Lecture 5:

Theory Of Constraints

Advanced Diploma: Operations Management

 Learning Objectives

Explain the Theory of Constraints (TOC).

Analyze bottleneck resources and apply TOC principles to
controlling a process.
 Goldratt’s Theory of Constraints
The theory of constraints (TOC) is a management philosophy developed by
Eliyahu M. Goldratt in his 1984 publication, "The Goal: A Process of Ongoing
Improvement."
Goldratt contends that manufacturers were not doing a good job in scheduling
and controlling their resources and inventories
Goldratt developed software that scheduled jobs through manufacturing
processes
It considers limited facilities, machines, personnel, tools, materials, and any other
constraints
This was called optimized production technology (OPT)
Scheduling logic was based on the separation of bottleneck and nonbottleneck
operations
Goldratt’s Rules of Production Scheduling
1. Do not balance capacity, balance the flow
2. The level utilization of a nonbottleneck resource is not determined by its own
potential but by some other constraint in the system
3. Utilization and activation of a resource are not the same
4. An hour lost at a bottleneck is an hour lost for the entire system
5. An hour saved at a nonbottleneck is a mirage
6. Bottlenecks govern both throughput and inventory in the system
7. Transfer batch may not, and many times should not, be equal to the process batch
8. A process batch should be variable both along its route and in time
9. Priorities can be set only by examining the system’s constraints, and lead time is a
derivative of the schedule
 Goldratt’s Theory of Constraints (TOC)
1. Identify the system constraints
2. Decide how to exploit the system
constraints
3. Subordinate everything else to that
decision
4. Elevate the system constraints
5. If, in the previous steps, the constraints
have been broken, go back to step 1, but
do not let inertia become the system
constraint
 Goldratt’s Goal of the Firm
The goal of a firm is to make money
Organizations have many purposes
 Provide jobs
 Consume raw materials
 Increase sales
 Increase market share
 Develop technology
 Produce high-quality products
These do not guarantee the long-term survival of the
organization
 Performance Measurement
Financial
Net profit—an absolute measurement in Rands (or other currencies)
Return on investment—a relative measure based on investment
Cash flow—a survival measurement
Operational
Throughput—the rate at which money is generated by the system through sales
Inventory—all the money that the system has invested in purchasing things it intends to
sell
Operating expenses—all the money that the system spends to turn inventory into
throughput
From an operations standpoint, the goal of the firm is to increase throughput
while simultaneously reducing inventory and reducing operating expense
Productivity
Productivity typically measured in terms of output per labor
hour
Does not guarantee profitability
Has throughput increased?
Has inventory decreased?
Have operational expenses decreased?
Productivity is all the actions that bring a company closer to
its goals
Unbalanced Capacity
In earlier chapters, balancing assembly lines was discussed
The goal was a constant cycle time across all stations
Synchronous manufacturing views constant workstation
capacity as a bad decision
Random variations must be handled using inventory
When one process takes longer than the average, the time can not
be made up
 Dependent Events and Statistical
Fluctuations
The term dependent events refers to a process sequence
A flows to B, B flows to C, and C flows to D
Each must be completed before moving on to the next
The ability to do the next process is dependent on the preceding one
Statistical fluctuation refers to the normal variation about a mean or
average
When statistical fluctuations occur in a dependent sequence without any
inventory between workstations, there is no opportunity to achieve the
average output
When one process takes longer than the average, the next process cannot
make up the time
Rather than capacities being balanced, the flow of product through the
system should be balanced
 Bottlenecks, Capacity-Constrained
Resources, and Synchronous
Manufacturing
Capacity: the available time for production
Bottleneck: what happens if capacity is less than demand
placed on resource
Nonbottleneck: what happens when capacity is greater than
demand placed on resource
Capacity-constrained resource (CCR): a resource where the
capacity is close to demand on the resource
 Basic Manufacturing Building Blocks
All manufacturing processes
and flows can be simplified to
four basic configurations
With these four blocks, a
production process can be
greatly simplified for analysis
and control
Rather than track and
schedule all the steps in a
production sequence,
attention can be placed at the
beginning and end points
Methods for Synchronous Control
1. Setup time: the time that a part
Time Components
spends waiting for a resource to be set
up to work on this same part
2. Processing time: the time that the part
is being processed
3. Queue time: the time that a part waits
for a resource while the resource is
busy with something else
4. Wait time: the time that a part waits
not for a resource but for another part
so that they can be assembled
Cycle time
5. Idle time: the unused time that
represents the cycle time less the sum 95% 5%
of the setup time, processing time,
queue time, and wait time InputWait for Wait to Move Wait in queue Setup Run Output
inspection be moved time for operator time time
 Saving Time
Bottlenecks govern both throughput and inventory in the
system
An hour saved at the bottleneck adds an extra hour to the
entire production system
An hour saved at a nonbottleneck is a mirage and only adds
an hour to its idle time
 Finding the Bottleneck
1. Run a capacity resource profile
Obtained by looking at the loads placed on each resource by the
products that are scheduled through them
2. Use your knowledge of a particular plant
Look at the system in operation
Talk with supervisors and workers
 Drum, Buffer, Rope
 Every production system needs some control
point or points to control the flow
 If the system contains a bottleneck, it is the
best place for control
 This control point is called the drum
 It strikes the beat that the rest of the system uses
to function
 If there is no bottleneck, the next-best place
to set the drum would be a capacity-
constrained resource
 There are two things that we must do with a
bottleneck
1. Keep a buffer inventory in front of it
2. Communicate back upstream
 This communication is called the rope
 Importance of Quality
• An MRP system allows for rejects by building a larger batch than
needed
• A JIT system cannot tolerate poor quality because JIT success is based
on a balanced capacity
• Synchronous manufacturing is more tolerant than JIT systems
• Excess capacity throughout system, except for the bottleneck
• Quality control needed before bottleneck
 Summary
TOC is an alternative way to think about improving processes
It is essential to concentrate on system limitations imposed by capacity-
constrained resources
To do this, the firm must simultaneously increase throughput, reduce inventory, and
reduce operating expenses
Maintain perfectly balanced capacity leads to many problems
Managing the flow through the bottlenecks is essential to the TOC approach.
Bottlenecks are identified by calculating the expected utilization (percentage
of capacity used) for each resource
Saving time on a bottleneck resource is the only way to increase throughput