The document discusses key concepts from the Theory of Constraints including bottlenecks, throughput, inventory, and operating expenses. It explains that the goal of a firm is to increase throughput while reducing inventory and operating expenses. The document also describes synchronous manufacturing and the Drum-Buffer-Rope approach to help synchronize production according to the bottleneck.

1. Submitted by :-
Anshika
Roll No 3
M.Com (Honours) Sem II
THEORY OF CONSTRAINTS AND
SYNCHRONOUS MANUFACTURING &
TECHNOLOGICAL INNOVATIONS IN
MANUFACTURING

2. Introduction
Theory of constraints was
developed by Eli Goldratt
1984.
He based this management
theory that every system has
at least one constraint limiting
it from getting more of what it
strives for.

3. Firms’ Goal
Increase Profits
Reducing Operating Cost
Reducing Inventory Cost

4. Process

5. Performance Measures
 To adequately measure a firm’s performance, two sets of
measurements should be used.
Operational
Throughput Inventory
Operating
expense
Financial
Net Profit
Return on
Investment
Cash Flow

6. Net Profit= T-OE
ROI= (T-OE)/ I
From the operational standpoint, the goal of
a firm is to :-
INCREASE THROUGHPUT WHILE
SIMULTANEOUSLY REDUCING
INVENTORY AND OPERATING
EXPENSES.

7. Throughput
 T is the rate at which the system generates money through
sales (not production).
 An inventory of finished goods is not throughput but inventory.
Actual sales must occur.

8. Inventory
 I is all the money the system invests in purchasing things that the
system intends to sell.
 It is valued only at the cost of the materials it contains. Labor costs and
machine hours are ignored.
 Using just raw materials cost also avoids the problem of determining
which costs are direct and which are indirect and their allocation.

9. Operating Expenses
 OE is all the money the system spends in turning inventory
into throughput.
 Operating expenses include production costs (such as direct
labor, indirect labor, inventory carrying costs, equipment
depreciation and materials and supplies used in production)
and administrative costs.

10. Capacity
Typically, manufacturing tries to balance
capacities across a sequence of processes
in an attempt to match capacity with
market demand.
A bottleneck is defined as any resource
whose capacity is less than the demand
placed upon it.
A bottleneck is a constraint within the
system that limits output.
A bottleneck can be a machine, scarce or
highly skilled labor or a specialized tool.
A non-bottleneck, on the other hand, is
any resource whose capacity is greater
than the demand placed on it.
A non-bottleneck, therefore, should not be
working constantly because it can produce
more than is needed. A non-bottleneck
contains idle time.
Goldratt designates bottleneck resources
with X and non-bottleneck resources with
Y.

11. Capacity Constraint Resource
 A capacity-constrained resource (ccr) is one whose utilization is close to
capacity and could be a bottleneck if not scheduled properly.

12. Types of Constraints
Market constraints- it may prevent the full utilization of the
manufacturing resources available.
Material constraints- it may prevent the utilization of the
resources.
Logistical constraints- it includes planning and control
functions such as order entry or material control systems.

13. Continue…
Managerial constraints- those strategies and
policies that prevent the system from
improving performance.
Behavioral constraints- idle workers and
machines are perceived to be wastes of labor time
and valuable assets, when in reality they may
indicate that product flow is being synchronized.

14. Synchronous Manufacturing
 The flow of material through a system, not the capacity of the system,
should be balanced.
 This results in materials moving smoothly and continuously from one
operation to the next and thus lead times and inventory waiting in
queues should be reduced.
 It will reduce total cost and speed up customer delivery and company
will compete more effectively.

16. Inventories are
too high
Lead times are
too long
Too much
overtime
Poor
productivity
Too much
expediting
Frequent
materials and
parts
shortages
Unable to
quickly and
easily respond to
urgent customer
requirements
Poor customer
service, in terms
of on-time
delivery or
service-from-
stock

17. Drum-Buffer-Rope Approach
 Drum-Buffer-Rope (DBR) is a method of synchronizing production to the
constraint while minimizing inventory and work-in-process.
 The Drum is the system’s constraint that sets the pace for the entire
organization. In DBR terminology, the drum is also the schedule of the
constraint.
 “Buffer” is the level of inventory needed to maintain consistent
production. It ensures that brief interruptions and fluctuations in non-
constraints do not affect the constraint. Buffers represent time that work-
in-process should arrive in advance of being used to ensure steady
operation of the protected resource.

18. Continue…
 The Shipping Buffer is also a time offset that helps protect the
customer due-date. By including it in our model we will try to get
products to the shipping area at or earlier than the expected delivery
date/time.
 The Assembly Buffer is a time offset placed at the levels of the main
production converging points and helps synchronize production. By
placing assembly buffers on the lines, we will help better synchronize
our production system and also reduce unnecessary WIP.

19. Continue…
 The “Rope” is a signal generated by the constraint indicating that some
amount of inventory has been consumed. This in turn triggers an
identically sized release of inventory into the process. The role of the
rope is to maintain throughput without creating an accumulation of
excess inventory.