Operations Management II ORM2B15-3

Session 06 Theory of Constraints (TOC) +

Critical Chain Project Management (CCPM)

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 = 200 units/week
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TOC Some Important Terms

Throughput The rate at which products are sold

Limited by internal constraints (plant capacity)
Limited by external constraints (market demand)
Constraint Anything that limits a systems performance
relative to its goal Bottleneck
Inventory All the money used to purchase things the
system intends to sell
Paid but not sold
Operating expense The money a system spends to turn
inventory into throughput
Throughput accounting An accounting system used to
measure TOC operations
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Dipankar Bose - XLRI

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
Dipankar Bose - XLRI

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

Dipankar Bose - XLRI

TOC Related Terms

Constraint management
Synchronous/synchronized manufacturing (General
Motors)
Optimized Production Technology (OPT) software
Drum-Buffer-Rope system
Throughput technology

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Drum-Buffer-Rope (DBR)
Assembly Buffer
C
80
60
Constraint Buffer

RM Buffer

Shipping Buffer

Supplier

Rope

Customer
A

80
60

90
60

60

75
60

Constraint
(Drum)
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Capacity Constrained Resource (CCR)

Assembly Buffer
C
80
60
Constraint Buffer

RM Buffer

Shipping Buffer

Supplier

Rope

Customer
A

80
60

90
60

60
CT = 10 minutes

Constraint
(Drum)
CCR

55

E
75
60

Rope
Dipankar Bose - XLRI

Drum-Buffer-Rope (DBR)

The drum is the physical constraint of the plant

The work center or machine or operation that limits the
ability of the entire system to produce more
The rest of the plant follows the beat of the drum
They make sure that the drum has work and anything the
drum has processed does not get wasted
The buffer protects the drum
The buffer always has work flowing to it
Buffers in DBR have time as their unit of measure, rather
than quantity of material
This makes the priority system operate strictly based on
the time an order is expected to be at the drum
Dipankar Bose - XLRI

Drum-Buffer-Rope (DBR) Continued

Traditional DBR usually calls for buffers for protection

against several points in the system
For the Drum Constraint Buffer
For assembly of constraint & non-constraint
Assembly Buffer
For Due date Shipping Buffer
The rope is the work release mechanism for the plant
Only a "buffer time" before an order is due
It gets released into the plant
Pulling work into the system earlier than a buffer time
Guarantees high work-in-process
Slows down the entire system
Dipankar Bose - XLRI

DBR Implementation

Exploit the drums

Work drums continuously
Reduce set-ups
Off-load work to non-drum work centers
Subordinate everything to drum
Staffing
Maintenance
Engineering Support
Run non-constraints using FIFO
Buffer coordinator expedites at non-constraints to meet
drum schedules
Dipankar Bose - XLRI

DBR Implementation Continued

Elevate Drum Increase Capacity

Add Capacity
Process Improvements
Offload
Start Over Identify new constraint
Change Company Culture
Educate Personnel in DBR/TOC
Eliminate Cost Accounting Based Performance
Measures (Productivity, Utilization, Product Cost, etc.)
What about Efficiency?
Its O.K. for non-drums to be idle
Change culture company-wide, not just manufacturing
Dipankar Bose - XLRI

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
Set the schedule by examining capacity and priority
simultaneously and sequentially
The level of utilization of a non-bottleneck is determined
not by its own potential
But by some other constraint in the system
Utilization (for entire system) and activation (doing
independently) of a resource are not synonymous
Dipankar Bose - XLRI

Example 1

RM
= 10

RM
=4
RM
=6

Product A
Price = 50

Product B
Price = 75

Product C
Price = 60

Work Center Z
5 minutes/part

Work Center X
6 minutes/part

Work Center X
4 minutes/part

Work Center X
4 minutes/part
Work Center Y
10 minutes/part

RM
= 30

RM
= 18
RM
= 12

Work Center Y
3 minutes/part
Work Center Z
2 minutes/part

RM
= 15

RM
=5

Work Center Y
3 minutes/part
Work Center Z
5 minutes/part

RM
= 20

Maximize Sales revenue/Gross profit per unit/ Total gross

profit
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Example 2
Product A
Price = 30

Product B
Price = 32

Product C
Price = 30

Product D
Price = 32

Worker 1
5 minutes/part

Worker 1
5 minutes/part

Worker 1
5 minutes/part

Worker 1
5 minutes/part

RM
=3
Worker 1
10 minutes/part
RM
=5

RM
=7

Worker 2
20 minutes/part

RM
=3

Worker 2
10minutes/part

RM
=7

RM
=5

RM
= 10

Max prod: Min prod = 10:1; Weekly 5 days3 shifts

Weekly operating expenses = 3000
Maximize Sales revenue/Gross profit per unit/ Total gross
profit
Dipankar Bose - XLRI

Topic: Critical Chain Project

Management (CCPM)

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Why Projects Get Delayed?

A project accumulates delays, it does not accumulate gains

Individuals always desire a safety buffer
No early finishes
Parkinsons Law
Student Syndrome
Multi-tasking
Murphys Law
Remedy CCPM Suggests
Full Kitting
Reverse Planning
Planning based on availability
Prioritization of activities

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Critical Chain Project Management

(CCPM)

Cut 50% of original time estimates

Apply CPM to prepare late start (LS) schedule
If there is resource conflict
Resolve it going backward in time
Reschedule the activities
Ensuring minimum increase in the project duration
Avoid multi-tasking in the process
Identify the critical chain
If there are more than one, choose any one of them
Add a Project Buffer (PB) at the end of the project
PB = 50% of the total time cut (in Step 1) from the
critical chain activities
Dipankar Bose - XLRI

Critical Chain Project Management

(CCPM) Continued

Add Feeding Buffers (FB)

Where non-critical chain merges into critical chain
Protects critical chain from any variations in the
non-critical chain activities
FB = 50% of the total time cut from longest chain of
non-critical activities
Consider the Resource Buffer (RB)
Virtual task inserted prior to critical chain tasks
That require critical resources
Drum Buffer/Capacity Buffer
Resources shared among multiple projects
Buffer management Green-Yellow-Red Rule
Dipankar Bose - XLRI