Business Excellence - Theory of Constraints
Lean Manufacturing Using the Drum Buffer Rope Method
Jan 27, 2009
Manufacturers know that as their sales go up, their profits go up too. Sometimes the available production capacity is too low to meet demand. The "Theory of Constraints," developed by Eli Goldratt based on his books The Goal and It's Not Luck, is a widely used Lean Manufacturing process that focuses on how to identify, manage, and break production constraints, using a 5-step process.
Example: Company X has fixed costs of $3,000 per day. Each unit costs $20 to make, and each unit sells for $60.
Identify the Constraint
The Theory of Constraints states that the step that determines the maximum capacity has typical characteristics, like high levels of material waiting to be processed there, and very high equipment utilization rates. The capacity model will also identify the production constraint.
Example: The production process has four operations, with capacities per day as follows:
Operation 1 - 200 units
Operation 2 - 300 units
Operation 3 - 100 units
Operation 4 - 150 units
To break even, the fixed costs of $3,000 per day must be met from the profit of $40 per unit, so $3,000/$40 = 75 units per day must be shipped just to cover costs.
At Company X, Operation 3 is obviously the constraint. Company X can make only 100 units per day, and so the maximum possible profit is $40 x (100 - 75) = $1,000 per day.
Optimize the Constraint
According to the Theory of Constraints, the three ways to optimise a production constraint are to raise capacity, decrease downtime, and maximize availability.
To raise the capacity, Company X could check if it is possible to run the tools at Operation 3 more quickly. Also, other tools could be adapted, or there may be moth-balled equipment that could be brought back into use.
To decrease downtime, a "pit-stop" approach must be introduced to any machine at the constraint step. For example, if a tool at the constraint step is due for maintenance, the technician should be ready to work on it the second it is out of use.
To maximize availability, tools at the constraint operation should never go idle during break times. Also, materials should always be available for processing - the "Buffer" part of the "Drum Buffer Rope".
Example: As a result of optimizing the constraint, the capacity rises to 110 units per day. This gives a 10% rise in capacity. The maximum profit of Company X has risen from $1,000 to $1,400 -- a rise of 40%.
Subordinate Other Operations to the Constraint
This is a key step, according to the Theory of Constraints. All other operations must stay in step with the constraint - this is the "Drum Beat" in the "Drum Buffer Rope". All other operations must be subordinated to it. If there is any other equipment that can perform Operation 3, or which can perform some of the tasks currently done by tools at Operation 3, then the work should be off-loaded to them. It is important that management metrics do not conflict with this. The release of inventory to the production line is "tied" to the output from the constraint - this is the "Rope" in the "Drum Buffer Rope".
Example: A metric might be total factory tool uptime. If Operation 3 is down for 1% of the time available, profit at Company X will fall by $40. If Operations 1, 2 and 4 are all down for 25% of the time available, profit is not affected.
While it is obvious to many that the constraint is what determines the maximum capacity of the system, the Theory of Constraints assertions about what metrics to use, or the significance of the point of scrap, is much less intuitive.
Elevate the Constraint
When the maximum capacity at the constraint is regularly being attained, then the only way to increase the capacity at Company X is to buy more equipment, or lease extra capacity from somewhere else. If the sales forecast is strong, then elevating the constraint by increasing capacity at Operation 3 is the next step.
Review the Constraint and Start Again
If the equipment is purchased, the new factory constraint is Operation 4. The steps Optimize the Constraint, Subordinate other Operations to the Constraint, and Elevate the Constraint are then repeated on Operation 4.
Summary of the Theory of Constraints
The Theory of Constraints is a powerful Business Excellence method that focuses the resources of a company where they are needed most -- at the constraint. It is an holistic approach to production that defines not just a lean manufacturing method, but also defines how management thinking needs to change to maximize profits.
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