P & R consulting

Introduction to theory of constraints

5 step focusing process
Cost of world orientation
Throughput world orientation
Introduction to Throughput Accounting

The book GOAL – a primer on how theory can be applied to improve performance

Typical Problems: Productivity, Resources, Time, Defect Rates,

Expediting orders is typical in any industry
Top Management in Long Meetings

Profit Leakage
Impacts ability to convert finished goods into sales

Performance of Bottom line impacts the Top line results

How to improve organization’s performance?

Theory of Constraints is based on the principal that complex systems exhibit inherent simplicity

Assumptions in TOC
1) Everything within a system is connected by a cause and effect relationship
a. Lead time problem: Batch size effect, this is the EFFECT so dig deeper to find the
underlying CAUSE
2) Nature is in complete harmony with itself. Contradictions can be resolved without compromise
3) All people are good. There is no resistance to change, as long as a “win-win” approach is shown
to them

Conflict Mesh
Marketing – maximize revenues / sales
Production – optimum production
Local Optimum: Everyone tries to maximize local objectives to achieve a LOCAL OPTIMUM.

You tell me how you’ll measure me, and I will decide how I will behave; So Measurement Drives Behavior
hence management needs to align measurements to overall ORG Goals and not the sub-unit level goals
Alignment of objectives towards global objectives
Aligning is key

It is a simple management concept that can be applied to any industry

COMMON MYTH

Setup time is waste of time. Too many switches would lead to wastage - Batching syndrome
Worry about setup times only where there is a bottleneck
Any machine/worker sitting idle, we get feeling why is it not running

First thing to note:

See that bottleneck’s are not kept idle else Inventory buildup occurs
Bottleneck defines throughput Therefore add resources at the bottleneck

MUST KNOW Concepts for Supply Chain Management :

DBR (Drum Buffer Rope) Theory
CCP (Critical Chain Project) Management

Plant head needs to have global view

Throughput is rate at which system generates money

Common flaw – Month end Syndrome in organizations

Five Step Focusing Process

Step 1) Identify the Constraint
Step 2) Exploit the Constraint
Step 3) Subordinate to the Constraint
Step 4) Elevate the Constraint
Step 5) Repeat step 1; Do not let “Inertial” creep in. POOGI (Process of ongoing improvement)

Step 1) Identify the Constraint

1) Effect Cause Effect – To any cause there will be at least 2 effects. Always look for real effects to
substantiate your cause.
2) Inherent simplicity – The more you break the process into smaller components, the more it gets
complex to handle
a.
Step 2) Exploit the Constraint
3) Resolve Conflicts

Step 3) Subordinate to the Constraint (follow the constraint)

4) Apply relevant TOC concepts

Lean / JIT / Six Sigma – only one shortcoming: does not talk about constraint. Do lean only where the
constraint is,

Step 4) Elevate the Constraint

 5) Step 5) Repeat step 1; Do not let “Inertial” creep in. POOGI (Process of ongoing improvement)

How to…………..?

Critical Change Project Management – good book

COST WORLD Orientation {check out pinnacle-strategies.com}

1. Cut costs
2. Department performance goals
3. Good global results = Sum of all good local results

THROUGHPUT WORLD Orientation

1. Need more sales
2. Total plant performance goals
3. Good Global results <> Sum of all good local results

Rules of TOC
1. Time lost in bottleneck = Time lost in entire system
2. Balance the flow Not the capacity because Statistical fluctuations always happen
3. Utilization and Activation are different
4. Time saved in non-bottleneck is a mirage
5. Utilization of non bottleneck is not determined by its own capacity but by the bottleneck
6. Maintain larger process batch and smaller batch size

Throughput Accounting (Production Oriented Accounting)

Finance v/s Operations (all 3 are simultaneously considered)
Net Profit Throughput = Sales Revenue – Variable Costs
ROI Inventory
Cash flow Operating expenses

Operating Income = Throughput – Fixed Costs

TP Tools
2 means of analysis – Sufficiency, Necessity (listed below are the tools used)
Sufficiency (If ... then)
Current Reality Tree (CRT) similar to AS-IS process of lean
Future Reality Tree (FRT) similar to TO-BE process of lean
Negative Branch Reservation (NBR)
Transition Tree (TRT)
Necessity (In order to .... we must have)
Evaporating Cloud (EC)
Pre-requisite Tree (PRT)
Books :
GOAL
CCPM
Isn’t it obvious
Hay-stack Syndrome
Production the TOC way
Necessary but not Sufficient {Especially good for people with ERP knowledge}