Demand Forecasting

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Chapter 18- Synchronous Manufacturing/ Theory of
Constraints
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Goldratt Proclaims
The goal of a firm is to make money.
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Performance MeasurementFinancial

• Net profit
• an absolute measurement in dollars
• Return on investment
• a relative measure based on investment
• Cash flow
• a survival measurement

4
Productivity Outputs/Inputs

• Does not guarantee profitability
• Has throughput increased? Maximize
• Has inventory decreased? Minimize
• Have operational expenses decreased? Minimize
  

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A New Definition of Productivity

• Productivity is all the actions that bring a
  company closer to its goals.

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Some Capacity Related Terminology

• Capacity
• Available time for production
• Bottleneck
• Capacity is less than demand placed on resource
• Non-bottleneck
• Capacity is greater than demand placed on
  resource
• Capacity-constrained resource (CCR)
• Capacity is close to demand placed on resource

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Whats Going to Happen?
Product flows through to market, no WIP
Bottleneck feeding non-bottleneck
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Whats Going to Happen?
If Y works more than 75 of time, WIP builds
Non-bottleneck feeding bottleneck
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Whats Going to Happen?
If Y works more than 75 of time, WIP builds
Bottleneck and non-bottleneck assembled into
product
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Whats Going to Happen?
If Y works more than 75 of time, FG builds
Bottleneck and non-bottleneck have
independent markets
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Components of Production Cycle Time (how
different?)

• Setup time
• the time that a part spends waiting for a
  resource to be set up to work on this same part
• Process time
• the time that the part is being processed
• Queue time
• the time that a part waits for a resource while
  the resource is busy with something else

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Components of Production Cycle Time

• Wait time
• the time that a part waits not for a resource but
  for another part so that they can be assembled
  together
• Idle time
• the unused time
• the cycle time less the sum of the setup time,
  processing time, queue time, and wait time

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Saving Time
Non-bottleneck
Bottleneck
What are the consequences of saving time at each
process?
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Five Principles of TOC

• 1. Every system has a bottleneck or
  constraint.
• 2. There is variance in every system.
• 3. Every organization must be managed as a
  system.
• 4. Performance measures are crucial to the
  organizations success.
• 5. Every system must continually improve.

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Principle 1 Every System Has a Bottleneck
200/day
250/day
WC5
WC6
WC7
The Customer
WC1
WC2
WC4
WC3
300/day
Demand 200/day
200/day
300/day
180/day
300/day
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Principle 2 There is Variance in every system
A
MARKET
B
C
D
E
F
G
H
Time
If A ends here, then Bs distribution shifts to
the right
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Principle 3 Every organization must be managed
as a system
Product flows through Work Centers A through H.
The product must flow in strict sequence (i.e.,
B cannot be done before A).
A
MARKET
B
C
D
E
F
G
H
Dependent Events
One phenomenon is called dependent events.
Do you know what I mean by that term? I mean
that an event, or a series of effects, must take
place before another can begin the subsequent
event depends upon the ones prior to it. You
follow? (Goldratt, The Goal, 1992, p. 86)
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Dependent Events Transmit Variance
Bs processing distribution
Cs processing distribution
A
B
C
Cs distribution of completed jobs skewed to right
Work stationA has a highvariance inprocessing
times
Bs distribution of completed jobs skewed to
right.
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Principle 4 Performance Measures are crucial to
Organizational Success

• Global Operational Measures (T, I, OE)
• Throughput (T)
• The rate at which the system generates money
  through sales
• Sales Price - Cost of Materials
• Inventory (I)
• All the money the system invests in purchasing
  things the system intends to sell
• Operating Expense (OE)
• All the money the system spends in turning
  inventory into throughput

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Principle 4 contd

• T is Gross Contribution Margin
• Gross Margin Selling Price Purchased
  Materials (Raw, Parts, Components)

What is T for products A, B and C with Selling
Prices of 20, 25 and 30 respectively and
material costs of 3, 7 and 14 respectively? TA
TB TC
When we maximize T, what happens to the gross
contribution margin?
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Principle 5 Every system must continuously
improve

• Generic Solutions
• Drum-Buffer-Rope
• 5 Focusing Steps
• Breakthrough Solutions (a.k.a. Reengineering)
• 3 Questions
• What to change
• What to change to
• How to change
• Thinking Process
• Logic Trees

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The Five Steps of the Theory of Constraints

• 1. Identify the System Constraint
• The part of the system that is the weakest link
  can be either physical or a business policy.
• 2. Decide How to Exploit the Constraint
• Obtain as much capability as possible without
  undergoing expensive changes or upgrades. Reduce
  or eliminate downtime.

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The Five Steps of the Theory of Constraints

• 3. Subordinate Everything Else
• The non-constraint (or non-bottleneck) resources
  should be adjusted to help the constraint operate
  at maximum effectiveness.
• 4. Elevate the Constraint
• Consider major changes to the system or major
  actions to eliminate the constraint.
• 5. Return to Step 1
• The constraint has shifted to another component
  or policy.
• If in the previous steps a constraint has been
  broken, go back to step 1As capacity is added
  to a constraint, it will eventually stop being a
  constraint.

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Physical constraint

• Means that the market wants more product than can
  be produced currently.
• So, exploiting the constraint means that
• the bottleneck utilization must be maximized and,
  
• the most profitable product mix must be
  scheduled.

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Drum, Buffer, Rope
Control Point - Bottleneck (Drum)
A
B
C
D
E
F
Market
Inventory buffer (time buffer)
Communication (rope)
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Drum-Buffer-Rope
Drum or Bottleneck
Raw Materials
Finished Goods
Fiber Coat
Fiber Bundle
Cable Wrap
Test
Cable Bundle
A rope or communication device ties the gating
operation to the bottleneck buffer
Time Buffer
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Example of TOC in Services
Figure 18 a. Dentist Office Layout
Chair 2
Chair 3
Store
WaitingRoom
Chair 1
Office
Figure 18 b. Typical Patient Process Flow
TakeX-Rays
DevelopX-Rays
Wait
Seat andadjustchair
Need X-ray?
Register Patient
Yes
CheckTeeth
No
CleanTeeth
RecordData
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DBR with a Market Constraint
Bottleneck or capacity constrained resource
E
A
D
B
C
MARKET
Rope
Rope
Buffer of finished goods
Time Buffer
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Examples of different buffersDBR in an Assembly
Shop
A1
A2
A3
Buffer
Ship
Assemble
BN2
BN
BN1
MARKET
Rope
Time Buffer
Buffer
R1
Buffer of finished goods
C2
C3
C4
Rope
R2
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Protective Capacity

• The portion of the non-constraints capacity that
  is greater than the constraints capacity.
• Should be high enough to not starve the
  bottleneck process!
• The protective capacity at the non-constraint
  work centers that precede the bottleneck reduces
  the need for buffer inventory in front of the
  constraint.

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Visual management techniques

• Involve all of the firms employees in
  controlling the throughput by making the
  bottlenecks status clearly visible.
• Example A machine (which is the bottleneck in a
  process) has a green, yellow, and red light to
  alert workers as to its status.

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Quality Implications

• More tolerant than JIT/Lean systems
• Excess capacity throughout system
• (Except for the bottleneck)
• Quality control needed before bottleneck

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Comparing Synchronous Manufacturing to JIT/Lean

• JIT is limited to repetitive manufacturing
• JIT requires a stable production level
• JIT does not allow very much flexibility in the
  products produced

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Comparing Synchronous Manufacturing to JIT\Lean

• JIT still requires work in process when used with
  kanban so that there is "something to pull."
• Vendors need to be located nearby because the
  system depends on smaller, more frequent
  deliveries

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Comparing Synchronous Manufacturing to MRP

• MRP uses backward scheduling
• (starts with due date then schedules required
  operations in reverse order)
• Synchronous manufacturing uses
• forward scheduling (system takes an order and
  schedules each operation forward in time)

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TOCs Five Thinking Process Tools

• These five tools are used to create and sustain
  a process of on going improvement by
  systematically evaluating what to change,
  identifying what to change to and then
  determining how to change.
• Current Reality Tree (CRT)
• Future Reality Tree (FRT)
• Transition Tree (TrT) - all of which incorporate
• Incorporating if then logic and Socratic
  reasoning
• 4. Conflict Resolution Diagram or cloud
• Prerequisitive Tree (PRT)
• Utilizing necessity logic (in order to.., we
  must.., because..)

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Connecting the Undesireable Effects (UDEs)
300. High customer dissatisfaction
100. Missed shipments
200. High expediting costs
150. High machine downtime
250. Repeated bearing replacements
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Validating the Undesirable Effects (UDEs)
300. High customer dissatisfaction
120. The order is needed
100. Missed shipments
200. High shipping costs
135. Orders have tight due dates
140. Some orders are delayed
145. Some orders are shipped by priority freight
160. Large amounts of time are needed to replace
bearings
150. High machine downtime
155. Machines are loaded to capacity
185. Purchasing buys lowest cost product meeting
specs
250. Repeated bearing replacements
170. Some bearings wear longer
180. Low cost bearings have short lives
190. Bearings specs do not state lifetime
195. Purchasing buys low cost bearings
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Categories of Legitimate Reservation

• Clarity is the meaning of the statement clear
• Entity existence valid, complete and
  structurally sound statement?
• Questions about this are often resolved by
  ensuring that it is a single idea, expressed with
  a grammatically correct sentence.
• Causality does the cause actually lead to the
  stated effect?
• Cause Insufficiency is stated cause sufficient
  to produce effect?
• Additional Cause additional causes that will
  produce the effect?
• Cause-effect reversal stated cause create the
  effect, or vice-versa?
• Predicted Effect Existence if stated
  cause-effect relationship is true, are there
  other effects that should also be present?
• Tautology is this circular logic?

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Future Reality Tree (FRT)
300. Customer satisfaction increases
120. The order is needed
100. No missed shipments because of bearings
200. Shipping costs are reduced
135. Orders have tight due dates
145. Fewer orders are shipped by priority freight
140. No orders are delayed due to bearing
replacements
160. In spec bearings wear as planned
155. Machines are loaded to capacity
150. Machine downtime is within planned limits
185. Purchasing buys lowest cost product meeting
specs
250. Bearings replaced as scheduled
190. Bearings specs include expected lifetime
195. Purchasing buys the lowest cost bearings
that meet lifetime specifications
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Conflict Resolution Diagram (Cloud)
Process engineers must include lifetime
requirements on replacements parts
Manufacturing engineers view
Make repairs using long lasting parts
Improve customer satisfaction
Process engineers mustnot take time to include
lifetime requirements on replacement parts
Ensure all time spent on important process
improvements
Processmanagers view
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Revised Conflict Resolution Diagram
Process engineers must include lifetime
requirements on replacements parts
Manufacturing engineers view
Make repairs using long lasting parts
Improve customer satisfaction
Comply with boards request that process
engineers focus on line start-up
Process engineers mustnot take time to include
lifetime requirements on replacement parts
Processmanagers view
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The Prerequisite Tree
In order to have
Objective
Obstacle
to overcome
we must have
Intermediate objective
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The Prerequisite Tree
190. Bearings specs include expected lifetime
Objective Note from FRT
Purchasing insists on specifications approved by
process engineering
Obstacle
Process engineeringincludes all repair
specifications on replacement parts
Intermediate objective
Process engineering refuses to write
specifications for all replacement parts
Obstacle
Process engineering gives purchasing a blanket
specification to always use original equipment
unless otherwise specified
Intermediate objective
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Transition Tree (TrT)
TrT objective is objective of PRT also
Objective
Effect
Action
Need/Reality
Action
Need
Reality
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Transition Tree (TrT)
190. Bearings specs include expected lifetime
Action Setup meeting with manufacturing
engineering, purchasing and process engineering
to establish practice of using blanket
requirement that replacement parts meet original
specifications
Reality Purchasing requires specifications for
all purchases, and process engineering does not
want to write specifications for all parts.
Effect Process engineering gives purchasing a
blanket specification to always use original
equipment unless otherwise specified