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Today’s Outline

- Processes and Process Terminology
- Theory of Constraints – Lessons to be Learned
- The Goal
- The “Hike”
- Managing Under a TOC Philospohy

EMBA 512

Analyzing Process Flows

A few years ago, the Wall Street Journal reported, “… although GM and Toyota are operating with the same number of inventory turns, Toyota’s throughput is twice that of GM’s.” The discrepancy, concluded the writer, “could be due to much faster flow times and lower inventories by virtue of Toyota’s production system.”

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Process Flow Analysis

Nearly one billion wafers each year. That’s the number of communion wafers produced by a family-owned business in Rhode Island reports the New York Times (Bread of Life, Baked in Rhode Island, December 24, 2008). When producing wafers, the company turns out wafers at the rate of about 100 per second. After coming out of the oven, wafers spends approximately 15 minutes in a cooling tube that keeps them from becoming brittle.

As a part of your process analysis of the baking process, you need to estimate the number of wafers in the cooling tube on average.

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Process Flow Analysis

- Every process wants to transform inputs into outputs to satisfy customer needs.

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Process Flow Analysis

What is a process?

A process coverts inputs into outputs.

What is a process flow chart?

A symbolic representation of the processes and their relationships to each other.

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Process Flow Analysis

What is a resource?

Resources are those things needed to operate the process.

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Process Flow Analysis

Process Capacity

The maximum rate at which output can be withdrawn from a process.

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Process Flow Analysis

Bottleneck—the resource in the system having the smallest capacity.

System Capacity—the capacity of a system is the capacity of the bottleneck.

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Process Flow Analysis

Cycle Time

The average time between successive units leaving the process. It is the inverse of the capacity.

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Process Flow Measures

- The study of process flows requires the answer to 3 questions:
- 1. On average, how many flow units move through the process per unit of time?
- 2. On average, how much time does a typical flow unit spend in the process?
- 3. On average, how many flow units are in the process at any point in time?

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Process Flow Measures

- Throughput Rate
- An important measure of process-flow dynamics—the number of flow units that move through a specific point of the process per unit of time

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Throughput Rate TR: Demand vs. Capacity Constrained

Capacity constrained

Demand constrained

Demand constrained

Bottleneck

Bottleneck

Bottleneck

Bottleneck

(Capacity)

(Capacity)

(Capacity)

(Capacity)

Input

Input

Input

Input

Throughput Rate

Throughput Rate

Flow Rate

Flow Rate

Demand

Demand

Excess

Excess

Excess

Excess

capacity

capacity

capacity

capacity

Demand

Demand

Throughput Rate=Min{Demand, Capacity}

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Process Flow Measures

Flow Time

The total time spent by a flow unit in the system, where the system is the set of all processes viewed as a whole.

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Process Flow Measures

- Inventory
- The number of flow units present within the process at time t is the inventory at time t.

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Process Flow Measures

- Relating Throughput Rate, Flow Time, & Inventory
- The 3 performance measures are linked by a fundamental relation of process flows known as Little’s Law. It relates average throughput rate TR, average flow time FT, and average inventory I as

I =TR*FT

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Process Flow Measures

- Inventory Turns (Turnover Ratio)
- Inventory turns, or turnover ratio, is defined as the ratio of throughput to average inventory

Turns = TR/I

Using Little’s Law the turnover ratio equals the inverse of average flow time.

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Process Flow Measures

- Of the three related operational-performance measures- throughput rate, flow time, and inventory- a manager can select any two on which to focus, with the third being determined by Little’s Law. The manager has the responsibility of deciding which two measures to manage.
- For a given level of throughput in any process, the only was to reduce flow time is to reduce inventory, and vice versa.

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Key-points From Process Analysis

- Simplify a complex process using a PFD
- Bottleneck analysis: analyze the process by looking at the bottleneck
- Bottleneck may depend on the product mix
- Time to complete X units starting with an empty systemTime to make X units= Time through empty system +

- For continuous flow processes: “(X-1)=X”- If capacity constrained, flow rate is dictated by the bottleneck

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Situation # 1: The FactoryBasic Layout

1 2 3 4 5 6 FGI

5

4

5

4

2

5

- Product is processed at each of the 6 work stations. Product moves sequentially from station 1 (far left) to station 6 (far right).
- Once product has been processed at station 6 , it is completed and ready to go into finished goods inventory
- Production output of each work station indicated by number in box.
- Process starts in the Empty State

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Situation 2: The FactoryAdd Capacity

1 2 3 4 5 6 FGI

5

5

5

4

2

5

- Scenario is as before with capacity added to work station Two. The capacity of work station two has been increased by 1 unit from 4 units to 5 units.
- Simulate production.
- Explain results.

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Situation 3: The FactoryAdd Resources to Station 5

1 2 3 4 5 6 FGI

5

5

5

4

?

5

- We need to add capacity to work station 5 – the bottleneck. What do you recommend?
- Simulate production.
- Explain the results.

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Situation 4: The FactoryAdd Complexity

1 2 3 4 5 6 FGI

5

5

5

4

4

5

Component

supplier

2

- Scenario is as before. However, in this scenario there are two suppliers to work station 5.
- Work Station 5 needs 4 units from Station 4 and 4 units from the component supplier.
- Supplier can only produce 2
- Simulate production.
- Explain results.

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Situation 5: The FactoryAdd Customer Demand

1 2 3 4 5 6 FGI

5

5

5

4

4

5

4

1

- Scenario is as before with complexity.
- Component Supplier Output increased to match WC 5
- Add Customer Demand
- Demand is 1 unit per day
- Simulate production and demand.
- Explain results.

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Situation 6: The FactoryIncreased Customer Demand

1 2 3 4 5 6 FGI

5

5

5

4

4

5

4

4

- Scenario is as before with complexity and customer demand. However, in this scenario the customer’s demand has increased to 4 per day
- Simulate production and increased demand.
- Explain results.

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- Controllable Variation – results from decisions
- Random variation – outside our control.

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- Natural Variability
- Random Outages
- Preemptive (No control)
- Non-preemptive (Have Some control)
- Setups
- Operator Availability
- Re-work

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Situation 7: The FactoryAdd Variability

1 2 3 4 5 6 FGI

1-6

1-6

1-6

1-6

1-6

1-6

- Return to the simple process we had initially. However, unlike, our initial scenario, each work station exhibits variability in its output.
- The process begins with 4 units in WIP at each station (Unlimited going into station 1
- A work station’s output is uniformly distributed between 1 & 6. Average output is 3.5
- Customer demand rotates between 3 and 4 (Average is 3.5)
- Simulate process and explain results.
- Explain results.

3 or 4

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Situation # 8: The FactoryBasic Layout – Reduced Variability

1 2 3 4 5 6 FGI

3 or 4

3 or 4

3 or 4

3 or 4

3 or 4

3 or 4

- All work stations produce 3 or 4 with equal probability. Output is independent between work stations
- Average output is 3.5 units at each work station
- Demand varies between 3 and 4 with equal probability
- Beginning WIP is 4 at each work station

3 or 4

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Paying the Price for Variability

- Lost throughput
- Wasted Capacity
- High Cycle times
- High Inventory

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Lessons from “The Goal”

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Measurements

Conventional Wisdom

- Net profit?
- Efficiency?
- Utilization?
- Return on Investment?
- Cash Flow?

“Are you using the right measurements?”

Jonah in The Goal

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TOC recognizes that only the “owners” of a company can choose THE goal. However, once chosen, the other 2 become conditions necessary to achieving the goal.

Make money now

and in the Future

Satisfy customers

now and in the future.

Satisfy employees

now and in the future

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Throughput

The rate at which the system generates money through sales. (Or, the money coming into the organization.)

- Building inventory is not throughput
- Only $ generated by the system get counted; e.g., raw materials and purchased parts are not throughput.
- Throughput = Selling Price – Materials Cost

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Inventory

All the money the system has invested in purchasing things which it intends to sell.

- Inventory is a liability (not an asset)
- Raw materials, work in process, finished goods and scrap are “I”

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Operating Expense

All the money the system spends in order to turn inventory into throughput. (Or, the money leaving the organization.)

- All employee time is “OE” (direct, indirect, operating, etc.)
- Materials
- Depreciation of a machine is “OE”
- Operating supplies are “OE”

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Let’s Discuss the Hike

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Theory of Constraints

- Based on the concepts of drum, buffer and ropes
- Drum
- Output of the constraint is the drumbeat
- Sets the tempo for other operations
- Tells upstream operations what to produce
- Tells downstream operations what to expect

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Theory of Constraints

- Buffer
- Stockpile of work in process in front of constraint
- Precaution to keep constraint running if upstream operations are interrupted
- Ropes
- Limitations placed on production in upstream operations
- Necessary to prevent flooding the constraint

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Drum Buffer Rope

- Drum-Buffer-Rope for Shop Floor Control
- Drum: The Pace Setting Resource - constraint
- Buffer: The amount of protection in front of the resource
- Rope: The scheduled staggered release of material to be in line with the Drum’s schedule.

A Pull System

Buffer

60

70

40

60

Rope

Constraint(Drum)

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Theory of Constraints

Six Steps Of TOC

2. Identify the bottlenecks

3. Use bottlenecks properly

1. Identify the appropriate measures of value

4. Synchronize all other processes to the bottlenecks

6. Avoid inertia and return to Step #1

5. Increase the bottleneck’s capacity

EMBA 512

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