Operating expensethroughput inventory though it aims

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- Operating expense>Throughput >Inventory. - Though it aims at maximizing throughput, but how it makes it is that it minimizes the operating expense, so the main focus is on operating expense. - Inventory is an asset. o TA prioritises: how much money we made though sales. - Throughput>Inventory>Operating expense. - Focus on the money generated from sales; simply producing the goods does not generate money. So, you only produce/stock inventory when you believe you can sell it to make money in short term. - Inventory is viewed as liability. Not incurred revenue but expense, such as storage costs. Inventory simply sitting in the balance sheet is not good. It only benefits the organisation when it comes to COGS. - Operating expense recognize balancing relationship, money spend you convert inventory to sales. Operating expense is a necessary money that you have to spend. 1. TA recognises the need to balance the relationship between increasing TP by incurring OE to convert INV. Perform key steps and calculations using the TOC approach. TOC key steps o Step 1: Identifying and managing the true constraint - No matter how efficient other nodes in the value chain work, the total TP is always determined by the constraint node. (Wooden Bucket Theory/Cannikin Law) 1. From the first row to the second one, although worker A and C is more efficient, the overall TP is still stuck at 10/hr as the true constraint (worker B) has not been improved. - New constraint could occur after you solve the previous one. 1. For the third row, we can see that the constraint of worker B has now been solved and the new constraint is now worker C. o Step 2: Exploit the constraint: short term faces, identify problem for activity and consider what you can do at current level. o Step 3: Subordinate other processes linked to the constraint: - E.g. in the previous example, there is no point in further pushing worker A to have higher TP/hr. All we have to make sure is to improve the performance of the real constraint factor or at least make sure it does not further fall. o Step 4: Elevate the constraint:

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W10:11/10 - About real ‘solution’: fix things before bottleneck. - Process improvement or labour efficiency issue? o Rinse and repeat: continuous improvements. Lecture Example II Sydney Student (SS) – student ‘lifecycle’ management system. Proposed in 2009 and implemented in 2014 --->“Streamlining administrative work and reducing activity and cost inefficiencies”. Let’s examine a specific process using the TOC approach: Final exam scheduling and grading prior to and post SS.
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