Production Management - PRDH20-2: Session 11 Theory of Constraints (TOC)

Production Management – PRDH20-2
Session 11 → Theory Of Constraints (TOC)

Constrained Process
◼ Product A
◼ Profit = Rs. 80/unit
◼ Demand = 100/week
◼ Production = 0.4 hours/unit
◼ Product B
◼ Profit = Rs. 50/unit
◼ Demand = 200/week
◼ Production = 0.2 hours/unit
◼ What will be maximum profit?

◼ Total available time = 60 hours/week
◼ Total production limit = 180 units/week
Dipankar Bose - XLRI
TOC – Some Important Terms
◼ Throughput → The rate at which products are sold

◼ Limited by internal constraints (plant capacity)
◼ Limited by external constraints (market demand)
◼ Limited by wrong policy/rules taken by management
◼ Constraint → Anything that limits a system’s performance
relative to its goal (Make Money) → Bottleneck
◼ Inventory → All the money used to purchase things the
system intends to sell
◼ Paid but not sold
◼ Buffer (Inventory) → ‘Time’ based (NOT ‘Quantity’ based)
◼ Operating expense → The money a system spends to turn
inventory into throughput
TOC – Some Important Terms –
Continued
◼ Process batch → Quantity of product processed at a work

center before the work center is reset to produce another
product
◼ Should be variable
◼ Transfer batch → Quantity of product that move from one
work center to next
◼ Should be small in size
◼ Two critical assumptions
◼ The goal of product or customer mix and volume
should be to maximize throughput
◼ Once a certain capacity exists, operating expenses are
fixed
Theory of Constraints – Steps
◼ Identify the systems constraints

◼ Decide how to exploit the constraints
◼ Subordinate everything else to the exploitation of
constraints
◼ Elevate the systems constraint
◼ If any of the constraints are violated, repeat the process

Drum-Buffer-Rope (DBR)
C
80
Supplier Customer
A B D E
80 90 60 75

C
80
Supplier Customer
A B D E
80 90 60 75
Constraint
(Drum)
C
80
60
Supplier Customer
A B D E
80 90 60 75
60 60 60
Constraint
(Drum)
C
80
60
Constraint Buffer
Supplier Customer
A B D E
80 90 60 75
60 60 60
Constraint
(Drum)
C
80
60
Constraint Buffer Shipping Buffer
Supplier Customer
A B D E
80 90 60 75
60 60 60
Constraint
(Drum)
C
80
60
RM Buffer Constraint Buffer Shipping Buffer
Supplier Customer
A B D E
80 90 60 75
60 60 60
Constraint
(Drum)
Assembly Buffer
C
80
60
Supplier Customer
A B D E
80 90 60 75
60 60 60
Constraint
(Drum)
Assembly Buffer
C
80
60
Supplier Customer
A B D E
80 90 60 75
60 60 60
Rope
Constraint
(Drum)
Assembly Buffer
C
80
60
Supplier Customer
A B D E
80 90 60 75
60 60 60
Rope
Constraint
(Drum)
Capacity Constrained Resource (CCR)
Assembly Buffer
C
80
60
Supplier Customer
A B D E 55
80 90 60 75
60 60 CT = 10 minutes 60
Rope
Constraint
(Drum)
CCR Dipankar Bose - XLRI
Assembly Buffer
C
80
60
Supplier Customer
A B D E 55
80 90 60 75
60 60 CT = 10 minutes 60
Rope
Constraint
Rope
(Drum)
Assembly Buffer
C
80
60
Supplier Customer
A B D E 55
80 90 60 75
60 60 CT = 10 minutes 60
Rope
Constraint
Rope
(Drum)
Theory of Constraints – Some
Principles
◼ Balance flow, not capacity
◼ An hour lost at a bottleneck is an hour lost forever
◼ An hour saved at a non-bottleneck has no value
◼ Bottlenecks govern both throughput and inventory in the
system
◼ Schedules should be established by looking at all
constraints simultaneously
◼ The level of utilization of a non-bottleneck is determined
not by its own potential
◼ But by some other constraint in the system
◼ Utilization and activation of a resource are not
synonymous
Example 1
Product A Product B Product C
Price = 50 Price = 75 Price = 60
Work Center Z Work Center X Work Center X

5 minutes/part 6 minutes/part 4 minutes/part
RM RM RM
= 10 Work Center X = 30 Work Center Y = 15 Work Center Y
RM RM RM
=4 Work Center Y = 18 Work Center Z =5 Work Center Z
RM RM RM
=6 = 12 = 20
◼ Maximize Sales revenue/Gross profit per unit/ Total gross

profit Dipankar Bose - XLRI
Example 2
Product A Product B Product C Product D
Price = 30 Price = 32 Price = 30 Price = 32
Worker 1 Worker 1 Worker 1 Worker 1

5 minutes/part 5 minutes/part 5 minutes/part 5 minutes/part
RM
RM RM RM
=3
Worker 1 =7 =3 Worker 2 =7
◼ 10 minutes/part 10 minutes/part
Worker 2
RM 20 minutes/part RM
=5 =5
RM
= 10
◼ Max prod: Min prod = 10:1; Weekly 5 days3 shifts
◼ Weekly operating expenses = 3000
◼ Maximize Sales revenue/Gross profit per unit/ Total gross
profit Dipankar Bose - XLRI

Production Management - PRDH20-2: Session 11 Theory of Constraints (TOC)

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Production Management – PRDH20-2

Session 11 → Theory Of Constraints (TOC)

◼ What will be maximum profit?

◼ Throughput → The rate at which products are sold

◼ Process batch → Quantity of product processed at a work

◼ Identify the systems constraints

Dipankar Bose - XLRI

Dipankar Bose - XLRI

Work Center Z Work Center X Work Center X

◼ Maximize Sales revenue/Gross profit per unit/ Total gross

Worker 1 Worker 1 Worker 1 Worker 1

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