2007 Pearson EducationConstraint Constraint ManagementManagementChapter 7Chapter 7 2007 Pearson EducationHow Constraint Management fits the Operations Management Philosophy Operations As a Competitive Weapon Operations Strategy Project ManagementProcess Strategy Process Analysis Process Performance and Quality Constraint Management Process Layout Lean SystemsSupply Chain Strategy Location Inventory Management Forecasting Sales and Operations Planning Resource Planning Scheduling 2007 Pearson EducationOutput and CapacityWhat is a Constraint? Any factor that limits system performance and restricts its output.Capacity is the maximum rate of output of a process or system. A Bottleneck An output constraint that limits a companys ability to meet market demand. Also called Capacity Constraint Resource or CCR 2007 Pearson EducationTheory of Constraints (TOC)Short-Term Capacity Planning Theory of Constraints Identification and management of bottlenecks Product Mix Decisions using bottlenecksLong-term Capacity Planning Economies and Diseconomies of Scale Capacity Timing and Sizing Strategies Systematic Approach to Capacity DecisionsConstraint ManagementA systematic approach that focuses on actively managing constraints that are impeding progress. 2007 Pearson EducationMeasures of CapacityOutput MeasuresInput MeasuresUtilizationPerformance Measures in TOCInventory (I)Throughput (T)Operating Expense (OE)Utilization (U) 2007 Pearson EducationWhere is the Bottleneck? Example 7.1It takes 10 + 20 + max (15, 12) + 5 + 10 = 60 minutes to complete a loan application. Unless more resources are added at step B, the bank will be able to complete only 3 loan accounts per hour, or 15 new load accounts in a five-hour day. 1. Check loan documents and put them in order (10 minutes)2. Categorize loans (20 minutes)3. Check for credit rating (15 minutes)6. Complete paperwork for new loan (10 minutes)4. Enter loan application data into the system (12 minutes)Customer5. Is loan approved? (5 min)YesNoBottleneck 2007 Pearson EducationBarbaras Boutique page 269, Problem 2T1 (12)T6 (22 )T5 (15 )T2 (13 )T7 (10)T4 (18)T3-a (14)T3-c (11)T3-b (10)TypeType AType BTwo types of customers enter Barbaras Boutique shop for customized dress alterations. After T1, Type A customers proceed to T2 and then to any of the three workstations at T3, followed by T4, and then T7. After T1, Type B customers proceed to T5 and then T6 and T7. The numbers in the circles are the minutes it takes that activity to process a customer. What is the capacity per hour for Type A customers? If 30% of customers are Type A customers and 70% are Type B, what is the average capacity? When would Type A customers experience waiting lines, assuming there are no Type B customers in the shop? Where would Type B customers have to wait, assuming no Type A customers? 2007 Pearson EducationT1 (12)T6 (22 )T5 (15 )T2 (13 )T7 (10)T4 (18)T3-a (14)T3-c (11)T3-b (10)TypeType AType BThe bottleneck step is the one that takes the longest to process a customer. For type A customers, step T3 has three work stations and a capacity of 60/14) + (60/10) + 60/11) or 15.74 customers per hour. Step T4 can process (60/18) 3.33 customers per hour. Thus step T4 is the bottleneck for type A customers. Barbaras Boutiquepage 269, Problem 2 Solution 2007 Pearson EducationBarbaras Boutique Application 7.1 Solution The average capacity is .3 (3.33) + .7(2.73) = 2.9 customers per hour. Type A customers would wait before T2 and T4 because the activities immediately preceding them have a higher rate of output. Type B customers would wait for steps T5 and T6 for the same reasons.T1 (12)T6 (22 )T5 (15 )T2 (13 )T7 (10)T4 (18)T3-a (14)T3-c (11)T3-b (10)TypeType AType B 2007 Pearson EducationDiablo Electronics makes 4 unique products, (A,B,C,D) with various demands and selling prices. Batch setup times are negligible.There are 5 workers (1 for each of the 5 work centers V, W, X, Y, Z) paid $18/hour. Overhead costs are $8500/week. Plant runs 1 Shift/day or 40 hours/weekYour objective: 1. Which of the four workstations W, X, Y, or Z has the highest total workload, and thus serves as the bottleneck for Diablo Electronics?2. What is the most profitable product to manufacture?3. What is the best product mix given bottleneck based approach?Diablo ElectronicsDiablo Electronics Examples 7.2Examples 7.2 and and7.37.3 2007 Pearson Education 2007 Pearson EducationDiablo Electronics Flowchart for Products A, B, C, D $5 Step 1 at Workstation V (30 min) Finish with Step 3 at Workstation X (10 min) Product: A Price: $75/unit Demand: 60 units/wk Product A $3 Step 1 at Workstation Y (10 min) Finish with Step 2 at Workstation X (20 min) Product B $2 Step 1 at Workstation W (5 min) Step 3 at Workstation X (5 min) Finish with Step 4 at Workstation Y (5 min) Raw Materials Product C