09+The_Philosophy_of_Opt

09+The_Philosophy_of_Opt - ThePhilosophyofTOC...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
The Philosophy of TOC The Philosophy of TOC
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Theory of Constraints Theory of Constraints TOC (Theory of Constraints) :  It focuses on  constraints, as opposed to Lean Manufacturing,  which attempts to eliminate waste at all operations.  Goal :   To make more profit.  In pursuing this goal, three key financial performance  measures - throughput, inventory, and operating  expense – determine the level of these financial  measures.
Background image of page 2
Financial Measures Financial Measures Throughput   is the rate at which the manufacturing firm sells  finished goods. Note that  throughput  under TOC  is not  synonymous with production rate Inventory  is defined by OPT to be “the money the firm has  invested in purchasing things which it intends to sell.”  These  include raw materials, components, and finished goods that have  been bought by the firm but not yet sold. In a departure from  standard accounting practice, labor and overhead are not included  in the inventory. Operating Expense   is the cost of converting inventory into  throughput. It includes direct and indirect labor, electricity, etc.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Constraints Constraints Internal Resources :    A bottleneck machine  Market Related :    Demand level  Policy Related :    A policy that allows no work on         weekends. 
Background image of page 4
A Procedure for Dealing with  A Procedure for Dealing with  Constraints Constraints 1. Identify the primary constraint. 2. Find out how to exploit the constraint. 3. Subordinate everything else to the decision      made in step 2. 4. Elevate the constraint so that higher level of      performance can be achieved. 5. If the constraint is eliminated, go back to step       1.
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Example Example Products A B Price ($/unit) $80 $100 Cost of Materials ($/unit) $20 $25 Market demand per week (units) 200 110 Unit labor cost L L Unit overhead cost O O Time on the bottleneck machine (hours/unit) 0.2 0.5 Contribution margin ($/unit) $60 $75 Two products : A and B Contribution margin = Price – cost of material – direct labor
Background image of page 6
Example Example  In the above table, both products are assumed to        have the same amount of direct labor cost (L), and       therefore ignored in estimation of contribution 
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 10/25/2011 for the course EIN 4401 taught by Professor Staff during the Fall '08 term at University of Florida.

Page1 / 19

09+The_Philosophy_of_Opt - ThePhilosophyofTOC...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online