The Goal by Eliyahu Goldratt

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© Washington State University 1 Intro to the Theory of Constraints (A lecture introducing a portion of the Physical side of the Theory of Constraints) Constraints Management [email protected] http://www.cea.wsu.edu/engrmgt/ James R. Holt, Ph.D., PE Associate Professor Engineering Management

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Transcript of The Goal by Eliyahu Goldratt

© Washington State University-2004 1

Intro to the Theory of Constraints

(A lecture introducing a portion of the Physical side of the Theory of Constraints)

Constraints Management

[email protected]://www.cea.wsu.edu/engrmgt/

James R. Holt, Ph.D., PEAssociate Professor

Engineering Management

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The Goal by Eliyahu Goldratt

• The goal of a manufacturing company?

Make money!

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Measuring the goal

• Net profit

• Cash

• Return on Investment (ROI)

For a manufacturing enterprise, the goal can also be measured by

• Throughput

• Inventory

• Operating expenses

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Definitions

Throughput: The rate at which the system generates money through sales.• Note that the money is generated through sales

and not production because if you produce something and don’t sell it, you have not really had throughput. (You’ve just put it into inventory).

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

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

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Note that all the definitions have “money” in them

Throughput: The rate at which the system generates money through sales.

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

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

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Definition

• Bottleneck: Any resource whose capacity is equal to or less than the demand placed upon it.

• Optimization of a plant: Balance flow, not capacity.

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Definition

• Types of elapsed time: Setup time ― The time a part spends waiting for a

resource, while the resource is preparing itself to work on the part.

Process time ― The amount of time the part spends being modified into a new, more valuable form.

Queue time ― The time the part spends in line for a resource while the resource is busy working something else ahead of it.

Wait time ― The time the part waits, not for a resource, but for another part so that they can be assembled together.

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The Theory of Constraints (TOC)

• TOC IS: A set of Proven Solutions

• Drum Buffer Rope (DBR), Critical Chain Project Management (CCPM), Replenishment, Sales/Marketing, Human Behavior, Measurements, Strategy

An Approach to Problems• Five Steps of Continuous Improvement

Tools for Discovery of New Solutions• What to Change, What to Change to, How to Cause

the Change (The Thinking Process Tools)

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Larger ProcessInput Output

Input Process Output Input Process OutputInput Process Output

Process Theory

Input Process Output

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Systems Concepts

• Organizations / Systems exist for a purpose

• That purpose is better achieved by cooperation of multiple, independent elements linked together

• Each Inter-linked event depends in some detail upon the other links.

• The system owner determines purpose

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There is a “Weakest Link”

• Different link capabilities, normal variation and changing workload make it impossible to balance everything.

• One element of the system is more limited than another.

• When the whole system is dependent upon the cooperation of all elements, the weakest link determines the strength of the chain.

• An exactly balanced chain (system) is stronger than a non-homogeneous chain, but when close to the breaking point, all links must be managed 100

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Interconnections are non-Trivial

• Every System has relatively few constraints

To operate at maximum efficiency, the generic problem with physical systems must be identified

The Five Focusing Steps help identify and improve the constraint (called The Generic Physical Solution)

• Physical and Non-Physical Processes

Flow system structures: straight line (I), assembly (A), one material divided into several products (V), a product given minor changes at the end (T)

Distribution and Supply Chain

Management control of these systems

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Flow System Structures

RM FG

Aircraft assembly is more of an “A” Plant

RMRM

RMRM

RM

RM

RMRM

RM

FGLinear or “I” systemRaw Material Finished Goods

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Interconnections are Non-Trivial

• A simple chain over-simplifies reality

• Link 1 may have a relationship with Link 5

• Link 5 may have a different relationship with 1

1 2 3 4 5 6 7 8 9

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Management of the Links Vs. Linkages

1 2 3 4 5 6 7 8 9

• Maybe the Simple Chain isn’t so simple

Link 1 and 2 can get togetherand lean on Link 3 or Link 8

Link 8 and 9 can combine to push on both Link 6 and Link 7

There are 40,000 first order effects

and 1,000,000+second and higher

order effects!

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Traditional Approach:Divide and Conquer

• Division of Labor breaks down linkages complex systems into manageable chunks.

• Which is harder to manage? Left or Right?

Left Right

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We Measure Operational Efficiency

• Work flows from left to right through processes with capacity shown.

Process A B C D E

RM FG

CapabilityParts 7 9 5 8 6per Day

Excellent Efficiency--Near 100%Chronic Complainer

Too Much Overtime

MarketRequest

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Reward Based on Efficiency

• Work flows from left to right.

Process A B C D E

CapabilityP/D 7 9 5 8 6

Both found ways to look busy and appear to have a capacity of 5 parts/day.

RM FG

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In reality...

Process A B C D E

PotentialP/D 7 9 5 8 6

Reality 5 5 5 5 5

• Processes A and B won’t produce more than Process C for long.

RM FG

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Then Variability Sets In

• Processing times are just AVERAGE Estimates

Process A B C D E

Reality 5±2 5±2 5±2 5±2 5±2

RM FG

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What’s an Average? 50%

Process A B C D E

Reality 5±2 5±2 5±2 5±2 5±2Probability 0.5 0.5 0.5 0.5 0.5

• Half the time there are 5 or more per day at each process--Half the time less

Two at a time: 0.25 0.25

Over all: 3% Chance of 5 per day

RM FG

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Previous Solution: Inventory

WIP 5 5 5 5 5 Total 25ProcessA B C D E

Variable 5±2 5±2 5±2 5±2 5±2Process

• Put a day of inventory at each process!

RM FG

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System Variability Takes Over--Chaos

Variable 5±2 5±2 5±2 5±2 5±2Process

WIP 3 0 10 8 4 Total 25

RM FG

Process A B C D E

Inventory (WIP) quickly shifts position.Inventory manager/expediter tries to smooth it out.Distribution problems result. Costs go up.

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System Variability Takes Over--Chaos

WIP 3 0 10 8 4 Total 25

Variable 5±2 5±2 5±2 5±2 5±2

ProcessShifting work-in-process creates large queues at somelocations. This makes work wait longer to be processed.

RM FG

An Average of 5 means sometimes 3 and some times 7

Process A B C D E

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System Variability Takes Over--Chaos

WIP 3 0 10 8 4 Total 25

Variable 5±2 5±2 5±2 5±2 5±2ProcessShifting work-in-process creates large queues at somelocations. This makes work wait longer to be processed.Other workstations can be starved for work. The work theycould be doing is delayed because it is not there. They can’t take advantage of their extra capability. So...

RM FG

Process A B C D E

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System Variability Takes Over--Chaos

WIP 3 5 10 8 4 Total 25

Variable 5±2 5±2 5±2 5±2 5±2ProcessSo… Management Helps! Management puts in more work(Inventory) to give everyone something to do! Result: It takes longer and longer from time of releaseuntil final shipping. More and more delay!

RM FG

Process A B C D E

X 30

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Attempts to Control WIP

WIP 5 5 5 5 5 Total 25ProcessA B C D E

Variable 5±2 5±2 5±2 5±2 5±2ProcessJust-In-Time uses Kanban Cards to limit the queuesbuilding in the system. No more than 5 parts are allowed at any station.Looks good, but is it?

• Put a lid on it-Use Kanban Cards-JIT

RM FG

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Effects of Inventory Limits on Production

WIP 5 5 5 5 5 Total 25ProcessA B C D E

Variable 5±2 5±2 5±2 5±2 5±2Process

• What does a Kanban card of 5 Mean?

RM FG

5+/-2Average = 5

BeforeKanban

5+/-2Average = 3.5

Can’t exceed

5

AfterKanban

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Operation’s Dilemma

Injection: Put a large inventory where its needed and low everywhere else!

Manage productioneffectively

Produce a lot

Costs & delivery in

control

Increase work-in- process

Decrease work-in-process

Assumption:

We can’t both increase WIP and

decrease WIP at the same time.

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TOC Steps to Continuous Improvement

Step 0. Identify the Goal of the System/OrganizationStep 0.5 Establish a way to measure progress to Goal

Step 1. IdentifyIdentify the system’s constraint.

Step 2. Exploit Exploit the system’s constraint.

Step 3. SubordinateSubordinate everything else to the above decision.

Step 4. ElevateElevate the system’s constraint.

Step 5. If a constraint is broken (that is, relieved or improved), go back to Step 1. But don’t allow inertiainertia to become a constraint.

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Five Steps Applied to Flow Operations

A B C D E

7 9 5 8 6

WIP Total

Step 3. Subordinate Everything Else (Rope)

Step 4. Elevate the Constraint ($?)

X 5.5

Step 5. If the Constraint Moves, Start Over

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Five Focusing Steps

RM

Step 1. Identify the Constraint (The Drum)

FG

Step 2. Exploit the Constraint (Buffer the Drum)

12 12

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FG

Understanding Buffers

A B C D E

7 9 5 8 6

RM

• The “Buffer” is Time! • In general, the buffer is the total time from work release

until the work arrives at the constraint.• Contents of the buffer ebb and flow within the buffer• If different items spend different time at the constraint, then

number of items in the buffer changes• but Time in the buffer remains constantTime in the buffer remains constant.

WIP Total 12parts/5parts per day=2.5 Days

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We need more than one Buffer

FG

A B C D E

7 9 5 8 6

RM

There is variability in the Constraint. To protect our delivery to our customer we need a finished goods buffer.

Finished Goods Buffer

There is variability in our suppliers.We need to protect ourselves from unreliable delivery.

Raw Material Buffer

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Buffer Time is Constant-Predictable

FG

A B C D E

7 9 5 8 6

RM

Finished Goods Buffer

Constraint Buffer

2.5 Days

Raw Material Buffer

Finished Goods Buffer1 Day

Processing Lead Time is Constant

Raw Material Buffer2 Days

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FG

Buffer Management

A B C D E

7 9 5 8 6

RM

Constraint Buffer WIP Total 12/5=2.5 Days

Time until Scheduled at Constraint

0 2.5 Days

WO17

WO14WO15WO16

WO10WO11WO12WO13

WO18WO19

• The Constraint is scheduled very carefully

• Buffer Managed by location• Individual activities in the

buffer are not scheduled

WO21WO20

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A B C D E

FG

Problem Identification

7 9 5 8 6

RM

Time until Scheduled at Constraint

02.5 Days

WO10

WO20 WO12WO13WO21

WO15WO16WO17

WO18

WO19Delayed

PartsWO11

WO14WO19

WO19 OK (GreenGreen)

Watch WO14 (Yellow)Yellow)

Constraint schedule is in jeopardy!

(RedRed Zone Hole)

RM

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Additional Buffers

• Constraint Buffer (as we discussed) Protects the Constraint from running out of work

• Finished Goods Buffer Protects customer delivery from Constraint variation

• Raw Material Buffer Protects the Release of material from suppliers

• Assembly Buffer Facilitates speedy flow of products

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Additional Buffers

Buffer Types:ConstraintFGRMAssembly

A B C D E

RM

FG

7 9 5 8 6

RM

F G H

8 7 6

ConstraintFinished goods

Raw MaterialAssembly

RopesWIP

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Manufacturing is an integrating discipline

PeopleOrganizationsPerformanceMeasurementAssignmentsQuality

FinanceCapital Projects UncertaintyInvestmentMeasures

ProjectsFull TheorySchedulingManageQualityDesign for Experiments

OperationsOptimizationSimulationDecisionsReliabilitySupply Chain

StrategyCorporateDepartmentalSubordinationFocus

TOCThinking ProcessesPhysical SystemsBehavior

© Washington State University-2004 40

Thank You

Manage the constraints.