Production Optimization Versus Throughput Optimization — A Systematic Approach to Improving Production Effectiveness using TOC

A case study with respect to applying Theory of Constraints methodology in SAP enviroment.
Overview:
About TOC
About DBR
Case Study
SAP stuff; PPDS and PP
http://www.slideshare.net/bev41078/scmeu2012-villa-productionoptimization

How to Leverage SAP Extended Warehouse Management to Increase Volume, Efficiency, and Accuracy for Production Processes.

http://www.slideshare.net/bev41078/ewm-howtoleverage-sap

About Supply Chain

Operations Management 919 Slides Presentation

View more presentations from Hardeep Kumar

Theory of Constraints (TOC) Overview: A SAP Approach

Key factors with respect to manufacturing are speed , reliability and capacity.

Manufacturing normally suffers from:

·   Poor on-time performance

·   Long production lead-times ; big batch sizes1

·   High WIP and/or finished goods inventory

·   High overtime due in-efficient labour utilization

·   Excessive expediting and rescheduling

·   Wandering or stationary bottlenecks

·   Inability to absorb additional market demand

The above deficiencies have a serious impact to a organization financial efficiency.

The Theory of Constraints maintains that every system is subject to at least one constraint, which prevents the system from achieving infinitely high levels of performance. In order to improve/optimize manufacturing efficiency the Drum, Buffer and Rope (DBR) concept will be applied to:

1.Increase Throughput ; throughput KPI = Sales - Material costs

2.Reducing Inventory ; raw materials , wip and finished products

3.Reducing operating expenses.

The above 3 critical KPI have a major impact on Productivit

Process and TOC focus.

An organization  main processes are Plan, source,  make and deliver. Within these processes there are constraints that if not exploited or synchronized will impact productivity. This will be overcome by carrying out the following TOC steps.

Fundamentally Theory of Constraint is mainly a strategy/approach/technique to focus one attention to winning, maximize throughput resulting in higher productivity and profits. Focus on what is critical, the rest is secondary.

The key priorities to be managed:

1.       Throughput; ensure the highest possible throughput of the system

2.       Inventory reduction; ensure optimum level of raw materials and work-in process as well as finished products

3.       Operating expenses

The focus wrt of the various posts and specifically around exploiting SAP will be around throughput and inventory.

FIVE STEPS OF TOC

STEP 1: Indentify the constraint.

Find the one element of the manufacturing system which limits the system's ability to achieve its goal. In most manufacturing. Basically identify what limits the system performance.

Very important to consider that a process is governed by:

·              I Input ; components/raw materials

·              C control ; policy , methods , shift, set-up requirements; tooling

·              M Mechanism; the actual manufacturing machine that has a rated capacity

·              Output the manufactured item (semi or finished product)

Refer to: http://sapscminfo.blogspot.com/search/label/Optimization

System constraints can be either physical or policy. Physical constraints are relatively easy to identify and relatively straightforward to break. Policy constraints are usually more difficult to identify and break, but they normally result in a larger degree of system improvement that the elimination of a physical constraint

STEP 2: Decide how to exploit the constraint .

Once the constraining has being identified understand how to exploit the constraint, that means squeezing the most out of the manufacturing constraint in order to attain maximum performance. Therefore consider all aspect around the process:

· Policy and procedure

 Tooling, set-up equipment, set-up matrix

· Planning and execution system; ERP , APS ect...

This must be done without major system changes or capital improvements with the primary objective of eliminating inefficiency from the constraint

STEP 3: Subordinate everything else to the decision in step 2.

Take the required steps to synchronize and align the performance of all other elements with the "exploited" constraining element. This may mean slowing down "faster" parts and speeding up "slower" ones.. If you're constraint is broken at this point, go back to Step-1 and start looking for the next constraint (next weakest link in the chain). If not, go on to Step-4.

Fundamentally make effective management of the existing constraint the top priority

STEP 4: Elevate the Constraint.

If the constraining element still remains the reason why the system's performance "tops out"; then "Elevate" usually means doing something to increase the capacity of the constraining element. Obviously, if your constraining element is running at maximum efficiency (which it should be after Steps-2 & 3), the only way to improve overall system performance is to obtain more of the constraining element. In a manufacturing environment, this may mean a capital investment in more equipment, or hiring more people, or increasing work-ships.

STEP 5: Go back to STEP-1, but avoid "INERTIA".

This is the "repeat Steps 1-4" step. But the warning about "inertia" is important. It's designed to discourage complacency, thinking that the environment doesn't ever change much over time. Always consider that throughput increase can create other weaker links that previously were considered as secondary.

Subordinate everything else to the decision in step 2 based On Bottleneck Drummer

When it comes to subordinating everything to constraint, its bottleneck(s). In a production environment, the plant's constraint must be the driving factor in how it is managed. In production, the productivity of the constraint is the productivity of the entire plant.

A proven approach to managing production through the constraint is known as "Drum-Buffer-Rope" and "Buffer Management."

·   Drum - The constraint(s), linked to market demand, is the drumbeat for the entire plant.

·   Buffer - Time/inventory that ensures that the constraint(s) is protected from disturbances occurring in the system.

·   Rope - Material release is "tied" to the rate of the constraint(s).

The drum, buffer, and rope provide the basis for building a production schedule that is highly immune to disruption, avoids creating excess inventory, and uses small batches to minimize overall lead time.

But even with "Drum-Buffer-Rope," (DBR) occasionally disruptions occur that require special attention. "Buffer Management" is used to mitigate and often prevent those disruptions.

The DBR methodology is Theory of Constraints that will be used to maximize production throughput and inventory reduction based on the constraints (weakest link) being the DRUM, the BUFFER being the inventory needed for the constraint and the ROPE the timing for releasing the buffer with the main aim of protecting the weakest link an thus maximize thus overall effectiveness.

Benefits of TOC

The primary benefit of the TOC approach is its orientation toward the output of the entire system to maximize throughput (sales, billing), rather than a compartmentalized look at components which may have little or no positive effect on overall performance because of that "elephant in the parlor"--the system