2. What’s TOC
• A New management Philosophy
• As TQM, JIT, Flow manufacturing, Lean Manufaturing, BPR, SMED…
• Do not contradict them: Help focusing effort.
• Continuous improvement and Business/organizations reengineering
• Thinking Process
• Tools and methods
• Applications
• Production scheduling, Finances, Marketing, Project management, Conflict
resolution,
3. Where does it come from
• Created by Eliyahu Goldratt, a « Business Guru »
• The Goal (1984, 1986, 1992)
• It’s not Luck (1994)
• Critical Chain (1997)
• …
• Many « disciples »
• Supported by APICS
• www.apics.org, CM SIG
• Mainly in the US (Almost ignored in France)
4. Systems
• Understanding of the system is mandatory to improving it
• Any system has a Goal
• Goal or Necessary Conditions
• Profit => Customer satisfaction, Technology leadership, Competitive
advantage, Satisfied, secure workforce
• The Manager is responsible for the Goal
• Everyone may be considered as a Manager of something (Large
corporation, department, small team, his live, career…) that is
supported by a System
• Theory of Contraints is about Management
5. What is Constraints?
Constraints are what
keep us from reaching
the system’s goal.
Goldratt said systems are
like chains or networks of
chains.
Consider the chain. If we
pull on both the ends.
What will happen?
6. What is Constraints?
So if we continue to apply force.
It will break but where?
At its weakest link (constraints) that prevents the chain from being stronger.
After fixing that weakest part, another part will become weaker in the chain.
See the example on the next slide.
7. TOC Concept 1 : System contraints
• A simple example
• As the chain, any system has one – and only one – weakest link called the
Constraint
• Production
• example
Step A
10 U/Day
Step B
20 U/Day
Step C
6 U/Day
Step D
8 U/Day
Step E
9 U/Day
INPUTS OUTPUTS
Market
Demand : 15
Step A
18 U/Day
Step B
20 U/Day
Step C
22 U/Day
Step D
17 U/Day
Step E
19 U/Day
INPUTS OUTPUTS
Market
Demand : 15
8. TOC Concept 2 : Measurement
• How to measure the effects of local decisions (breaking a constraint)
on our overall system
• Throughput (T)
• The rate at which the entire system generates money through sales
• For non-for-profit organizations, money may be replaced by service or products
• Inventory (I)
• All the money the system invests in things it intents to sell, or the money tied up within
the system (incudes investment)
• Operating Expenses (OE)
• All the money the system need spends turining Inventory in Throughput (direct labor,
utilities, consumables…)
9. Throughput World vs Cost World
Manage
well
Control
Cost
Protect
Throughp
ut
Manage according
to Cost World
Manage according
to Throughput
World
The only way to achieve good
cost performance is through
good local performance
everywhere
There is no way to achieve good
throughput performance through
good local performance
everywhere
Because
inventory
goes up
10. TOC Principles
• Systems as « Chains »
• The weakest link can be found and strengthened
• Local vs System optima
• The system performance is not the same as the sum of local optimas
• Cause and Effects
• May be complex in complex systems
• Undesirable effects and core problems
• Eliminate core problems vs treating UDEs
• Solution deterioration
• Inertia is the worst ennemy of POOGI (process of ongoing improvement)
• Physical vs Policy Contraints
• Most of the Contraints originate from policies, not physiscal things
• Ideas are not Solutions
• Most great ideas fail in the implementation stage
11. TOC Prescriptions : 5 Focusing steps
1. Identify the System Constraint
What part of the system constitutes the weakest link?
2. Decide How to Exploit the Constraint
Get the most out of the constraint without expansive
changes or upgrades
3. Subordinate Everything Else
Adjust the system in order to get the most of the constraint
4. Elevate the Contraint
If step 2-3 are not sufficient, major changes may be
needed. The constraint is broken
5. Go Back to Step One, But Beware Inertia
What to change?
What to change to?
How to cause the change?
12. Tools to TOC
Tools provide structure and consistency in problem recognition and
problem solving, and maintain focus on the organization’s goal.
The main tools offered include:
The Five Focusing Steps
The Thinking Processes
Throughput Accounting
14. Significance of Bottlenecks
In production and project management, a bottleneck is one process in a chain
of processes, such that its limited capacity reduces the capacity of the whole
chain. The result of having a bottleneck are stalls in production, supply
overstock, pressure from customers and low employee morale.
Maximum speed of the process is the speed of the slowest operation
Any improvements will be wasted unless the bottleneck is relieved
15. The Focusing Process
The theory of constraints is about managing change.
Applying this theory answers 3 basic questions.
---- Want to change i.e. where is the constraint;
---- Want to change to i.e. what should do we with the constraint?
---- How to cause the change i.e. how do we implement
16. Do we really want or need another new
theory?
“The significant problems we face today can not be resolved at the
same level of thinking we were at when we created them.”
- Einstein
TOC is all about
Focus: doing what should be done
Focusing on everything is synonymous with, not focusing on anything.
17. 7 Key Principles of TOC
1. The focus is on balancing flow, not on balancing capacity.
2. Maximizing output and efficiency of every resource will
not maximize the throughput of the entire system.
3. An hour lost at a bottleneck or constrained resource is an
hour lost for the whole system.
An hour saved at a non-constrained resource does not
necessarily make the whole system more productive.
18. 7 Key Principles of TOC
4. Inventory is needed only in front of the bottlenecks to
prevent them from sitting idle, and in front of assembly
and shipping points to protect customer schedules.
Building inventories elsewhere should be avoided.
5. Work should be released into the system only as
frequently as the bottlenecks need it. Bottleneck flows
should be equal to the market demand. Pacing everything
to the slowest resource minimizes inventory and
operating expenses.
19. 7 Key Principles of TOC
6. Activation of non-bottleneck resources cannot
increase throughput, nor promote better performance
on financial measures.
7. Every capital investment must be viewed from the
perspective of its global impact on overall throughput
(T), inventory (I), and operating expense (OE).
20. Application of TOC
1. Identify The System Bottleneck(s).
2. Exploit The Bottleneck(s).
3. Subordinate All Other Decisions to Step 2
4. Elevate The Bottleneck(s).
5. Do Not Let Inertia Set In.
21. Diablo 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/week
Your 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 Electronics - Example
23. Identifying the Bottleneck at Diablo Electronics
1400
2300
2600
1900
1800
(100X10) = 1000
(100X5) = 500
0
(100X15) = 1500
0
(80X5) = 400
(80X5) = 400
(80X5) = 400
(80X5) = 400
0
0
(80X10) = 800
(80X20) = 1600
0
0
0
(60X10) = 600
(60X10) = 600
0
(60x30) = 1800
Z
Y
X
W
V
Total Load
(minutes)
Load from
Product D
Load from
Product C
Load from
Product B
Load from
Product A
Work
Station
Bottleneck
Example 7.2
24. A
Price $75.00
Raw materials & parts -10.00
Labor -15.00
=Profit margin $50.00
When ordering from highest to lowest, the profit margin per unit
order of these products is B,A,C,D
B
$72.00
-5.00
-9.00
$58.00
D
$38.00
-10.00
-9.00
$19.00
Determining the Product Mix
at Diablo Electronics
Decision rule 1: Traditional Method - Select the best product
mix according to the highest overall profit margin of each product.
Step 1: Calculate the profit margin per unit of each product
C
$45.00
-5.00
-6.00
$34.00
Example 7.3
25. Step 2: Allocate resources V,W, X, Y, and Z to the products in the order
decided in step 1. Satisfy each demand until the bottleneck resource
(workstation X) is encountered. Subtract minutes away from 2,400
minutes available for each week at each stage.
The best product mix according to this traditional
approach is then 60 A, 80 B, 40 C, and 100 D.
Traditional Method Product
Mix at Diablo Electronics
26. Traditional Method Profits
Revenue (60x$75) + (80 x $72) + (40 x $45) + (100 x $38) = $15,860
Materials (60x$10) + (80 x $5) + (40 x $5) + (100 x $10) = – $2,200
Labor (5 workers) x (8 hours/day) x (5 days/wk) x ($18/hr) = – $3,600
Overhead = – $8,500
Profit = $1,560
Notice that in the absence of overtime, the labor cost is fixed
at $3,600 per week regardless of the product mix selected.
Manufacturing the product mix of 60 A, 80 B, 40 C, and 100 D
will yield a profit of $1,560 per week.
Step 3: Compute profitability for the product mix.
27. Bottleneck-based Approach at Diablo
Electronics
Decision rule 2: Bottleneck-based approach - The solution can be
improved by better using the bottleneck resource. Calculate profit margin
per minute at the bottleneck (BN).
Step 1: Calculate profit margin/minute at bottleneck
A B C D
Profit Margin $50.00 $58.00 $34.00 $19.00
Time at X 10 min. 20 min. 5 min. 0 min.
Profit margin/ minute $5.00 $2.90 $6.80 Not defined
Allocate resources in order D,C,A,B, which happens to be the reverse
under the traditional method. New profitability is computed with new
production quantities as follows: 60 A, 70 B, 80 C, 100 D.
28. Step 2: Allocate resources V,W, X, Y, and Z to the products in the order
decided in step 1. Satisfy each demand until the bottleneck resource
(workstation X) is encountered. Subtract minutes away from 2,400
minutes available for each week at each stage.
The best product mix according to this bottleneck-based
approach is then 60 A, 70 B, 80 C, and 100 D.
Bottleneck-based Product
Mix at Diablo Electronics
29. Bottleneck Scheduling Profits
Manufacturing the product mix of 60 A, 70 B, 80 C, and
100 D will yield a profit of $2,490 per week.
Revenue (60x$75) + (70 x $72) + (80 x $45) + (100 x $38) = $16,940
Materials (60x$10) + (70 x $5) + (80 x $5) + (100 x $10) = – $2,350
Labor (5 workers) x (8 hours/day) x (5 days/wk) x ($18/hr) = – $3,600
Overhead = – $8,500
Profit = $2,490
Step 3: Compute profitability for the product mix.
30.
31.
32. Six Sigma
Principle of Six Sigma
-Lean v/s Six Sigma
-Lean six Sigma – What is it?
-Difference B/W Lean & Six Sigma
-Sigma Levels & dpmo
-DMAIC & DMADV Methodology
-Quality Problems
33. Six Sigma
2 308,537
3 66,807
4 6,210
5 233
6 3.4
PPM
Breakthrough performance gains
Sigma is a statistical unit of measure which reflects process capability. The
sigma scale of measure is perfectly correlated to such characteristics as
defects-per-unit, parts-per million defective, and the probability of a
failure/error.
(Distribution Shifted ± 1.5)
Process
Capability
Defects per Million
Opportunities
4/17/2024 33
34. Six Sigma Vs. Lean Manufacturing
• Huge difference between "lean Tools" and Six Sigma
tools.
• Lean = Improved process flow and the elimination of
waste in a continual mode of improvement
• Any of the following mean Lean Manufacturing:
TPS, Continuous Improvement, Kaizen, Lean
Manufacturing, JIT
• Six Sigma = Reduced process variation
• Six Sigma holds the improvement process in the
hands of a select group of “belted” individuals
4/17/2024 34
Six Sigma
35. Six Sigma
• In 1980, Bill Smith, a senior engineer and scientist at Motorola,
introduced the concept of Six Sigma to standardize the way defects
are counted.
• Since then, the impact of the Six Sigma was well documented by
other leading global organizations, such as General Electric, Allied
Signal, and Citibank.
• Six Sigma was derived from the statistical term of sigma which
measures deviations from perfection
4/17/2024 35
Six Sigma
36. Lean Six Sigma: What is it?
• Lean and Six Sigma are both process improvement
methodologies
• Lean is about speed and efficiency
• Six Sigma is about precision and accuracy – leading to
data-driven decisions
• Both rooted in the 1980s (and earlier)
– Lean arose as a method to optimize auto manufacturing
– Six Sigma evolved as a quality initiative to reduce variance in
the semiconductor industry
4/17/2024 36
Six Sigma
37. • Lean, pioneered by Toyota, focuses on
the efficient operation of the entire
value chain.
• Focus areas:
• Remove non-value added steps
to:
• Reduce cycle time
• Improve quality
• Align production with demand.
• Reduce inventory.
• Improve process safety and
efficiency.
• Six Sigma, developed by Motorola,
made famous by GE, it can be defined
as a:
• Measure of process capability
• Set of tools
• Disciplined methodology
• Vision for quality
• Philosophy
• Strategy
Lean Sigma is a combination of two powerful and proven process
improvement methods Lean and Six Sigma, that builds on
existing organization capability in quality, statistics, and project
execution.
What is Lean and Six Sigma?
4/17/2024 37
38. Lean Sigma Process Improvement Cycle
UCL
LCL
Avg
BUSINESS UNIT
SCORECARD
UCL
LCL
Avg
VOICE OF
CUSTOMER
Gap Identified
STRATEGIC
PLAN
BUSINESS
OBJECTIVES
BUSINESS
MEASURES
VALUE STREAM
PROCESS FLOW
PROCESS MEASURES
PROCESS
SCORECARD
Y's
X's
Tools &
Methodology
Better
Faster
Financials
4/17/2024 38
Six Sigma
39. Sigma Levels
Sigma Level
A value from 1 to 6 that signifies the maximum number of defects per
million:
1 Sigma = 690,000 defects/million = 31% accurate
2 Sigma = 308,537 defects/million = 69.1463% accurate
3 Sigma = 66,807 defects/million = 93.3193% accurate
4 Sigma = 6,210 defects/million = 99.3790% accurate
5 Sigma = 233 defects/million = 99.9767% accurate
6 Sigma = 3.4 defects/million = 99.999997% accurate
4/17/2024 39
Six Sigma
40. Combining Lean and Six Sigma Maximizes
the Potential Benefits
Overall Yield as a Function of Sigma Level & Process Steps
No. of Parts or
Process Steps +/- 3 +/- 4 +/- 5 +/- 6
1 93.32% 99.379% 99.9767% 99.99966%
5 70.8% 96.9% 99.884% 99.998%
10 50.1% 94.0% 99.767% 99.997%
50 3.2% 73.2% 98.84% 99.983%
100 0.1% 53.6% 97.70% 99.966%
500 0.0% 4.4% 89.0% 99.8%
1,000 0.2% 79.2% 99.7%
5,000 0.0% 31.2% 98.3%
10,000 9.7% 96.7%
50,000 0.0% 84.4%
100,000 71.2%
500,000 18.3%
1,000,000 3.3%
Sigma Level
Six Sigma – Improve Quality
4/17/2024 40
Six Sigma
41. +4 +5 +6
+1 +2 +3
-2 -1
-4 -3
-6 -5 0
WASTE
Determined by
the customer
Lower
Specification
Limit
Upper
Specification
Limit
Determined by
the customer
3 Process
3 Process Centered
• We make more than
customer needs because
some of what we make
is waste
• Process is WIDER than
the specifications
Sigma Capability
The number of Sigmas between the center of a process and the nearest specification
limit
+4+5+6
+1+2+3
-2 -1
-4 -3
-6 -5 0
6 Process
6 Process Centered
• We make as much as
the customer needs
and have very little
waste
• Process FITS within
the specifications
3 Process has 66,807
dpm vs 3.4 from a 6
process
4/17/2024 41
Six Sigma
42. The First Step is Process Knowledge
Return on Investment
The 1st Step is Process Knowledge
Process Improvement
Long Term Success
4/17/2024 42
Six Sigma
43. 80 Percent of the Gain with
20 Percent of the Complexity
Most of the
improvement is
possible with the
basic quality and
statistical tools.
Tool Complexity
Improvement
80%
20%
4/17/2024 43
Six Sigma
44. Sustained Improvements without Capital
Rupees
•Sustainable Results
•Process improvements from Lean Sigma Projects are sustained.
•Typically, results are audited at 4 and 12 months after implementing
changes.
•Not Capital Driven
•Lean Sigma projects are NOT Capital driven.
•Most improvements are made by changes in the SOP.
4/17/2024 44
Six Sigma
45. Six Sigma Key Concepts
• At its core, Six Sigma revolves around a few key concepts.
• Critical to Quality: Attributes most important to the customer
• Defect: Failing to deliver what the customer wants
• Process Capability: What your process can deliver
• Variation: What the customer sees and feels
• Stable Operations: Ensuring consistent, predictable processes to
improve what the customer sees and feels
• Design for Six Sigma (DFSS): Designing to meet customer needs and
process capability
4/17/2024 45
Six Sigma
46. Example - 1
Assume that a product has 10 CTQ characteristics, and
we produced 10,000 products. This means that the
total number of CTQ’s is equal to 10,000*10. Or in
other words, the total number of opportunities is
100,000 for the defects to occur. 6 sigma means 3.4
defects per million opportunities. Therefore, for
achieving 6 sigma in this case, the number of
permissible defects is 3.4*(100000/1 million)= 0.34
defects.
4/17/2024 46
Six Sigma
47. Example - 2
The another outlook of the same problem:
The number of units produced = 1000
Defective product = 1
Defect Rate = 1/1000= 0.001
Number of Opportunities per pdt= 10; equal to CTQ’s
Defect Rate per CTQ= 0.001/10 means 0.0001
Defects per million opp = 0.0001*106= 100
This means the process does not meet the
requirements of 6 sigma.
4/17/2024 47
Six Sigma
48. Example – To check whether the process meets the 6 sigma
requirements
Units produced = 100,000
Number of CTQs= 20
Number of defects found= 2
Defect Rate = 2/(100000*20)
Defects per million opportunities= (2/100000*20)*106 = 1
Since 6 sigma allows 3.4 dpmo,this process is well within the limits.
4/17/2024 48
Six Sigma
49. Example 3
Area: Receptionist attending to phone calls for a
company.
Cust. Complaint: “I have to generally wait too long to
speak to a representative in this company.
CTQ Name: Responsiveness of the receptionist.
CTQ Measure: Time on Hold
CTQ Specification: Less than 90 seconds from call
connection to the automated response system.
4/17/2024 Six Sigma 49
50. Example 3- contd..
Defect: Telephone calls with hold time equal or greater
than 90 seconds.
Unit: A telephone call
Opp of defects per unit: 1 per call
Number of defects: 347 telephone calls
Total number of calls in the duration considered: 11,239
calls
DPMO = 347*1000000
------------------- = 30875
11239*1
From the Table, this DPMO corresponds 3.3 sigma level.
4/17/2024 Six Sigma 50
51. Books
• Theory of Constraints by S K Mukhopadhyay, Jaico Books
• The Goal by E M Goldratt and Cox J, Great Barrington, North River
• It’s Not Luck by E M Goldratt, Great Barrington, North River
