Production Management Philosophy and Principles of Theory of Constraints

Question 1Highlight the production management philosophy and principles of TOCThe Theory of Constraints is a management philosophy introduced by Dr.

E Goldratt through his book ‘The Goal’ (1992 2nd Ed.). The Theory of Constraints (TOC) focuses, through scientific principles, on the resources of an organisation by improving the performance of the constraint that directly affects the production methods of a specific company. It is an approach which seeks to solve constraints and problems in a logical way by building a logic chart of the problem, finding its roots and developing steps to remove the core of the problem.

TOC methods are used by managers to improve the management and sales of their companies/product(s).TOC contends that the output of any system consists of a series of steps where the output of one step depends on the output of one or more previous steps will be limited, or constrained, by the least productive steps. The system's constraint dictates its performance and if one is to increase the system's performance the systems constraint will need to be indentified and explored further in depth.TOC involves an adoption of special thinking processes which, in most cases, are different than the current thinking processes, but, are logically accepted and used widely, Watson, Blackstone & Gardner (2007)The constraint, is first identified. To increase throughput, flow through the constraint is increased. Throughput is defined as all the money that enters the company minus what it paid to its vendors.

When the constraint is identified, the next step is to focus on how to get more production within the existing capacity limitations, known as exploiting the constraint. The next step is to subordinate the non-constraint resources. Subordination is used to prevent materials from waiting in queue at a non-constraint resource that is running a job that the constraint doesn’t need.After the non-constraint resources have been subordinated, following step is to determine if the output of the constraint is enough to meet any demands. If not, it is necessary to find more capacity by "elevating" the constraint. Following this sequence ensures the greatest movement toward the goal of making more money-now and going forward.

Once the output of the constraint is no longer the factor that limits the rate of fulfilling orders, it’s no longer the constraint. Step 5 is to go back to Step 1 and identify the new constraint because there always is one. The five step process is then repeated.One of the basic principles of TOC is that an organisation cannot allow a constraint to move around or suffer an untidy result. This is not the case in a flexible manufacturing system.

It depends on the cycle time of a part at a particular work station. A flexible manufacturing cell allows the constraint to move around from one piece of equipment to the next depending on the particular part that is being processed. In other words, it is advantageous.Secondly, TOC treats symptoms and not root causes of problems.

Shuffling inventory around from one work centre to another is not the way to successfully manage a manufacturing plant.Theory of Constraints is no magic solution, nor should it be embraced as a belief, or a trend. It is an operational strategy which needs to be carefully reviewed and applied for implementation. The best way to approach the situation is to first downsize a facility and its processes, identify the opportunities, and then identify a solution. If this sees fit, then many would highly recommend adaptation to such an approach.

Question 2:Describe how TOC can help to prioritise the most profitable high impact initiatives within a production environmentA major component of the Theory of Constraints to aid in prioritisation of production/manufacturing is technique known as the VAT analysis. This technique grew out of an OPT philosophy and is a procedure which categorises manufacturing operations based on the nature of the product flow through the development of the routings and the bill of materials (Lockamy & Cox 1991).McMullen (1998) notes that a VAT analysis determines the general flow of parts and products from raw materials to finished products. His suggestion of VAT conceptualises an organisation in terms of the interaction of its individual components, both products and processes. Three general categories of production structures result from this, each requiring an approach to management planning and control.

In a VAT diagram a V structure starts with one or a few raw materials, and the product expands into a number of different products as it flows through its processes. The shape of an A structure is dominated by merging points. Many raw materials are fabricated and assembled into a few finished projects.A T structure includes numerous similar finished products assembled from all kinds of the fabrication process. The VAT diagram shows the general appearance of each structure. Once the general parts flow is determined, the system control points can be identified and managed.

This focuses management's attention on a few control points where buffers can be used to protect and to maximise throughput. McMullen (1998) refers to five control points that are used to manage the process: (1) the constraint, (2) the points of the divergence (where a part or material is diverted to different routes in order to make different products), (3) the points of convergence (where two or more parts are combined in subassembly), (4) the releasing operation, and (5) the shipping operation.The structure determines which control points are utilised to manage production. A T structure focuses attention on the constraint and the gating operation.

The five-step focusing process is used to manage the constraint with a buffer placed before the constraint to counter for any possible variations in the process. The output from the gating operation is linked to the constraint; that is, since the constraint controls the amount of throughput; the gating operation cannot process any more than the constraint.A V structure also uses a buffer to protect the constraint, and, the gating operation releases orders at the same rate as the constraint as seen in the T structure. However, an additional control point exists in the V structure, the divergent point. The divergent point is controlled by a schedule derived from the shipping schedule. This will aid in preventing any misallocation of raw material to a product not currently in demand.

The A structure manages the constraint and gating operation quite similar to the T structure. Any diverging points are scheduled in unity with the shipping schedule. Also, an assembly buffer is used to maintain the flow into the convergent points. An additional schedule based on the shipping schedule (similar to that in the V structure) is used to keep capacity from being misallocated to the wrong order. By using VAT analysis, significant improvements in the production process can see results.The significance of a VAT analysis is that it provides a methodology for developing effect-cause-effect relationships, thus defining the critical business issues which need to be prioritised, discovering the cause of the issues or problems, and predicting other effects within the organisation based upon these problems or issues.

Cox (1991) notes that defining the characteristics and associated business issues inherent to an organisation based upon a VAT analysis, the organisation will immediately know where to begin addressing those potential problems so that they can reap the greatest benefits, normally higher profits.Question 3You are now aware of various aspects of the TOC philosophy and fully convinced that implementation of such a philosophy can help transfer a sick organisation into a profitable one. Consider a hypothetical manufacturing company which is facing problems with inventory, throughput, quality and job sequencing. Discuss how you will implement the proposed philosophy in order to rescue this organisation?A common policy of the theory of constraints is that any person responsible for decision making in a particular area is a potential constraint. A supply manager can become the constraint by ordering the wrong material; the manager of personnel can become the constraint by hiring the wrong type of workers; many different sections of manufacturing can become the constraint by processing jobs in the wrong sequence or the wrong quantity.

It’s therefore important for the decision makers to feel some sort of ownership of the decision-making process. This can be accomplished by decision makers develop the specific system to be used in his or her area. Simultaneously, it is important that all areas of an organisation are pulling in the same direction. For example, all areas must agree on what constraints exist and what should be done to exploit or elevate the constraints.To successfully achieve the theory of constraint implementation, it has been suggested by Watson, Blackstone ; Gardner (2006) that this would begin from the top of the organisation flowing through appropriate hierarchy. At each level, manager(s) who receive an education on the theory of constraints should develop a presentation of the implementation plan for his/her department/area of responsibility to a superior.

Unless errors in identifying the nature of the constraint(s) have been made, a superior will hopefully accept a plan and request the manager to provide education in the theory of constraints for any subordinate decision makers. If a manager changes the solution, the implementation becomes the manager's, not the subordinate's then, the feeling of ownership is lost. The feeling of ownership is much more important than the sequence in which improvement actions are taken. If the manager has patience, the subordinate will eventually find the correct solution---and retain ownership of the solution, in all, common sense should prevail.Theory of Constraint Concept(s)A TOC concept noted by Gupta (2000) Throughput-world thinking (TWT) creates a mindset that the main goal of this hypothetical firm is “to make more money" (Gupta, 2000).

This mindset demands that certain conditions should never be violated when managers make decisions in a firm in order to achieve that goal. Two important conditions generally discussed in TOC literature are (a) provide a satisfying work environment to employees, and (b) provide satisfaction to the market (Goldratt 1992. Dettmer 1997).Figure 1.

1 below shows the relationship between the goal and two necessary conditions. The flow diagram suggests that among the goal and necessary conditions, we can call any one of these a goal as long as the other two are considered as the necessary conditions to be satisfied in an organisation. Assuming that a firm's goal is to make more money (primarily because it is relatively easily quantifiable), the TOC concept of “measurement system is conceived as a set of three simple performance measures: Throughput, Inventory and Operating Expenses (TIOE). These measures (a) are financial in nature, i.

e. they can be translated to measures such as Net Profit and Return on Investment; (b) are easy to apply at any level of a company: and (c) ensure that local decisions are aligned with the profit goal of the firm” (Goldratt 1990).Figure 1.2 below highlights thisThe TOC-based production management methodology primarily consists of Five Focusing Steps (FFS) for identifying and managing the systems constraints that are limiting a company's ability to accomplish the goal (figure 1.3).

Evidently in this continuous improvement process are concepts of drum-buffer-rope scheduling and buffer management, which are used to develop the constraints’ schedule and manage buffer inventories within a company. The improvement process ensures that the operations decisions are made to increase throughput, and reduce inventory and operating expenses simultaneously (if possible).The theory of constraints emphasises a continual process of improvement. Improvement will focus on the constraints so that improvement proceeds as rapidly as is practical.

Each decision maker should know what the constraints' are, how the area of responsibility interfaces with the constraints, what the next constraints are expected to be if any given constraint is broken. With this knowledge, the decision maker(s) should be able to identify the set of problems experienced by his or her area that have the greatest impact on the business.In a sense, the theory of constraints makes the decision-making process much easier. Most managers have an almost endless set of data to track and potential improvement efforts to consider. By identifying those problems that have the greatest impact on the constraint, a manager can limit the amount of data that must be monitored and also postpone consideration of certain improvement efforts. At the same time, the amount of information that must be passed around the organisation can be reduced, as a lot of detail concerning non constraint activities can be forgotten.

The theory of constraints provides two useful techniques for use in developing and refining implementation plans to inevitably improve throughput, inventory, sequencing and product quality. The first is effect-cause-effect and the second is DBR Management (drum-buffer-rope).Effect-Cause-EffectIn order to implement a successful plan, it will be necessary to identify those problems that create or contribute to constraints and to understand their underlying causes. When analysing performance versus competition, it could be added that this struggling hypothetical firm has poorer quality and longer lead time than the competition. Therefore managers must identify the causes of the poor quality and/or long lead time.

The long lead time might be caused by a lack of components at assembly. It could be easy to verify that assembly jobs are often held due to lack of a of components. There are many reasons that components might be missing. One is that obviously a constraint exists. Secondly, workers may be taking components allocated to one assembly in order to complete a second assembly. Another is that the inventory records are poor and the component never existed in the first place.

To find a solution an understanding of why the parts are missing needs to be identified. If inventory records are the problem and different plan of attack is required if a constraint is not the problemA key feature of effect-cause-effect is that before time is utilised tracing the cause and effect a method can be identified to test whether or not a hypothesised cause or a real cause is a likely candidate. If we can find no verifiable subsidiary effect, we are likely to waste time by pursuing the present hypothesised cause.