Theory of TOC Constraints and Synchronous Manufacturing
1. Introduction
We have seen that in recent years different tools and processes have been developed that are fundamentally oriented towards the creation of a new administrative culture, and all of these in search of emphasizing the improvement of managerial skills in order to intensify the search and development of continuous improvement processes both in action and in learning, leading to optimal levels of quality both in the use of resources and in the practical solution of problems in companies. This is how different philosophies have been developed that contemplate concepts such as total quality, continuous improvement, just-in-time system and of course synchronous manufacturing theory of restrictions.
What we can say is that the incorrect application of tools and processes causes several obvious problems in companies and Dr. Goldratt has the merit of having developed a method or found a way that allows most people the correct use of these tools with a high probability of achieving better results.
I also think that when it comes to competitiveness, the increasingly impoverished position of international competition is largely due to old administrative practices and poor accounting procedures, hence a search for new methods that can reverse this situation has been undertaken, and the Constraints theory offers a means not only to synchronize production but to continuously improve while working, and what better way than to be able to couple this technique with a synchronous manufacturing that allows me a differentiation and a greater competitive advantage over my competitors?
2. Development
TOC postulates that there are multiple identifiable restrictions associated with the operation of any company and the administration must be able to exercise control of said operations in such a way that these restrictions can be identified so that the resources associated with them can be used in the best possible way.
Businesses are created in general terms by people (investors) who want to obtain as their first objective the maximization of returns on investment, that is, the highest long-term profit with a given amount of resources.
A traditional rationale assumes that by controlling departmental costs per unit, management could magnify the difference between revenue and costs for the business and therefore maximize return on investment. However, actions that benefit a department are not necessarily beneficial to the company as a whole. Sometimes company-friendly effects can be obtained as a result of policies and procedures aimed at reducing the unit cost of a department.
Traditionally we have seen established that the unit cost is the quotient resulting from the total cost between the number of units, if we consider the characteristics of the fixed costs it is easy to understand that a higher production corresponds to a lower unit cost and, therefore, the company it would obtain favorable results with higher production, but if this production would be reflected as higher volumes of inventories could cause a negative effect on the company as a whole because to the huge investment stopped as inventories susceptible to obsolescence, we could add handling and storage expenses among others, even so it is difficult to undermine and make some managers understand this concept.
Another example could be in relation to the efficiency of the workforce, where automation extremes have been reached such that they have caused in many cases an overcapacity that can also translate into the creation of larger inventories in order to take advantage of it. These situations illustrate a basic principle: the sum of partial optimum is not necessarily equal to the total optimum, but with synchronous manufacturing tools, in search of making production more dynamic at a logical rate and under suitable conditions, a range of possibilities opens up. in continuous improvement.
Some leading-edge managers believe that one of the best goals associated with plant operations in the field of new production is increased throughput, calculated as sales less direct cost.
According to TOC, the decision-making procedure is based on a five-step fundamental scheme.
1. Identification of the restrictions associated with operations, these restrictions, also called bottlenecks, are generally divided into two:
to. External; such as the quantities that can be sold of a product, the disposition of the raw material, etc., and
b. Internal; such as the limitations of the plant that limits production to a quantity less than that demanded by the market.
External constraints present greater difficulties and are more complicated in their solution, require greater creativity and each of them can be unique.
2. After the internal restrictions have been identified, management efforts should focus on maximizing the flow of goods or products through that restriction, that is, the strategy consists of maintaining the operation of that restriction at 100%, in what you try to channel to other areas when possible.
3. After the identification and organization of the operations so that they work as efficiently as possible comes a stage in which it is sought that all the other resources necessary to complete the production process are synchronized with the use of the restriction.
4. In the event that there is sufficient demand in the market, the logical step seems to be to try to increase the capacity of the restriction, however, this may mean the need to commit new resources that may not be available, therefore, recommends that this step be stopped until the previous steps have been sufficiently satisfied.
5. We must be aware that practically when a restriction has been released, others will appear, so these stages constitute a circle in such a way that in a process of continuous improvement of a company the process of the 5 steps is constantly repeated.
This five-step cycle fulfills the objective regarding the economic exploitation of our physical restrictions, but to achieve the goal of "More Profits Now and in the Future" it is necessary to have a methodology for solving political restrictions, which are the most common in any type of company and are those that have a strategic impact in the short, medium and long term.
Central to the concept of OCD is the recognition of cause and effect. TOC Core Thinking takes a series of steps that combine cause-effect and our experience and intuition to gain insight; starting with observing the world around us. We now have the tools to understand why things happen so that we can create a better future for ourselves. With knowledge, we can improve.
Managing a Plant has revolutionized the way of approaching production problems. It is a set of management principles that help to identify obstacles on the way to the proposed goal and to find a way to overcome them.
The core idea is that in every business there is at least one restriction. If not, it would generate unlimited profits. Since the restrictions are factors that block the company from obtaining more profits, any management that aims at this objective must manage by focusing on the restrictions.
There is no alternative in this matter. Either we handle the restrictions or they handle us. The restrictions will determine the amount of money that the company will generate, whether we know them or not, we manage them or not.
It starts from a systemic approach of the Organization, defining the goal - to earn money now and in the future - to derive with rigorous logic a simple and effective methodology to face management with measurable results in the short term.
It is shown that the tendency to increase local efficiencies most of the time threatens the overall performance of the company.
Therefore, the local performance indices that are traditionally used are discarded, and are replaced by others that measure the real approach to THE GOAL of each organization.
The company as a system
TOC proposes three fundamental indicators to evaluate the impact of any action in relation to the company's goal. These three indicators are:
Throughput (T): The speed at which the system generates money through sales.
Inventory (I): All the money invested in the system to generate Throughput.
Operating expenses (GO): All the money that the system has to spend to generate Throughput.
These three parameters are related to the classic financial indicators, as follows:
Net Profit (BN) = T-GO Return on Investment (RDI) = (T-GO) / I
It is easier for any member of any area of the organization to focus their decisions based on these three global indicators to verify if they have a positive impact on the company's goal.
Of the three indicators, TOC attaches the highest importance to Throughput, in contrast to classical cost-based management, which places Operating Expenses first.
Both the Theory of Constraints and Cost Accounting consider companies as chains (events in sequence), but while Cost Accounting tries at all costs to reduce the weight of the chain by reducing expenses in all its links, the Theory of Constraints, established in the world of Throughput, tries to increase its resistance, concentrating almost exclusively on the weakest link, which is the only one that determines the total resistance of the chain.
We can distinguish two types of restrictions:
1. Physical Restrictions
2. Political Restrictions
But among them there are other contents that are undoubtedly important and are presented to us in our organizations in our daily lives, we can contemplate: market, capacity, material, logistical, administrative and behavioral restrictions.
To achieve an increase in the generation of benefits, it is necessary to locate the restriction and act on it, exploiting it first and raising it later.
When the restriction, being elevated, the place is changed, it is no longer convenient to make improvements to this site, because now what determines the generation of profits is another part of the system; Doing things in a different order than this results in a waste of effort and money, since the company does not get close to its goal until the restriction has been improved.
Physical Restrictions
Since a company is a chain of events. The existence of this chain implies that there are dependent resources - a step cannot be done before the previous one - and statistical fluctuations that affect the flow of product through the resources. This reality can occur in at least three scenarios: Supply, Operations and Market.
Political Restrictions
The Goldratt Institute has developed five techniques to address Policy Constraints that are external to keep in mind:
1. Trees of Actual Reality Technique that is used to detect spinal problems. These core issues are few (they represent policy constraints) and are responsible for the undesirable effects we observe in our organizations.
2. Cloud Evaporation Technique for the generation of simple and effective solutions to conflicts, without appealing to compromise.
3. Trees of Future Reality Technique to evaluate the solution, find negative branches and how to neutralize them.
4. Prerequisite Trees Technique to identify and relate the obstacles that will be encountered when implementing the solution, since each solution creates a new reality.
5. Transition trees Final technique, in which the tactic materializes that will allow the solution obtained to be implemented successfully. Here economic needs and expected benefits are quantified. Define the Action Plan.
But we want to talk about inventory and we know that a high turnover accelerates the rate of return of money, therefore to have a high turnover and bearing in mind that the sale price (part of the Throughput) is set by the market, then we must manage a low inventory. This necessarily implies purchase cycles of inputs and raw materials (in general inventories) with a greater frequency or periodicity, this additionally allows us the best use of a scarce resource, working capital (an active restriction because it is always limited). That is, the strategy that we must apply is to accelerate the rate of return of money, manage low inventories (buying more frequently),but maintaining a level of service in percentages that allow us to qualify as timely by the target market. Remember that in modern marketing, opportunity is related to speed and reliability.
In addition to what is mentioned in the previous paragraphs, we must manage buffers (inventories) that allow us, in addition to managing a good level of service, not to fall into the sin of hidden costs (which sometimes are not so much), caused by exhaustion or cheaper and from my point of view it is very good to correlate it with the applicable concepts of synchronous manufacturing which is a productivity program under a materials control system.
All this analysis, a bit intricate, leads us to a very simple conclusion, we must pay special attention to inventories and their turnover, they are a definitive indicator and also definitely influence net profits. The more times we can skim to recover cash while maintaining the operation of the company, the cash flow will substantially improve one of the modern factors to measure the results of companies: their ability to produce money and much more if this money is net profit.
In previous paragraphs we saw the steps and principles of TOC, but we have not touched on the important and essential to take into account regarding the principles of synchronous manufacturing, these are:
1. Don't focus on balancing capabilities but on balancing the flow of operations
2. The marginal value of time in a bottleneck resource is equal to the specific rate of return of the products worked in that resource.
3. The marginal value in a resource that is not a bottleneck is negligible
4. The magnitude of resource utilization that is not a bottleneck is controlled by the other internal constraints of the system.
5. Resources must be used, it is not enough to put them into operation
6. The transfer batch does not have to be and should not be the same as the process batch.
7. The size of a process batch can be variable both over time and as it moves through the plant.
The didactic example of the Boy Scouts gives a very clear explanation of bottlenecks and their behavior in a productive system, as well as being suitable for the application of the mattress and rope drum; At first it was suggested that a solution, to keep the boy-scout line compact, could be to place its members in the reverse order of their ability to walk. Since an alignment of the equipment in the plant is not possible, according to the aforementioned idea, another solution is necessary, which could be the following: to keep the length of the row constant, without slowing down, it could be done that all walked at a constant rhythm marked by the beats of a drum, that would be assimilated to the manufacturing capacity of the bottleneck element. Also, along the row,Some "screaming sergeants" would be stationed to prevent anyone from walking faster than the speed imposed by the drum (CB). The drum is computer aided material planning and control. The sergeant is a production manager at the plant.
The drum develops plans and schedules to indicate when material must be received and processed, and the drum beat dictates when and how material must be processed for each productive resource. Sergeants are responsible for production. "The rhythm of the drums and the voices of the sergeants" are, by themselves, insufficient when governing a plant, it is necessary to think of some other feasible solution.
Dr. Goldrat proposes "tying with a rope" the bottleneck element and the first element in the row: in short, and transferred to production terms, allow the entry of raw material into the production process to meet the needs of the bottleneck element. bottle, with which we will ensure that no workstation has the option to process more components than are needed at any given time.The last element that completes the system: the mattress or, to put it more precisely, the time mattress, understood as the time interval in which the release date of a job is advanced with respect to the date on which the limitation is scheduled to consume it.
All of the above allows us once again to concatenate synchronous manufacturing with a synchronized flow, with relatively short waiting times in the CBs and therefore as a consequence a higher flow coefficient, and a better possible detection of quality problems in a shorter time. With a few units produced, a smaller inventory in process that allows us to reduce costs due to the fact that we are less investment in raw materials, reduced space and less equipment maintenance, and also with a better service reflected in timely deliveries.
Landing all these concepts and being realistic within my own knowledge and practice at an industrial level I think that despite looking so lucid and practical on paper, the true implementation of these philosophies and technologies are difficult to apply in their entirety in view that the change of thought should be covered or rather what some author that I don't remember now said "rethink." In our companies there are people with years and years of experience in the same operational and administrative tasks and each change is a new challenge of breaking paradigms, customary sequences of operation and concepts that are questioned today.
One of the important steps to take into account if we want to start applying these philosophies and technologies is to provide training at all levels with the intention of spreading this improvement fever.
3. Conclusions
By way of conclusion, it can be said that the theory of restrictions constitutes an administrative philosophy composed of a set of cause-effect methods and is supported by three fundamental processes:
1) A game of problem solving logically and systematically answer the three essential questions to any continuous improvement process: "What to change"? "What to change to"? and "How to cause change" ?;
2) a daily management toolkit - taken from the TOC - that can be used to significantly improve vital management skills, such as communication, effecting change, team building and empowerment; and, 3) Innovative solutions, proven created by applying TOC to specific application areas, such as Production (as Dr Goldratt introduced in La Meta), without a doubt there are many management indicators that are applicable on a daily basis in the measurement of our operations but if to be as efficient as possible, the ones that should never be absent based on the TOC concepts and the synchronous manufacturing compendium are: net profit, ROI, cash flow, throughput, inventory and operating expenses, but without a doubt of demonstrably the most important of these from which the others emerge for their better
TOC has transformed the win-lose culture, which holds that when someone wins, it's because someone loses in a win-win culture, as well as creating tools that allow people to recognize that this is possible. Win) and without a doubt the synchronous production approach opens the way to the intermediation of factors that allow fluency of exchange for the synchronization of our operations, I am convinced that the TOC philosophy solves a large part of our concerns at the level of problem solving in our industries
The control of bottlenecks resources is the most important, since the net income of the company and the accumulation of inventories will largely depend on them.
In other words: example: the quality of the products must be controlled before the products make use of the limited hours of the bottlenecks; Those that are incorporated in these hours must be treated with great care, since any circumstances that give rise to the loss of one of them (for example: a defect in a process after the bottleneck) will automatically be transformed into a product less for sale since it has reprocessing. Regarding the solution of the drum, the mattress and the rope, I believe that this focuses a more systemic vision of the Productive Subsystem in particular and of the company in general, explicitly rejecting the achievement of optimal premises provided that this does not affects an approach to the final goal of the company; in short, in achieving a global optimum of it.
4. Bibliography.
1. DEBERNARDO HECTOR. What is TOC? Bulletin of the Goldratt Institute, Argentina 2000.
2. GOLDRATT ELIYAHU M and COX JEFF. The goal; Ediciones Castillo, Monterrey N: L:, Mexico
nineteen ninety five.
3. ROZEMBERG DINO. Winning is possible; Bulletin of the Goldratt Institute, Argentina 2000.
4. MICHAEL UMBLE AND ML SRIKANTH. Synchronous Manufacturing
nineteen ninety five
5. WILLIAM ARIEL SARACHE CASTRO. Productive Systems Management Module
2003
Summary
Dr. Eliyahu Goldratt has been very clear and forceful in explaining each of the comings and goings of this philosophy, with his book that, in addition to being interesting for its content, is quite didactic and explanatory.
Although it is not a secret for anyone and it is not hidden within the organization if it is shown that sometimes we forget what the GOAL of our organizations is "Earn Money", all this within the search for the best application in methodologies that do not allow it and being clear in our objective without allowing us to be confused or glimpsed under other precepts that we can see very often, even in the company where we work we must be clear the GOAL IS TO MAKE MONEY, NOT SAVE IT, even more the possibility of concatenating these philosophy and technology with synchronous manufacturing is interesting indeed!
Download the original file
