1. Operations and Production Management
Group 6:
Travis Lawrence
David Evans
Kerry Savoury

2. Operations and Production Management
THEORY OF CONSTRAINTS (TOC)

3. What is TOC?
“An approach to management that focuses on whatever impedes progress toward the goal of maximizing the flow of total value-added funds or sales, less discounts and variable costs”

4. History of TOC A relatively recent development (20 years)
Developed by Eliyahu Moshe Goldratt, an Israeli physicist, educator, and management specialist
Became involved to help a friend who operated a plant that made chicken coops to design a scheduling system

5. History of TOC (cont’d)
His system tripled the output of the plant
Goldratt released (1984) the philosophy underlying the scheduling algorithm in a book, The Goal: A Process of On­going Improvement

6. What is a Constraint?
A constraint is anything in an organisation that limits it from moving toward or achieving its goal
For most business organisations the goal is to make money

7. Types of Constraints Two basic types of constraints:
Physical constraints
something like the physical capacity of a machine
Non-physical constraints
something like demand for a product or a corporate procedure

8. Types of Constraints Examples of Constraints: Demand Constraints
A constraint on output
Symptoms include:
large amounts of final product inventory
a production line running at a fraction of full capacity production

9. Types of Constraints Demand Constraints (cont’d)
A demand constraint means that the system has excess capacity given the demand for its product
Possible problems for demand might include:
a problem with marketing in which the customers are unaware of the system’s high quality product
the system may have a low quality product
the system may be producing an obsolete product

10. Types of Constraints Demand Constraints (cont’d)
In order to resolve the issue of excess capacity, each of the previous three problems need to be examined and resolved

11. Types of Constraints Production Constraints
Production constraints are issues that impeded a systems ability to achieve its maximum capacity
In-process inventories between production steps is often a symptom of a production constraint

12. Types of Constraints
Production Constraints are categorised into three types:
Policy constraints
Company or union policies or practice create the constraint and impede its long-term solution
It is the most frequent constraint
Machine capacity constraints
When a single (or small number of machines) on a line form a bottleneck

13. Types of Constraints Labour constraints
Insufficient labour (not having a skilled operator)
The general labour pool is insufficient to run a line to full capacity, including extra shifts if needed

14. Types of Constraints Raw Material Constraints
Raw material constraints are shortages in the raw materials necessary in making the product
This is why a relationship with one's vendors is so important

15. Applying TOC
The Theory of Constraints has been used at three different levels:
Production Management
Initially applied here to solve problems of bottlenecks, scheduling, and inventory reduction

16. Applying TOC Throughput Analysis
TOC has caused a shift from “cost-based” decision making to decision making based on “continuous improvement of processes”
Some key elements are:
System throughput
System constraints
Statistically determined protective capacities at critical points

17. Applying TOC Logical Processes
A general application to attack a variety of process problems within organizations
It is applied:
To identify what factors are limiting an organization from achieving its goals,
To developing a solution to the problem,
To get the individuals in the process to invent the requisite changes for themselves

18. The Process of Change
The traditional approach to a process change shows that local optimization does not work well for good of the overall system
A system can only operate as fast as it’s bottleneck

19. The Process of Change
Goldratt briefly outlined a process of change in 1990
He characterized it as:
What to change
What to change to
How to cause the change

20. The Process of Change Approached by the 5 following rules:
Define the system.
Define the goal of the system.
Define the necessary conditions.
Define the fundamental measurements.
Define the role of the constraint(s).

21. Implementing TOC There are five steps involved in implementing TOC:
Identify
Exploit
Subordinate
Elevate
Repeat

22. Identify – find the neck in our hourglass
Implementing TOC
Identify the system's constraints
Prioritize the processes so that just the constraints that really limit the system’s progress are identified $
Identify – find the neck in our hourglass

23. Implementing TOC Decide how to exploit the system's constraints
Decide how to manage the constraint within the system
Then manage the resources to provide what is needed to match the output of the constrained resources
Never let them supply more output than is needed

24. Expoit – remove any blockages from the neck
Decide how to exploit the system's constraints
Expoit – remove any blockages from the neck
Exploit – improve the value of the output $ $

25. Implementing TOC
Subordinate everything else to the system’s constraint
The constraints are keeping us from moving toward our goal
Apply all of the resources that we can to assist in breaking the constraint $
Subordinate – there is no point in forcing more in. It won’t come out any quicker

26. Implementing TOC Elevate the system's constraints
Continue to work toward breaking a constraint (also called elevating a constraint)
At some point the constraint will no longer be a constraint
The constraint will be broken $
Elevate: Make the hole bigger!!

27. Implementing TOC If the constraint is broken, return to Step 1
There will be another constraint, somewhere else in the system that is limiting progress to the goal

28. Implementing TOC Concluding:
The process must be reapplied, perhaps many times
TOC does not try to eliminate all problems, only those that threaten the constraint
Excessive effort in problem elimination is a waste

29. Implementing TOC Advantages: Improves capacity
Avoids build-up of inventory
Avoids local optimization
Improves communication between departments

30. Implementing TOC Disadvantages:
Negative impact on non-constrained areas
Diverts attention from other areas that may be the next constraint
The constraint must be kept operating at its full capacity

31. Operational Measurements
TOC defines three operational measurements that measure whether operations are working toward that goal
Throughput
The rate at which the system generates money through sales

32. Operational Measurements
Inventory
All the money the system invests in things it intends to sell
This is the total system investment, which includes not only conventional inventory, but also buildings, land, vehicles, plant, and equipment

33. Operational Measurements
Operating Expenses
All the money the system spends in turning inventory into throughput
This includes all of the money constantly poured into a system to keep it operating, such as heat, light, scrap materials and depreciation

34. Current Research
It is currently being refined and expanded at the Avraham Y. Goldratt Institute (named after Dr. Goldratt's late father)
The Goldratt Institute publishes The Theory of Constraints Journal on an irregular, approximately quarterly, basis

35. Theory of Constraints
Thank You
Questions???