Theory of Constraints (TOC)

Prepared Group B.
#7
By Mohamed Ahmed N
0
Sadek Hisham
Ayman 1
Mahmoud Ahmed 3
2
El-Sayed 8
Submitte
d toDr. Ehab Abdelaaty
Abdelhafiz
Presentation Contents
 Problem Statement
 Goldratt’s Rules of Production Scheduling
 Goldratt’s Theory of Constraints (TOC)
 Performance Measurements
 Unbalanced Capacity
 Dependent Events and Statistical Fluctuations
 Definitions
 The Basic Building Blocks of Manufacturing Derived by Grouping Process Flows
 Product Flow through Bottlenecks and Non-bottlenecks
 Time Components

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Presentation Contents
 Finding Bottleneck
 Saving Time
 Avoid Changing a Non-bottleneck into a Bottleneck
 Drum, Buffer and Rope
 Network Flow with One Bottleneck
 Batch Size
 How to Determine Process Batch and Transfer Batch Sizes
 How to Treat Inventory
 Dollar Days
 How Much to Produce? (EXAMPLE)
 Conclusion

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Problem Statement
A Story to Demonstrate the Effect of
Bottleneck and the Impact of
Changing its Constraints.

 The Story describes the hike out to the campsite. They are way
behind schedule and the line of scouts is spread out over a long
distance. The fastest kids are up front, and poor Herbie, the
slowest kid, lags way behind at the end of the line. The goal is to
get all the kids to the campsite as quickly as possible.
 The hike leader stops the hike and tells everyone in the troop to
hold hands with the person before and after him, and to not let
go. He then takes Herbie, who is in the back, and leads him to the
front of the line. He keeps walking with Herbie turning the troop
around so that Herbie, the slowest, is now leading and Andy, the
fastest, is now at the end.
 Now, the hike speed is limited to the slowest person speed (The
Bottleneck) ,if they want to go faster, they need to figure out a
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way Herbie can go faster.
Problem Statement

 They find that he is carrying a backpack much

heavier than the others. So, they decide to take some
of the load off Herbie by carrying some of his stuff.
Now Herbie can really move, since most of the
weight in his pack is removed (Changing
Constraints). The troop is now moving at twice the
speed it was before and they are still staying
together.

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 Goldratt’s Rules of Production Scheduling
1. Do not balance capacity—balance the flow.
2. The level of utilization of a non-bottleneck resource is determined not 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.
6. Bottlenecks govern both throughput and inventory in the system.
7. The 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. Lead time is a
derivative of the schedule.
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 Goldratt’s Theory of Constraints (TOC)
1. Identify the system constraints. (No improvement is possible unless
the constraint or weakest link is found.)

2. Decide how to exploit the system constraints. (Make the constraints

as effective as possible.)

3. Subordinate everything else to that decision. (Align every other part

of the system to support the constraints even if this reduces the
efficiency of non-constraint resources.)

4. Elevate the system constraints. (If output is still inadequate, acquire

more of this resource so it no longer is a constraint.)

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. (After this
constraint problem is solved, go back to the beginning and start over.
This is a continuous process of improvement: identifying constraints,
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breaking them, and then identifying the new ones that result.)
Performance Measurements
 Financial Measurements

We have three measures of the firm’s ability to

make money:

1. Net profit—an absolute measurement in dollars.

2. Return on investment—a relative measure based
on investment.
3. Cash flow—a survival measurement.

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Performance Measurements (Cont.)
 Operational Measurements

Financial measurements work well at the higher level, but they

cannot be used at the operational level. We need another set of
measurements that will give us guidance:

1. Throughput—the rate at which money is generated by the

system through sales.
2. Inventory—all the money that the system has invested in
purchasing things it intends to sell.
3. Operating expenses—all the money that the system spends to
turn inventory into throughput.

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Performance Measurements (Cont.)
 Productivity

Typically, productivity is measured in terms of output per labor hour.

However, this measurement does not ensure that the firm will make
money (for example, when extra output is not sold but accumulates as
inventory). To test whether productivity has increased, we should ask
these questions:

 Has the action taken increased throughput?

 Has it decreased inventory?
 Has it decreased operational expense?

This leads us to a new definition:

PRODUCTIVITY IS ALL THE ACTIONS THAT BRING A
COMPANY CLOSER TO ITS GOALS. 9
 Unbalanced Capacity
 Historically (and still typically in most firms), manufacturers
have tried to balance capacity across a sequence of processes
in an attempt to match capacity with market demand. However,
this is the wrong thing to do—unbalanced capacity is better.
 Thus, making all capacities the same is viewed as a bad
decision. Such a balance would be possible only if the output
times of all stations were constant or had a very narrow
distribution. A normal variation in output times causes
downstream stations to have idle time when upstream stations
take longer to process.
 Conversely, when upstream stations process in a shorter time,
inventory builds up between the stations. The effect of the
statistical variation is cumulative. The only way that this
variation can be smoothed is by increasing work-in-process to
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absorb the variation (a bad choice because we should be trying
Dependent Events and Statistical Fluctuations

Here the flow is from Process A (on the left) to Process B (on the right). Process A has a mean of 10 hours and a
standard deviation of 2 hours; Process B has a constant 10-hour processing time.
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Dependent Events and Statistical Fluctuations (Cont.)

This is similar to Previous Example. However, the processing sequence has been reversed, as well as the order of the
Process A times.
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 Definitions
 Bottleneck: is defined as any resource whose capacity is less than the demand
placed upon it. A bottleneck is a constraint within the system that limits
throughput. It is that point in the manufacturing process where flow thins to a
narrow stream. A bottleneck may be a machine, scarce or highly skilled labor, or
a specialized tool.

 Non-bottleneck: is any resource whose capacity is greater than the demand

placed on it. A non-bottleneck, therefore, should not be working constantly
because it can produce more than is needed. A non-bottleneck contains idle
time.

 Capacity-constrained resource (CCR): is one whose utilization is close to

capacity and could be a bottleneck if it is not scheduled carefully. For example,
a CCR may be receiving work in a job-shop environment from several sources.
If these sources schedule their flow in a way that causes occasional idle time for
the CCR in excess of its unused capacity13time, the CCR becomes a bottleneck
The Basic Building Blocks of Manufacturing Derived by
Grouping Process Flows

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Product Flow through Bottlenecks and Non-bottlenecks

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 Product Flow through Bottlenecks and Non-bottlenecks (Cont.)

Situation A shows a bottleneck feeding a non-bottleneck. Product flows from Work center X to Work center Y.
X is the bottleneck because it has a capacity of 200 units (200 hours/ 1 hour per unit) and Y has a capacity of
267 units (200 hours/45 minutes per unit). Because Y has to wait for X, and Y has a higher capacity than X, no
extra product accumulates in the system. It all flows through to the market.

Situation B is the reverse of A, with Y feeding X. This is a non-bottleneck feeding a bottleneck. Because Y has
a capacity of 267 units and X has a capacity of only 200 units, we should produce only 200 units of Y (75
percent of capacity) or else work-in-process will accumulate in front of X.

Situation C shows that the products produced by X and Y are assembled and then sold to the market. Because
one unit from X and one unit from Y form an assembly, X is the bottleneck with 200 units of capacity and,
therefore, Y should not work more than 75 percent or else extra parts will accumulate.

Situation D, equal quantities of product from X and Y are demanded by the market. In this case, we can call
these products “finished goods” because they face independent demands. Here, Y has access to material
independent of X and, with a higher capacity than needed to satisfy the market (in essence, the market is the
bottleneck), it can produce more product than the market will take. However, this would create an inventory of
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unneeded finished goods.
Time Components
The following kinds of time make up production cycle time:
1. Setup time—the time that a part spends waiting for a resource to
be set up to work on this same part.

2. Processing 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 is, the cycle time minus the sum
of the setup time, processing time, queue time, and wait time.
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 Finding Bottleneck
The first way is to use your knowledge of a particular plant to identify the bottleneck.

1. Use your experience about the plant.

2. Talk through the shop floor workers and supervisors.

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 Finding Bottleneck (Cont.)
The Second way is to run a capacity resource profile

Resource capacity profile = Loads/resource Capacity

 Getting the resources capacity profile in percentage, we

first assume that our data are reasonably accurate,
although not necessarily perfect.

 We disregards all lower percentages as this means this

resource is a none bottleneck.

 We should observe high inventory laying in front of the

highest percentage resource (bottleneck), Overloaded
resource.

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Saving Time
Recall that a bottleneck is a resource whose capacity is less than the demand placed on it. Because
we focus on bottlenecks as restricting throughput (defined as sales), a bottleneck’s capacity is less
than the market demand.
There are a number of ways we can save time on a bottleneck:
• Better tooling.
• Higher-quality labor.
• Larger batch sizes.
• Reduction in setup times, and so on.

AN HOUR SAVED AT THE BOTTLENECK ADDS AN EXTRA HOUR

TO THE ENTIRE PRODUCTION SYSTEM.

How about time saved on a non-bottleneck resource?

AN HOUR SAVED AT A NONBOTTLENECK IS A MIRAGE AND

ONLY ADDS AN HOUR TO ITS IDLE TIME.

Because a non-bottleneck has more capacity than the system needs for its current throughput, It
already contains idle time. Implementing any measures to save more time does not increase
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throughput but only serves to increase its idle time.
Avoid Changing a Non-bottleneck into a Bottleneck
 When non-bottleneck resources are scheduled with larger batch sizes, this action could create a
bottleneck that we certainly would want to avoid.

 Where Y1, Y2, and Y3 are non-bottleneck resources. Y1 currently produces Part A, which is
routed to Y3, and Part B, which is routed to Y2. To produce Part A, Y1 has a 200-minute setup
time and a processing time of 1 minute per part.

 Part A is currently produced in batches of 500 units. To produce Part B, Y1 has a setup time of 150
minutes and 2 minutes’ processing time per part.

 Part B is currently produced in batches of 200 units. With this sequence, Y2 is utilized 70 percent
of the time and Y3 is utilized 80 percent of the time.

 Because setup time is 200 minutes for Y1 on Part A, both worker and supervisor mistakenly
believe that more production can be gained if fewer setups are made.

 Let’s assume that the batch size is increased to 1,500 units and see what happens. The illusion is
that we have saved 400 minutes of setup. (Instead of three setups taking 600 minutes to produce
three batches of 500 units each, there is just one21setup with a 1,500-unit batch.)
 Avoid Changing a Non-bottleneck into a Bottleneck (Cont.)

 The problem is that the 400 minutes saved served no purpose, but this delay did interfere with the production
of Part B because Y1 produces Part B for Y2.
 The sequence before any changes were made was Part A (700 minutes), Part B (550 minutes), Part A (700
minutes), Part B (550 minutes), and so on.
 Now, however, when the Part A batch is
increased to 1,500 units (1,700
minutes), Y2 and Y3 could well be
starved for work and have to wait more
time than they have available (30
percent idle time for Y2 and 20 percent
for Y3). The new sequence would be
Part A (1,700 minutes), Part B (1,350
minutes), and so on. Such an extended
wait for Y2 and Y3 could be disruptive.
Y2 and Y3 could become temporary
bottlenecks and lose throughput for the
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system.
 Drum, Buffer and Rope
 Linear Flow of Product with a Bottleneck
Figure shows a simple linear flow A
through G. Suppose that Resource D, which
is a machine center, is a bottleneck. This
means the capacities are greater both
upstream and downstream from it. If this
sequence is not controlled, we would expect
to see a large amount of inventory in front
of Work center D and very little anywhere
else. There would be little finished goods
inventory because (by the definition of the
term bottleneck) all the product produced
 There are two things we must do with this bottleneck:
would be taken by the market.
1. Keep a buffer inventory in front of it to make sure it always has something to work on.
Because it is a bottleneck, its output determines the throughput of the system.
2. Communicate back upstream to A what D has produced so that A provides only that
amount. This keeps inventory from building up. This communication is called the rope. It
can be formal (such as a schedule) or informal23(such as daily discussion).
 Drum, Buffer and Rope (Cont.)
 Linear Flow of Product with a Capacity-Constrained Resource

If the drum is not a bottleneck but a CCR (and thus it can have a small amount of idle time), we
might want to create two buffer inventories: one in front of the CCR and the second at the end as
finished goods. (See Figure.) The finished-goods inventory protects the market, and the time buffer
in front of the CCR protects throughput. For this CCR case, the market cannot take all that we can
produce, so we want to ensure that finished goods are available when the market does decide to
purchase.
We need two ropes in this case:
1. a rope communicating from finished-
goods inventory back to the drum to
increase or decrease output.
2. a rope from the drum back to the material
release point, specifying how much material
is needed.

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 Network Flow with One Bottleneck

 The figure shows a more

detailed network flow showing
one bottleneck. Inventory is
provided not only in front of
that bottleneck but also after
the non-bottleneck sequence
of processes that feed the
subassembly. This ensures that
the flow of product is not
slowed down by having to
wait after it leaves the
bottleneck.

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 Batch Size
 Effect of Changing the Process Batch Sizes on Production Lead Time
The advantage of using
transfer batches that are
smaller than the process
batch quantity is that the
total production time is
shorter, so the amount of
work-in-process is smaller.

This Figure shows a

situation where the total
production lead time was
reduced from 2,100 to 1,310
minutes by (1) using a
transfer batch size of 100
rather than 1,000 and (2)
reducing the process batch
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sizes of Operation 2.
 How to Determine Process Batch and Transfer Batch
Sizes
When trying to control the flow at CCRs and bottlenecks, there are four
possible situations:

1. A bottleneck (no idle time) with no setup time required when changing
from one product to another.

2. A bottleneck with setup time required to change from one product to

another.

3. A capacity-constrained resource with a small amount of idle time, with no

setup time required to change from one product to another.

4. A CCR with setup time required when changing from one product to
another. 27
 How to Treat Inventory

 From a constraint management

perspective, inventory is a loan given
to the manufacturing unit. The value of
the loan is based only on the purchased
items that are part of the inventory.

 As we stated earlier, inventory is

treated in this chapter as material cost
only, without any accounting type
value added from production. If
inventory is carried as a loan to
manufacturing, we need a way to
measure how long the loan is carried.
One measurement is dollar days. 28
 Dollar Days
 A useful performance measurement is the concept of dollar
days, a measurement of the value of inventory and the time it
stays within an area. To use this measure, we could simply
multiply the total value of inventory by the number of days
inventory spends within a department.

 Suppose Department X carries an average inventory of

$40,000, and, on average, the inventory stays within the
department five days. In dollar days, Department X is
charged with $40,000 times five days, or $200,000 dollar
days of inventory. At this point, we cannot say the $200,000
is high or low, but it does show where the inventory is
located. Management can then see where it should focus
attention and determine acceptable levels. Techniques can be
instituted to try to reduce the number
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of dollar days while
 Dollar Days (Cont.)
Dollar days could be beneficial in a variety of ways. Consider the current
practice of using efficiencies or equipment utilization as a performance
measurement. To get high utilization, large amounts of inventory are held to
keep everything working. However, high inventories would result in a high
number of dollar days, which would discourage high levels of work-in-
process.
Dollar day measurements also could be used in other areas:

 Marketing—to discourage holding large amounts of finished-goods

inventory. The net result would be to encourage the sales of finished
products.

 Purchasing—to discourage placing large purchase orders that on the

surface appear to take advantage of quantity discounts. This would
encourage just-in-time purchasing.

 Manufacturing—to discourage large work-in-process and producing earlier

than needed. This would promote rapid flow of material within the plant.
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How Much to Produce? (EXAMPLE)

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 How Much to Produce? (EXAMPLE)

SOLUTION
As in the previous example,
there are three answers to this
question, depending on each of
the following objectives:
1. Maximize revenue for sales
personnel, who are paid on
commission.
2. Maximize per unit gross
profit.
3. Maximize the utilization of
the bottleneck resource (leading
to maximum gross profit).
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How Much to Produce? (EXAMPLE)

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How Much to Produce? (EXAMPLE)

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How Much to Produce? (EXAMPLE)

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How Much to Produce? (EXAMPLE)

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 Conclusion

 Eli Goldratt developed his Theory of Constraints as an alternative way to think about
improving processes. His ideas have stimulated thought by practitioners due to their
applicability to many areas, including production, distribution, and project management.

 His underlying philosophy is that it is essential to concentrate on system limitations

imposed by capacity constrained resources, and for a firm to make money, it must
systematically remove these limitations. 

 He argues that, to do this, the firm must simultaneously increase throughput, reduce
inventory, and reduce operating expenses.  He argues that improving labor productivity
will not necessarily make money for the firm, and will only do so when it increases
throughput, reduces inventory, or reduces operating expenses.

 Goldratt argues that trying to maintain perfectly balanced capacity leads to many
problems because this makes every resource dependent on every other. Since statistical
fluctuations are inherent in any process, perfect
37 balance leads to disruptions. He argues
Thanks