Session 4/8,Thinking Processes, OTP

M. Karthik,Lean Manufacturing Engineer.Karthik.mirthipati@live.com

Topics

Measurement of TOC

Optimized Production Technology (OPT)

10 Rules of OPT

Thinking Processes

Measurements of TOC

Traditional Approach

TOC Approach/ The Constraint Management Approach

Evaluating Operating Decisions – Traditional Approach

The financial standard for most decisions is profit A decision that produces higher profit is GOOD. A decision that produces lower profit is BAD.

Three key financial measures to evaluate the correctness of a decision. Net Profit (NP) Cash Flow (CF) Return on Investment (ROI)

Evaluating Operating Decisions – Traditional Approach

NP and ROI are very difficult concepts to apply to day-to-day decisions.

Effects of a decision on NP and ROI not easily quantifiable in financial terms.

How to determine the global (company-wide) financial impact of local (departmental) decisions?

Constraint theory provides a bridge between local operating decisions and global financial well-being.

The Constraint Management Approach

Key financial measures : Throughput (T) Investment (I) Operating Expense (OE)

These measures are predicated on the assumption that the organization's goal is to make more money, now and in the future.

Throughput

The rate at which the system generates money through sales minus raw materials and and purchased parts.

All the money received from customers minus raw materials cost.

The rate at which the system makes money(sales minus totally variable costs).

Sales are only recognized when money is available to the firm. That is, production for inventory is not a part of throughput

Inventory

All the money the system has invested in purchasing things which it intends to sell.

Some insights: Inventory is a liability, not an asset. Raw materials and finished goods are inventory. Machines and fixtures (if owned) are inventory. Scrap material that is to be sold is inventory until sold

Operating Expense

All the money the system spends in order to turn inventory into throughput.

All employee time is operating expense. Depreciation of a machine is a operating expense. Scrap material thrown away. All expenses not deducted in arriving at throughput. This includes direct labor and all operating and

maintenance expenses. ***

Throughput Accounting

T = (All money in) – (all money out)

Net profit = T-OE

ROI = (T-OE)/I

Productivity = T/OE

Optimised Production Technology

1. What is Optimized Production Technology?

2. What is the aim of Optimized Production Technology?

3. What are the 10 rules of OPT?

4. What are the benefits achieved from OPT?

OPT

Production scheduling and inventory control system that (unlike MRP) recognizes bottlenecks (capacity constraints) and does not aim at full capacity utilization at all times.

OPT's objective is to simultaneously raise throughput while reducing inventory and operating costs, and achieve a smooth, continuous flow of work in process.

OPT

Its based on 2 fundamental manufacturing phenomenon Dependent events Statistical fluctuations

Material should only be launched on to the shop floor at the rate at which it is consumed by the bottleneck.

A time buffer of work should protect the production in the bottleneck.

Ten Rules of OPT Part-11

1. Utilization and activation of a resource are not the same – Activation is what should be done Utilization is what can be done “100% utilization of a non-bottleneck is wasteful.”

2. The level of utilization of a non-bottleneck is determined not by its own potential but by some other constraint in the system.

Ten Rules of OPT Part-2

3. An hour lost at a bottleneck is an hour lost for the total system.

4. An hour saved at a non-bottleneck is just a mirage.

5. Bottlenecks govern both the throughput and inventory in the system.

6. The transfer batch may not and often should not be equal to the process batch.

Ten Rules of OPT Part-3

7. The process batch should be variable, not fixed.

8. Capacity and priority should be considered simultaneously, not sequentially.

9. Balance flow, not capacity.

10. The sum of local optima is not equal to the global optimum.

Benefits of OPT

The benefits claimed for OPT are that it will schedule finite resources in order to achieve maximum factory effectiveness.

The scheduling system: Addresses the key problem of bottlenecks. Improves profitability by simultaneously increasing

throughput. Reduces inventory and operating expenses.

Thinking Processes

Set of tools to help managers walk through the steps of initiating and implementing TOC.

The Thinking Processes comprise

a suite of five logic diagrams (four trees and a "cloud”)

a set of logic rules.

Types of T.P

The 5 diagrams use two different types of logic rules.

Cause and Effect Current Reality Tree Future Reality Tree Transition Tree

Necessary Condition Prerequisite Tree Evaporating Cloud

Cause and Effect

Cause and Effect thinking is built up on “sufficient cause”

Sufficiency Cause Types: "A is sufficient to cause C” "If both A and B occur together, then they will be

sufficient to cause C” "A and B (separately) both contribute to C, and between

them are sufficient to cause C".

Necessary Condition

"In order to achieve A we must have B".

Thinking Processes of TOC

Summary

Measurement of TOC

Optimized Production Technology (OPT)

10 Rules of OPT.

Thinking Processes