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Krajewski IN Chapter 7 - Chapter 7 Constraint Management...

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Chapter 7 Constraint Management TEACHING TIP Introduce with Eastern Financial Florida Credit Union. What was the problem? How did they solve the problem? TEACHING TIP This chapter is organized according to constraint management decisions for different time horizons: (1) how to best utilize available capacity in the short-term and (2) revising capacity levels and determining when to add or reduce capacity for the longer- term A. Managing Constraints across the Organization 1. Three types of constraints a. Physical – machine, labor, or workstation capacity b. Market – demand greater than or less than capacity c. Managerial – policies, metrics, mind-sets 2. Capacity is the greatest level of output that a process can reasonably sustain for a long period, using realistic employee work schedules and the equipment that is currently in place. 3. Both constraint and capacity decisions related to a process need to be made with the understanding of the role the process plays within the organization. B. Theory of Constraints 1. Measuring capacity, utilization, and performance in TOC a. No single capacity measure is universally applicable. Capacity can be expressed in terms of outputs or inputs. Output measures—the usual choice for line flow processes Low amount of customization Product mix becomes an issue when the output is not uniform in work content. Input measures—usual choice for low-volume, flexible processes High amount of customization Output varies in work content; a measure of total units produced is meaningless. Output is converted to some critical homogeneous input, such as labor hours or machine hours. 7-1
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7-2 Chapter 7: Constraint Management b. Utilization is the degree to which equipment, space, or workforce is currently being used. Average utilization rate, expressed as a percentage: Utilization = Average output rate Maximum capacity × 100% The average output rate and the capacity must be measured in the same terms. Job shops have low equipment utilization rates. c. Performance measures in TOC Inventory (I): all money invested in the system in purchasing things intended for sale A decrease in I leads to an increase in net profit, ROI, and cash flow Throughput (T): rate at which the system generates money through sales An increase in T leads to an increase in net profit, ROI, and cash flow Operating Expenses (OE): all money a system spends to convert inventory into throughput A decrease in OE leads to an increase in net profit, ROI, and cash flow Utilization (U): the degree to which equipment, space, or labor is being used A increase in U at the bottleneck leads to an increase in net profit, ROI, and cash flow 2. 7 Key principles of TOC a. The focus should be on balancing flow, not on balancing capacity.
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