Chapter Seven Notes

Chapter Seven Notes - Chapter Seven Notes Constraint: any...

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Chapter Seven Notes Constraint : any factor that limits the performance of a system and restricts its output, while capacity is the maximum rate of output of a process or a system; when constraints exist in processes, capacity can become imbalanced (too high in some departments and too low in others), and overall system performance suffers Three types of constraints: 1) Physical - related to machinery, labor, or workstation capacity or material shortages, but can be space or quality 2) Market - demand is less than capacity 3) Managerial - policy, metrics, or mind-sets created by management create constraints that impede work flow Bottleneck : special type of constraint that relates to the capacity shortage of a process, defined as any resource whose available capacity limits the organization's ability to meet the service or product volume, product mix, or fluctuating requirements demanded by the marketplace Business systems or processes have at least one constraint or bottleneck, or else they would only be limited by market demand Managing Constraints Across the Organization Firms must manage constraints by making appropriate capacity choices at the individual-process level, as well as at the organizational level. This process of decision-making requires inter-functional cooperation. Managers must be able to identify and manage bottlenecks, which can appear across departments in an organization, in all types of processes. They must be able to relate capacity and performance measures of one process to another and use that information to determine the firm's best service/product mix. The Theory of Constraints (TOC) The 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 it's resources. Developed by Eli Goldratt, a prominent business systems analyst, the theory outlines a deliberate process for identifying and overcoming constraints. TOC methods increase profits more effectively by focusing on making materials flow rapidly through the entire system. They help firms view the big picture, how processes are interrelated to improve overall work flows, and how inventory and workforce levels can be reduced while still effectively utilizing critical resources.
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Requires an understanding of the necessary relevant performance and capacity measures at the operational level, as well as their relationship to more broadly understood financial measures at the firm level. Operational Measures : Inventory (I) - All the money invested in a system in purchasing things that it intends to sell - 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
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This note was uploaded on 06/08/2011 for the course MGSC 395 taught by Professor Zimmer during the Spring '10 term at South Carolina.

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Chapter Seven Notes - Chapter Seven Notes Constraint: any...

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