© 2007 pearson education constraint management chapter 7
TRANSCRIPT
© 2007 Pearson Education
Constraint Constraint ManagementManagement
Chapter 7Chapter 7
© 2007 Pearson Education
How Constraint Management fits the Operations Management
Philosophy
Operations As a Competitive Weapon
Operations StrategyProject Management Process Strategy
Process AnalysisProcess Performance and Quality
Constraint ManagementProcess LayoutLean Systems
Supply Chain StrategyLocation
Inventory ManagementForecasting
Sales and Operations PlanningResource Planning
Scheduling
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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 BottleneckAn 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)
Short-Term Capacity Planning
Theory of Constraints Identification and
management of bottlenecks Product Mix Decisions
using bottlenecks
Long-term Capacity Planning
Economies and Diseconomies of Scale
Capacity Timing and Sizing Strategies
Systematic Approach to Capacity Decisions
Constraint Management
A systematic approach that focuses on actively managing constraints that are impeding progress.
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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
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%
Theory of Constraints in PracticeTheory of Constraints in Practice
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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 TimeSetup 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
1. Check loan documents and
put them in order
(10 minutes)
2. Categorize
loans(20
minutes)
3. Check for credit rating(15 minutes)
6. Complete paperwork for
new loan(10 minutes)
4. Enter loan application data into the system
(12 minutes)
Customer
5. Is loan
approved?(5 min)
Yes
No
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Barbara’s BoutiqueApplication 7.1
T1(12)
T6(22
)
T5(15
)
T2(13
)
T7(10)
T4(18)
T3-a(14)
T3-c(11)
T3-b(10)
Type
Type A
Type B
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?
• If 30% of customers are Type A customers and 70% are Type B, what is the average capacity?
• 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?
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Long-Term Capacity Planning
Short-Term Capacity Planning
Theory of Constraints Identification and management of
bottlenecks Product Mix Decisions using
bottlenecks
Long-term Capacity Planning
Economies and Diseconomies of Scale
Capacity Timing and Sizing Strategies
Systematic Approach to Capacity Decisions
Constraint Management
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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 unitQuantity discounts in purchasing materialsReduced construction costsProcess advantages
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Economies of Scale
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 250-bed hospital hospital 500-bed 500-bed
hospital hospital
750-bed 750-bed hospital hospital
Economies of Economies of scale scale
Diseconomies of Diseconomies of scale scale
Output rate (patients per week)Output rate (patients per week)
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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 reserve capacity a firm has available.capacity a firm has available.
Capacity Cushion = 100% Capacity Cushion = 100% −− Utilization Rate (%) Utilization Rate (%)
How much capacity cushion depends on How much capacity cushion depends on
• The uncertainty and/or variability of demandThe uncertainty and/or variability of demand
• The cost of lost businessThe cost of lost business
• The cost of idle capacityThe cost of idle capacity
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Capacity ExpansionExpansionist Strategy
Planned unused Planned unused capacity capacity
TimeTime
Ca
pac
ity
Ca
pac
ity
Forecast of Forecast of capacity required capacity required
Time between Time between incrementsincrements
Capacity incrementCapacity increment
Staying ahead of demand
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Capacity ExpansionWait-and-See Strategy
TimeTime
Ca
pac
ity
Ca
pac
ity
Forecast of Forecast of capacity required capacity required
Planned use of Planned use of short-term options short-term options
Time between Time between incrementsincrements
Capacity IncrementCapacity Increment
Chasing demandChasing demand
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Competitive Priorities
Quality
Process Design
Aggregate Planning
Linking Process Capacity and Other Decisions