Production Planning and Inventory

Lec10 - theory of constraints Control Class 2024

Philosophy and Basic Principles

• Holistic philosophy
• Throughput-based thinking
• Focusing on the constraint
Types of Constraints

• Throughput-based
• Internal: physical resource constraint
• External: market constraint
• Behavior-based
• Lack of understanding of causes and effects of problems
• Not knowing where to start making improvements
Problem-Solving Tools

• Five focusing steps

• Thinking process—six logic trees answer the
following questions:
• What should be changed?
• What should it be changed to?
• How should a change be created?
VATI Analysis

Logical product diagrams

= Finished products
or = Process
= Raw Material
 Problem 10.1
Match these products to the flow that fits their
production:

a. Jet engine

b. Steel products

c. Packaged food products

d. Personal computers
 Problem 10.1 Solution
Match these products to the flow that fits their
production:

a. Jet engine

b. Steel products

c. Packaged food products

d. Personal computers
 Drum-Buffer-Rope Planning
Step 1 Identify the constraint.

Capacity shown assumes a 24-hours-per-day, 7-days-per-week operations schedule.

A B C D E
150/hr 140/hr
110/hr 80/hr 140/hr
140/hr 210/hr
Raw
material Ship

If the market demand = 500 per hour, C = the active bottleneck.

If the market demand = 75 per hour, C = capacity-constrained resource.
If the market demand = 50 per hour, the market is the constraint.
Problem 10.2

A B C D E
150/hr
300/hr 140/hr
280/hr 280/hr
80/hr 140/h
160/hr 210/hr
420/hr
Raw
material Ship

a. If the market demand = 600 per hour, what is the active

bottleneck?
b. If the market demand = 80 per hour, what is the constraint?
c. If the market demand = 150 per hour, what is the role of resource
D?
Problem 10.2 Solution

A B C D E
150/hr
300/hr 140/hr
280/hr 280/hr
80/hr 140/h
160/hr 210/hr
420/hr
Raw
material Ship

a. If the market demand = 600 per hour, D is the active

bottleneck.
b. If the market demand = 80 per hour, the market is the
constraint.
c. If the market demand = 150 per hour, resource D is the
CCR.
 Drum-Buffer-Rope Planning
Step 2 Exploit the constraint.

Market demand = 75 per hour

A B C D E
150/hr 140/hr
110/hr 80/hr 140/hr
140/hr 210/hr
Raw
material Ship

• Exploit = use the constraint to the maximum:

• Ensure quality of material.
• Stagger work breaks.
• Perform preventive maintenance.
• Create a realistic finite schedule at resource C (the drum).
 Drum-Buffer-Rope Planning
Step 3 Subordinate everything to the constraints.

Market demand = 75 per hour

Rope
Drum Protective capacity

A B C D E
150/hr
150/hr 110/hr
140/hr 80/hr r
140/hr
140/h 210/hr
210/hr
Raw
material Ship

Constraint buffer Shipping buffer

(five-hour lead time) (three-hour lead time)

Stock buffer Stock buffer Stock buffer

Problem 10.3

A
G B
H C
I D
J K
E
150/hr
10 140/hr
5 80/hr
9 140/h
8 210/hr
7
Raw
material Ship
Capacity = units/day

Where is the drum?

Where should stock buffers be located?

Where is the rope?

Problem 10.3 Solution

A
G B
H C
I D
J K
E
150/hr
10 140/hr
5 80/hr
9 140/h
8 210/hr
7
Raw
material Ship
Capacity = units/day

The drum is at H.

The stock buffers should be located before raw

material, H, and shipping.
The rope goes from H to raw material.
 Buffer Management
Monitoring the buffers
Red zone Red zone: Expedite.
Yellow zone Yellow zone: Monitor.
Green zone Green zone: Don’t worry.

Red zone Red zone

Green zone Yellow zone Green zone Yellow zone

A B C D E
150/hr
150/hr 110/hr
140/hr 80/hr
80/hr 140/hrr
140/h 210/hr
210/hr
Raw
material Ship
 Drum-Buffer-Rope Planning
Step 4 Elevate the constraint.

Market demand = 75 per hour

A B C D E
150/hr
150/hr 110/hr
140/hr 80/hr
80/hr 140/hrr
140/h 210/hr
210/hr
Raw
material Ship

• If Steps 2 and 3 are not sufficient or market conditions change,

• add new equipment
• reorganize
• make other productivity improvements.
 Drum-Buffer-Rope Planning System
Step 5 Find new constraint and repeat cycle.

• Five focusing steps

Identify the
• A process to continuously constraint.
improve organizational
profit by evaluating the
production system and Exploit the
Start over.
market mix to determine constraint.
how to make the most
profit using the system
constraint

Subordinate
Elevate the
everything
constraint.
else.
 Simplified Drum-Buffer-Rope
The market is the constraint.
Market demand = 20 per hour

A B C D E
150/hr
150/hr 110/hr
140/hr 80/hr
80/hr 140/hrr
140/h 210/hr
210/hr
Raw
material Ship

Shipping buffer
(eight-hour lead time)
 Throughput Accounting
• A management accounting system for evaluating steps to elevate
the constraint in TOC planning
• (T) Throughput ($)
• Throughput $ = sales revenue – true variable costs (TVC)
• (I) Investment (inventory, equipment, and so on)
• (OE) Operating expense
• Operational decisions are evaluated in the following order:

Priority 1 Priority 2 Priority 3

Impact on T Impact on I Impact on OE

TVC = cost of raw materials and sales commissions

Critical Chain

• TOC principles have influenced the use of the

critical chain method in project management in the
following ways:
• Individual tasks are not as important as the goals of the
system.
• It is important to manage constrained resources.
• It is important to protect (minimize) manufacturing lead
time by strategic buffering to prevent delays.
Distribution

• Hold inventory near the factory.

• Use a pull system to replenish distributors from
factory.
• Use a periodic review system to reorder.
• Monitor inventory against target levels as in buffer
management (zones).
• Place orders frequently and in small quantities.
• Combine orders for economies of full-truckload
deliveries.