University of Exeter

Unconstrained Benefits

Project Management & Accounting CSM2187

630024723

Pages:

This report will aim to highlight a practice in project management known as Debottlenecking, first set out by Eli Goldratt in the “Theory of Constraints”. Firstly the report will discuss the theory

behind Debottlenecking then following will be an analysis of a relevant case study.

Introduction

To begin it is believed that a business or organisation can be measured and controlled under changes regarding three methods of measure. These are inventory, expense and throughput. Inventory is the total amount of money that has been invested into purchasing items with the intent of selling them on. Expense is the total amount of money that is spent to turn the inventory into sales and throughput is the frequency at which an organisation can generate money through its sales.

It’s essential to meet some conditions before any project goal can be met. Usually these include such things as safety, legality and quality. For the majority of organisations the aim is to make a substantial profit. Although it can be argued that for some non-profit and profit based organisations, money making is a necessity to peruse further revenues and targets. It must also be seen that cost saving and cost benefit analysis are essential practices taken by organisations. Despite ranging from profit to further pursuing targets, the fundamental aspect is to consider that key financial decisions based up on inventory, expense and throughput are critically required. [1]

Constraint theory is founded up on the ideal that the rate at which a goal is met is achieved by a system adapted to meeting that goal and that system is limited by at least one constraint. There is a critically thought argument known as reduction to the absurd (reductio ad absurdum) which states as follows: “If there is nothing to prevent a system from achieving a higher throughput, then its throughput would be infinite.” This is categorically impossible with a real life system. A constraint limits the throughput and only by increasing the flow through that constraint or constraints can the whole throughput be increased. [2]

What is a constraint?

Constraints are anything that are preventing or limiting a system from meeting its target/achieving its goal. Constraints can appear in many forms but the underlying theory bases the fact there are only a few constraints in a given system not hundreds as might be suggested. Systems can have constraints internally or externally.

Internal constraints can be where the market demands more from a system than it can deliver. A simplistic example of this could be a farmer having only enough equipment to harvest a product at a rate of one field per day where as the market demands the production of two fields a day from this farm. In the case of an internal constraint, the organisation seeks to find the constraint then by following the five focusing steps look to open the constraint up with the potential to remove it if necessary. Types of internal constraint include; the way equipment is used at a time limiting the system’s ability to increase production, the lack of a skilled workforce and a written or unwritten policy preventing an organisation from increasing production.

External constraints exist when the system has the ability to produce more of an item than the market share in that item can bear. An example of this in the last few decades could be

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the role of OPEC on the oil market. When the cartel produces more oil than the market demands they can limit production to drive up demand. When an external constraint is on the system it’s an organisations task to attempt to drive up demand for its products.

It must be noted that many businesses have issues with its workforce and equipment but in the concept of constraint theory a breakdown of these issues is not to the true sense an actual constraint. Constraints are simply limiting factors that prevent getting more throughputs like revenue through sales, even when nothing goes wrong.

A constraint is said to be broken when its throughput capacity is no longer a limiting factor. When this happens the limiting factor moves to another part of the system or becomes an external constraint.

Five Focusing Steps

Supposing the goal of an organisation has been expressed and its measurements well-defined, the five focusing steps are:

1. Identify the system's constraints.

2. Decide how to exploit the system's constraints.

3. Subordinate everything else to the above decisions.

4. Elevate the system's constraints.

5. Warning! If in the previous steps a constraint has been broken, go back to step 1, but do not allow inertia to cause a system's constraint. [3]

The five focusing steps are intended to safeguard any on-going progressive efforts that will be centred on the organisations constraints. This is stated as the process of on-going improvement.

Buffers

Buffers can be thought of as things that reduce the impact of constraints, resulting from subordinate steps within the five focusing steps. They act before the constraint allowing the constraint to not limit throughput so that it isn’t starved. They can also act behind a constraint preventing downstream system failure. They are used to protect the constraint from variations within the rest of the system. Management of buffers is crucial to the theory of constraints. Applying buffers is commonly seen visually in a traffic light format; Green to signal okay, Yellow to signal caution and Red to signal that action is needed. The visual buffers allow the system to wholly align.

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Plant types

A plant type is a flow/sequence of throughput that generally shows where constraints are likely to occur. For the theory of constraints there are four main plant types, they are:

I-Plant – Material flows in sequence for example an assembly line. Primarily the work is done in a one to one relationship. The constraint being the operation that throughput the slowest material.

A-Plant - The flow of material branches in from many to one. This can be considered in assembly line production, where sub-assemblies converge into one assembly. The issue is primarily one of keeping the production in phase so that convergence happens at the ideal time.

V-plant - The flow of material is one to many. Examples include productions where one product is turned into many final products, such as steel manufacturing. The issue with this plant type is the robbing effect where one operation steals materials for another assembly line after a divergence. Once stolen, a material cannot come back to an assembly without a costly reworking operation.

T-Plant – This characterises all the plant types above, usually seen in a flow of an I-type that splits into many to many production line. For manufacturing this type is common as parts are used in many assemblies, and many assemblies use multiple parts. This operation suffers the constraints of A and V-Plants where phase synchronisation issues and robbing the materials both occur.

Applications

Theory of constraints is typically attached to primary industry productions such as manufacturing. It is also primarily applied to project management and any industry orientated around supply chain and distribution. Further applications have led to the theory being applied in marketing and sales as well as the financial sector. Debottlenecking operations can be applied to all these industries and this section will look at some of those practices.

Operations focus can be drawn on a system known as Drum-Buffer-Rope. Where the manufacturing operations seek to pull materials through the system to create a product. [4]

This methodology so named for its three constituent parts works by using the drum as the physical constraint e.g. the machine that limits the system increasing production. The drum is the beat at which the plant operates, the drum needs work and what it processes cannot be wasted. Lastly the rope is the work release mechanism for the plant.

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Thinking Process

The thinking processes are a set of tools to aid managers pace through the steps of starting and executing a development. When used in a common-sense approach to a flow, the Thinking Processes help step through a buy-in process:

1. Reach an arrangement on the problem

2. Have a plan on the direction for a solution

3. Have a settlement that the solution will solve the problem

4. Approve to overcome every conceivable negative consequence

5. Reach a decision to eliminate any hindrances to the application process

Practitioners sometimes refer to these in the negative as working through layers of resistance to a change.

Theory in Mining

A Mining system works in a flow plant type of T-Plant where by one resource, the valuable mineral, flows into many branches of production that eventually lead to final product. This can be thought of as a one-many-one style of flow. The following section will incorporate local efficiency and optimised flow showing basic theory examples.

By taking a basic mining operation with flow see figure 1, constraint theory can be applied to show how buffering systems optimise flow and reduce the effect of the bottleneck on the production.

Figure 1: Basic operational sequential flow line with processes of different average capacity in tonnes per hour. [7]

From this figure it can be seen that the bottleneck surrounds the fourth process which has a limited capacity of 10 tonnes per hour.

Local efficiency is about balancing the capacity of flow, for the flow in figure 1 this would result in figure 2.

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Mineral resource

Product18 12 14 10 15 11

Figure 2: Balanced capacity of flow in the world of local efficiency in a basic mining flow operation. [7]

In this system it is assumed that:

- The output chain is ten- That the chain is optimised- Balancing capacity results in optimised flow- Utilised all resources to their full capacity

In a chain it’s important to consider that all resources vary with time and so the resource figure of ten is an average capacity. It must also be noted that resource capacity is high and works forwards to backwards where upstream in the flow we expect starvation and downstream we expect blockage. In combination, the variation of a resource can kill the flow.

In reality a production of a resource depends on its availability. This will eventually result in relentless cost control measures, increased pressure on all levels to improve local efficiencies and a focus on every link in the flow. Handling levels of improvement can mean either cutting costs or throwing money at the problem in order to try and reduce the restriction on the bottleneck.

In an optimised flow it’s said that every flow has a weakest link that characterises the flow of the rest of the chain. What is needed is a protection of the weak link in order to restrict the effects of fluctuations in the rest of the chain. Therefore an effective buffer is needed to counter negative effects. See figure 3 for a schematic breakdown of this.

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Mineral resource

Product10 10 10 10 10 10

? ? ? ? ?10

Protective capacity

Buffer of work in front of the constraint

Space buffer behind the constraint

Figure 3: A schematic of buffers used in a flow to protect the constraint from variations in the chain. [7]

Without the protective capacity the buffers cannot be managed.

Table 1 shows the advantages and disadvantages between optimal flow and local efficiencies.

Local efficiency Optimal FlowBalanced Capacity Balanced Flow

Unstable flow Stable flowEverything Controlled Control Leverage pointsHigher Cost/product Lower Cost/Product

Table 1: A list of comparable advantages and disadvantages of the two styles. [7]

Case 1: BHP Mining Operations

The following information is collected from BHP Billiton in the Australian Journal of mining news report published 10/03/2015. It focuses on the delivering “exceptional returns from installed capacity” BHP Billiton is one of the world’s largest suppliers of Iron ore from their operations in the Pilbara, Western Australia. With the recent trend of decreasing iron ore prices and a focus on reducing capital spending, the issue of debottlenecking of existing operations has been a major focus for the company. BHP operates a series of separate open pit mines that feed to a common rail system and dedicated ports.

Since 2013 by detailed focusng on each of the elements of Mine, port and Rail, by making selective investements the production from the BHP operations has been increased from 185Mtpa in 2013 to 245 Mtpa in 2015. This has been achieved mainly from improvements

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Figure 4: Map image of BHP Western Australia Iron ore operations. With key included.

and debottlenecking of the existing system and driving more volume through existimg infrastructure:

Mines

The utilisation of the ore handling plants has increased by 9% from 2013 to 2015; this has been achieved by focusing on reducing the delays at the primary crushers and the installation of a grizzly at an area known as Mining Area C in order to reduce delays.

The rate of processing at the ore handling plants has increased by 12% from 2013 to 2015 by increasing conveyor speeds and investment in improved control systems logic.

What are the Bottlenecks?

- Bottleneck one is the primary crushers. They delay is caused by mined material that is too big for the crushers to process. In the system the introduction of the grizzly acts as a buffer. This doesn’t affect other operations and it doesn’t change the rate at which a crusher can process the material. What the grizzly does do is filter the material through a matrix and allows only rock that is of crushable size to be passed through to the crusher. Therefor stopping delays and increasing production rates.

- Bottleneck two is the conveyor belt. In order to increase production BHP have noted that increasing the belt speed and improving the computer system will allow them to process greater volumes of material. In this situation the team have noted the bottleneck and upgraded the system allowing the throughput to increase. This problem has been resolved by “throwing money at the constraint” in order to mitigate the issues.

Rail

The utilisation of the rail system has been improved by revising of the scheduling methodology of the iron ore trains with a 28% increase in the number of train departures per day and a 23% reduction in total travel time of the trains

A revision of the braking procedures has increased average train speed and a reduction of track speed restrictions without compromising safety has increased the rate of railing.

Selective investments of duelling of parts of the rail track have been part of the debottlenecking process.

What are the Bottlenecks?

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Figure 5 & 6: Graph representing the number of train departures over yearly quarters & Graph representing travel time for a train.

- The bottlenecks for the rail system were the train schedule, the braking system and the track layout. This system works similar to an I-Plant flow. One product, one flow. But in the chain are different links that affect the production. The Debottlenecking operation has utilised a drum buffer rope scenario. The rope in the system is the schedule, modifying this allows a better flow. The drum is the trains themselves these are the beat of the operation, Improving the brakes, increases there speed and efficiency. The buffer of the system is the rail duality in areas of the track. The buffer in this system reduces the effect of variations in other parts of the whole operation by allowing delayed trains off schedule to move freely on other tracks away from scheduled trains, effectively allowing operations to flow continuously.

Port Operations

At the port by regular scheduling of the arrival of the ore train, the utilisation of the car dumpers has increased by 21%

Improved sequencing of ships has increased the available berth loading hours and their effective capacity.

What are the Bottlenecks?

- In this system the bottleneck was the ship sequence. By adapting the train system shown before, BHP have been able to utilise the dumping cars more effectively decreasing loading times, and allowing more ships improve their effective capacity. By timing ship schedules with train schedules BHP have been able to move valuable product material in greater capacity increasing revenues.

This combination of process improvements and debottlenecking has enabled substantial growth in volumes as well as reducing operational costs. As for the future, as shown in figure 7 below the process is planned to continue:

Conclusion

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Figure 8: Graph of volume growth and predicted growth through debottlenecking.

Figure 7: Truck car utilisation graph.

In summary a bottleneck is a limit at which a system can throughput. Bottlenecks reduce system output and can in some cases stop operations. Debottlenecking is a fundamental principal set out by Eli Goldratt in the Theory of Constraints that teaches managers and business that bottlenecks can be managed and utilised in order to better the system. In this report the theory of bottlenecks has been looked at in depth with analysis on buffers and plant types. These concepts are of important focus in the mining industry as mining operations follow flows from mined material to refined ore product. As shown in the case study there is many parts in the flow that bottlenecks occur. Buffers have the ability to mitigate the effect of constraints on the system. The case study above highlighted the use of dual rail segments as a buffer against scheduling errors or issues. The buffer does not stop the issues just mitigates and protects the constraint.

BHP had many constraints in their operations, they chose to focus on three main areas in there operation, the mine, rail and port. Each of which has sub sections in the system. The mine changed the way material was fed into the crushers in the processing area and also changed the conveyor system to bolster up production. This is the transportation of the refined product in the mine. In the section on mine theory the simple flow diagrams aimed to highlight what a simple view of an operation would look like. In the BHP case study the model can be applied with the addition of major production steps e.g. Rail and port. By breaking the system down into manageable chunks it was easy to identify the constraint and hence adapt the system in either a local efficiency or optimised flow world. The benefit of each has been pointed out in table 1. The case study highlights how debottlenecking has a massive role in improving production in mining operations. With iron ore prices hitting record lows currently the decision by BHP to improve production could be considered poor, there inventory will increase because they cannot increase the throughput of the product as there is not a demand for it, this will mean BHP may have to sit on its products for some time before sufficient profits can be achieved.

Bibliography

[1]: a b Goldratt, Eliyahu M. Essays on the Theory of Constraints. [Great Barrington, MA]: North River Press. ISBN 0-88427-159-5.

[2]: A B Cox, Jeff; Goldratt, Eliyahu M. (1986). The goal: a process of on-going improvement. [Croton-on-Hudson, NY]: North River Press. ISBN 0-88427-061-0.

[3]: Eliyahu M. Goldratt. 2004. _The Goal: A Process of On-going Improvement, ISBN 978-0-88427-178-9.

[4]: Goldratt, Eliyahu; Fox, Robert (1986). The Race. [Croton-on-Hudson, NY]: North River Press. p. 179. ISBN 978-0-88427-062-1.

[5]: Corbett, Thomas (1998). Throughput Accounting. North River Press. p. 160. ISBN 978-0-88427-158-1.

[6]: Paul H. Selden (1997). Sales Process Engineering: A Personal Workshop. Milwaukee, WI: ASQ Quality Press. pp. 33–35, 264–268. ISBN 0-87389-418-9.

[7]: 2004 - Heuristic Flow

[8]: BHP Billiton Operational Review for the Year Ended 30 June 2014 – 23 July 2014 (WAIO Mineral Resources); BHP Billiton Unlocking Shareholder Value Presentation – 19 August 2014 (WAIO Exploration Targets); and 2014 BHP Billiton Annual Report – 25 September 2014 (WAIO Ore Reserves).

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