Transcript KRM Chapter 7 Constraint Management

Constraint
Management
Chapter 7
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How Constraint Management
fits the Operations Management
Philosophy
Operations As a Competitive
Weapon
Operations Strategy
Project Management
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Process Strategy
Process Analysis
Process Performance and Quality
Constraint Management
Process Layout
Lean Systems
Supply Chain Strategy
Location
Inventory Management
Forecasting
Sales and Operations Planning
Resource Planning
Scheduling
Eastern Financial
Florida Credit Union
What was the problem?
How did they solve it?
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Capacity Planning
Capacity is the maximum rate of output
of a process or system.
Output Measures
Input Measures
Utilization
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Output and Capacity
 What is a Constraint?
 Any factor that limits system performance and
restricts its output.
 A Bottleneck
 An output constraint that limits a company’s ability
to meet market demand.
 Also called Capacity Constraint Resource or CCR
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Theory of Constraints (TOC)
 A systematic approach that focuses on actively
managing constraints that are impeding
progress.
Constraint Management
Short-Term Capacity Planning
Long-term Capacity Planning
 Theory of Constraints
 Identification and
management of bottlenecks
 Product Mix Decisions
using bottlenecks
 Economies and
Diseconomies of Scale
 Capacity Timing and Sizing
Strategies
 Systematic Approach to
Capacity Decisions
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7 Key Principles of TOC
1.
The focus is on balancing flow, not on balancing
capacity.
2.
Maximizing output and efficiency of every resource
will not maximize the throughput of the entire
system.
3.
An hour lost at a bottleneck or constrained resource
is an hour lost for the whole system.
An hour saved at a non-constrained resource does
not necessarily make the whole system more
productive.
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7 Key Principles of TOC
4.
Inventory is needed only in front of the bottlenecks to
prevent them from sitting idle, and in front of
assembly and shipping points to protect customer
schedules. Building inventories elsewhere should be
avoided.
5.
Work should be released into the system only as
frequently as the bottlenecks need it. Bottleneck
flows should be equal to the market demand. Pacing
everything to the slowest resource minimizes
inventory and operating expenses.
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7 Key Principles of TOC
6.
Activation of non-bottleneck resources cannot
increase throughput, nor promote better performance
on financial measures.
7.
Every capital investment must be viewed from the
perspective of its global impact on overall throughput
(T), inventory (I), and operating expense (OE).
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Application of TOC
1. Identify The System Bottleneck(s).
2. Exploit The Bottleneck(s).
3. Subordinate All Other Decisions to
Step 2
4. Elevate The Bottleneck(s).
5. Do Not Let Inertia Set In.
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Bal Seal Engineering
Managerial Practice 7.1
Theory of Constraints in Practice
 Bal Seal had problems with excessive inventory, long
lead times and long work hours.
 They were operating above capacity but on-time
shipment rate was 80-85%
 Bal Seal implemented TOC with dramatic and almost
immediate results.
 Excessive inventory dried up
 Extra capacity was experienced everywhere but at the
constraint
 Total production increased over 50%
 Customer response time decreased from 6 weeks to 8 days
 On-time shipments went up to 97%
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Identification and
Management of Bottlenecks
 A Bottleneck is the process or step which has
the lowest capacity and longest throughput.
 Throughput Time is the total time from the
start to the finish of a process.
 Bottlenecks can be internal or external to a
firm.
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Setup Time
 If multiple services or products are involved,
extra time usually is needed to change over
from one service or product to the next.
 This increases the workload and could be a
bottleneck.
 Setup Time is the time required to change a
process or an operation from making one
service or product to making another.
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Where is the Bottleneck?
Example 7.1
Customer
No
3. Check for
credit rating
(15 minutes)
1. Check loan
documents and
put them in
order
(10 minutes)
2.
Categorize
loans
(20
minutes)
Yes
6. Complete
paperwork for
new loan
(10 minutes)
4. Enter loan
application data
into the system
(12 minutes)
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5. Is
loan
approved?
(5 min)
Barbara’s Boutique
Application 7.1
Two types of customers enter Barbara’s Boutique shop for customized
dress alterations. After T1, Type A customers proceed to T2 and then to any
of the three workstations at T3, followed by T4, and then T7. After T1, Type
B customers proceed to T5 and then T6 and T7. The numbers in the circles
are the minutes it takes that activity to process a customer.
• What is the capacity per hour
for Type A customers?
T3-a
(14)
Type A
T1
(12)
T2
(13
)
T3-b
(10)
Type B
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T4
(18)
T3-c
(11)
Type
T5
(15
)
• If 30% of customers are Type
A customers and 70% are
Type B, what is the average
capacity?
T7
(10)
T6
(22
)
• When would Type A
customers experience waiting
lines, assuming there are no
Type B customers in the shop?
• Where would Type B
customers have to wait,
assuming no Type A
customers?
Long-Term
Capacity Planning
Constraint Management
Short-Term Capacity Planning
Long-term Capacity Planning
 Theory of Constraints
 Identification and management of
bottlenecks
 Product Mix Decisions using
bottlenecks
 Economies and Diseconomies
of Scale
 Capacity Timing and Sizing
Strategies
 Systematic Approach to
Capacity Decisions
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Long-Term
Capacity Planning
 Deals with investment in new facilities and
equipment.
 Plans cover a minimum of two years into the
future.
 Economies of scale are sought in order to
reduce costs through
 Lower fixed costs per unit
 Quantity discounts in purchasing materials
 Reduced construction costs
 Process advantages
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Economies of Scale
Average unit cost
(dollars per patient)
 Economies of scale occur when the average unit
cost of a service or good can be reduced by
increasing its output rate.
 Diseconomies of scale occur when the average
cost per unit increases as the facility’s size increases
250-bed
hospital
500-bed
hospital
Economies of
scale
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750-bed
hospital
Diseconomies of
scale
Output rate (patients per week)
Capacity Timing and
Sizing Strategies
1. Sizing Capacity Cushions
2. Timing and Sizing Expansions
3. Linking Process Capacity and other
operating decisions.
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Capacity Cushions
A capacity cushion is the amount reserve
capacity a firm has available.
Capacity Cushion = 100% − Utilization Rate (%)
How much capacity cushion depends on
• The uncertainty and/or variability of demand
• The cost of lost business
• The cost of idle capacity
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Capacity Expansion
Expansionist Strategy
Staying ahead of demand
Capacity
Planned unused
capacity
Capacity increment
Time between
increments
Time
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Forecast of
capacity required
Capacity Expansion
Wait-and-See Strategy
Chasing demand
Capacity
Planned use of
short-term options
Capacity Increment
Time between
increments
Time
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Forecast of
capacity required
Linking Process Capacity
and Other Decisions
Competitive Priorities
Quality
Process Design
Aggregate Planning
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