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Theory of Constraints and Lean

The document discusses the relationship between the Theory of Constraints (TOC) and Lean Manufacturing. It defines basic TOC concepts and explores how TOC and Lean can be synergistic. The key connection is that TOC aims to increase throughput and reduce inventory and expenses, while Lean seeks to reduce waste and improve flow, which supports the TOC goals. Applying both approaches together can help organizations maximize profits through continuous improvement efforts.

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The Theory of Constraints & Lean Manufacturing Don Guild Synchronous Management, Milford, CT P: 203-877-1287 E: synchronous@att.net www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Objectives • Define basic Theory of Constraints concepts • Examine the application of TOC • Explore the linkage between TOC and LEAN • How to gain synergy of TOC and LEAN www.synchronousmanagement.Page 2 com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
What is the Theory of Constraints? A business philosophy which seeks to strive towards the global objective, or goal, of a system through an understanding of the underlying cause and effect. Theory of Constraints, Eli Goldratt, 1990 www.synchronousmanagement.Page 3 com TOC: What is the Goal? GOAL = $ NET PROFIT (Absolute) RETURN ON INVESTMENT (Relative) CASH FLOW (Survival) THROUGHPUT INVENTORY OPERATING EXPENSE Page 4 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
TOC: Global Operational Measures INCREASE THROUGHPUT (SALES) The rate at which money is generated through sales. DECREASE INVENTORY (INVESTMENT) The money invested in things intended for sale. DECREASE OPERATING EXPENSE (SPENDING) The money spent to convert inventory into throughput. www.synchronousmanagement.Page 5 com Traditional Investment Justification COMPANY: CIRCUIT BOARD ASSEMBLY JOB SHOP SALES: $8MM PER YEAR DIRECT LABOR: 50 EMPLOYEES @ $25K/YEAR EACH OPPORTUNITY: $300K MACHINE ELIMINATES 6 EES FINANCIAL ANALYSIS: COST OF MACHINE: $300,000 SAVINGS (6 X $25K) 150,000 PAYBACK = 2 YEARS Page 6 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
TOC: Throughput Justification BUT, WHAT IF: LOST SALES FOR LACK OF LABOR: $2MM PER YEAR MATERIAL COST: 30% OF SALES DOLLAR FINANCIAL ANALYSIS: COST OF MACHINE: $300,000 SAVINGS: Additional sales ($160K X 6EES) $960,000 Less material cost ($960K X 30%) $288,000 Additional net profit: $672,000 PAYBACK = 5 MONTHS www.synchronousmanagement.Page 7 com Traditional Headcount Reduction COMPANY: INJECTION MOLDING SHOP SALES: TEMPORARILY DOWN 20% DIRECT LABOR: 15 OPERATORS ON 30 MACHINES OPPORTUNITY: LAY OFF MATERIAL HANDLER SAVINGS: $30K PER YEAR WITHOUT MATERIAL HANDLER OPERATORS MUST NOW MOVE OWN MATERIAL SET UP RUN PARTS MOVE MAT SET UP RUN PARTS Page 8 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. MOVE MAT
TOC: Inventory Reduction WITH MATERIAL HANDLER SET UP MORE OFTEN & RUN SMALLER BATCHES SET UP SET UP www.synchronousmanagement.Page 9 com TOC: What is a System? The total business, taken as a whole. Not a division, cost center, or department. The level at which financial ownership exists. Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. SET UP SET RUN PARTS UP RUN PARTS RUN PARTS RUN PARTS RESULTS INVENTORY REDUCTION: $300,000 COST REDUCTION (10%): $30K PER YEAR Page 10 www.synchronousmanagement.com
TOC: What is a Constraint? A constraint is anything that limits a system from achieving higher performance versus its goal. Logistical: Physical, e.g. bottleneck, plant layout, long changeovers. Managerial: Policy, e.g. efficiency, utilization, allocations, absorption. Behavioral: Human, e.g. resistance to change, lack of understanding, politics. www.synchronousmanagement.Page 11 com TOC: What are the Elements of TOC? • Global operational measures • Five focusing steps • Process of ongoing improvement • Drum, buffer, rope • Cause and effect trees • Thinking processes • Throughput accounting Page 12 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
TOC: The Five Focusing Steps Identify the system’s constraints. Usually very few, but at least one Decide how to exploit the system’s constraints. Don’t waste the constraint Subordinate everything else to the constraints. Non-constraints supply only what constraints need Elevate the system’s constraints. Open up the capacity of the constraints If a constraint has been broken, repeat the process, but avoid inertia. Another constraint will limit performance www.synchronousmanagement.Page 13 com TOC: Process of Ongoing Improvement What to change? Diagnosis: Description of "current reality" and the core problem that will have a major impact To what to change? Description of “desired state” and strategy to attain it How to change? Detailed plans for what needs to happen in the group effort to implement the change Page 14 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
TOC: Drum, Buffer, Rope Drum Focusing step: Identify the constraint What to do: Schedule the constraint to capacity Buffer Focusing step: Exploit the constraint What to do: Protect the constraint against Murphy Rope Focusing step: Subordinate non-constrained resources What to do: Release raw materials to drum schedule www.synchronousmanagement.Page 15 com TOC: Cause and Effect Tree SHORTAGES EXPEDITING OVERTIME REALITY POLICY RESULT TIMING PROBLEMS IMPACT ON BUSINESS GOAL PROCESS DEPENDENCE PROCESS VARIATION HIGH UTILIZATION EXCESS COMPONENT PARTS INVENTORY INVENTORY Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. LONG SETUPS INFLEXIBLE RESOURCES SHORT CUSTOMER LEADTIMES EFFICIENCY EXCESS CAPACITY OPERATING EXPENSE EXCESS WORK IN PROCESS LONG PRODUCTION LEADTIMES EXCESS RAW MATERIAL INVENTORY LARGE BATCHES WANDERING BOTTLE-NECKS INACCURATE FORECASTS EXCESS FINISHED GOODS POOR ONTIME DELIVERY THRUPUT OPERATING EXPENSE THRUPUT FINISH TO ORDER FABRICATE TO FORECAST
TOC: Cause and Effect Tree PROCESS DEPENDENCE PROCESS VARIATION SHORTAGES EXPEDITING OVERTIME HIGH UTILIZATION EXCESS COMPONENT PARTS INVENTORY INVENTORY TIMING PROBLEMS www.synchronousmanagement.Page 17 com TOC: Thinking Processes Current Reality Tree Maps out a sequence of cause and effect from the core problem to the symptoms. Evaporating Cloud Means of displaying and solving an apparent conflict or dilemma between two actions. Future Reality Tree Maps out future expectations given that we will introduce something new into the reality. Negative Branch Reservation Modification of the future reality tree that accounts for new negative outcomes. Pre-requisite Tree The implementation plan to which timelines, responsibilities, and accountabilities can be assigned. Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. LONG SETUPS INFLEXIBLE RESOURCES SHORT CUSTOMER LEADTIMES EFFICIENCY EXCESS CAPACITY OPERATING EXPENSE EXCESS WORK IN PROCESS LONG PRODUCTION LEADTIMES EXCESS RAW MATERIAL INVENTORY LARGE BATCHES WANDERING BOTTLE-NECKS INACCURATE FORECASTS EXCESS FINISHED GOODS POOR ONTIME DELIVERY THRUPUT OPERATING EXPENSE THRUPUT FINISH TO ORDER FABRICATE TO FORECAST Page 18 www.synchronousmanagement.com
What is a Lean Enterprise? A continuing agreement among all the firms sharing the value stream for a product family to correctly specify value from the standpoint of the end customer, remove wasteful actions from the value stream, and make those actions which do create value occur in continuous flow as pulled by the customer. The cooperating firms must analyze the results and start the process again through the life of the product family. Lean Thinking, Womack and Jones, 1996 www.synchronousmanagement.Page 19 com LEAN: What Is A Value Stream? All of the activities (both value-adding and non-value-adding) required to bring a product from raw material suppliers to the customer. The value stream includes all activities which: Transform the product (local solutions) Process information from the customer (system solutions) Page 20 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
LEAN: The Five Focusing Steps Specify value What is the customer willing to pay for? Identify the value stream All of the steps, VA and NVA, from raw material to shipment. Establish flow Organize by product family to eliminate waste. Establish pull Control the non-continuous flow of material. Work to perfection Goal is perfect value with no waste. www.synchronousmanagement.Page 21 com The TOC-LEAN Strategic Connection Reduce Waste (Sales ÷ Spending ) & Improve Flow (Sales ÷ Inventory ) Lean Metrics/Accounting: Measure the flow LEAN Page 22 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. TOC Business Goal = $ Reduce Spending Reduce Inventory Increase Sales Kaizen Teams: Respect for people Future state VSM Current state VSM See the flow Pull Systems: Control the flow Toyota Production System: Improve the flow Changeover reduction Cellular manufacturing Cross-training Zero defects 5-S visual controls Preventive maintenance
The TOC-LEAN Tactical Connection Business Goal = $ Reduce Waste (Spending ÷ Sales ) & Improve Flow (Sales ÷ Inventory ) What to change? Drum, buffer, rope Avoid inertia Elevate the constraint Lean Metrics/Accounting: Measure the flow How to change? What to change to? www.synchronousmanagement.Page 23 com Current State VSM (What to Change?) Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Reduce Spending Reduce Inventory Increase Sales Kaizen Teams: Respect for people Future state VSM Current state VSM See the flow Pull Systems: Control the flow Toyota Production System: Improve the flow Changeover reduction Cellular manufacturing Cross-training Zero defects 5-S visual controls Preventive maintenance Page 24 www.synchronousmanagement.com
Future State VSM (To What to Change?) www.synchronousmanagement.Page 25 com VSM Action Plan (How To Change?) Page 26 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
The Toyota Production System Changeover reduction Cellular manufacturing Cross-training Zero defects 5-S visual factory Total productive maintenance www.synchronousmanagement.Page 27 com Changeover Details The time required for removing the old tools, dies or fixtures; attaching new tools, dies or fixtures and running the machine until a new part, without defects, is produced. Completion of last Good Part Locate tools, dies or fixtures Attach new Run Part Enter Offsets Run Part Adjust Completion of first Good Part Page 28 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. 1st piece inspection Set-up Time Set-up time includes run time and adjustment time until a good part is produced. If a good part is produced with no adjustments, run time is part of machine process time.
Cellular Manufacturing PROCESS FOCUS PRODUCT FOCUS RECEIVING SHIPPING STOCK ROOM TEST = POU RAW MATERIAL www.synchronousmanagement.Page 29 com Cross-Training Matrix Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. CIRCUIT BOARD ASSEMBLY FINAL ASSEMBLY SUB ASSEMBLY CABLE ASSEMBLY SHIPPING CABLE ASSY CIRCUIT BOARD TEST FINAL ASSEMBLY SUB ASSEMBLY = POU FINISHED GOODS Page 30 www.synchronousmanagement.com
5-S Visual Factory Make waste in the workplace visible Sort (seiri): separate & remove unneeded items Set in order (seiton): arrange items for easy access Shine (seiso): clean the work area Standardize (seiketsu): detailed plan to maintain first 3-S’s Sustain (shitsuke): ongoing commitment of workforce www.synchronousmanagement.Page 31 com Attaining Zero Defects Define defects Track rejects Pareto analysis Root cause analysis Corrective action Poka-yoke: error-proofing Page 32 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
Total Productive Maintenance (OEE) A = Total Available Time B = Uptime Downtime B/A = Availability rate C = Standard Output D = Actual Output Speed loss www.synchronousmanagement.Page 33 com The Kaizen Approach The Kaizen Event is a focused, short-term project to improve a process. 1. Initial Analysis of Process: • Event area selection • Team selection • Development of a contract and a mandate 2. Kaizen Blitz Event: • Full day of training • Process analysis & baseline measurement • Development & implementation of new processes • Formal presentation of the process and accomplishment 3. Follow Up: • Debug the process • Assure timely completion of all remaining action items • Assure the new process is institutionalized Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Minor stops D/C = Performance rate F = Good Output Quality yields E = Actual Output E/F = Quality rate OEE = B/A x D/C x E/F Page 34 www.synchronousmanagement.com
The Five Steps of TOC and TPS Identify the system’s constraints Level-loading and EPEI Exploit the constraint Supermarkets, 5-S (DRUM) (BUFFER) Subordinate all else to the constraint Kanban Elevate the constraint TPM, SMED, OEE, 6SIGMA Repeat the process – avoid inertia Lean metrics (ROPE) www.synchronousmanagement.Page 35 com Controlling Flow With Pull (or DBR?) “The most significant source of waste is overproduction, which means producing more, sooner or faster than is required by the next process.” Learning to See by Mike Rother & John Shook Moving from push to pull production has the single greatest impact on improving material flow and eliminating waste. Page 36 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
ID Constraint: Level Load vs. Level Mix LEVEL LOAD: GOOD LEVEL MIX: BETTER ITEM MON TUE WED THU FRI B 100 C 100 D 100 E 100 TOTAL 100 100 100 100 100 ITEM MON TUE WED THU FRI A 20 20 20 20 20 C 20 20 20 20 20 D 20 20 20 20 20 E 20 20 20 20 20 www.synchronousmanagement.Page 37 com The Replenishment Interval is . . . . . . the shortest period (usually in days) over which a resource can make some of every product. . . . resource-specific, not product-specific. . . . capacity-driven, not cost-driven. . . . also known as Every Part Every Interval (EPEI). Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. A 100 B 20 20 20 20 20 TOTAL 100 100 100 100 100 What is the shortest replenishment interval over which a resource can set up and make some of every part? Page 38 www.synchronousmanagement.com
Setting the Replenishment Interval Available resource time per day Minus: Time to cycle one day’s parts Daily changeover time available Divided into: www.synchronousmanagement.Page 39 com Example: A 3-Day Replenishment Interval Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Equals: Total changeovers on all parts Equals: Replenishment Interval in days Available resource time per day Time to cycle one day’s parts Total changeovers on all parts
Example: A 3-Day Replenishment Interval Some of every part . . . Every three days! www.synchronousmanagement.Page 41 com Example: Acme Stamping SpotWeld 2 1 machines X 2 shifts X 460 minutes 31 736 (80% 920 mins/u70p5time) day 184 PART W/C C/O MINS C/T SECS DAILY DEMAND DAILY CYCLE TIME Page 42 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. MINS EPEI BATCH LH BRACKET SPOTWELD2 RH BRACKET SPOTWELD2 TOTAL 10 10 46 46 600 320 EPEI = 20 31 = .65 days 20 460 245 705 .65 .65 300 210
Who Is The Constraint? www.synchronousmanagement.Page 43 com Exploit Constraint: Supermarkets A strategically-placed inventory of an item, which: • Triggers replenishment based on consumption of the item • Protects the flow of material through the value stream • Links the flow among value streams and loops • Focuses additional lean improvements Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Supplier EPEI= 1 DAY Process C EPEI = 2 DAYS Customer Process B EPEI = 5 DAYS Process A EPEI = 3 DAYS The longer the interval, the more constrained the resource! Page 44 www.synchronousmanagement.com
Sizing Supermarkets SUPPLIER CUSTOMER Average Demand During Replenishment Interval Safety Stock To Cover Deviation From Average Average Demand During Replenishment Lead Time Replenishment Interval CONSUMPTION PATTERN All driven by the daily rate! www.synchronousmanagement.Page 45 com Total Super Market aka Standard Inventory Sizing Supermarkets Average Demand During Replenishment Interval Safety Stock To Cover Deviation From Average Average Demand During Replenishment Lead Time Order Quantity: How Much to Order Order Point: When to Order All driven by the daily rate! Page 46 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
Subordinate Non-Constraints: Kanban Pull Signal 80/DAY Process A Capy=100/day www.synchronousmanagement.Page 47 com Logistical Pull Techniques (Ropes) Kanban: Card which signals consumption has taken place Order point: Replenish fixed quantity when inventory reaches this level Min/max: Replenish to max when inventory reaches min Two-bin: Fill one container while working out of the other Reorder report: Triggers replenishment based on perpetual inventory records Breadman: Refill depleted shelf inventory Vendor managed: Outside supplier replenishes inventory Trigger board: Accumulates kanbans at supplier Virtual kanban: Electronic version of trigger boards FIFO lane: Visual control of first-in-first-out at secondary operations Heijunka box: Visual load-leveling technique Mixed-model: Smoothing of production volume & mix Kanban post: Accumulates kanbans in the order received Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Supplier Capy=150/day Process C Capy=120/day Customer Process B Capy=80/day First-In-First-Out DEMAND = 90/DAY Pull Signal 80/DAY No one goes faster than the slowest step in the system (constraint). Page 48 www.synchronousmanagement.com
Pull Systems (DBR) Account For. . . Demand constraints Demand rates and variability Competitive lead times and service levels Supply constraints Supplier lead times and reliability Resource uptimes, changeover times and cycle times Quality yield rates and startup scrap Material logistics, containers, storage www.synchronousmanagement.Page 49 com How LEAN Addresses Cause/Effect SHORTAGES PROCESS DEPENDENCE PROCESS VARIATION LARGE BATCHES WANDERING BOTTLE-NECKS HIGH UTILIZATION INACCURATE FORECASTS EXCESS WORK IN PROCESS EXCESS FINISHED GOODS LONG PRODUCTION LEADTIMES EXCESS COMPONENT PARTS INVENTORY FINISH TO ORDER SHORT CUSTOMER LEADTIMES Page 50 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. LONG SETUPS INFLEXIBLE RESOURCES EFFICIENCY EXCESS CAPACITY THRUPUT OPERATING EXPENSE POOR ONTIME DELIVERY INVENTORY INVENTORY THRUPUT OVERTIME OPERATING EXPENSE EXCESS RAW MATERIAL EXPEDITING TIMING PROBLEMS FABRICATE TO FORECAST SMED CELLS SIX SIGMA XTRAINING LEAN METRICS PULL/KANBAN
A TOC/Lean Translator TOC LEAN Optimize system Lean value stream T, I, OE Flow and waste Identify constraint Level-loading and EPEI Exploit constraint Supermarkets, 5-S Subordinate to constraint Kanban Elevate constraint TPM, SMED, OEE, 6SIGMA Repeat – avoid inertia Lean metrics What to change? Current state VSM To what to change? Future state VSM How to change? TPS AND Kaizen Drum-buffer-rope Pull/Kanban Effect-cause-effect 5-whys www.synchronousmanagement.Page 51 com Words of Caution Theory of constraints: • A system is the total business, taken as a whole. The level at which financial owner ship exists. Lean manufacturing: • A value stream is all of the activities required to bring a product from raw material suppliers to the customer. Value stream waste is not reduced unless total system spending decreases! Page 52 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
Continuous Improvement: Cost Accounting? EFFICIENCIES Amortize changeover costs Encourages large batches HIGH UTILIZATION Over-activates non-bottleneck resources Builds inventory ahead of constraints OVERHEAD ALLOCATION Assumes all costs are variable Ignores fixed cost OVERHEAD ABSORPTION Encourages inventory build Ignores impact of fixed costs EARNED HOURS Credit for partial completion Encourages input – not output www.synchronousmanagement.Page 53 com Continuous Improvement: Throughput Accounting? •Sales dollars per person •On-time shipments to customer •Dock-to-dock lead time •First pass yield •Target cost performance •Average cost per unit shipped •OEE at bottlenecks •Average cross-training per person Page 54 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
Why Marry TOC with Lean? • Global business strategy • Sync value streams with each other • Quantify constraints to better flow/less waste • Springboard to continuous improvement • Evolve the TOC/lean mindset - not cost reduction • Crush the competition! www.synchronousmanagement.Page 55 com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.

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Theory of Constraints and Lean

  • 1.
    The Theory ofConstraints & Lean Manufacturing Don Guild Synchronous Management, Milford, CT P: 203-877-1287 E: synchronous@att.net www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Objectives • Define basic Theory of Constraints concepts • Examine the application of TOC • Explore the linkage between TOC and LEAN • How to gain synergy of TOC and LEAN www.synchronousmanagement.Page 2 com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 2.
    What is theTheory of Constraints? A business philosophy which seeks to strive towards the global objective, or goal, of a system through an understanding of the underlying cause and effect. Theory of Constraints, Eli Goldratt, 1990 www.synchronousmanagement.Page 3 com TOC: What is the Goal? GOAL = $ NET PROFIT (Absolute) RETURN ON INVESTMENT (Relative) CASH FLOW (Survival) THROUGHPUT INVENTORY OPERATING EXPENSE Page 4 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 3.
    TOC: Global OperationalMeasures INCREASE THROUGHPUT (SALES) The rate at which money is generated through sales. DECREASE INVENTORY (INVESTMENT) The money invested in things intended for sale. DECREASE OPERATING EXPENSE (SPENDING) The money spent to convert inventory into throughput. www.synchronousmanagement.Page 5 com Traditional Investment Justification COMPANY: CIRCUIT BOARD ASSEMBLY JOB SHOP SALES: $8MM PER YEAR DIRECT LABOR: 50 EMPLOYEES @ $25K/YEAR EACH OPPORTUNITY: $300K MACHINE ELIMINATES 6 EES FINANCIAL ANALYSIS: COST OF MACHINE: $300,000 SAVINGS (6 X $25K) 150,000 PAYBACK = 2 YEARS Page 6 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 4.
    TOC: Throughput Justification BUT, WHAT IF: LOST SALES FOR LACK OF LABOR: $2MM PER YEAR MATERIAL COST: 30% OF SALES DOLLAR FINANCIAL ANALYSIS: COST OF MACHINE: $300,000 SAVINGS: Additional sales ($160K X 6EES) $960,000 Less material cost ($960K X 30%) $288,000 Additional net profit: $672,000 PAYBACK = 5 MONTHS www.synchronousmanagement.Page 7 com Traditional Headcount Reduction COMPANY: INJECTION MOLDING SHOP SALES: TEMPORARILY DOWN 20% DIRECT LABOR: 15 OPERATORS ON 30 MACHINES OPPORTUNITY: LAY OFF MATERIAL HANDLER SAVINGS: $30K PER YEAR WITHOUT MATERIAL HANDLER OPERATORS MUST NOW MOVE OWN MATERIAL SET UP RUN PARTS MOVE MAT SET UP RUN PARTS Page 8 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. MOVE MAT
  • 5.
    TOC: Inventory Reduction WITH MATERIAL HANDLER SET UP MORE OFTEN & RUN SMALLER BATCHES SET UP SET UP www.synchronousmanagement.Page 9 com TOC: What is a System? The total business, taken as a whole. Not a division, cost center, or department. The level at which financial ownership exists. Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. SET UP SET RUN PARTS UP RUN PARTS RUN PARTS RUN PARTS RESULTS INVENTORY REDUCTION: $300,000 COST REDUCTION (10%): $30K PER YEAR Page 10 www.synchronousmanagement.com
  • 6.
    TOC: What isa Constraint? A constraint is anything that limits a system from achieving higher performance versus its goal. Logistical: Physical, e.g. bottleneck, plant layout, long changeovers. Managerial: Policy, e.g. efficiency, utilization, allocations, absorption. Behavioral: Human, e.g. resistance to change, lack of understanding, politics. www.synchronousmanagement.Page 11 com TOC: What are the Elements of TOC? • Global operational measures • Five focusing steps • Process of ongoing improvement • Drum, buffer, rope • Cause and effect trees • Thinking processes • Throughput accounting Page 12 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 7.
    TOC: The FiveFocusing Steps Identify the system’s constraints. Usually very few, but at least one Decide how to exploit the system’s constraints. Don’t waste the constraint Subordinate everything else to the constraints. Non-constraints supply only what constraints need Elevate the system’s constraints. Open up the capacity of the constraints If a constraint has been broken, repeat the process, but avoid inertia. Another constraint will limit performance www.synchronousmanagement.Page 13 com TOC: Process of Ongoing Improvement What to change? Diagnosis: Description of "current reality" and the core problem that will have a major impact To what to change? Description of “desired state” and strategy to attain it How to change? Detailed plans for what needs to happen in the group effort to implement the change Page 14 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 8.
    TOC: Drum, Buffer,Rope Drum Focusing step: Identify the constraint What to do: Schedule the constraint to capacity Buffer Focusing step: Exploit the constraint What to do: Protect the constraint against Murphy Rope Focusing step: Subordinate non-constrained resources What to do: Release raw materials to drum schedule www.synchronousmanagement.Page 15 com TOC: Cause and Effect Tree SHORTAGES EXPEDITING OVERTIME REALITY POLICY RESULT TIMING PROBLEMS IMPACT ON BUSINESS GOAL PROCESS DEPENDENCE PROCESS VARIATION HIGH UTILIZATION EXCESS COMPONENT PARTS INVENTORY INVENTORY Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. LONG SETUPS INFLEXIBLE RESOURCES SHORT CUSTOMER LEADTIMES EFFICIENCY EXCESS CAPACITY OPERATING EXPENSE EXCESS WORK IN PROCESS LONG PRODUCTION LEADTIMES EXCESS RAW MATERIAL INVENTORY LARGE BATCHES WANDERING BOTTLE-NECKS INACCURATE FORECASTS EXCESS FINISHED GOODS POOR ONTIME DELIVERY THRUPUT OPERATING EXPENSE THRUPUT FINISH TO ORDER FABRICATE TO FORECAST
  • 9.
    TOC: Cause andEffect Tree PROCESS DEPENDENCE PROCESS VARIATION SHORTAGES EXPEDITING OVERTIME HIGH UTILIZATION EXCESS COMPONENT PARTS INVENTORY INVENTORY TIMING PROBLEMS www.synchronousmanagement.Page 17 com TOC: Thinking Processes Current Reality Tree Maps out a sequence of cause and effect from the core problem to the symptoms. Evaporating Cloud Means of displaying and solving an apparent conflict or dilemma between two actions. Future Reality Tree Maps out future expectations given that we will introduce something new into the reality. Negative Branch Reservation Modification of the future reality tree that accounts for new negative outcomes. Pre-requisite Tree The implementation plan to which timelines, responsibilities, and accountabilities can be assigned. Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. LONG SETUPS INFLEXIBLE RESOURCES SHORT CUSTOMER LEADTIMES EFFICIENCY EXCESS CAPACITY OPERATING EXPENSE EXCESS WORK IN PROCESS LONG PRODUCTION LEADTIMES EXCESS RAW MATERIAL INVENTORY LARGE BATCHES WANDERING BOTTLE-NECKS INACCURATE FORECASTS EXCESS FINISHED GOODS POOR ONTIME DELIVERY THRUPUT OPERATING EXPENSE THRUPUT FINISH TO ORDER FABRICATE TO FORECAST Page 18 www.synchronousmanagement.com
  • 10.
    What is aLean Enterprise? A continuing agreement among all the firms sharing the value stream for a product family to correctly specify value from the standpoint of the end customer, remove wasteful actions from the value stream, and make those actions which do create value occur in continuous flow as pulled by the customer. The cooperating firms must analyze the results and start the process again through the life of the product family. Lean Thinking, Womack and Jones, 1996 www.synchronousmanagement.Page 19 com LEAN: What Is A Value Stream? All of the activities (both value-adding and non-value-adding) required to bring a product from raw material suppliers to the customer. The value stream includes all activities which: Transform the product (local solutions) Process information from the customer (system solutions) Page 20 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 11.
    LEAN: The FiveFocusing Steps Specify value What is the customer willing to pay for? Identify the value stream All of the steps, VA and NVA, from raw material to shipment. Establish flow Organize by product family to eliminate waste. Establish pull Control the non-continuous flow of material. Work to perfection Goal is perfect value with no waste. www.synchronousmanagement.Page 21 com The TOC-LEAN Strategic Connection Reduce Waste (Sales ÷ Spending ) & Improve Flow (Sales ÷ Inventory ) Lean Metrics/Accounting: Measure the flow LEAN Page 22 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. TOC Business Goal = $ Reduce Spending Reduce Inventory Increase Sales Kaizen Teams: Respect for people Future state VSM Current state VSM See the flow Pull Systems: Control the flow Toyota Production System: Improve the flow Changeover reduction Cellular manufacturing Cross-training Zero defects 5-S visual controls Preventive maintenance
  • 12.
    The TOC-LEAN TacticalConnection Business Goal = $ Reduce Waste (Spending ÷ Sales ) & Improve Flow (Sales ÷ Inventory ) What to change? Drum, buffer, rope Avoid inertia Elevate the constraint Lean Metrics/Accounting: Measure the flow How to change? What to change to? www.synchronousmanagement.Page 23 com Current State VSM (What to Change?) Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Reduce Spending Reduce Inventory Increase Sales Kaizen Teams: Respect for people Future state VSM Current state VSM See the flow Pull Systems: Control the flow Toyota Production System: Improve the flow Changeover reduction Cellular manufacturing Cross-training Zero defects 5-S visual controls Preventive maintenance Page 24 www.synchronousmanagement.com
  • 13.
    Future State VSM(To What to Change?) www.synchronousmanagement.Page 25 com VSM Action Plan (How To Change?) Page 26 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 14.
    The Toyota ProductionSystem Changeover reduction Cellular manufacturing Cross-training Zero defects 5-S visual factory Total productive maintenance www.synchronousmanagement.Page 27 com Changeover Details The time required for removing the old tools, dies or fixtures; attaching new tools, dies or fixtures and running the machine until a new part, without defects, is produced. Completion of last Good Part Locate tools, dies or fixtures Attach new Run Part Enter Offsets Run Part Adjust Completion of first Good Part Page 28 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. 1st piece inspection Set-up Time Set-up time includes run time and adjustment time until a good part is produced. If a good part is produced with no adjustments, run time is part of machine process time.
  • 15.
    Cellular Manufacturing PROCESSFOCUS PRODUCT FOCUS RECEIVING SHIPPING STOCK ROOM TEST = POU RAW MATERIAL www.synchronousmanagement.Page 29 com Cross-Training Matrix Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. CIRCUIT BOARD ASSEMBLY FINAL ASSEMBLY SUB ASSEMBLY CABLE ASSEMBLY SHIPPING CABLE ASSY CIRCUIT BOARD TEST FINAL ASSEMBLY SUB ASSEMBLY = POU FINISHED GOODS Page 30 www.synchronousmanagement.com
  • 16.
    5-S Visual Factory Make waste in the workplace visible Sort (seiri): separate & remove unneeded items Set in order (seiton): arrange items for easy access Shine (seiso): clean the work area Standardize (seiketsu): detailed plan to maintain first 3-S’s Sustain (shitsuke): ongoing commitment of workforce www.synchronousmanagement.Page 31 com Attaining Zero Defects Define defects Track rejects Pareto analysis Root cause analysis Corrective action Poka-yoke: error-proofing Page 32 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 17.
    Total Productive Maintenance(OEE) A = Total Available Time B = Uptime Downtime B/A = Availability rate C = Standard Output D = Actual Output Speed loss www.synchronousmanagement.Page 33 com The Kaizen Approach The Kaizen Event is a focused, short-term project to improve a process. 1. Initial Analysis of Process: • Event area selection • Team selection • Development of a contract and a mandate 2. Kaizen Blitz Event: • Full day of training • Process analysis & baseline measurement • Development & implementation of new processes • Formal presentation of the process and accomplishment 3. Follow Up: • Debug the process • Assure timely completion of all remaining action items • Assure the new process is institutionalized Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Minor stops D/C = Performance rate F = Good Output Quality yields E = Actual Output E/F = Quality rate OEE = B/A x D/C x E/F Page 34 www.synchronousmanagement.com
  • 18.
    The Five Stepsof TOC and TPS Identify the system’s constraints Level-loading and EPEI Exploit the constraint Supermarkets, 5-S (DRUM) (BUFFER) Subordinate all else to the constraint Kanban Elevate the constraint TPM, SMED, OEE, 6SIGMA Repeat the process – avoid inertia Lean metrics (ROPE) www.synchronousmanagement.Page 35 com Controlling Flow With Pull (or DBR?) “The most significant source of waste is overproduction, which means producing more, sooner or faster than is required by the next process.” Learning to See by Mike Rother & John Shook Moving from push to pull production has the single greatest impact on improving material flow and eliminating waste. Page 36 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 19.
    ID Constraint: LevelLoad vs. Level Mix LEVEL LOAD: GOOD LEVEL MIX: BETTER ITEM MON TUE WED THU FRI B 100 C 100 D 100 E 100 TOTAL 100 100 100 100 100 ITEM MON TUE WED THU FRI A 20 20 20 20 20 C 20 20 20 20 20 D 20 20 20 20 20 E 20 20 20 20 20 www.synchronousmanagement.Page 37 com The Replenishment Interval is . . . . . . the shortest period (usually in days) over which a resource can make some of every product. . . . resource-specific, not product-specific. . . . capacity-driven, not cost-driven. . . . also known as Every Part Every Interval (EPEI). Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. A 100 B 20 20 20 20 20 TOTAL 100 100 100 100 100 What is the shortest replenishment interval over which a resource can set up and make some of every part? Page 38 www.synchronousmanagement.com
  • 20.
    Setting the ReplenishmentInterval Available resource time per day Minus: Time to cycle one day’s parts Daily changeover time available Divided into: www.synchronousmanagement.Page 39 com Example: A 3-Day Replenishment Interval Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Equals: Total changeovers on all parts Equals: Replenishment Interval in days Available resource time per day Time to cycle one day’s parts Total changeovers on all parts
  • 21.
    Example: A 3-DayReplenishment Interval Some of every part . . . Every three days! www.synchronousmanagement.Page 41 com Example: Acme Stamping SpotWeld 2 1 machines X 2 shifts X 460 minutes 31 736 (80% 920 mins/u70p5time) day 184 PART W/C C/O MINS C/T SECS DAILY DEMAND DAILY CYCLE TIME Page 42 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. MINS EPEI BATCH LH BRACKET SPOTWELD2 RH BRACKET SPOTWELD2 TOTAL 10 10 46 46 600 320 EPEI = 20 31 = .65 days 20 460 245 705 .65 .65 300 210
  • 22.
    Who Is TheConstraint? www.synchronousmanagement.Page 43 com Exploit Constraint: Supermarkets A strategically-placed inventory of an item, which: • Triggers replenishment based on consumption of the item • Protects the flow of material through the value stream • Links the flow among value streams and loops • Focuses additional lean improvements Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Supplier EPEI= 1 DAY Process C EPEI = 2 DAYS Customer Process B EPEI = 5 DAYS Process A EPEI = 3 DAYS The longer the interval, the more constrained the resource! Page 44 www.synchronousmanagement.com
  • 23.
    Sizing Supermarkets SUPPLIERCUSTOMER Average Demand During Replenishment Interval Safety Stock To Cover Deviation From Average Average Demand During Replenishment Lead Time Replenishment Interval CONSUMPTION PATTERN All driven by the daily rate! www.synchronousmanagement.Page 45 com Total Super Market aka Standard Inventory Sizing Supermarkets Average Demand During Replenishment Interval Safety Stock To Cover Deviation From Average Average Demand During Replenishment Lead Time Order Quantity: How Much to Order Order Point: When to Order All driven by the daily rate! Page 46 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 24.
    Subordinate Non-Constraints: Kanban Pull Signal 80/DAY Process A Capy=100/day www.synchronousmanagement.Page 47 com Logistical Pull Techniques (Ropes) Kanban: Card which signals consumption has taken place Order point: Replenish fixed quantity when inventory reaches this level Min/max: Replenish to max when inventory reaches min Two-bin: Fill one container while working out of the other Reorder report: Triggers replenishment based on perpetual inventory records Breadman: Refill depleted shelf inventory Vendor managed: Outside supplier replenishes inventory Trigger board: Accumulates kanbans at supplier Virtual kanban: Electronic version of trigger boards FIFO lane: Visual control of first-in-first-out at secondary operations Heijunka box: Visual load-leveling technique Mixed-model: Smoothing of production volume & mix Kanban post: Accumulates kanbans in the order received Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. Supplier Capy=150/day Process C Capy=120/day Customer Process B Capy=80/day First-In-First-Out DEMAND = 90/DAY Pull Signal 80/DAY No one goes faster than the slowest step in the system (constraint). Page 48 www.synchronousmanagement.com
  • 25.
    Pull Systems (DBR)Account For. . . Demand constraints Demand rates and variability Competitive lead times and service levels Supply constraints Supplier lead times and reliability Resource uptimes, changeover times and cycle times Quality yield rates and startup scrap Material logistics, containers, storage www.synchronousmanagement.Page 49 com How LEAN Addresses Cause/Effect SHORTAGES PROCESS DEPENDENCE PROCESS VARIATION LARGE BATCHES WANDERING BOTTLE-NECKS HIGH UTILIZATION INACCURATE FORECASTS EXCESS WORK IN PROCESS EXCESS FINISHED GOODS LONG PRODUCTION LEADTIMES EXCESS COMPONENT PARTS INVENTORY FINISH TO ORDER SHORT CUSTOMER LEADTIMES Page 50 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT. LONG SETUPS INFLEXIBLE RESOURCES EFFICIENCY EXCESS CAPACITY THRUPUT OPERATING EXPENSE POOR ONTIME DELIVERY INVENTORY INVENTORY THRUPUT OVERTIME OPERATING EXPENSE EXCESS RAW MATERIAL EXPEDITING TIMING PROBLEMS FABRICATE TO FORECAST SMED CELLS SIX SIGMA XTRAINING LEAN METRICS PULL/KANBAN
  • 26.
    A TOC/Lean Translator TOC LEAN Optimize system Lean value stream T, I, OE Flow and waste Identify constraint Level-loading and EPEI Exploit constraint Supermarkets, 5-S Subordinate to constraint Kanban Elevate constraint TPM, SMED, OEE, 6SIGMA Repeat – avoid inertia Lean metrics What to change? Current state VSM To what to change? Future state VSM How to change? TPS AND Kaizen Drum-buffer-rope Pull/Kanban Effect-cause-effect 5-whys www.synchronousmanagement.Page 51 com Words of Caution Theory of constraints: • A system is the total business, taken as a whole. The level at which financial owner ship exists. Lean manufacturing: • A value stream is all of the activities required to bring a product from raw material suppliers to the customer. Value stream waste is not reduced unless total system spending decreases! Page 52 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 27.
    Continuous Improvement: CostAccounting? EFFICIENCIES Amortize changeover costs Encourages large batches HIGH UTILIZATION Over-activates non-bottleneck resources Builds inventory ahead of constraints OVERHEAD ALLOCATION Assumes all costs are variable Ignores fixed cost OVERHEAD ABSORPTION Encourages inventory build Ignores impact of fixed costs EARNED HOURS Credit for partial completion Encourages input – not output www.synchronousmanagement.Page 53 com Continuous Improvement: Throughput Accounting? •Sales dollars per person •On-time shipments to customer •Dock-to-dock lead time •First pass yield •Target cost performance •Average cost per unit shipped •OEE at bottlenecks •Average cross-training per person Page 54 www.synchronousmanagement.com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.
  • 28.
    Why Marry TOCwith Lean? • Global business strategy • Sync value streams with each other • Quantify constraints to better flow/less waste • Springboard to continuous improvement • Evolve the TOC/lean mindset - not cost reduction • Crush the competition! www.synchronousmanagement.Page 55 com Reproduction or use of these materials, in whole or in part, is prohibited without the express written permission of Synchronous Management of Milford, CT.