Description
This is a presentation describes on the Theory of constraints in detail.Its in context of The Goal written by Mr Goldratt.
Theory of Constraints
Introduction
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?
? ?
?
Theory of Constraints (TOC) first described by Dr. Eliyahu M. Goldratt in his novel, “The Goal” in 1984 Subsequently introduced the theory in “Theory of Constraints” in 1990 A system oriented process improvement methodology that aims to continually achieve more of the goal of a system “The Goal of a firm is to make money” Constraint : anything that limits a system from achieving its desired goal or level of performance ? Internal – 1)Capacity of particular machines or workstations, 2)Transportation bottlenecks in production process ? External – 1) availability of sufficient raw materials 2) government regulations 3) Brand awareness Two primary collections of work ? Five focusing steps and their applications to operation ? The Thinking processes and their application to PM and human behavior
Performance of Measurement
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?
?
Financial Measurement – used to measure the firm?s ability to make money ? Net Profit, Return on Investment, Cash Flow Operations Measurement – forms the backbone of Throughput Accounting ? 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. Goal of firm is “to increase throughput while simultaneously reducing inventory and operating expenses”
Bottlenecks and CCR
Bottleneck : Any resource whose capacity is less than the demand placed on it Capacity : Available time for production CCR : Utilization is close to capacity and could be a bottle neck in future
The Five focusing steps
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Step Zero : Articulate the goal of the organisation Step One : Identify the constraint (the thing that prevents the organization from obtaining more of the goal) Step Two : Decide how to exploit the constraint (make sure the constraint is doing things that the constraint uniquely does, and not doing things that it should not do) Step Three : Subordinate all other processes to above decision (align all other processes to the decision made above) Step Four : Elevate the constraint (if required, permanently increase capacity of the constraint) Step Five : If, as a result of these steps, the constraint has moved, return to Step 1. Don't let inertia become the constraint
How to Implement Five steps
? ? ?
Understanding the interdependencies between and across processes that contribute to delivering a product or service Understanding the impact that those interdependencies and normal variability have on their combined, overall performance Appropriately buffering for interdependencies and normal variability so that that performance can be predictably and consistently high
The Thinking Process
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What to Change? To what to change? How to change? How to overcome resistance to change? Overcoming resistance to change
What to change?
? ? ? ?
Identify the core problem from all the symptoms Identify Core conflict – an unresolved conflict that keeps Organisation trapped in a tug of war. Core conflicts are devastating Organizations need to create policies, measurements and behaviors in attempts to control Core Conflicts.
To what to change?
? ? ? ?
Challenging the logical assumptions behind the Core Conflict, a solution is identified Strategy - starting point for the development of a complete solution Strategy includes changes to the policies, measurements and behaviors identified in What to Change along with Goal of firm. Identify the potential-negative side effects of strategy and ways to mitigate it.
How to cause a change?
? ? ?
Transition plan to be developed considering organisational culture Creating a plan for implementing the strategy including what actions must be taken, by whom and when. Build active consensus and collaboration, or buy-in is crucial to avoid resistance to change
Six Layers of Resistance to Change
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Layer 1: Has the right problem been identified? Layer 2: Is this solution leading us in the right direction? Layer 3: Will the solution really solve the problems? Layer 4: What could go wrong with the solution? Are there any negative side-effects? Layer 5: Is this solution implementable? Layer 6: Are we all really up to this?
?
?
?
?
?
OVERCOMING RESISTANCE TO CHANGE
?
TOC has developed a process based on the psychology of change that acknowledges and systematically addresses the questions people intuitively ask when evaluating a change Is the right problem being addressed - mine? Is the general direction that the solution is heading a good one? Will the solution really work to solve the problems and what?s in it for me? What could go wrong? Who might get hurt? How are we going to implement this thing? Are we really up to this? Do we have the leadership and the commitment to pull this change off successfully?
? ? ?
? ? ?
Tools for Problem Solving
? ?
? ? ? ?
Evaporating Cloud : construct of necessity logic Current Reality Tree (CRT) : sufficiency based logic to describe an existing situation, understand how various issues are related to each other ……. ”WHAT TO CHANGE?” Future Reality Tree (FRT) : new proposed actions, policies injected to create a new vision of the future reality of system …..”WHAT TO CHANGE TO?” Negative Branch Reservation (NBR) : Undesirable, negative result if we act on an injection in the future Prerequisite Tree (PRT) : Identify all possible obstacles and an „intermediate objective? to overcome them Transition Tree (TRT) : Information needed to build a detailed action plan, assess its ability to deliver results……”HOW TO MAKE THE CHANGE HAPPEN?”
MANAGING PRODUCTION PROCESSES
?Job
Shops ? process where similar machines, or people who are doing similar operations, are grouped together ? Work moves in a sequence between these specialist areas, sometimes flowing back the way it came to a previous area before continuing on in the process ?simple example might be a small engineering firm. ? Each job in the process could be unique or it could be a repetition of a standard design ?Flow Shops ? machinery or people are sequenced throughout the plant in the order that most work will require ? Each job could consist of a single unit or a batch of many units. ?The flow shops are not truly continuous. The reasons are that the items in the process are discrete, made of individual parts, rather than non-discrete like a liquid or a crushed ore ? The truly continuous industries are in the primary or extractive industries – pulp and paper, petrochemical, and dairy.
Flow Shop Layout – VATI Analysis: V - PLANT
?The V-plant is divergent in nature ?Undifferentiated raw material, maybe steel coil in a steel mill or saw logs in a saw mill, travels through a variety of paths to produce a range of products ?However, once a product has passed a divergence point, it can?t travel backwards. You can?t unsaw a 2 by 4 into a 4 by 4 ? V-type or divergent plants are the plants of basic producers, converters, and fabricators.
A - PLANT
?Multiple different starting materials are combined and assembled into a final product ? At each step of the process the assembly can only take place if all the other parts are also ready for assembly. ? A-type or convergent plants are the plants of assembly works.
T - PLANT
?A limited number of basic units in multiple configurations are assembled into a wide variety of final products. ?T-type plants, like A-type plants, are also the plants of assembly works. ?Differences in size, finish, and combination can lead to explosion of product possibilities at assembly. ? example of a T-plant is a faucet manufacturer, although it is likely many electronic assembly plants are quite similar
I - PLANT
?Simplest of the plant types ?A joinery shop is a good examplehere multiple different starting materials are combined and assembled into a final product. ? At each step of the process the assembly can only take place if all the other parts are also ready for assembly.
Industry Applications
?
?
Types of Industries using TOC : Accounting, Automotive, Manufacturing, Services, Telecommunications, Steel, Healthcare, Textile Success Stories : ? Seagate Technology Seagate implemented TOC and brought the first 15,000 rpm disc drive to market ahead of its competition ? Lucent Technologies Lucent's Outside Plant Fibre Optic Cable Business Unit reduced its product introduction interval by 50%, improved on-time delivery, and increased the organization's capacity to develop products ? Kiowa Corporation With TOC, Kiowa was able to reduce its start-up time on new projects by 60%, resulting in increased business with existing customers, and landing new customers which created a 40% growth in revenue ? Gunze Using the TOC Supply Chain Solution, a division of Gunze (Japan) realigned its business systems to meet 2004 goals by the third quarter of 2002.
Effectiveness
Effectiveness
Some results reported by Customers are ; ? 41 % reduction in cycle time = $7 million savings in capitalization ? New Product Introduction cycle times reduced 50 % ? 21 % increase in Net Sales ? Tripled development capacity with no staffing increases ? 80 % increase in Operating Profit ? New job startup in 60 % less time ? 100 % on-time delivery ? 40 % growth in revenues ? $5.5 million dollars growth in revenue per year ? 300 % increase in net profit ? Gross Margin increase from 29 to 41 % ? Pre-tax profit improvement in excess of 3,500 %
Hitachi Tool Engineering (HTE)
? ? ?
?
Japanese company designing and manufacturing cutting tools „End mills? Profitable due to technological skills, substantial market growth Problems in Yasu plant prior to TOC implementation ? High Frequency of Stockouts ? Delayed deliveries ? High Levels of Inventory, Product obsolescence ? 2 months high lead time CRT prepared with a list of undesirable effect like ? finished good shortages were common ? longer replenishment lead times ? excessive costs ? Significant quantities of product became obsolete ? loss of sales
TOC Implementation
?
Step wise TOC Implementation ? The resource responsible for grooving the End-mills at a slant and attaching the end cutting edge identified as the bottleneck ? Work sample used to scrutinize existing work procedures at the bottleneck process; setup time for changeovers found to be high ? A buffer of 3 days worth of bottleneck production set prior to bottleneck operation, rule established that material inputs into system should proceed as per production speed of bottleneck ? Reduce Online setup times at bottleneck resources by at least 50%, purchase new equipments/maintenance for old ones Subsequent TOC implementations at Narita plant and all across organization
?
Results of TOC Implementation
? ? ? ? ? ? ?
?
? ? ? ?
On-line setup times had been cut by more than half. Yasu plant was shipping 20% more product than previous year WIP Inventory reduced by nearly 50% First run quality rate increased from 93% to 97% Overall loss due to defective product reduced by 50% Production lead time reduced from 40 to 16 days Due date performance increased from 40% to 85% Production capacity increased by 20% Company sales increased from 15.3 billion Yen to 20 billion Yen Bottom line profitability increased from 921 million Yen in 2002 to over 4 billion Yen in 2004 Profit as a percentage of sales exceeded 20% in 2004 Stock price doubled from 400 in October 2000 to 920 in October 2004
Summary
? ? ? ?
?
? ?
Theory of Constraints is an all encompassing theory which can be applied to most of the management functions The solution for supply chain is to move to a replenishment model, rather than a traditional forecast model. Throughput accounting -The solution for finance and accounting is to apply holistic thinking to the finance application. Critical Chain concept -In Project management In marketing & sales a new paradigm shift that a sales system is massively constrained Theory of constraints gives us a logical thought process for technological investments This theory is very well accepted in service industry with great success even though it derived from manufacturing and production
References
? ? ? ? ? ?
“Production the TOC Way” - Eliyahu M. Goldratt “Operations Management” – Richard B Chase, F Robert Jacobs, Nicholas J Aquilano, Nitin K Agarwal “The Goal” – Eliyahu M. Goldratt www.goldratt.com “The Haystack Syndrome –Sifting Information Out of the Data Ocean” Eliyahu M. Goldratt EBSCO Database
Evaporating Cloud
B) Requirement D) Prerequisite
A) Objective
conflict
C) Requirement
D') Prerequisite
Future Reality Tree
CRT I have fire
I have fuel I have ignition I have oxygen
FRT
I don?t have fire
I have fuel I have ignition I don?t have oxygen in contact with fuel
doc_540996283.ppt
This is a presentation describes on the Theory of constraints in detail.Its in context of The Goal written by Mr Goldratt.
Theory of Constraints
Introduction
? ?
?
? ?
?
Theory of Constraints (TOC) first described by Dr. Eliyahu M. Goldratt in his novel, “The Goal” in 1984 Subsequently introduced the theory in “Theory of Constraints” in 1990 A system oriented process improvement methodology that aims to continually achieve more of the goal of a system “The Goal of a firm is to make money” Constraint : anything that limits a system from achieving its desired goal or level of performance ? Internal – 1)Capacity of particular machines or workstations, 2)Transportation bottlenecks in production process ? External – 1) availability of sufficient raw materials 2) government regulations 3) Brand awareness Two primary collections of work ? Five focusing steps and their applications to operation ? The Thinking processes and their application to PM and human behavior
Performance of Measurement
?
?
?
Financial Measurement – used to measure the firm?s ability to make money ? Net Profit, Return on Investment, Cash Flow Operations Measurement – forms the backbone of Throughput Accounting ? 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. Goal of firm is “to increase throughput while simultaneously reducing inventory and operating expenses”
Bottlenecks and CCR
Bottleneck : Any resource whose capacity is less than the demand placed on it Capacity : Available time for production CCR : Utilization is close to capacity and could be a bottle neck in future
The Five focusing steps
? ? ?
? ?
?
Step Zero : Articulate the goal of the organisation Step One : Identify the constraint (the thing that prevents the organization from obtaining more of the goal) Step Two : Decide how to exploit the constraint (make sure the constraint is doing things that the constraint uniquely does, and not doing things that it should not do) Step Three : Subordinate all other processes to above decision (align all other processes to the decision made above) Step Four : Elevate the constraint (if required, permanently increase capacity of the constraint) Step Five : If, as a result of these steps, the constraint has moved, return to Step 1. Don't let inertia become the constraint
How to Implement Five steps
? ? ?
Understanding the interdependencies between and across processes that contribute to delivering a product or service Understanding the impact that those interdependencies and normal variability have on their combined, overall performance Appropriately buffering for interdependencies and normal variability so that that performance can be predictably and consistently high
The Thinking Process
? ? ? ? ?
What to Change? To what to change? How to change? How to overcome resistance to change? Overcoming resistance to change
What to change?
? ? ? ?
Identify the core problem from all the symptoms Identify Core conflict – an unresolved conflict that keeps Organisation trapped in a tug of war. Core conflicts are devastating Organizations need to create policies, measurements and behaviors in attempts to control Core Conflicts.
To what to change?
? ? ? ?
Challenging the logical assumptions behind the Core Conflict, a solution is identified Strategy - starting point for the development of a complete solution Strategy includes changes to the policies, measurements and behaviors identified in What to Change along with Goal of firm. Identify the potential-negative side effects of strategy and ways to mitigate it.
How to cause a change?
? ? ?
Transition plan to be developed considering organisational culture Creating a plan for implementing the strategy including what actions must be taken, by whom and when. Build active consensus and collaboration, or buy-in is crucial to avoid resistance to change
Six Layers of Resistance to Change
?
Layer 1: Has the right problem been identified? Layer 2: Is this solution leading us in the right direction? Layer 3: Will the solution really solve the problems? Layer 4: What could go wrong with the solution? Are there any negative side-effects? Layer 5: Is this solution implementable? Layer 6: Are we all really up to this?
?
?
?
?
?
OVERCOMING RESISTANCE TO CHANGE
?
TOC has developed a process based on the psychology of change that acknowledges and systematically addresses the questions people intuitively ask when evaluating a change Is the right problem being addressed - mine? Is the general direction that the solution is heading a good one? Will the solution really work to solve the problems and what?s in it for me? What could go wrong? Who might get hurt? How are we going to implement this thing? Are we really up to this? Do we have the leadership and the commitment to pull this change off successfully?
? ? ?
? ? ?
Tools for Problem Solving
? ?
? ? ? ?
Evaporating Cloud : construct of necessity logic Current Reality Tree (CRT) : sufficiency based logic to describe an existing situation, understand how various issues are related to each other ……. ”WHAT TO CHANGE?” Future Reality Tree (FRT) : new proposed actions, policies injected to create a new vision of the future reality of system …..”WHAT TO CHANGE TO?” Negative Branch Reservation (NBR) : Undesirable, negative result if we act on an injection in the future Prerequisite Tree (PRT) : Identify all possible obstacles and an „intermediate objective? to overcome them Transition Tree (TRT) : Information needed to build a detailed action plan, assess its ability to deliver results……”HOW TO MAKE THE CHANGE HAPPEN?”
MANAGING PRODUCTION PROCESSES
?Job
Shops ? process where similar machines, or people who are doing similar operations, are grouped together ? Work moves in a sequence between these specialist areas, sometimes flowing back the way it came to a previous area before continuing on in the process ?simple example might be a small engineering firm. ? Each job in the process could be unique or it could be a repetition of a standard design ?Flow Shops ? machinery or people are sequenced throughout the plant in the order that most work will require ? Each job could consist of a single unit or a batch of many units. ?The flow shops are not truly continuous. The reasons are that the items in the process are discrete, made of individual parts, rather than non-discrete like a liquid or a crushed ore ? The truly continuous industries are in the primary or extractive industries – pulp and paper, petrochemical, and dairy.
Flow Shop Layout – VATI Analysis: V - PLANT
?The V-plant is divergent in nature ?Undifferentiated raw material, maybe steel coil in a steel mill or saw logs in a saw mill, travels through a variety of paths to produce a range of products ?However, once a product has passed a divergence point, it can?t travel backwards. You can?t unsaw a 2 by 4 into a 4 by 4 ? V-type or divergent plants are the plants of basic producers, converters, and fabricators.
A - PLANT
?Multiple different starting materials are combined and assembled into a final product ? At each step of the process the assembly can only take place if all the other parts are also ready for assembly. ? A-type or convergent plants are the plants of assembly works.
T - PLANT
?A limited number of basic units in multiple configurations are assembled into a wide variety of final products. ?T-type plants, like A-type plants, are also the plants of assembly works. ?Differences in size, finish, and combination can lead to explosion of product possibilities at assembly. ? example of a T-plant is a faucet manufacturer, although it is likely many electronic assembly plants are quite similar
I - PLANT
?Simplest of the plant types ?A joinery shop is a good examplehere multiple different starting materials are combined and assembled into a final product. ? At each step of the process the assembly can only take place if all the other parts are also ready for assembly.
Industry Applications
?
?
Types of Industries using TOC : Accounting, Automotive, Manufacturing, Services, Telecommunications, Steel, Healthcare, Textile Success Stories : ? Seagate Technology Seagate implemented TOC and brought the first 15,000 rpm disc drive to market ahead of its competition ? Lucent Technologies Lucent's Outside Plant Fibre Optic Cable Business Unit reduced its product introduction interval by 50%, improved on-time delivery, and increased the organization's capacity to develop products ? Kiowa Corporation With TOC, Kiowa was able to reduce its start-up time on new projects by 60%, resulting in increased business with existing customers, and landing new customers which created a 40% growth in revenue ? Gunze Using the TOC Supply Chain Solution, a division of Gunze (Japan) realigned its business systems to meet 2004 goals by the third quarter of 2002.
Effectiveness
Effectiveness
Some results reported by Customers are ; ? 41 % reduction in cycle time = $7 million savings in capitalization ? New Product Introduction cycle times reduced 50 % ? 21 % increase in Net Sales ? Tripled development capacity with no staffing increases ? 80 % increase in Operating Profit ? New job startup in 60 % less time ? 100 % on-time delivery ? 40 % growth in revenues ? $5.5 million dollars growth in revenue per year ? 300 % increase in net profit ? Gross Margin increase from 29 to 41 % ? Pre-tax profit improvement in excess of 3,500 %
Hitachi Tool Engineering (HTE)
? ? ?
?
Japanese company designing and manufacturing cutting tools „End mills? Profitable due to technological skills, substantial market growth Problems in Yasu plant prior to TOC implementation ? High Frequency of Stockouts ? Delayed deliveries ? High Levels of Inventory, Product obsolescence ? 2 months high lead time CRT prepared with a list of undesirable effect like ? finished good shortages were common ? longer replenishment lead times ? excessive costs ? Significant quantities of product became obsolete ? loss of sales
TOC Implementation
?
Step wise TOC Implementation ? The resource responsible for grooving the End-mills at a slant and attaching the end cutting edge identified as the bottleneck ? Work sample used to scrutinize existing work procedures at the bottleneck process; setup time for changeovers found to be high ? A buffer of 3 days worth of bottleneck production set prior to bottleneck operation, rule established that material inputs into system should proceed as per production speed of bottleneck ? Reduce Online setup times at bottleneck resources by at least 50%, purchase new equipments/maintenance for old ones Subsequent TOC implementations at Narita plant and all across organization
?
Results of TOC Implementation
? ? ? ? ? ? ?
?
? ? ? ?
On-line setup times had been cut by more than half. Yasu plant was shipping 20% more product than previous year WIP Inventory reduced by nearly 50% First run quality rate increased from 93% to 97% Overall loss due to defective product reduced by 50% Production lead time reduced from 40 to 16 days Due date performance increased from 40% to 85% Production capacity increased by 20% Company sales increased from 15.3 billion Yen to 20 billion Yen Bottom line profitability increased from 921 million Yen in 2002 to over 4 billion Yen in 2004 Profit as a percentage of sales exceeded 20% in 2004 Stock price doubled from 400 in October 2000 to 920 in October 2004
Summary
? ? ? ?
?
? ?
Theory of Constraints is an all encompassing theory which can be applied to most of the management functions The solution for supply chain is to move to a replenishment model, rather than a traditional forecast model. Throughput accounting -The solution for finance and accounting is to apply holistic thinking to the finance application. Critical Chain concept -In Project management In marketing & sales a new paradigm shift that a sales system is massively constrained Theory of constraints gives us a logical thought process for technological investments This theory is very well accepted in service industry with great success even though it derived from manufacturing and production
References
? ? ? ? ? ?
“Production the TOC Way” - Eliyahu M. Goldratt “Operations Management” – Richard B Chase, F Robert Jacobs, Nicholas J Aquilano, Nitin K Agarwal “The Goal” – Eliyahu M. Goldratt www.goldratt.com “The Haystack Syndrome –Sifting Information Out of the Data Ocean” Eliyahu M. Goldratt EBSCO Database
Evaporating Cloud
B) Requirement D) Prerequisite
A) Objective
conflict
C) Requirement
D') Prerequisite
Future Reality Tree
CRT I have fire
I have fuel I have ignition I have oxygen
FRT
I don?t have fire
I have fuel I have ignition I don?t have oxygen in contact with fuel
doc_540996283.ppt