Lecture 17 - Theory of constraint / TOC

Question 1

(!!!) Describe the theory of constraints / TOC, its claims & its relation to ABC

Answer 1

General:
- Ref. Goldratt
- Dont try minimizing inventory: JIT
- Importance of bottlenecks & maximizing their utilization
- Inventory building for smoothing
- Short term focus on the existing
- Measures must work w. method
- For product costing
- Allocate mat. not labour costs
- 5 steps

Claims:
- Much operational expenses fixed
- Excess capacity is free
- Bottleneck capacity is expensive

Relation to ABC:
- Pointless ABC since allocate indirect cost
- If hierarchical ABC on unit-level: Poss. TOC
- ABC overemphasize short term
- ABC dont account for constraints

Question 2

(!!!!) Describe the five steps of TOC

Answer 2

1. Identify system constraints:
   - Calculate workplaces load & compare to capacity
   - Bottleneck at workplace w. lowest cap. or no excess cap.
   - Observe where inventory pile up or ask on shop floor

__________

2. Exploit system constraints:
   - Identify best product mix: Throughput pr. bottleneck pr. min.
   - Throughput = Revenue - purchased mat. & services
   - Run drum at max capacity
   - Throughput = Contribution margin
   - Dont include labour if eg. 3 months notice
   - Maybe both calc. TP, TP pr unit & TP pr. minute

__________

3. Sub-ordinate everything else:

Drum-Buffer-Rope method / DBR:
- Drum: Bottleneck facility
- Buffer: Buffer stock
- Rope: Pull material from preceding facilities

General:
- Other workplaces adjusted to pace of constraint
- Preceding workplaces only prod. when “rope pulled by the drum”
- Little point in over-producing: Buffer where no constraint
- Still many managers run machines on maximal capacity

__________

4. Elevate system’s constraints:
   - Poss. to make more units

__________

5. If broken constraint -> Step one:

Question 3

(!) Describe the invisible inventory

Answer 3

General:
- Inventory ensure potential production if high demands
- Cost of unused capacity > Inventory payment

Benefits:
- Optimal in stochastic environment: Dynamic
- Improve service level
- Flexible: Provide freedom
- Poss. LEAN-succes
- Reduce bottlenecks

Question 4

Describe a streamlined, trimmed TOC production

Answer 4

• No excess capacity
• No WIP inventory
• Perfect scenario for JIT/LEAN
• Vulnerability: If one thing goes wrong, everything goes wrong
• Flexibility: Nothing can change since perfect state

Question 5

(!) Show the calculations

Answer 5

Question 6

(!) Show the calculations

Answer 6