Theory of Constraints

Changing the Fate

Eli’s struggle to change the mindsets of the people :

Weight Analogy - To reduce the weight of whole chain

reduce the weight of every link.

Strength Analogy - Weakest like decides the strength of chain

hence optimize only the weakest link.
New Performance Measures :

 Throughput.

 Inventories.

 Operating Expenses.

What was need to develop new performance measures ?

What was need to develop new performance measures ?

 No inter-relation between Profit and Productivity

 Most of the decisions made by CEOs were wrong.

 Why companies were earning profits ?

 TOC’s Measures
 P = T – OE.
ROI = (T- OE)/ I
Productivity = T/ OE.
Management Priorities :

 Conventional

OE , I , T.

 Japanese
I , OE , T.

 TOC
T , I , OE.
 Misunderstandings about TOC

It is applicable for manufacturing only.

It is not helpful when bottle-neck is not there.

TOC is not a systematic methodology.

Where TOC is applicable ?

For Profits institutions

Operations.
Supply Chain.
Finance.
Sales.
Marketing
HR.
Project Management.
Where TOC is applicable ?

Continued…

Non Profits institutions

Hospitals.
Schools and Colleges.
 Magic Sticks – Tools of TOC :

Five step methodology - Increases the throughput drastically with or

without any [Link] few days to few months for
implementation.

Strategic Thinking Process( STP / TP) – Eliminates all the

problems of business just by changing policies.

Critical Chain Project Management. ( CCPM) –

Reduces the project lead times drastically without spending more

money or changing specifications of the project..

 Various tools of TOC : Continued…

Five Step Methodology

 Identify.

 Exploit.

 Sub-Ordinate.

 Elevate.

Return Back to Step 1.

 Various tools of TOC : Continued…

Thinking Process :

 Current Reality Tree (CRT).

 Conflict Resolution Diagram / Evaporating Cloud.(CRD/EC).

 Future Reality Tree (FRT).

 Pre-Requisite Tree (PRT).

 Transition Tree (TT).

What is a Constraint ?

 Anything that prevents system from achieving it’s GOAL.

 If you will not manage your constraints , constraints will

manage you.
Classifications of Constraints ?

 Depending on the location of constraints

Vendor Constraint - Unable to fulfill Raw Material Demand.

Resource Constraint - Unable to fulfill market demand.

Market Constraint - Demand is less than supply.

 Depending on it’s measurability

 Physical Constraint - Tangible.

 Policy Constraint - Intangible.

Organization must give top priority to the constraint only.

Constraints :-

Vendors

Vendors Manufacturing Market

Vendors

Vendor Resource Market

Constraint. Constraint. Constraint.

Policy Constraints.
Operations :
continued...

100 100 80 100 100

A B C D E

Flow of Work.

•Production in 8 hrs = 640 Units.

•Resource C is Constraint Resource.
•If one hr is lost on C production will be 560 Units.
•Every minute lost on bottleneck resource is loss of whole plant capacity.
•This may not be true for Non - Bottleneck resource.
Operations :
continued...

100 100 80 100 100

A B C D E

Flow of Work.

•How to protect the capacity of the Bottleneck Resource ?

•By adding a buffer - Exactly opposite of current norms of zero inventory.

•Buffer will ensure full utilization of resource C even if A & B fails.

Operations :
continued...
When the line is perfectly balanced

100 100 100 100 100

A B C D E

Flow of Work.

Now there is no bottleneck.

But activities are inter-dependent and statistical fluctuations are there

Operations :
continued...

A ( Capcity 5 B ( Capcity 5
Inventory Output
Units) Units)
5 0 5 5
4 0 5 4
5 1 4 4
4 0 4 4
0.25 Average 4.25

Average Inventory = 0.25

Average Production = 4.25
Operations :
continued...

A ( Capcity 5 B ( Capcity 5
Inventory Output
Units) Units)
5 1 5 5
4 1 5 5
5 1 4 4
4 1 4 4
1 Average 4.5

Average Inventory = 1
Average Production = 4.5
12.5 % rise in T.
Operations :
continued...
When process failure takes place at the same simultaneously on all resources :

100 100 100 100 100

A B C D E

Flow of Work.

10% 5% 0% 10% 8%

90 90 90 90 90
Operations :
continued...
When process failure takes place at different times on all resources :

100 100 100 100 100

A B C D E

Flow of Work.

10% 5% 0% 10% 8%

90 85.5 85.5 77 71
Operations :
continued...

How to overcome these fluctuations ?

•Investing money in new machines or technologies.

•Investing money in new raw material.

•Preventive Maintenance.
Operations :
continued...
When it is possible to hold WIP :

100 100 100 100 100

A B C D E
10 5 10

10% 5% 0% 10% 8%
90(10) 95(5) 100 90(10) 92

Adding the inventory of 25 units T increased by 30%.

Conclusions :

 Inventory can’t be all bad. We can’t produce without inventory.

 Reducing inventory is certainly right , but some level of

inventory

is not only good ,but absolutely necessary.

 Bad symptoms of having too much inventory are almost identical
to the bad symptoms of having toll little.
A wrong decision in above areas can prove disaster for company.

A smart decision in the above can change FATE of the company.

 Thank You
Your Questions ?