THEORY OF Priyank Sinha

CONSTRAINTS
ELI GOLDRATT’S THEORY OF
CONSTRAINTS
Goldratt contends that manufacturers were not doing a good job in
scheduling and in controlling their resources and inventories
Goldratt developed software that scheduled jobs through
manufacturing processes
 It takes into account limited facilities, machines, personnel, tools, materials, and
any other constraints
 This was called optimized production technology (OPT)

Scheduling logic was based on the separation of bottleneck and

non-bottleneck operations
GOLDRATT’S RULES OF
PRODUCTION SCHEDULING
1. Do not balance capacity, balance the flow
2. The level utilization of a non-bottleneck resource is not
determined by its own potential but by some other
constraint in the system
3. Utilization and activation of a resource are not the same
4. An hour lost at a bottleneck is an hour lost for the entire
system
5. An hour saved at a non-bottleneck is a mirage
GOLDRATT’S RULES OF
PRODUCTION SCHEDULING
6. Bottlenecks govern both throughput and inventory in the system
7. Transfer batch may not, and many times should not, be equal to
the process batch
8. A process batch should be variable both along its route and in
time
9. Priorities can be set only by examining the system’s constraints,
and lead time is a derivative of the schedule
THEORY OF CONSTRAINTS
(TOC)
1. Identify the system constraints
2. Decide how to exploit the system constraints
3. Subordinate everything else to that decision
4. Elevate the system constraints
5. If, in the previous steps, the constraints have been broken, go
back to step 1, but do not let inertia become the system
constraint
GOLDRATT’S GOAL OF THE
FIRM
The goal of a firm is to make money
Organizations have many purposes
 Provide jobs
 Consume raw materials
 Increase sales
 Increase market share
 Develop technology
 Produce high-quality products

These do not guarantee the long-term survival of the organization

PERFORMANCE
MEASUREMENT
Financial
 Net profit-an absolute measurement in dollars
 Return on investment-a relative measure based on investment
 Cash flow-a survival measurement

Operational
 Throughput-the rate at which money is generated by the system through sales
 Inventory-all the money that the system has invested in purchasing things it
intends to sell
 Operating expenses-all the money that the system spends to turn inventory into
throughput

From an operations standpoint, the goal of the firm is to increase

throughput while simultaneously reducing inventory and reducing
operating expense
PRODUCTIVITY
Productivity typically measured in terms of output per labor hour
Does not guarantee profitability
 Has throughput increased?
 Has inventory decreased?
 Have operational expenses decreased?

Productivity is all the actions that bring a company closer to its

goals
UNBALANCED CAPACITY
In earlier sessions, we discussed balancing assembly lines
 The goal was a constant cycle time across all stations

Synchronous manufacturing views constant workstation capacity as

a bad decision
 Random variations must be handled using inventory
 When one process takes longer than the average, the time can not be made up
DEPENDENT EVENTS AND
STATISTICAL FLUCTUATIONS
The term dependent events refers to a process sequence
 A flows to B, B flows to C, and C flows to D
 Each must be completed before moving on to the next
 The ability to do the next process is dependent on the preceding one

Statistical fluctuation refers to the normal variation about a mean or average

When statistical fluctuations occur in a dependent sequence without any
inventory between workstations, there is no opportunity to achieve the
average output
When one process takes longer than the average, the next process cannot
make up the time
Rather than capacities being balanced, the flow of product through the
system should be balanced
PROCESSING AND
COMPLETION TIMES,
PROCESS A TO PROCESS B
BOTTLENECKS, CAPACITY-
CONSTRAINED RESOURCES AND
SYNCHRONOUS MANUFACTURING
Capacity: the available time for production
Bottleneck: what happens if capacity is less than demand placed
on resource
Nonbottleneck: what happens when capacity is greater than
demand placed on resource
Capacity-constrained resource (CCR): a resource where the
capacity is close to demand on the resource
THE BASIC BUILDING BLOCKS OF
MANUFACTURING DERIVED BY
GROUPING PROCESS FLOWS
METHODS FOR
SYNCHRONOUS CONTROL
TIME COMPONENTS
1. Setup time: the time that a part spends waiting for a resource
to be set up to work on this same part
2. Process time: the time that the part is being processed
3. Queue time: the time that a part waits for a resource while the
resource is busy with something else
4. Wait time: the time that a part waits not for a resource but for
another part so that they can be assembled together
5. Idle time: the unused time that represents the cycle time less
the sum of the setup time, processing time, queue time, and
wait time
SAVING TIME
Bottlenecks govern both throughput and inventory in the system
An hour saved at the bottleneck adds an extra hour to the entire
production system
An hour saved at a non-bottleneck is a mirage and only adds an
hour to its idle time
DRUM, BUFFER, ROPE
Every production system needs some control point or points to
control the flow
If the system contains a bottleneck, it is the best place for control
This control point is called the drum
 It strikes the beat that the rest of the system uses to function

If there is no bottleneck, the next-best place to set the drum would

be a capacity- constrained resource
There are two things that we must do with a bottleneck
1. Keep a buffer inventory in front of it
2. Communicate back upstream
 This communication is called the rope
LINEAR FLOW OF PRODUCT
WITH A BOTTLENECK
IMPORTANCE OF QUALITY
An MRP system allows for rejects by building a larger batch than
actually needed
A JIT system cannot tolerate poor quality because JIT success is
based on a balanced capacity
Synchronous manufacturing is more tolerant than JIT systems
 Excess capacity throughout system
 Except for the bottleneck
 Quality control needed before bottleneck
BATCH SIZES
What is the batch size?
 One?
 Infinity?

Larger batch sizes require fewer setups and therefore leave more
time for processing
 Desirable for bottleneck resources

For nonbottleneck resources, smaller batch sizes are desirable

 Reduces WIP inventory
HOW TO DETERMINE
PROCESS BATCH AND
TRANSFER BATCH SIZES
1. A bottleneck with no setup required when changing from one
product to another
 Process jobs in the order of the schedule
 Without setups, only sequence is important

2. A bottleneck with setup times required to change from one

product to another
 Large batch sizes combine separate jobs into the sequence
 This means reaching ahead in the schedule
 Some jobs will be done early
 Large batches saves setup and increases throughput
HOW TO DETERMINE
PROCESS BATCH AND
TRANSFER BATCH SIZES
CONTINUED
A capacity constrained resource (CCR)
3. With no setup required to change from one product to another
4. With setup time required when changing from one product to another

Handling similar to a nonbottleneck

 Smaller batches so there can be more frequent changes of product
 Decreased lead time
HOW TO TREAT INVENTORY
Traditional view is the only negative impact of inventory is carrying
cost
However, can also lengthen lead times and create problems with
engineering changes
 Less WIP reduces the number of engineering changes

From a constraint management perspective, inventory is a loan

given to the manufacturing unit
DOLLAR DAYS
Dollar days: a measurement of the value of inventory and the
time it stays within an area
We could simply multiply the total value of inventory by the
number of days inventory spends within a department
Techniques can be instituted to try to reduce the number of dollar
days
 Need to be careful that a measure does not become a local objective and hurt
the global objectives
EXAMPLE: WHAT TO
PRODUCE?
Three products are sold in the market
 A, $50
 B, $75
 C, $60

The market will take all that can be supplied

Three workcenters (X, Y, and Z) process the three products
 Times given on next slide

Raw materials, parts, and components are added at each workcenter

to produce each product
 Shown on next slide

What should be produced?

PRICES AND PRODUCTION
REQUIREMENTS FOR
THREE PRODUCTS AND
WORK CENTERS
DATA
SOLUTION
Three different objectives could exist that lead to different
conclusions
1. Maximize sales revenue because marketing personnel are paid commissions
based on total revenue
2. Maximize per unit gross profit
3. Maximize total gross profit

In this example, we use gross profit as the objective and provide a

solution
Other objectives can be worked out similarly
PROFIT PER HOUR
CALCULATIONS

• It is clear that product C provides the highest profit per hour

• In order to maximize total gross profit, the firm should produce
as much of the C as possible