Theory of Constraints Part II: TOC Concepts

Drum – Buffer – Rope (DBR) DBR is the TOC concept of production scheduling. Drum: Comes from a story in Eli Goldratt’s book “The goal”. Q: In a production facility, who sets the pace of the output? Ans.: The weakest link!

Drum – Buffer – Rope (DBR) In a group of scouts on a journey, the slowest boy is referred to as the Drum. Dictates the pace for the entire group.

Drum – Buffer – Rope (DBR) On the shop floor, bottleneck sets the pace. What if there are no bottlenecks on the shop floor? Ans.: Market demand is the drum! Once the drum is identified, the maximum pace can be determined.

Drum – Buffer – Rope (DBR) Concepts If the drum is a physical constrained resource, overall planning depends on the capabilities of the resource. That is, planning around the drum/bottleneck. Difference with MRP: MPS (Master Production Schedule) is created first! In TOC, MPS is the result of bottleneck planning. If drum is the market, MPS is generated from demand without considering capacity vs. load!

Drum – Buffer – Rope (DBR) Buffer: represents a protection for the drum. Ensures the drum never runs out of work. Can contain raw material to feed the drum. Can also contain ‘time’. Means providing enough time for the drum to finish its tasks. All resources that prepare input must be given enough time (including waiting and moving time) to overcome any delays.

Drum – Buffer – Rope (DBR) Difference between Buffer and Lead Time: Lead time* here applies to a single production step. Time Buffer covers area between Raw Materials to the Drum. If no bottleneck exists, it spans between Raw Materials and Shipping. Lead Time*- The total amount of time between the recognition of a required task, operation or process and its completion. Elements of lead time can include order entry, material accumulation, machine setup, queue, processing, move and other activities.

Drum – Buffer – Rope (DBR) Implements the buffer. A procedure to release materials only when the schedule dictates to do so. Prevents early release of material before it is due. Prevents accumulation of WIP. Materials

DBR Summary Once found, the constraint becomes the DRUM. Constraint should always be protected by a BUFFER. ROPES link constraint to control points for release of raw materials into the factory.

DBR Summary Give upstream (non-constraint) operations extra protective capacity to allow for surge capacity to feed the buffer in front of the constraint. Execute downstream operations asap to avoid any delays in the output of the constraint. In theory, flow of constrained parts should never stop until they reach the customer.

Analysis If decisions are made such that the organization can: Increase overall Throughput Decrease overall Inventory Decrease overall Operating Expense then, Decisions will be good for the business in general.

Continuous Improvement Throughput Analysis Decision Making Cost Based Continuous Improvement of Processes Key elements: System Throughput System Constraints

Are the Organization’s Operations Moving Towards the Goal? Three operational measurements: Throughput (TP) The rate at which the system makes money through sales; TP = Selling Price – Cost of Raw Materials Excludes labor  operating expense.

Are the Organization’s Operations Moving Towards the Goal? Three operational measurements: Inventory The money the system spends on things it intends to sell. Includes: Conventional inventory. Land. Vehicles, plant, equipment. Excludes: WIP Labor added.

Are the Organization’s Operations Moving Towards the Goal? Three operational measurements: Operating Expense† Moneys spent by the system turning Inventory into throughput. Includes moneys poured into a system to keep it operational. Heat, power, scrap materials, depreciation. † Those expenses in to the normal operation of the business, excluding interest expense and one-time charges. The actual expense a company incurs while maintaining a business. Also referred to as Overhead.

How to Compute Results for the Organization? Net Profit (NP) NP = Throughput – Operating Expense Return on Investment (ROI) ROI= (Throughput – Operating Expense) Inventory Productivity (P) P = Throughput / Operating Expense Turnover (T) T = Throughput / Inventory

Example

Relationship between TOC TQM JIT

TOC - TQM - JIT All created in the 80’s and 90’s. All claim to be the solution to existing management problems. At the end, they are different facets to the same philosophy!

TOC - TQM - JIT TQM Uses the concept of System System Thinking Process Measurement Never ending Process Improvement.

TOC - TQM - JIT TOC Is a focused methodology to perform SYSTEMS THINKING on the business entity as a whole. Focuses on making changes to constraints that limit System profitability

TOC - TQM - JIT JIT Emphasizes reduction of inventory and resource scheduling. Really an application of TOC to one aspect of the business.

TOC - TQM - JIT How does TOC fit with TQM? TQM TOC involves techniques for improvement. TOC Helps focus and follow through. TOC helps focus quality improvement efforts on the right place to improve.

TOC - TQM – JIT Relationship MRP

Theory of Constraints: TOC Concepts End of Part II

Adapted from: Schragenheim, Eli “The Theory of Constraints”, Lionheart Publishing, 1998. http://www.managementsupport.com/leantools.htm THE THEORY OF CONSTRAINTS: Making Process Decisions Under Conditions of Limited Resources, Capacities, or Demand - http://www.sytsma.com