Ch7 - Chapter 7. Constraint Management The Theory of...

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Chapter 7. Constraint Management The Theory of Constraints Identification and Management of Bottlenecks Managing Constraints in a Line Process Line Balancing
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There is and can only be one goal for a manufacturing firm. The goal is to make money now and into the future.
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Theory of Constraints TOC is a systematic management approach that focuses on actively managing those constraints that impede a firm’s progress toward its goal of maximizing profits and effectively using its resources It outlines a deliberate process for identifying and overcoming constraints TOC methods increase the firm’s profits by focusing on materials flow through the entire system
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Theory of Constraints TABLE 7.1 | HOW THE FIRM’S OPERATIONAL MEASURES RELATE TO ITS | FINANCIAL MEASURES Operational Measures TOC View Relationship to Financial Measures Inventory (I) All the money invested in a system in purchasing things that it intends to sell A decrease in I leads to an increase in net profit, ROI, and cash flow. Throughput (T) Rate at which a system generates money through sales An increase in T leads to an increase in net profit, ROI, and cash flows. Operating Expense (OE) All the money a system spends to turn inventory into throughput A decrease in OE leads to an increase in net profit, ROI, and cash flows. Utilization (U) The degree to which equipment, space, or workforce is currently being used, and is measured as the ratio of average output rate to maximum capacity, expressed as a percentage An increase in U at the bottleneck leads to an increase in net profit, ROI, and cash flows.
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Obstacles to running an effective operation (with low levels of inventory) include Dependent Events and Statistical Fluctuations. The disruptions will not average out for the total system, and most individual resources will be forced to perform below their capacity
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Theory of Constraints TABLE 7.2 SEVEN KEY PRINCIPLES OF THE THEORY OF CONSTRAINTS 1. The focus should be on balancing flow, not on balancing capacity. 2. Maximizing the output and efficiency of every resource may not maximize the throughput of the entire system. 3. An hour lost at a bottleneck or a constrained resource is an hour lost for the whole system. In contrast, an hour saved at a nonbottleneck resource is a mirage because it does not make the whole system more productive. 4. Inventory is needed only in front of the bottlenecks in order to prevent them from sitting idle, and in front of assembly and shipping points in order to protect customer schedules. Building inventories elsewhere should be avoided.
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Theory of Constraints TABLE 7.2 - continued SEVEN KEY PRINCIPLES OF THE THEORY OF CONSTRAINTS 5. Work, which can be materials, information to be processed, documents, or customers, should be released into the system only as frequently as the bottlenecks need it. Bottleneck flows should be equal to the market demand. Pacing everything to the slowest resource minimizes inventory and operating expenses. 6. Activating a nonbottleneck resource (using it for improved efficiency that
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Ch7 - Chapter 7. Constraint Management The Theory of...

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