements are working in harmony (i.e. synchronously) to achieve
the goal of a firm.
• Emphasis is on total system performance - not on such local measures as labor or
machine utilization or efficiency. The sum of local optima is not equal to the
optimum of the whole.
 Operational Measurements
1. Throughput - the rate at which money is generated by the system
through sales
2. Inventory - all the money 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

How to Achieve the Goal?

Increase throughput while simultaneously
reducing inventory and reducing operating expenses.

What can limit you from achieving the goal?

Constraints!! Bottlenecks!!
 Theory of Constraints (Goldratt)
• A system’s constraint is anything that limits
the system from achieving a higher
performance with respect to its its goal
• Any system has very few constraints
• Any system must have at least one constraint
– The existence of constraints represents
opportunities for improvement.
 Types of Constraints
• Market Constraints
• Material Constraints
• Capacity Constraints
• Logistical Constraints
• Managerial Constraints
• Behavioral Constraints
– Tell me how you measure me, and I will tell you how I will
behave. If you measure me in an illogical way... do not
complain about illogical behavior.
Optimized Production Technology (OPT)

OPT is an analytical technique that is designed to

achieve the goal through realistic optimized schedules.

Known to involve four basic stages

• Determine the bottleneck resource in the shop

• Schedule to use the bottleneck resource most effectively.
• Schedule the remainder of the shop up to the bottleneck.
• Schedule the remainder of the shop after the bottleneck.
 Bottlenecks

• A bottleneck could be a machine whose capacity limits the

throughput of the whole production process.

• Finding the bottleneck

– Run a capacity resource profile (compute work load as a
percentage of capacity for each resource).

– The standard data used may not be accurate and hence visit the
facility and talk to workers to confirm or modify the profile.

– Identify the bottleneck.

 3-Machine Flow shop

1 2 3 Throughput
30 parts/hr

Production rates
• Work station 1: 60 parts/hr
• Work station 2: 30 parts/hr
• Work station 3: 40 parts/hr
 OPT Philosophy
• Rule 1. The level of utilization of a non-
bottleneck is determined not by its own
potential, but by some other constraint in the
system.

• Rule 2. Utilization and activation of a resource

are not synonymous.
– Efficiency versus Effectiveness
 Applying OPT:
3 5
Start 1 7 8
End
2 4 6 9 10

• Bottleneck: 3, Nonbottleneck: 5
• Bottleneck: 5, Nonbottleneck: 3
• Bottleneck: 5, Nonbottleneck: 6
• Bottleneck: 8, Nonbottleneck:10
 Setup Times
• Bottlenecks

Processing Setup
Time Time

• Non-bottleneceks

Processing Idle Setup

Time Time Time
 OPT Rules
• Rule 3. An hour lost in the bottleneck is an
hour lost for the total system.
• Rule 4. An hour saved at a non-bottleneck is
just a mirage.
– Variable batch sizes

• Rule 5. Bottlenecks govern both throughput

and inventory in the system.
 Managing Bottleneck Capacity–
Theory of Constraints
Determine bottleneck work centers

Rough-cut capacity planning Capacity resource planning

Look for quick solutions to eliminate bottlenecks

Expand capacity Alternate routings

Concentrate scheduling efforts on managing bottleneck resources

Use finite scheduling for bottleneck jobs, with
Schedule jobs that run through bottlenecks separately
horizontal loading and back scheduling for the most
from non-bottleneck jobs
critical
 Lot Sizes
• The transfer batch: the lot size from the parts
point of view
• The process batch: the lot size from the resource
point of view

• Rule 6. Transfer batch may not, and many

times should not, be equal to the process
batch.
– Lot splitting
 IMPACT OF BATCH SIZE REDUCTION

• Batch & Queue Processing

Process Process Process
A B C

10 minutes 10 minutes
10 minutes

Lead Time: 30+ minutes for total order

21+ minutes for first piece

• Continuous Flow Processing

ProcessProcessProcess
Treatment of A B C

Lot Sizes
12 min. for total order
3 min. for first part
 TOC and Lot Sizing
• Rule 7. The process batch should be variable,
not fixed.
• Lot sizes are calculated differently for bottleneck and
non-bottleneck resources
– For the same finished item, lot sizes at different operations
may be different
– TOC splits orders at non-bottleneck resources and
combines orders at bottlenecks
• This maintains supply of non-bottleneck parts while
reducing setup time and/or increasing efficiency at
the bottleneck
 Lead-Time Management
• Actual lead times are not fixed.
• Lead times are not known a priori, but depend
upon the sequencing at the limited capacity or
bottleneck resources.

The average Cycle time at a station =

Move time + Queue time +
Setup time + Process time +
[ wait-to-batch time + wait-in-batch time +
wait-to-match time ]
 Cycle Time vs. Batch Size
80.00

70.00
Cycle Time (hrs)

60.00

50.00

40.00

30.00

20.00

10.00

0.00
0 5 10 15 20 25 30 35 40 45 50
Optimum
Batch Size (jobs/batch)
Batch Sizes
No Lot Splitting Lot Splitting
 Serial Batching
• Parameters:

k = serial batch size (10)

t = time to process a single part (1)
s = time to perform a setup (5)
ce = CV for batch (parts + setup) (0.5)
ra = arrival rate for parts (0.4)
ts
ca = CV of batch arrivals (1.0) k
setup t0
ra,ca

forming queue of
• Time for batch: te = kt + s batch batches

(te = 15)
19
 Queuing Theory:
Variability + Utilization = Waiting
Actual
Average
•Throughput-Delay curve: Cycle
Variability
Time, W

CTq  V  U  t
 ca2 + ce2  u  Theoretical
   t e
m Cycle Time

 2  1 − u  100% Utilization 

variability utilization mean service

effect effect time
20
 Observations
CTq = the expected waiting time spent in queue.

– Separate terms for variability, utilization, process

time.

– Flow variability, process variability, or both can

combine to inflate queue time.

– Variability causes congestion!

delay times typically make up 90% of CT

21
 Managing the Flow Rate
• Increase Throughput
– Manage supply and demand
• Increase Process Capacity
– Reduce starvation (synchronize flows better)
– Reduce blockage (appropriate select buffer sizes)
• Increase Effective Capacity
– Reduce resource unavailability (maintenance
policies, better HR management, less frequent
setup/changeover, reduced setup/changeover times)
• Increase Theoretical Capacity
 Increasing Theoretical Capacity
 (1/Unit Load) x Load Batch x Sched. Availability
• Decrease the unit load on bottleneck resource pool
– Work smarter (remove non-value-adding activities, e.g., reduce/eliminate
setups and changeovers)
– Work faster (acquiring faster equipment, increase resource allocation,
offering incentive to increase output)
– Do it right the first time
– Change product mix (processing more products that require less time)
– Move work content from bottlenecks to non-bottlenecks or third-party
• Increase the load batch of bottleneck resources
• Increase the number of resource units in the bottleneck
resource pool (investment decisions)
• Increase scheduled availability of bottleneck resource
pool (work longer)
 Bottlenecks, Non-Bottlenecks and
Capacity Constrained Resources

• Capacity is defined as the available time for production

excluding maintenance and other downtime.

• A bottleneck is a resource whose capacity is less than the

demand placed on it. Bottleneck limits the throughput.

• A non-bottleneck is a resource whose capacity is greater

than the demand placed on it.

• A capacity constrained resource is one whose utilization

is close to capacity and could be a bottleneck if it is not
scheduled carefully.
Capacity Utilization Chart

Work centers over a

capacity threshold (80%)
are considered bottlenecks
 Theory of Constraints Scheduling
• Drum-Buffer-Rope (DBR) Scheduling
– Drum–bottleneck work centers which control the tempo of
workflow through the plant
– Buffer–inventory and/or scheduling activities to protect the
throughput at bottlenecks from random variation
– Rope–use of pull scheduling at non-bottleneck resources

• Material moves through non-bottleneck resources as quickly as

possible, bottlenecks are managed for maximum efficiency
• After bottleneck, jobs are pushed to the end of line as quickly as possible
 TOC Scheduling

Potential bottlenecks are Scheduling is completed

identified using rough-cut according to the work
capacity planning center type
 Buffers
• TOC uses both safety stock and safety lead time
at bottleneck operations
– Safety lead time is introduced between sequential
orders at the bottleneck.
• Jobs are released at the bottleneck rate but far enough in
advance so that a time buffer is maintained before bottleneck.
(Jobs pulled from first stage by bottleneck)
– Safety stock of completed parts from preceding,
non-bottleneck operations is held in front of the
bottleneck to prevent shortages.
• Buffer set before bottleneck so that it keeps up with the beat
and never starves (even if a nonbottleneck is down)
 Example: What to Produce?
• Which product should you produce?
Product A Product B
• Selling price $90 $100
• Material cost $45 $40
• Labor time per unit 55 min. 50 min.
• Market demand unlimited unlimited
• Total available hours is 40 hours per week
• Weekly operating expenses are $5000
• Product B??? B has a higher selling price, a lower material cost,
and requires less labor time!
Routing and Processing Information

Product A Product B

R4 R4
13 min/unit 8 min/unit
Component Y
Component X Component Z

$5 R3 R3 R2 $10
10 min/unit 2 min/unit 15 min/unit

R1 R2 R1
15 min/unit 15 min./unit 10 min/unit

$20 $20 $10

 Analyzing Production Capability

Product A Product B

Processing Time Max. Output Processing Time Max. Output

Resource (min) (2400 min/week) (min) (2400 min/week)

R1 15 160 10 240
R2 15 160 30 80
R3 12 200 2 1200
R4 13 184 8 300

Produce 80 units of B 80x$60=$4800 per week $200 loss per week

Produce 160 units of A 45x160=$7200 per week $2200 profit per week