The Theory of Constraints

Now that we know the Goal, how

do we use it to improve our
system?

Paul A. Jensen
Operations Research Models and Methods
8/27/04 Copyright 2004 - All rights reserved
The Theory of Constraints
 Step 1: Identify the system's constraint(s).
 Step 2: Decide how to exploit the system's
constraint(s).
 Step 3: Subordinate everything else to the
decisions of Step 2.
 Step 4: Elevate the system's constraint(s).
 Step 5: If a constraint is broken in Step 4, go
back to Step 1.

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 Step 1: Identify the system’s
constraint(s).

 What is the Goal?

 What is Throughput?
 What is Inventory?
 What is Operating Expense?
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 Step 2: Decide how to exploit
the system’s constraint(s).

 What is the constraint?

 How do we get as much throughput as
possible?
4
 Step 3: Subordinate everything else
to the decisions of Step 2

 Throughput?
 Inventory?
 Operating Expense?
5
 Step 4: Elevate the system’s
constraint(s).

 Throughput?
 Inventory?
 Operating Expense?
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 Step 5: If a constraint is broken
in Step 4, go back to Step 1.

 What might happen if the constraint is

elevated?

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Summary: The Theory of
Constraints
 Step 1: Identify the system’s constraint(s).
 Step 2: Decide how to exploit the system’s
constraint(s).
 Step 3: Subordinate everything else to the
decisions of Step 2.
 Step 4: Elevate the system’s constraint(s).
 Step 5: If a constraint is broken in Step 4, go
back to Step 1.

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Application in Manufacturing

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 P Q
A,B,C,D: 1 each
Available Time: $90/U $100/U
2400 Min/Wk 100 U/Wk 50 U/Wk
OE not including
RM: $6000 per wk
D D
10 min./U 5 min./U

Purchase
Part
$5/U C C B
10 min./U 5 min./U 15 min./U

A B A
15 min./U 15 min./U 10 min./U

RM1 RM2 RM3

$20/U $20/U $20/U

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 Step 1: Identify the system’s
constraint(s).
P Q
A,B,C,D: 1 each
Available Time: $90/U $100/U
2400 Min/Wk 100 U/Wk 50 U/Wk
OE not including
RM: $6000 per wk
D D
10 min./U 5 min./U

Purchase
Part
$5/U C C B
10 min./U 5 min./U 15 min./U

A B A
15 min./U 15 min./U 10 min./U

 What is the Goal? RM1 RM2 RM3

$20/U $20/U $20/U
 What is Throughput?
 What is Inventory?
 What is Operating Expense?

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To Identify the Resource
Constraint
 Compute the load on each production
resource assuming market demands.
 Compare the resource loads with the
resource capacities.
 Those resources for which the loads exceed
the capacities are constraints (bottlenecks).
 If no production resource load exceeds its
capacity,
 the market demands are the constraints.
 the constraints are external to the manufacturing
system.
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Compute the loads and
compare with capacities.
 Production P=100, Production Q=50
 A: Load =2000, Capacity = 2400 Minutes
 B: Load =3000, Capacity = 2400 Minutes
 C: Load =1750, Capacity = 2400 Minutes
 D: Load =1250, Capacity = 2400 Minutes
 What is the constraint?

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Step 2: Decide how to exploit
the system’s constraint(s).
P Q
A,B,C,D: 1 each
Available Time: $90/U $100/U
2400 Min/Wk 100 U/Wk 50 U/Wk
OE not including
RM: $6000 per wk
D D
10 min./U 5 min./U

Purchase
Part
$5/U C C B
10 min./U 5 min./U 15 min./U

A B A
15 min./U 15 min./U 10 min./U

RM1 RM2 RM3

$20/U $20/U $20/U

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Exploiting the constraint
 Assume a single constraint is identified.
 Rank the products in order of the ratio:
 Throughput dollars per minute of constraint use.
 Select the product mix so that the products
with greater ratios are produced in preference
to the products with smaller ratios.
 What goal is this method trying to achieve?
 How does this method achieve the goal?

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What and how much to
produce?
 P: TP/Unit = 45, B Min/Unit=15
TP/Min = 45 15  $3 / min

 Q: TP/Unit = 60, B Min/Unit=30

TP/Min = 60 30  $2 / min

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Calculate Solution
 Produce as much P as possible
P  100
 Use the remainder of the constraint resource
for Q
Q
2400  15 100   900  30
30 30
 What is the profit for this product mix?
Profit = TP - OC
= 100 45   30 60   3000
 4500  1800  6000  300
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Step 3: Subordinate everything
else to the decisions of Step 2.
P Q
A,B,C,D: 1 each
Available Time: $90/U $100/U
2400 Min/Wk 100 U/Wk 50 U/Wk
OE not including
RM: $6000 per wk
D D
10 min./U 5 min./U

Purchase
Part
$5/U C C B
10 min./U 5 min./U 15 min./U

A B A
15 min./U 15 min./U 10 min./U

RM1 RM2 RM3

$20/U $20/U $20/U

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Subordinating Production
 Production P=100, Production Q=30
 A: Load =1800, Capacity = 2400 Minutes
 B: Load =2400, Capacity = 2400 Minutes
 C: Load =1650, Capacity = 2400 Minutes
 D: Load =1150, Capacity = 2400 Minutes
 What determines the load on the non-
constraints?

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 Step 4: Elevate the system’s
constraint(s).
P Q

Where should process

A,B,C,D: 1 each
 Available Time: $90/U
100 U/Wk
$100/U
50 U/Wk
2400 Min/Wk

improvements be
OE not including
RM: $6000 per wk

focused?
D D
10 min./U 5 min./U

Purchase
 What is the benefit of Part
$5/U C
10 min./U
C
5 min./U
B
15 min./U
elevating the
constraint? A
15 min./U
B
15 min./U
A
10 min./U

 What is the benefit of RM1

$20/U
RM2
$20/U
RM3
$20/U
elevating a non-
constraint?

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 Step 5: If a constraint is broken
in Step 4, go back to Step 1.
P Q
 What might A,B,C,D: 1 each
Available Time:
2400 Min/Wk
$90/U
100 U/Wk
$100/U
50 U/Wk

happen if the
OE not including
RM: $6000 per wk
D D

constraint is Purchase
10 min./U 5 min./U

elevated? Part
$5/U C
10 min./U
C
5 min./U
B
15 min./U

 What happens if A
15 min./U
B
15 min./U
A
10 min./U
there are no more
internal
RM1 RM2 RM3
$20/U $20/U $20/U

constraints?

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Say we add another machine
of type B.
 Production P=100, Production Q=50
 A: Load =2000, Capacity = 2400 Minutes
 B: Load =3000, Capacity = 4800 Minutes
 C: Load =1750, Capacity = 2400 Minutes
 D: Load =1250, Capacity = 2400 Minutes
 How much should we produce?
 What is the new constraint?
 How do we elevate the new constraint?

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Summary: The Theory of
Constraints
 Step 1: Identify the system’s constraint(s).
 Step 2: Decide how to exploit the system’s
constraint(s).
 Step 3: Subordinate everything else to the
decisions of Step 2.
 Step 4: Elevate the system’s constraint(s).
 Step 5: If a constraint is broken in Step 4, go
back to Step 1.

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