1. Lecture of © Washington State University-2013 1 Introduction to TOC Topics DBR, Critical Chain, Replenishment Overview EM 530 Applications in Constraints Management jholt@wsu.edu http://etm.wsu.edu/ James R. Holt, Ph.D., PE Professor Engineering Management 151

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8. © Washington State University-2013 8 Introduction to the Theory of Constraints Every system is a subset of a larger system. Within any complex system there is one constraint (or very few). Three main factors impact every system:  Interdependence  Statistical Variation  Behavior of individuals (Humans trying to deal with the first two factors)

9. © Washington State University-2013 9 Emphasis for this Course Physical Processes  Process Flows Manufacturing, Paperwork, Service Processes  Project Management Scheduling Single Project, Multi Project  Distribution Systems Retail Model, Replenishment  Supply Chains Cooperative and Non-Cooperative Members

10. © Washington State University-2013 10 Class Materials Texts:  The Goal, Eli Goldratt  Critical Chain, Eli Goldratt  Project Management in the Fast Lane, Rob Newbold  Isn’t It Obvious? Eli Goldratt Software:  Production Simulation, Project Management Simulation, Lots of individual Games,  Excel based DBR model  Scitor PS8.5

11. © Washington State University-2013 11 Individual Learning Experiences Simulations: Mostly on you own Games:  Dice Game  Job Shop Game  Bead Experiment  Project Management Games  Supply Chain Game Research  Searching known areas  Searching publications

12. © Washington State University-2013 12 Process View of Systems Input Process OutputInput Process OutputInput Process Output Larger Process Input Process Output

13. © Washington State University-2013 13 System Complexity Division of Labor breaks down the linkages of complex systems into manageable chunks. Which is harder to manage? System A or B? System ASystem B

14. © Washington State University-2013 14 Interdependence 100 The excess capacity at some links is of little value since there is usually some other factor that prevents links from functioning at maximum capacity

15. © Washington State University-2013 15 Operational Efficiency Work flows from left to right through processes with capacity shown. ProcessABCDE RMFG Capability Parts 79586 per Day Excellent Efficiency--Near 100% Chronic Complainer Too Much Overtime Market Request 11

16. © Washington State University-2013 16 Behaviors Workers will find a way! ProcessABCDE RMFG Capability Parts 79586 per Day Market Request 11 Both found ways to look busy and appear to have a capacity of 5 parts/day. 55

17. © Washington State University-2013 17 Behaviors Workers will find a way! ProcessABCDE RMFG Capability Parts 79555 per Day Market Request 11 Process A slowed to reduce building WIP 55 Process B doesn’t have a choice

18. © Washington State University-2013 18 Then Variability Sets In Processing times are just AVERAGE Estimates ProcessABCDE FG Reality5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 RM

19. © Washington State University-2013 19 What does an Average of 50% mean? ProcessABCDE FG Reality5+/-2 5+/-2 5+/-2 5+/-2 5+/-2 Prob:0.50.50.50.50.5 Half the time there are 5 or more per day at each process--Half the time less RM Two at a time: 0.250.25 Over all:3.125% Chance of 5 per day

20. © Washington State University-2013 20 The TOC Approach to Solving Physical Problems The Five Focusing Steps  Step 1. Find the Constraint  Step 2. Decide How to Exploit the Constraint  Step 3. Subordinate all others to the Constraint  Step 4. Elevate the Constraint  Step 5. Warning!!! If the Constraint moves, start over at Step 1.

21. © Washington State University-2013 21 1. Identify the Constraint ProcessABCDE FG The Constraint is the “Drum” for total production (Identify can also mean ‘Select’) RM Reduced Capability Parts 55555 per Day

22. © Washington State University-2013 22 2. Exploit the Constraint ProcessABCDE FGRM Reduced Capability Parts 55555 per Day Make sure there is work available for the constraint just-in-case (Buffer)

23. © Washington State University-2013 23 3. Subordinate All Else ProcessABCDE FGRM Real Capability Parts 79586 per Day Each process should operate at maximum capacity (Road Runner Work Ethic)

24. © Washington State University-2013 24 Prevent Over Production ProcessABCDE FG RM Capability Parts 79586 per Day Control release of material to the process at the rate the constraint demands (Rope). The Art of Subordination.

25. © Washington State University-2013 25 Protect Yourself to be Predictable ProcessABCDE FG RM Capability Parts 79586 per Day Protect from Variability in Receiving Protect from Variability in Constraint

26. © Washington State University-2013 26 Step 4. Elevate the Constraint ProcessABCDE FG RM Capability Parts 79586 per Day When more capacity is needed than the constraint can produce, often it is necessary to increase the capacity of the constraint. 10

27. © Washington State University-2013 27 Step 5. Avoid Inertia ProcessABCDE FG RM Capability Parts 791086 per Day When the constraint moves, change your controls.

28. © Washington State University-2013 28 A better option, ProcessABCDE FG RM Capability Parts 1714101821 per Day To avoid the difficulty of constantly moving the constraint and changing culture, it is often better to elevate the whole chain rather than just the constraint. (McDonalds)

29. © Washington State University-2013 29 Simple Test 76 839 RM 1 RM 2 FG Demand 50 What is the constraint? Where are the buffers? The Rope?

30. © Washington State University-2013 30 Simple Diversion 20 40 5 RM 15 A 15 B 15 C FG Demand 10 18 What is the constraint? Where are the buffers? The Rope?

31. © Washington State University-2013 31 Tough Complex 20 10 12 RM1 RM2 RM3 RM4 RM5 6 A $$ 15 B$ FG Demand 1012 14 8 99 10 What is the constraint? Where are the buffers? The Rope?

32. © Washington State University-2013 32 Simple Complex 5RM FG Demand 5 5 5 5 5 5 3 5 5 5 5 5 5 5 What is the constraint? Where are the buffers? The Rope?

33. © Washington State University-2013 33 Projects as Processes Projects Are:  Unique  Dependent on Precedence  Activities Not Well Known  Highly Variable  Share Resources  Concurrent with Other Projects  Valued by Scope, Schedule and Cost

34. © Washington State University-2013 34 Project Problems Projects Are:  Usually Late  Have Too Many Changes  Often Over Budget  Lots of Rework  Many Priority Battles  Resources Not Available When Needed  Jeopardize Scope for Cost or Schedule

35. © Washington State University-2013 35 Projects are Balancing Acts Quality and Scope Timing and Schedule Budgeted Costs

36. © Washington State University-2013 36 Then things Combine Precedence Structure Statistical Variation Human Behavior Quality and Scope Timing and Schedule Budgeted Costs

37. © Washington State University-2013 37 And Reality Sets In Quality and Scope Timing and Schedule Budgeted Costs Precedence Structure Statistical Variation Human Behavior Bumpy Road of Reality

38. © Washington State University-2013 38 The Project Dilemma There is Always a Trade-Off Meet Original Commitments Meet Commitment in Danger Compensate for Early Mis- Estimates Not Jeopardize Other Original Commitments Not Compensate for Early Mis- estimates

39. © Washington State University-2013 39 Resolving Project Problem Options Meet Original Commitments Meet Commitment in Danger Compensate for Early Mis- Estimates Not Jeopardize Other Original Commitments Not Compensate for Early Mis- estimates Add more time&money and decrease scope Use our Safety Buffer Correctly

40. © Washington State University-2013 40 Consider the Aspects of Projects Good Statistics Central Limit Theorem (add enough things together and the total looks normal)

41. © Washington State University-2013 41 Typical Activity Duration Mean Standard Deviation Normal Duration Time Mean 50% Probable 85% Probable Project Task Duration Time

42. © Washington State University-2013 42 So, what is the Behavior? Engineering Pessimism: Estimate a safe value (85%) Assigned Date Time--> Parkinson's Law: “Work Expands to full the time available” (Just keep tweaking! More is better!) Engineering Optimism: I’m good, I can beat 50%. Level of Effort Student Syndrome: “Why start now? It isn’t due until Friday?” (There is more urgent work/party!) Empirical evidence shows most tasks complete on or after the due date

43. © Washington State University-2013 43 Engineering Perpetual Motion (overtime) Assigned Date Time--> Level of Effort Normal Work Load 1X Actual Work Load 2X

44. © Washington State University-2013 44 The result is Bad Multi- Tasking A1 A2 A3 B1 B2 B3 Ten Days Each Task Project Manager A Project Manager B

45. © Washington State University-2013 45 Politically Correct Schedule A1 A2A3 B1B2B3 1020 3040 30 Days Flow 50

46. © Washington State University-2013 46 More Like Actual Schedule A1 A2A3 B1B2 B3 1020 3040 40 Days Flow 50

47. © Washington State University-2013 47 Elements of the Project Management Solution Prioritize Don’t Schedule Conflicts Avoid Bad Multi-Tasking Don’t Release Too Early/Too Late Buffer Critical Chain  Buffers: Project / Feeding / Resources Schedule 50% Estimate Completion Communicate “Time Remaining” Negotiate Capability Not Dates No Milestones

48. © Washington State University-2013 48 TOC Flow Time A1A2A3 B1B2B3 1020 3040 20 Days Flow 50

49. © Washington State University-2013 49 Don’t Schedule Conflict Before After TOC Leveling

50. © Washington State University-2013 50 Buffer the Project and NOT Individual Activities Before with 85% Estimates TOC Aggregated Buffer of Activities Task Task Task Task Buffer Task Buffer Actual 50% Estimates with Individual Buffers

51. © Washington State University-2013 51 Protect the Critical Chain Project Buffer Feeding Buffer

52. © Washington State University-2013 52 Buffer Resources on the Critical Chain Project Buffer Feeding Buffer Lt. Green be ready Buffer Blue be ready Green be ready Cyan Resource be ready

53. © Washington State University-2013 53 Distribution System Retail Systems include time delay between demand cycles Production occurs to forecast Delivery Systems focus on efficiency--Transfer in large batches (long time between shipments) Errors in forecast are magnified ten fold Too much of the wrong inventory, too little of the right

54. © Washington State University-2013 54 Forecast Accuracy Now ---> Future Accuracy of Forecast 100% Point where the world changes Effective Response Zone Death Response Zone

55. © Washington State University-2013 55 Pushing Inventory to the Retail Store Manufacturing Warehouse Distribution Stores BEFORE

56. © Washington State University-2013 56 Locate Inventory Where it Provides Best Protection After-Fast Production-Fast Delivery Aggregated Variability Manufacturing Warehouse Distribution Stores

57. © Washington State University-2013 57 Supply Chain Processes Supply Chain is made up of many independent links (Businesses or Business Units) Individual links do not provide a completed product There is significant interface problems  Timing, Quality, Price, Value Links are in competition with each other / Leverage each other

58. © Washington State University-2013 58 Typical Supply Chain Raw Materials Refine / Prepare ProduceTransport DistributeRetailCustomer

59. © Washington State University-2013 59 Long and Short Duration Supply Chains Dairy Cows CreameryDeliverRetail Customer FarmerCanneryWholesaleRetail Customer

60. © Washington State University-2013 60 Complex Combinations Brakes Tires Bumpers Upholstery Engine Transmission Manuf. Car Lot Car Lot Car Lot

61. © Washington State University-2013 61 Dedicated Chains MineSmelter Rolling Mill Product Steel Sales Independent Business Unit Single Firm - Totally Owned Industry - Sole Source Transfer Prices Fixed by Policy

62. © Washington State University-2013 62 Competitive Chains Oil Well Refinery Chemical Plant Cloth Mill Dress Factory Customer Cloth Mill Cloth Mill Oil Well Refinery Chemical Plant Dress Factory Customer Oil Well Refinery Chemical Plant Dress Factory Customer Transfer Prices at Market Prices

63. © Washington State University-2013 63 DBR Approach to Supply Chains Raw Materials Constraint Machine Warehouse Constraint Buffer Protects Replenishment Shipping Buffer Protects Short Lead Demand Low inventory system is very responsive to customer needs. Low inventory system is product change.

64. © Washington State University-2013 64 In Non-Cooperative Worlds Raw Material Produce Constraint TransportDistribute Retail Customer ConstraintClient Supply Watch Diligently Just-in-Time Production Using DBR

65. © Washington State University-2013 65 Reference Supply Chains SnowRiverDamGenerator Power lines Electricity Customer Water Well Water Treatment Distribution Water Tower Local Lines Water Customer

66. © Washington State University-2013 66 In A Cooperative World Raw Material Produce Constraint TransportDistribute Retail Customer In the best world, individual business units cooperate and receive payment only when final customer pays. Inventory is greatly reduced. Quick delivery and response to change is possible. Individual Links Must Share the Profits and Risks

67. © Washington State University-2013 67 Homework Read THE GOAL as fast as possible. Play the Dice Game as outlined in the Self- Study Session1a of this class. Report on your findings by email to jholt@wsu.edujholt@wsu.edu You will receive an email grading in response. The overall class Homework Status is linked at the top of the schedule and under the Angel Tab. Keep Thinking! Dr Holt