Testing questions

13 2011 . 10:20

The primary purpose of a cycle count program is to identify causes of inventory errors The primary objective of cycle counting is to identify and fix the causes of errors Turnover = COGS / Avg Inventory Order point = Demand during lead time + Safety Stock The lot size affects the product mix cycle Electronic data interchange (EDI) reduces paperwork The master production schedule (MPS) is an anticipated build schedule Driver costs = variable transportation costs Advantage of point-of-use inventory over central storage is reduced material handling Total employee involvement will result in an increase of coaching role for first-line supervision In projecting demand for a standard design commodity competitive pricing is typically most important. The primary activities of manufacturing planning and control are production planning and inventory management. It is important to monitor the forecast to improve forecasting methods. Lean / JIT sees suppliers as an upstream work center. In the Toyota Production System the control department concept was the key to breaking down the silos that cripple an organization Load profile shows required capacity at each workcenter (where as workcenter profile shows only Rate Capacity)

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S1: Introduction to SCM

15 2011 . 9:15

Customer does not buy a product or service, but a solution to a problem or a need [1-19]. Supply Chain: The global network used to delivery products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash [1-38]. Value Chain consists of processes that directly add value to the products and services that a company sells. Value Chain is a high-level model of how businesses receive raw materials as input, add value to the raw materials through various processes, and sell finished products to customers. Ultimately it is the customer who pays the price for service delivered that confirms value and not the producer who simply adds cost until that point SC is the subset of the VC (1-45). KPIs should represent the 3 types of measures (1-47): Strategic Tactical Operational

Balanced Scorecard (BSC) (1-47) gives a balanced perspective by including metrics and performance from the following areas: Customer prospective Business process p. Financial p. Innovation and learning p. KPIs should not be generic; they need to measure in areas that are critical to the goals of the company. The major objective of materials managements is to provide the required level of customer service. Manufacturing planning and control (MP&C) is the system used by manufacturing to recognize demand for the products, plan the resourced required to produce them, and execute and control production (1-53).

Layered approach to planning (details) Business planning Production Plan Master scheduling long-term planning medium to long-term in currency at product family level at the end item or product component level

short to medium-term at the end item product level

Material requirement planning short-term

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Production Environments
3 2012 . 8:19

Production Environments Env. ETO ATO MTO MTS When to choose Unique design or massive customization is required; complex products Product which have high number of configurations or require customization. Simple RM, many products (variations) Benefits Enables response to specific customer requirements Low FG inventory levels; wide range of product offerings Customization; reduced inventory; improved service levels X V A VATI Type

High-volume standard products; predictable Low manufacturing costs; meet demand. customer demands quickly Used when required LT to customer is shorter than manufacturing LT F.i., MTS products are expected to be available on demand. High-volume product with large variety

MC

Environment Characteristics [MRP 6-35] Characteristic Interface between production and customer Customer delivery time Production volume of each unit Production range (# of products) Basis for production planning and scheduling Seasonality (likelihood) MTS low ATO medium MTO medium ETO high

short high narrow forecast

medium medium medium forecast and backlog medium components & subassemblies Overplanning of c&sa (= SS in c&sa) Determined by customer orders

long low broad

long low broad

backlog; RM forecast backlog; RM forecast

high

low RM, capacity

none RM, capacity, engineering

Order promising FG based on availability of... Handling of demand uncertainty Final assembly schedule BOM used Safety Stock

Little uncertainty Very little uncertainty exists after receipt of exists after receipt of order order Determined by customer orders Determined by customer orders

n/a MPS used

Standard Planning BOM BOM for each product FG

BOM unique for each BOM unique for each order order RM

Manufacturer is likely to stock

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Work layouts
2 2011 . 18:59

Process Flow processes Intermittent processes

Layout Product Layout Process (Functional) Layout Cellular Layout

Description

Stations set up in work cells, which have equipments grouped into product families. Operators are cross-trained on each operation. Work cells are traditionally set up in a "U" or "L" shape. [9-23], MM pg. 118 (14.8 Process systems)

Project processes Fixed position

Layout

high investments

Notes

Product L. low WIP inventory Process L.

each workstation is flexible capable of producing wide variety of products

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S2: Demand Management

17 2011 . 9:09

Marketing Mix Product (design, qty, warranty policy, etc.) Price Promotion Place Basic demand patterns: [2-13] Trend: increasing, decreasing, and level Seasonal Random Cyclical: over long time spans Principles of Forecasting [2-19] 1 2 3 4 Forecasts are not 100% accurate Forecast must include estimate of error Forecasts are more accurate for product groups than for individual items Forecasts are more accurate in the short term It means that lead time reaction allows to react to more accurate forecasts They are not expected to be. % or min-max range

Forecasting techniques [2-23] (Detailed in MPR) Qualitative Quantitative Extrinsic Intrinsic Moving Average Exponential Smoothing

The purpose of tracking forecasting is to compare with actual demand and to measure its accuracy [2-41]. In the process, we can learn the following: Why demand differs from the forecast Take demand circumstances into account How to improve the forecast Forecast error types: [2-41] bias; random error. Mean Absolute Deviation (MAD) = Sum (Abs errors) / No. of periods

Sales Forecast deviation - SCM Implications [2-45] One way to deal with forecast error is to reduce reliance of forecasts, especially long-term forecasts.

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Tracking signal
16 2011 . 11:51

Tracking signal = Mean Deviation / MAD, MD <>0 means that bias is present

Tracking signal monitors any forecasts that have been made in comparison with actuals, and warns when there are unexpected departures of the outcomes from the forecasts. Forecasts can relates to sales, inventory, or anything pertaining to an organizations future demand. The tracking signal is a simple indicator that forecast bias is present in the forecast model. It is most often used when the validity of the forecasting model might be in doubt. One form of tracking signal is the ratio of the cumulative sum of forecast errors (the deviations between the estimated forecasts and the actual values) to the mean absolute deviation.[1] The formula for this tracking signal is: Tracking signal = (at ft) / MAD where at is the actual value of the quantity being forecast, and ft is the forecast. MAD is the mean absolute deviation. The formula for the MAD is: MAD = |at ft| / n where n is the number of periods. Plugging this in, the entire formula for tracking signal is: Tracking signal = (at ft) / |at ft| / n Another proposed tracking signal was developed by Trigg (1964). In this model, et is the observed error in period t and |et| is the absolute value of the observed error. The smoothed values of the error and the absolute error are given by: Et = et + (1 )Et1 Mt = |et| + (1 )Mt1 Then the tracking signal is the ratio: Tt = |Et / Mt| If no significant bias is present in the forecast, then the smoothed error Et should be small compared to the smoothed absolute error Mt. Therefore, a large tracking signal value indicates a bias in the forecast. For example, with a of 0.1, a value of Tt greater than .51 indicates nonrandom errors. The tracking signal also can be used directly as a variable smoothing constant.[2] There have also been proposed methods for adjusting the smoothing constants used in forecasting methods based on some measure of prior performance of the forecasting model. One such approach is suggested by Trigg and Leach (1967), which requires the calculation of the tracking signal. The tracking signal is then used as the value of the smoothing constant for the next forecast. The idea is that when the tracking signal is large, it suggests that the time series has undergone a shift; a larger value of the smoothing constant should be more responsive to a sudden shift in the underlying signal.
Pasted from <http://en.wikipedia.org/wiki/Tracking_signal>

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S3: [pic] Master Planning and Control

22 2011 . 9:05

Manufacturing Planning and Control

Strategic Planning

Business Planning

Sales & Operations Planning

Resource Planning (RP) Rough-Cut Capacity Planning (RCCP)

Master Scheduling

Material Requirements Planning (MRP)

Capacity Requirements Planning (CRP)

Input/Output Control Production Activity Control (PAC) Operation Sequencing

Execution

Production Planning - setting level of manufacturing output to best satisfy currently planned sales while meeting other BP objectives. Master Planning = Priority planning - the function of 1. determining what material is needed and when; 2. maintaining proper due dates for required materials.

S&OP Planning develops plans for products at family level for 1 to 3 years. S&OP Planning translates the strategic business plan into production rates (PP)that meet company goals. S&OP Planning includes: demand management; production and resource planning. RP - capacity process run at S&OP planning Stage (also at BP level, pg. 3-59). RP: plans resource availability for PP based on average usage for product families. Determine the bill of potentially constraining resources for each product family in the production plan Determine the UOM for each resource Determine the resource capacity availability for each resource in each period Calculate the load on each resource in each period Compare the load to the available capacity Take action to revise the production plan, or adjust capacity where loading problems occur

1. 2. 3. 4. 5. 6.

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Master Scheduling Purpose: Disaggregate PP at the product family level to the end item level Create priority plan (due dates and quantities) for end item manufacturing Basis for calculating RCCP Drive material requirements plan Item Objective Item Planned Planning Horizon Constraints Time Periods Planning Focus Process Output S&OP Supply Rate by Product Family Product Family Longest Lead Time Resource Plant and Equipment Resource Capacity monthly Product volume Production Plan Master Scheduling Anticipated Build Schedule End Item or Planning BOM Longest Cumulative Lead Time for End Items Critical Workcenters weekly or daily Product mix Master Production Schedule

1. 2. 3. 4.

4 steps to create Master Schedule Preliminary MS for individual end items, Aggregation of individual MS, RCCP, Resolve differences between req. and available capacity. RCCP: validates resources availability for MPS at work centers level to produce end items (usually using weekly time buckets). [5-27] Key resources: labor, machinery, WH space, supplier's capabilities Resource Planning vs. Rough-Cut Capacity Planning [MPR, 7-48] RP Validates Production Plan Time basis monthly Controls Horizon medium- to long-term RCCP Production Schedule daily/weekly short- to medium-term

all potentially constraining resources for identified critical workcenters

Input/output control The objective of input/output control is to balance the flow of work by monitoring and controlling the input to and output from the work centers.

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Layered approach to planning

4 2012 . 16:51

Layered approach to planning Process Business Planning S&OP Planning Master Scheduling MRP Level Sales volume ($) Family level End item level Component items below the end-item level Horizon 2 to 10 years 1 to 3 years 3 to 18 months longest leadtime

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Production Strategies
22 2011 . 9:19

Production Strategies [3-13]

Chase (demand Production = Demand matching) Level Production = Average Demand Stable inventory Capacity at max demand JIT production level required Workforce issues Optimal manufacturing costs High inventory Requires accurate sales forecast May be more expensive than in-house production

Subcontracting Production on minimum Demand level Low inventory Hybrid combines the aspects of both the chase and level production planning methods

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Master Schedule
23 2011 . 10:32

Master Production Schedule (MPS) is 1 line from in Master Schedule that shows production volume [3-41]. Master Schedule example

Available-to-promise (ATP) - uncommitted portion of inventory and planned production [3-55]. For Period 1 = Inventory Calculated for each period where MPS receipt is scheduled. (All orders until the next receipt are counted).

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S4: MRP Definitions

28 2011 . 8:40

MRP - Material Requirements Planning

Term BOM Planning BOM

Definition List of the components necessary to build an end product Material requirements for average product in a family [4-23] Artificial grouping of BOM items used to facilitate Master Scheduling and Material Planning Inversion of BOM [4-25] Shows relationship of material demand back to the parent causing it [4-25] the time it takes to make or receive the component [4-31] the process of determining when a planned order release is needed in advance of the planned order receipt date the process of determining the total of each component needed for a parent generated automatically by planning software when it encounters net requirements (when PAB falls below SS ). Planned Orders generate planned order receipts.

Where-Used Pegging Lead time Offsetting Exploding Planned Order

Firm Planned Order Planned order that has been frozen in quantity and time. Fixed by the master scheduler and cannot be changed by the system. The master scheduler has the responsibility to manage firm planned orders. A tool that allows the planner to override the logic of MRP system. Released Order A firm commitment: production or purchase order. Once released, a planned order becomes an Open Order. It appears as Scheduled Receipt at due date. =Released order The quantity planned to be received at a future date as a result of a Planned Order Release [4-61] Open Order that has assigned due date.

Open Order Planned Order Receipt Scheduled Receipt

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MRP Record
28 2011 . 9:02

Line Gross requirements Scheduled receipts Projected Available Balance (PAB) Net requirements

Time Week 1 Week 2 ...

Notes required at the beginning of the period available at the beginning of the period projected available balance at the end of the period required at the beginning of the period Net requirement = Gross requirements - On-hand Inventory - Scheduled Receipt = Net requirement > 0, to PAB 0. available at the beginning of the period available at the beginning of the period

Planned order receipt Planned order release

Intersection of a source of MPS requirement with a time period is called a time bucket [from Q&A]

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S5: Capacity Management and Production Activity Control

7 2011 . 16:02

Production Activity Control [5-40]

Capacity Planning

Manufacturing Lead Time [5-30] Queue (Backlog) - // Setup Operation time Run -*Wait Interoperation time Move - // -

The queue time can comprise 95% or manufacturing lead time. [DSP 6-25] However Interoperation time is most elastic. Load [5-29] Load - Demand on resources The following steps result in the calculation of load per period at each work center: Component requirement are generated by MRP: planned and released order quantities and due dates; Component requirements are converted into operation time required at each work center. Production Activity Control objectives: [5-41] Execute MPS and MRP Optimize use of resources Minimize WIP (work in progress) Maintain customer service Input/output control The objective of input/output control is to balance the flow of work by monitoring and controlling the input to and output from the work centers. I/O report compares what occurs at a work center against what was planned, manages queues and leadtimes.

Priority Planning

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Capacity Terms & Calculation

7 2011 . 20:12

Term Utilization Efficiency Rated Capacity

Definition = Hours actually worked / Available hours = Standard hours of work produced / Hours actually worked = Available time * Utilization * Efficiency [standard hours]

Operation time per piece = Setup time + Run time (per routing or work center file) Operation time per order = order quantity * operation time per piece [DSP, 6-37] Available time Maximum demonstrated capacity Capacity available The number of hours a work center can be used The highest amount of actual output produced in the past when all efforts have been made to optimize the resource The capability of a system or resource to produce a quantity of output in a particular time period

Theoretical capacity The maximum output capacity, allowing no adjustments for preventive maintenance, unplanned downtime, shutdown, etc. Demonstrated capacity Rated capacity proven capability calculated from actual performance data and expressed in standard hours = Theoretical capacity * Utilization * Efficiency

Productive capacity The maximum of the output capabilities of a resource OR the market demand for that output for a given time period Protective capacity quantifiable capacity that is, or can be made available, at a nonconstraint work center that contributes to protection (against idle time) of the constraint. quantifiable capacity that is available over and above productive capacity that includes an allowance for planned events, maintenance, as well as unplanned events. It includes protective capacity. output capability at a nonconstraint work center that exceeds productive and protective capacity generally not used capacity including protective and excess capacity the use of nonconstraint resources to produce above the rate required by the system constraint

Safety capacity

Excess capacity Idle capacity Activation

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Information flow
8 2011 . 18:49

Data requirements [5-29] Data Open shop orders Planner order releases Where work is done Lead times Work center capacity Routing Data [DSP, 6-27] Operation number (for sequencing) Operation description Planned work center Standard setup times Additional data for sequence-dependent setups F.i., changeover matrix Standard run time per unit, quantity, or batch Tooling Source Shop order file MRP Routing file Routing file or Work center file Work center file

Time needed (st. hours) Routing file

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Dispatching & Priority Control

9 2011 . 0:40

Priority control establishing sequence in which orders are to be run (at each workstation). Dispatching selecting and sequencing of available jobs to be run at individual workstations and the assignment of these jobs to workers process of translating production plan into output (action)

[5-65] APICS Dictionary

Dispatching

(http://www.transtutors.com/homeworkhelp/industrial-management/productionplanning-and-control/dispatching.aspx)

Dispatching rules [5-65] First come, first served (FCFS) Earliest job due date (EDD) Earliest operation due date (ODD) Shortest process time (SPT) Critical ratio (CR) CR = time to due date / work remaining In case CR < 1 the order will be late. Lowest CR orders are run first.

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S6: Aggregate Inventory Management

9 2011 . 12:44

Inventory - stocks or items used for: Production Operations RM, WIP Maintenance, Repair, Operating supplies (MRO)

Customer service FG, repair parts, spares Aggregate Inventory Management objectives: Support business strategy and operations Ensure that inventory management supports financial objectives Balance customer service, operations efficiency, and inventory investment cost objectives or, shortly [7-7] to provide SL to minimize the sum of all costs involved Operating Efficiency [6-17] Inventory can make manufacturing operations more productive Dealing seasons demand with load leveling by building up anticipation inventory during periods of low demand Allowing inventory to build up enables longer production runs Higher purchasing quantities Reduces changeover costs Distributes setup costs over a larger quantity of products Taking advantage of discounts and lower order costs per unit.

Functions of Inventory [6-15] Anticipation inventory Safety stock (Fluctuation inventory) is build up in advance of future demand, such as a peak selling season, or production shutdown covers random fluctuation in supply, demand, and lead time. Prevents or reduces the probability of stockout.

Lot-size inventory (Cycle stock) consists of items purchased or manufactured in lot-size quantity greater than needed. Transportation inventory (pipeline stock) Hedge inventory in transit in the distribution network buildup to buffer against some event that may not happen f.i.: expected price increase at the market

Buffer - A quantity of materials awaiting further processing. Inventory costs [6-21] Item costs Carrying costs Ordering costs = Capital + Storage + Risks Factory orders: [6-25] Production control costs Setup and teardown costs Lost capacity costs Purchase orders: Purchasing costs Stockout costs Backorder costs Lost sales Lost customers Result from changing production levels and very with the number of changes: [6-29]
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Capacity-related costs

costs

[6-29] Overtime Hiring/layoff Training These costs can be minimized by leveling production.

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Financial Inventory
9 2011 . 18:24

Balance Sheet [6-33] Account Assets Liabilities Owner's equity Description Items of value to the company Obligations of the business Net worth of business Examples Cash, inventory, machinery, buildings, accounts receivable (AR), patents Accounts payable (AP), wages payable, long and short-term debt = Assets - Liabilities

Income Statement [6-33] Account Description Revenue Income from sales of goods and services Expense Cost of goods sold Expense General and administrative expenses Examples Cash, accounts receivable Direct labor, direct materials, and factory overheads All other costs: advertising, taxes, wages

Performance Measures [6-45] Inventory Turns (Turnover) = COGS / Avg Inventory Days of supply (DOS) = Inventory on hand / Avg daily usage

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S7: Item Inventory Management

9 2011 . 18:00

Lot-size decision rules [7-9] Lot-for-lot Fixed order quantity Items are ordered in amounts necessary, when they F.i., dependent demand items. are needed Used for A-items (expensive) The same amount each time even if it exceeds what is needed; interval between orders may vary Easy to implement

Economic order quantity (EOQ) see below Order n periods of supply Part period balancing (PPB) [APICS Dictionary] A dynamic lot-sizing technique that uses the same logic as the least total cost method, but adds a routine called look ahead/look back. When the look ahead/look back feature is used, a lot quantity is calculated, and before it is firmed up, the next or the previous periods demands are evaluated to determine whether it would be economical to include them in the current lot. See: discrete order quantity, dynamic lot sizing. A mathematically complex, dynamic lot-sizing technique that evaluates all possible ways of ordering to cover net requirements in each period of the planning horizon to arrive at the theoretically optimum ordering strategy for the entire net requirements schedule. See: discrete order quantity, dynamic lot sizing. Used for C-items (inexpensive)

Wagner-Whitin algorithm [APICS Dictionary]

Cost to carry inventory Storage facility cost Counting, transporting, and handling Risk of obsolescence Insurance and taxes Risk of loss Opportunity costs EOQ [7-13], [MM p. 80] EOQ model manages the tradeoff between ordering cost and inventory carrying cost. EOQ point is reached when Ordering costs = Carrying costs [7-21].

Q i A S

order (lot) size (Q/2 - average inventory level) cost per unit of inventory annual carrying cost rate annual demand (MA: any other period can be taken as well) ordering cost (per 1 order)

EOQ = (2 * Demand * Cost Per Order / inventory carrying cost / Inventory unit cost) 1/2 Order Quantity Constraints Minimum quantity can be used to meet a supplier minimum Maximum quantity can be set to recognize storage or transportation limits Minimum monetary value can be used to order at least a supplier- or purchasing-established minimum purchase order charge Maximum monetary value can be used to limit inventory investment levels Minimum days supply can be used to prevent multiple orders for the same period

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Minimum days supply can be used to prevent multiple orders for the same period Maximum days supply is used to support inventory turns and targets, and to recognize shelf-life constraints

Service Levels [7-39], [MM p. 86] The costs of stockout, all of which are difficult to calculate precisely, include: Backorder costs Lost sales Lost customers Safety Factors [7-41], [MM p. 86], [DSP 2-17] Desired Service Level % Safety Factor the Safety Factor 50% 80% 90% 95% 98% 0 0.84 1.28 1.65 2.05 0 1.05 1.60 2.06 2.56

Safety Stock = MAD Safety Factor * MAD [7-40] 1 of SS = 84% customer service. The method taken from Materials Management by Arnold/Chapman . Here Service Level is linked to .

Note that the service level is the percentage of order cycles without a stockout.

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Order point
14 2011 . 13:18

The reorder point (ROP) is the level of inventory when an order should be made with suppliers to bring the inventory up by the Economic order quantity ("EOQ"). Order point [7-29] Order point = Demand during lead time + Safety Stock OP = DDLT + SS Target inventory level (max stock) = Demand (Review period + Lead time) + SS The next several demand periods are estimated (not average of all known demand). Determining when the Order Point is reached [7-43], [MM p. 87] . Two-bin system A quantity of an item equal to the order point quantity is set aside and not touched until all the main stock is used up. When this stock needs to be used, the production control or purchasing department is notified and a replenishment order is placed. A perpetual inventory record is a continual account of inventory transaction as they occur. At any instant, it holds an up-to-date record of transactions. At a minimum, it contains the balance on hand, but it may also contain the quantity on order but not received, the quantity allocated but not issue and the available balance. Lean/JIT method that uses a signal (see S9). Used for C-items, which are not expensive and it is best to spend min. time and money controlling them. Ex.: SAP system

Perpetual inventory record system

Kanban

Order systems [7-47], [MM p. 88] Characteristic Order quantity Order Point system Periodic Review system (Fixed-interval order system) Fixed Variable Fixed Interval between orders Variable

ABC Inventory Control [7-55], [MM p. 76] Based on Pareto's Law. Possible ABC characteristics: Annual usage (amount) Scarcity of material Quality problems

Auditing Inventory Records [7-65], [DSP 2-39] Periodic Inventory Cycle Counting Inventory counts are performed at some recurring interval Occurs continuously, with a few items counted each day by trained employees Period for different items can be determined using ABC system Continuous counting and evaluation with objective to improve the processes that affect inventory accuracy (and ultimately customer service)

The Cycle Counting Process [2-39a] Process/Procedures Education/Training how responsible personnel

Accountability/Responsibility What to do when a discrepancy is found

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Cycle Counting Options [2-41] ABC Classification At a reorder point When a replenishment lot is received At zero balance At negative balance After a set # of transactions A items should be counted more frequently than B and C items Assuming that inventory level will be low and there be a smaller qty to count When remaining stock is minimum When remaining stock is minimum which indicates error

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S8: Purchasing and Physical Distribution

18 2011 . 9:02

Types of purchased items [8-7] RM and components Are consumed during the production process Capital items MRO Services Includes equipment and technology Used in general operations and maintenance Activities that support the production or distribution functions

Purchasing Cycle [8-23] Generate requisition (PR) Issue PO Follow up Receive goods Approve payment Once goods are received and accepted, payment is approved. PO is closed. A need for an item may be identified by a user, an MRP system, or a purchase plan Purchasing reviews PR and selects a supplier. PO includes: quantity, part number, delivery date, etc. PO tracking

Types of sourcing [8-15] Sole S. Single S. Multiple S. Only one supplier, no alternative suppliers exist One active supplier, but other suppliers are available More than one supplier Not ideal, however unavoidable if the goods are unique The purpose is to focus on a long-term relationship with a single partner Reduces risks of unavailability, can lower costs through competition

Distribution Inventory Planning Systems [8-43] System Pull Characteristic Decentralized system Advantages Each center acts independently Demand data may be more timely and accurate Coordination within the system Disadvantages Lack of coordination Risk of low SL Disrupted factory schedules Not fully responsive to local developments

Push

Centralized system; based on centrally made forecast Collaboration between Distribution Center (DC), central supply, and the factory.

Distribution requirements planning (DRP)

The marketing mix is made up of product, promotion, price and place and the latter is created by physical distribution. [MM p. 101]

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Warehousing
18 2011 . 9:24

Service functions of Warehouses [MM p. 107] Type General WH Storage time Activities long period min. operations Purpose Protect goods until they are needed F.i., anticipation inventory

Distribution WH

brief

Focus on movement and handling Movement and mixing

Role of Warehouses [MM p. 108] [8-71] Transportation consolidation Reduce transportation costs by receiving consolidated shipments in truckload (TL) quantities and breaking them down into shipments of same or mixed products for further distribution ( TL -> LTL) and vice versa (LTL -> TL) when purchasing from suppliers. Mixing of products that are produced at different location (received in different loads) Provide better delivery times and reliability to customers by being close to the market

Product mixing Service

Warehouse Process [8-71]

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Distribution
14 2011 . 12:39

Physical distribution activities - affect customer service level and the cost of providing it. [MM pg. 100]

Transportation Distribution inventory

typically the largest component (30-60%) Transportation adds place value to the product. includes all FG at any point in the distribution system second most important item (25-30%) Inventory create time value by placing product close to the customer. Storage of inventory

Warehouses (DC) Material handling Protective packaging Order processing [and communication]

Transportation costs

Depend on...

Line-haul c. Pickup and delivery c. Terminal handling c. Billing and collecting c. (paperwork)

distance moved pickups number, weight moved number of operations (number of times a shipment is handled, loaded, and unloaded) number of shipments

Line-haul costs (LHC) include: [8-67] fuel wages wear and tear of the vehicles

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Market boundaries
19 2012 . 10:42

Laid-down cost (LDC) is the delivered cost of product to a particular geographic point. [MM p. 109] LDC =ProductCosts +TransportationPerKm * DistanceKm. Market boundary. The market boundary is the line between 2 or more supply sources where the laiddown cost is the same.

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S9: Lean/JIT and Quality Systems

1 2011 . 19:00

Product and Quality Cycle [9-7] Step Product Definition Location Marketplace Quality management system objectives (Ensure quality of ) Market Tangible and intangible characteristics Price Estimate of sales volume [MA: incorrect sales volume forecast means low quality of Product Definition] Voice of the customer is valuable for this process Create product specs, performance requirements, materials, dimensions, tolerances Manufacturing must make the product to the specifications Customer satisfaction through value to the customer: Performance (fitness-for-use) - primary characteristics (to the customer) Features - secondary characteristics Conformance - standards and government regulations Warranty

Product Design Product Manufacturing

Product Consumption Marketplace (Use) Definitions [9-9] Lean/JIT Quality management systems (QMS) Total quality management (TQM) Quality function deployment (QFD)

minimizing activities that do not add value to the customer (value chain) system that documents the structure, responsibilities, and procedures required to achieve effective quality management A never-ending process to improve everything an organization does to satisfy customers. Continuous improvement is necessary because of the competition. MA: No competition = Monopoly = No improvements methodology designed to ensure that all the major requirements of the customer are identified and met or exceeded (House of Quality)

Quality at the source A system that eliminates the need for incoming inspection by the customer. Example: a producer's responsibility to provide 100% acceptable quality material to the consumer. [9-65] Employee Involvement (EI) Employee Empowerment Statistical Process Control (SPC) Using experience, creative energy, and intelligence of all employees be treating them with respect, keeping them informed, and including them and their ideas in decision-making process [9-31] Giving nonmanagerial employees the responsibility and the power to make decisions regarding their jobs of tasks Application of statistical techniques, such as control charts, to monitor and adjust an operation [9-49]. SPC is used to look for trends and can spot changes in variation that may be due to problems in processes. Preventive maintenance plus continuing efforts to adapt, modify, and refine equipment to increase flexibility, reduce material handling, and promote continuous flows [9-27]

Total Productive Maintenance

Supplier Partnership The establishment of a working relationship with a supplier organization whereby two organizations act as one.

QMS Principles, Practices, and Tools [9-10] Practice/Tool Customer Focus/Value Eliminate Waste Define x Design x x x Manufacture Consume x x x x x

Quality function deployment (QFD) x

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Eliminate Waste Work cells Total Productive Maintenance Employee Focus Supplier Partnership Quality-Related Costs Statistical Process Control Quality Tools Six sigma x x x

x x x

x x x

x x x x x

x x x x x x

Customer Focus [9-13] Customers have requirements to their suppliers: High quality level High flexibility (volume, specifications, delivery) High service level Short lead time Low variability in meeting targets Low cost

QFD uses a structured process "House of Quality" [9-14] Identify customer requirements Identify supporting technical design requirements Compare the customer requirements to the technical design requirements and assign relationship ratings Assign importance to the customer requirements Evaluate competitors Identify technical features to be deployed in the final design of the product <- The Voice of the Customer

Waste [9-19] Process Methods (motion) Product defects Waiting time Overproduction Excess inventory Unused people skills Taking unneeded steps; inefficiencies Wasted time/efforts by operators (MA: or other employees) Products and service that do not meet specifications Queuing delays Making more product that required Holding stock not required to fulfill customer orders Waste of knowledge or capabilities Movement (transportation) Moving products unnecessarily

Quality-Related Costs [9-41] Costs related to making defect-free products: Costs of Failure Internal External Costs of Controlling Quality The cost of correcting problems while the goods are still in the production facility after the goods or services have been delivered to the customer Rework, spoilage Filed service, warranty Design improvements, statistical process control Quality inspections, calibrations and testing

Prevention The costs of preventing problems from occurring Appraisal of checking and auditing quality

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Quality Control Tools [9-43] Flowchart Control charts Check sheet Histogram Pareto Scatter diagram visualizes the sequence of steps A graphical comparison of process performance data with control limits [9-65] Summarizes count of different type of event occurrences Shows events by frequency Tool for ranking causes from most to least significant Used to analyze relationship between two variables Cause and effect fishbone

Lean production 5S system is design to create a visual workspace. Sort Shine Sustain All unneeded tools, parts and supplies are removed for the area The area is cleaned as the work is performed 5S is a habit and is continually improved Set in Order A place for everything and everything is in its place Standardize Cleaning and identification methods are consistently applied
Pasted from <http://www.tocforme.com/mainlean.html>

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Six Sigma
8 2011 . 18:56

Six sigma - Set of concepts and practices that focus on reducing variation in processes. [9-57] Sigma = standard deviation Six sigma is about problem solving and improving all business processes. It is build on 3 major concepts: Understand what the customer wants Variation causes defects The quality of the output of a process is a function of the variation in the process Causes of Variation [9-59] Variation causes defects. Therefore, it is important to identify the types of variation. Special cause Sources of variation that can be isolated and are assignable to a particular source. Operator error, broken equipment, emergency power shut down, etc.

Common cause ... that are inherent in a process Phases of Six Sigma project: DMAIC [9-61] Define Identify the customer's problems and the processes Quantify improvement goals along with potential benefits Determine the cause and effect relationships that produce the variation of waste Ensure that the gains are maintained

Measure All the data necessary to understand the process Analyze Control Improve Develop and implement solutions

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Kanban
5 2011 . 17:35

Number of kanbans means inventory in circulation.

Kanbans maintain inventory levels; a signal is sent to produce and deliver a new shipment as material is consumed. These signals are tracked through the replenishment cycle and bring extraordinary visibility to suppliers and buyers.[1] Kanban (?), also spelled kamban, and literally meaning "signboard" or "billboard", is a concept related to lean and just-in-time (JIT) production. According to Taiichi Ohno, the man credited with developing Just-in-time, kanban is one means through which JIT is achieved.[2][3] Kanban is not an inventory control system. Rather, it is a scheduling system that tells you what to produce, when to produce it, and how much to produce. The need to maintain a high rate of improvements led Toyota to devise the kanban system. Kanban became an effective tool to support the running of the production system as a whole. In addition, it proved to be an excellent way for promoting improvements because reducing the number of kanban in circulation highlighted problem areas.[4]

Contents
[hide] 1 Origins 2 Operation 2.1 Kanban cards 2.2 Toyota's six rules 2.3 Three-bin system 3 Electronic kanban systems 4 See also 5 References 6 Further reading 7 External links

Origins
In the late 1940s, Toyota began studying supermarkets with a view to applying store and shelf-stocking techniques to the factory floor, based on the idea that in a supermarket, customers get what they need at the needed time, and in the needed amount. Furthermore, the supermarket only stocks what it believes it will sell, and customers only take what they need because future supply is assured. This led Toyota to view a process as being a customer of preceding processes, and the preceding processes as a kind of store. The customer process goes to this store to get needed components, and the store restocks. Originally, as in supermarkets, signboards were used to guide "shopper" processes to specific restocking locations. "Kanban" uses the rate of demand to control the rate of production, passing demand from the end customer up through the chain of customer-store processes. In 1953, Toyota applied this logic in their main plant machine shop.[5]

Operation
An important determinant of the success of production scheduling based on "pushing" the demand is the quality of the demand forecast that can receive such "push." Kanban, by contrast, is part of an approach of receiving the "pull" from the demand. Therefore, the supply or production is determined according to the actual demand of the customers. In contexts where supply time is lengthy and demand is difficult to forecast, the best one can do is to respond quickly to observed demand. This is exactly what a kanban system can help with: It is used as a demand signal that immediately propagates through the supply chain. This can be used to ensure that intermediate stocks held in the supply chain are better managed, usually smaller. Where the supply response cannot be quick enough to meet actual demand fluctuations, causing significant lost sales, then stock building may be deemed as appropriate which can be achieved by issuing more kanban. Taiichi Ohno states that to be effective kanban must follow strict rules of use[6] (Toyota, for example, has six simple rules, below) and that close monitoring of these rules is a never-ending task to ensure that the kanban does what is required.

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Kanban cards
Kanban cards are a key component of Kanban that utilizes cards to signal the need to move materials within a manufacturing or production facility or move materials from an outside supplier to the production facility. The Kanban card is, in effect, a message that signals depletion of product, parts or inventory that when received will trigger the replenishment of that product, part or inventory. Consumption drives demand for more. Demand for more is signaled by Kanban card. Kanban cards thus, in effect, help to create a demand-driven system. It is widely espoused by proponents of Lean production and manufacturing that demand-driven systems lead to faster turnarounds in production and lower inventory levels, helping companies implementing such systems to be more competitive. Kanban cards, in keeping with the principles of Kanban, should simply convey the need for more materials. A red card lying in an empty parts cart would easily convey to whomever it would concern that more parts are needed. In the last few years, Electronic Kanban systems, which send Kanban signals electronically, have become more widespread. While this is leading to a reduction in the use of Kanban cards in aggregate, it is common in modern Lean production facilities to still find widespread usage of Kanban cards.

Toyota's six rules

Do not send defective products to the subsequent process The subsequent process comes to withdraw only what is needed Produce only the exact quantity withdrawn by the subsequent process Level the production Kanban is a means to fine tuning Stabilize and rationalize the process

Three-bin system
A simple example of the kanban system implementation might be a "three-bin system" for the supplied parts (where there is no in-house manufacturing) one bin on the factory floor (demand point), one bin in the factory store, and one bin at the suppliers' store. The bins usually have a removable card that contains the product details and other relevant information the kanban card. When the bin on the factory floor becomes empty, i.e., there is demand for parts, the empty bin and kanban cards are returned to the factory store. The factory store then replaces the bin on the factory floor with a full bin, which also contains a kanban card. The factory store then contacts the suppliers store and returns the now-empty bin with its kanban card. The supplier's inbound product bin with its kanban card is then delivered into the factory store completing the final step to the system. Thus the process will never run out of product and could be described as a loop, providing the exact amount required, with only one spare so there will never be an oversupply. This 'spare' bin allows for the uncertainty in supply, use and transport that are inherent in the system. The secret to a good kanban system is to calculate how many kanban cards are required for each product. Most factories using kanban use the coloured board system (Heijunka Box). This consists of a board created especially for holding the kanban cards.

Electronic kanban systems

Main article: Electronic kanban Many manufacturers have implemented electronic kanban systems.[7] Electronic kanban systems, or EKanban systems, help to eliminate common problems such as manual entry errors and lost cards.[8] EKanban systems can be integrated into enterprise resource planning (ERP) systems. Integrating EKanban systems into ERP systems allows for real-time demand signaling across the supply chain and improved visibility. Data pulled from E-Kanban systems can be used to optimize inventory levels by better tracking supplier lead and replenishment times.[9]
Pasted from <http://en.wikipedia.org/wiki/Kanban>

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S10: Theory of Constraints

8 2011 . 19:32

TOC

Holistic management philosophy that is based on the principle that complex systems exhibit inherent simplicity.

TOC is based on the premise that the rate of goal achievement is limited by at least one constraining process. Only by increasing flow through the constraint can overall throughput be increased. TOC deems that constrains determine system performance Types of Constraints [10-9] Throughput-based C. Internal physical resource constraints: machine, supplier, skills. External market c.: insufficient demand for the product/service Behavior-based C. Lack of understanding of the causes and effects of problems Not knowing where to start making the improvement resource whose capacity is less than of equal to the demand [10-9] Any resource that is likely to compromise the throughput of organization if its capacity is not carefully managed.

True bottleneck Capacity-constrained resource (CCR) VATI analysis [10-11] V-type A-type T-type X-type I-type

basic raw material; range of products Converging operations: multiple RM, components end up in a final product Number of basic units are configured into many end products during the final assembly stage

Wood furniture Jet engine Computers

Subset of T-type: high number of RM/components, low # of subassemlies, high # Computers of final assemblies or configurations [MPR 1-20] Linear product flow: same operations that produce many different products Packaged food

Throughput Accounting Goal of operations is to make money. Making money can be broken down to 3 measurable quantities: T, I, OE TOC relies on 3 global measures that are applied in a structured approach for the business decisions [10-29]: Throughput (T) T = Sales Revenue - True Variable Cost (or Cost of RM) Value is recognized only when something is sold (not when it is made). Will it increase sales revenue so that monetary value of T will increase?

Investment (includes inventory) (I) Operating expense (OE)

Impact in I? Will it reduce OE?

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Drum-Buffer-Rope
15 2011 . 12:14

Five focusing steps [10-19] Step 1: Identify the C. Step 2: Exploit the C. Compares all system components against market requirements Use constraint to its maximum capability

Step 3: Subordinate everything else to the DBR method C. Step 4: Elevate the C. Step 5: Start Over

Drum Rope

The schedule of CCR Communication system between the Drum and the release of materials (input of the system). The rope controls the time buffer between input and CCR.

Buffer management is a key control mechanism that allows the CCR and shipping to stay on schedule. Time (constraint) buffer Lead time with some safety built into it. Stock buffer Protective capacity Safety time in time buffer leads to WIP in front of the CCR and Shipping (output). Idle capacity is maintained as a safeguard against unexpected events.

Critical Chain Method assumes that it takes strategic buffering at high-risk control points and prevent delays and ultimately protect (minimize) manufacturing lead time [10-31] Completion buffer at the end of production Constraint buffers at the CCR Feeding buffer on resources that feed into the critical chain. Buffer zones

Red zone

Expedite

Missing orders need to be expedited immediately. If <5% or work is expedited, the buffer if too big. If >5% or work is expedited, the buffer if too small. Coordination is needed to make sure that missing order arrive at the Red zone on time. Keep track of missing orders but there is no urgency required.

Yellow zone

Monitor

Green zone Dont worry

Simplified Drum-Buffer-Rope (S-DBR, SDBR) is used when the constraint is no longer internal (f.i., market). Simplified drum-buffer-rope is an excellent reminder to heed the 5th step of the 5 focusing steps; dont allow inertia to become a system constraint. When most drum-buffer-rope implementations move the constraint into the market, they continue to protect the internal process, at very the least, at 2 places, the internal weakest link or control point, and the shipping date. Do we still need to do this? The answer appears to be no when the internal weakest link is working at 80% or less of its capacity to supply the market demand. In this situation it is quite safe to roll the safety up into one global safety buffer instead of two or more.
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buffer instead of two or more. How do we schedule such a system? Well, instead of having a constraint schedule and a shipping schedule we now have only a shipping schedule with a gating process off-set by a full shipping rope length. The schedule is still loaded against the capacity of the internal constraint available hours per day, or available hours per week, over the average manufacturing lead time, but the only detailed schedule is for shipping. More correctly the schedule is loaded against up to 80% of the aggregate capacity of the internal control point. A queue of some duration will still naturally build and maintain itself in front of the weakest link, but it is no longer scheduled.

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Theory of Constraints
8 2011 . 19:32

The title Theory of Constraints (TOC) adopts the common idiom "A chain is no stronger than its weakest link" as a new management paradigm. This means that processes, organisations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the outcome. The analytic approach with TOC comes from the contention that any manageable system is limited in achieving more of its goals by a very small number of constraints, and that there is always at least one constraint. Hence the TOC process seeks to identify the constraint and restructure the rest of the organization around it, through the use of Five Focusing Steps.

Contents
1 History 1.1 Key assumption 1.2 The five focusing steps 1.3 Constraints 1.4 Buffers 1.5 Plant types 2 Applications 2.1 Operations 2.2 Supply chain / logistics 2.3 Finance and accounting 2.4 Project management 2.5 Marketing and sales 3 The TOC thinking processes 4 Development and practice 5 Criticism 5.1 Claimed Suboptimality of Drum-Buffer-Rope 5.2 Unacknowledged debt 6 See also 7 References 8 Further reading 9 External links

History
Theory of Constraints (TOC) is an overall management philosophy introduced by Dr. Eliyahu M. Goldratt in his 1984 book titled The Goal, that is geared to help organizations continually achieve their goals.[1] Dr. Eliyahu M. Goldratt adopted the concept with his book Critical Chain, published 1997. The concept was extended to TOC with respectively titled publication in 1999. An earlier propagator of the concept was Prof.h.c. Wolfgang Mewes[2] in Germany with publications on power-oriented management theory (Machtorientierte Fhrungstheorie, 1963) and following with his Energo-Kybernetic System (EKS, 1971), later renamed Engpasskonzentrierte Strategie[3] as a more advanced theory of bottlenecks. The publications of Wolfgang Mewes are marketed through the FAZ Verlag, publishing house of the German newspaper Frankfurter Allgemeine Zeitung. However, the paradigm Theory of constraints was first used by Dr. Eliyahu M. Goldratt.

Key assumption
The underlying premise of Theory of Constraints is that organizations can be measured and controlled by variations on three measures: throughput, operational expense, and inventory. Throughput is the rate at which the system generates money through sales. Inventory is all the money that the system has invested in purchasing things which it intends to sell. Operational expense is all the money the system spends in order to turn inventory into throughput.[4] "The Goal" itself is to "make money". All other benefits are derived, in one way or another, from that

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"The Goal" itself is to "make money". All other benefits are derived, in one way or another, from that single primary goal.

The five focusing steps

Theory of Constraints is based on the premise that the rate of goal achievement is limited by at least one constraining process. Only by increasing flow through the constraint can overall throughput be increased.[1] Assuming the goal of the organization has been articulated (e.g., "Make money now and in the future") the steps are: 1. Identify the constraint (the resource or policy that prevents the organization from obtaining more of the goal) 2. Decide how to exploit the constraint (get the most capacity out of the constrained process) 3. Subordinate all other processes to above decision (align the whole system or organization to support the decision made above) 4. Elevate the constraint (make other major changes needed to break the constraint) 5. If, as a result of these steps, the constraint has moved, return to Step 1. Don't let inertia become the constraint.[5] The five focusing steps aim to ensure ongoing improvement efforts are centered around the organization's constraints. In the TOC literature, this is referred to as the "Process of Ongoing Improvement" (POOGI). These focusing steps are the key steps to developing the specific applications mentioned below.

Constraints
A constraint is anything that prevents the system from achieving more of its goal. There are many ways that constraints can show up, but a core principle within TOC is that there are not tens or hundreds of constraints. There is at least one and at most a few in any given system. Constraints can be internal or external to the system. An internal constraint is in evidence when the market demands more from the system than it can deliver. If this is the case, then the focus of the organization should be on discovering that constraint and following the five focusing steps to open it up (and potentially remove it). An external constraint exists when the system can produce more than the market will bear. If this is the case, then the organization should focus on mechanisms to create more demand for its products or services. Types of (internal) constraints Equipment: The way equipment is currently used limits the ability of the system to produce more salable goods/services. People: Lack of skilled people limits the system. Mental models held by people can cause behaviour that becomes a constraint. Policy: A written or unwritten policy prevents the system from making more. The concept of the constraint in Theory of Constraints differs from the constraint that shows up in mathematical optimization. In TOC, the constraint is used as a focusing mechanism for management of the system. In optimization, the constraint is written into the mathematical expressions to limit the scope of the solution (X can be no greater than 5). Please note: Organizations have many problems with equipment, people, policies, etc. (A breakdown is just that - a breakdown - and is not a constraint in the true sense of the TOC concept) The constraint is the thing that is preventing the organization from getting more Throughput (typically, revenue through sales).

Buffers
Buffers are used throughout Theory of Constraints. They often result as part of the EXPLOIT and SUBORDINATE steps of the five focusing steps. Buffers are placed before the governing constraint, thus ensuring that the constraint is never starved. Buffers are also placed behind the constraint to prevent downstream failure to block the constraint's output. Buffers used in this way protect the constraint from variations in the rest of the system and should allow for normal variation of processing time and the occasional upset (Murphy) before and behind the constraint. Buffers can be a bank of physical objects before a work center, waiting to be processed by that work center. Buffers ultimately buy you time, as in the time before work reaches the constraint and are often verbalized as time buffers. There should always be enough (but not excessive) work in the time queue before the constraint and adequate offloading space behind the constraint.
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before the constraint and adequate offloading space behind the constraint. Buffers are not the small queue of work that sits before every work center in a Kanban system although it is similar if you regard the assembly line as the governing constraint. A prerequisite in Theory of Constraints is that with one constraint in the system, all other parts of the system must have sufficient capacity to keep up with the work at the constraint and to catch up if time was lost. In a balanced line, as espoused by Kanban, when one work center goes down for a period longer than the buffer allows, then the entire system must wait until that work center is restored. In a TOC system, the only situation where work is in danger, is if the constraint is unable to process (either due to malfunction, sickness or a "hole" in the buffer - if something goes wrong that the time buffer can not protect). Buffer management therefore represents a crucial attribute of the Theory of Constraints. There are many ways to do it, but the most often used is a visual system of designating the buffer in three colours: Green (OK), Yellow (Caution) and Red (Action required). Creating this kind of visibility enables the system as a whole to align and thus subordinate to the need of the constraint in a holistic manner. This can also be done daily in a central operations room that is accessible to everybody.

Plant types
There are four primary types of plants in the TOC lexicon. Draw the flow of material from the bottom of a page to the top, and you get the four types. They specify the general flow of materials through a system, and they provide some hints about where to look for typical problems. The four types can be combined in many ways in larger facilities. I-Plant: Material flows in a sequence, such as in an assembly line. The primary work is done in a straight sequence of events (one-to-one). The constraint is the slowest operation. A-Plant: The general flow of material is many-to-one, such as in a plant where many subassemblies converge for a final assembly. The primary problem in A-plants is in synchronizing the converging lines so that each supplies the final assembly point at the right time. V-Plant: The general flow of material is one-to-many, such as a plant that takes one raw material and can make many final products. Classic examples are meat rendering plants or a steel manufacturer. The primary problem in V-plants is "robbing" where one operation (A) immediately after a diverging point "steals" materials meant for the other operation (B). Once the material has been processed by A, it cannot come back and be run through B without significant rework. T-Plant: The general flow is that of an I-Plant (or has multiple lines), which then splits into many assemblies (many-to-many). Most manufactured parts are used in multiple assemblies and nearly all assemblies use multiple parts. Customized devices, such as computers, are good examples. Tplants suffer from both synchronization problems of A-plants (parts aren't all available for an assembly) and the robbing problems of V-plants (one assembly steals parts that could have been used in another). For non-material systems, one can draw the flow of work or the flow of processes and arrive at similar basic structures. A project, for example is an A-shaped sequence of work, culminating in a delivered project.

Applications
The focusing steps, or this Process of Ongoing Improvement has been applied to Manufacturing, Project Management, Supply Chain/Distribution generated specific solutions. Other tools (mainly the "Thinking Process") also led to TOC applications in the fields of Marketing and Sales, and Finance. The solution as applied to each of these areas are listed below.

Operations
Within manufacturing operations and operations management, the solution seeks to pull materials through the system, rather than push them into the system. The primary methodology use is DrumBuffer-Rope (DBR)[6] and a variation called Simplified Drum-Buffer-Rope (S-DBR).[7] Drum-Buffer-Rope is a manufacturing execution methodology, named for its three components. The drum is the physical constraint of the plant: the work center or machine or operation that limits the ability of the entire system to produce more. The rest of the plant follows the beat of the drum. They make sure the drum has work and that anything the drum has processed does not get wasted. The buffer protects the drum, so that it always has work flowing to it. Buffers in DBR have time as their unit of measure, rather than quantity of material. This makes the priority system operate strictly based on the time an order is expected to be at the drum. Traditional DBR usually calls for buffers at several points in the system: the constraint, synchronization points and at shipping. S-DBR has a buffer at shipping and manages the flow of work across the drum through a load planning mechanism.
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shipping and manages the flow of work across the drum through a load planning mechanism. The rope is the work release mechanism for the plant. Orders are released to the shop floor at one "buffer time" before they are due. In other words, if the buffer is 5 days, the order is released 5 days before it is due at the constraint. Putting work into the system earlier than this buffer time is likely to generate too-high work-in-process and slow down the entire system.

Supply chain / logistics

In general, the solution for supply chains is to create flow of inventory so as to ensure greater availability and to eliminate surpluses. The TOC distribution solution is effective when used to address a single link in the supply chain and more so across the entire system, even if that system comprises many different companies. The purpose of the TOC distribution solution is to establish a decisive competitive edge based on extraordinary availability by dramatically reducing the damages caused when the flow of goods is interrupted by shortages and surpluses. This approach uses several new rules to protect availability with less inventory than is conventionally required. Before explaining these new rules, the term Replenishment Time must be defined. Replenishment Time (RT) is the sum of the delay, after the first consumption following a delivery, before an order is placed plus the delay after the order is placed until the ordered goods arrive at the ordering location. 1. Inventory is held at an aggregation point(s) as close as possible to the source. This approach ensures smoothed demand at the aggregation point, requiring proportionally less inventory. The distribution centers holding the aggregated stock are able to ship goods downstream to the next link in the supply chain much more quickly than a make-to-order manufacturer can. Following this rule may result in a make-to-order manufacturer converting to make-to-stock. The inventory added at the aggregation point is significantly less than the inventory reduction downstream. 2. In all stocking locations, initial inventory buffers are set which effectively create an upper limit of the inventory at that location. The buffer size is equal to the maximum expected consumption within the average RT, plus additional stock to protect in case a delivery is late. In other words, there is no advantage in holding more inventory in a location than the amount that might be consumed before more could be ordered and received. Typically, the sum of the on hand value of such buffers are 25-75% less than currently observed average inventory levels. 3. Once buffers have been established, no replenishment orders are placed as long as the quantity inbound (already ordered but not yet received) plus the quantity on hand are equal to or greater than the buffer size. Following this rule causes surplus inventory to be bled off as it is consumed. 4. For any reason, when on hand plus inbound inventory is less than the buffer, orders are placed as soon as practical to increase the inbound inventory so that the relationship On Hand + Inbound = Buffer is maintained. 5. To ensure buffers remain correctly sized even with changes in the rates of demand and replenishment, a simple recursive algorithm called Buffer Management is used. When the on hand inventory level is in the upper third of the buffer for a full RT, the buffer is reduced by one third (and dont forget rule 3). Alternatively, when the on hand inventory is in the bottom one third of the buffer for too long, the buffer is increased by one third (and dont forget rule 4). The definition of too long may be changed depending on required service levels, however, a general rule of thumb is 20% of the RT. Moving buffers up more readily than down is supported by the usually greater damage caused by shortages as compared to the damage caused by surpluses. Once inventory is managed as described above, continuous efforts should be undertaken to reduce RT, late deliveries, supplier minimum order quantities (both per SKU and per order) and customer order batching. Any improvements in these areas will automatically improve both availability and inventory turns, thanks to the adaptive nature of Buffer Management. A stocking location that manages inventory according to the TOC should help a non-TOC customer (downstream link in a supply chain, whether internal or external) manage their inventory according to the TOC process. This type of help can take the form of a Vendor Managed Inventory (VMI). The TOC distribution link simply extends its buffer sizing and management techniques to its customers inventories. Doing so has the effect of smoothing the demand from the customer and reducing order sizes per SKU. VMI results in better availability and inventory turns for both supplier and customer. More than that, the benefits to the non-TOC customers are sufficient to meet the purpose of capitalizing on the decisive competitive edge by giving the customer a powerful reason to be more loyal and give more business to the upstream link. When the end consumers buy more the whole supply chain sells more. One caveat should be considered. Initially and only temporarily, the supply chain or a specific link may
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One caveat should be considered. Initially and only temporarily, the supply chain or a specific link may sell less as the surplus inventory in the system is sold. However, the immediate sales lift due to improved availability is a countervailing factor. The current levels of surpluses and shortages make each case different.

Finance and accounting

The solution for finance and accounting is to apply holistic thinking to the finance application. This has been termed throughput accounting.[8] Throughput accounting suggests that one examine the impact of investments and operational changes in terms of the impact on the throughput of the business. It is an alternative to cost accounting. The primary measures for a TOC view of finance and accounting are: Throughput (T), Operating Expense (OE) and Investment (I). Throughput is calculated from Sales (S) - Totally Variable Cost (TVC). Totally Variable Cost usually considers the cost of raw materials that go into creating the item sold.

Project management
Critical Chain Project Management (CCPM) is utilized in this area.[9] CCPM is based on the idea that all projects look like A-plants: all activities converge to a final deliverable. As such, to protect the project, there must be internal buffers to protect synchronization points and a final project buffer to protect the overall project.

Marketing and sales

While originally focused on manufacturing and logistics, TOC has expanded lately into sales management and marketing. Its role is explicitly acknowledged in the field of sales process engineering.[10] For effective sales management one can apply Drum Buffer Rope to the sales process similar to the way it is applied to operations (see Reengineering the Sales Process book reference below). This technique is appropriate when your constraint is in the sales process itself or you just want an effective sales management technique and includes the topics of funnel management and conversion rates.[citation needed]

The TOC thinking processes

Main article: Thinking Processes (Theory of Constraints) The Thinking Processes are a set of tools to help managers walk through the steps of initiating and implementing a project. When used in a logical flow, the Thinking Processes help walk through a buy-in process: 1. Gain agreement on the problem 2. Gain agreement on the direction for a solution 3. Gain agreement that the solution solves the problem 4. Agree to overcome any potential negative ramifications 5. Agree to overcome any obstacles to implementation TOC practitioners sometimes refer to these in the negative as working through layers of resistance to a change. Recently, the Current Reality Tree (CRT) and Future Reality Tree (FRT) have been applied to an argumentative academic paper.[11]

Development and practice

TOC was initiated by Dr. Eliyahu M. Goldratt, who until his recent death was still the main driving force behind the development and practice of TOC. There is a network of individuals and small companies loosely coupled as practitioners around the world. TOC is sometimes referred to as "Constraint Management". TOC is a large body of knowledge with a strong guiding philosophy of growth.

Criticism
Criticisms that have been leveled against TOC include:

Claimed Suboptimality of Drum-Buffer-Rope

While TOC has been compared favorably to linear programming techniques,[12] D. Trietsch from
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While TOC has been compared favorably to linear programming techniques,[12] D. Trietsch from University of Auckland argues that DBR methodology is inferior to competing methodologies.[13][14] Linhares, from the Getulio Vargas Foundation, has shown that the TOC approach to establishing an optimal product mix is unlikely to yield optimum results, as it would imply that P=NP.[15]

Unacknowledged debt
Duncan (as cited by Steyn)[16] says that TOC borrows heavily from systems dynamics developed by Forrester in the 1950s and from statistical process control which dates back to World War II. And Noreen Smith and Mackey, in their independent report on TOC, point out that several key concepts in TOC "have been topics in management accounting textbooks for decades."[17] People claim[citation needed] Goldratt's books fail to acknowledge that TOC borrows from more than 40 years of previous Management Science research and practice, particularly from PERT/CPM and JIT. A rebuttal to these criticisms is offered in Goldratt's "What is the Theory of Constraints and How Should it be Implemented?", and in his audio program, "Beyond The Goal". In these, Goldratt discusses the history of disciplinary sciences, compares the strengths and weaknesses of the various disciplines, and acknowledges the sources of information and inspiration for the Thinking Processes and Critical Chain methodologies. Articles published in the now-defunct Journal of Theory of Constraints referenced foundational materials. Goldratt published an article[citation needed] and gave talks[18] with the title "Standing on the Shoulders of Giants" in which he gives credit for many of the core ideas of Theory of Constraints. Goldratt has sought many times to show the correlation between various improvement methods. However, many Goldratt adherents often denigrate other methodologies as inferior to TOC[citation needed].

See also
Linear programming List of Theory of Constraints topics Systems thinking Critical systems thinking Joint decision traps Twelve leverage points by Donella Meadows Constraint (disambiguation) Thinklets Throughput

Pasted from <http://en.wikipedia.org/wiki/Theory_of_Constraints>

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Thinking processes (Theory of Constraints)

8 2011 . 19:34

From Wikipedia, the free encyclopedia (Redirected from Thinking Processes (Theory of Constraints)) This page is about thinking processes in the Theory of constraints. Wikipedia also has a list of thought processes. Thinking processes in Eliyahu M. Goldratt's Theory of Constraints, are the five methods to enable the focused improvement of any system (especially business system).

Purpose
The purpose of the thinking processes is to help one answer questions essential to achieving focused improvement: 1. What to change? 2. What to change to? 3. How to cause the change? Sometimes two other questions are considered as well: 4. Why Change? and: 5. How to maintain the process of ongoing improvement (POOGI)? A more thorough rationale is presented in What is this thing called Theory of Constraints and how should it be implemented.[1] A more thorough work mapping the use and evolution of the Thinking Processes was conducted by Mabin et al.[2]

Processes
The primary thinking processes, as codified by Goldratt and others: Current Reality Tree (CRT, similar to the current state map used by many organizations) evaluates the network of cause-effect relations between the undesirable effects (UDE's, also known as gap elements) and helps to pinpoint the root cause(s) of most of the undesirable effects. Evaporating Cloud (conflict resolution diagram or CRD) - solves conflicts that usually perpetuate the causes for an undesirable situation. Core Conflict Cloud (CCC) - A combination of conflict clouds based several UDE's. Looking for deeper conflicts that create the undesirable effects. Future Reality Tree (FRT, similar to a future state map) - Once some actions (injections) are chosen (not necessarily detailed) to solve the root cause(s) uncovered in the CRT and to resolve the conflict in the CRD the FRT shows the future states of the system and helps to identify possible negative outcomes of the changes (Negative Branches) and to prune them before implementing the changes. Negative Branch Reservations (NBR) - Identify potential negative ramifications of any action (such as an injection, or a half-baked idea). The goal of the NBR is to understand the causal path between the action and negative ramifications so that the negative effect can be "trimmed." Positive Reinforcement Loop (PRL) - Desired effect (DE) presented in FRT amplifies intermediate objective (IO) that is earlier (lower) in the tree. While intermediate objective is strengthened it positively affects this DE. Finding out PRLs makes FRT more sustaining. Prerequisite Tree (PRT) - states that all of the intermediate objectives necessary to carry out an action chosen and the obstacles that will be overcome in the process. Transition Tree (TT) - describes in great detail the action that will lead to the fulfillment of a plan to implement changes (outlined on a PRT or not). Strategy & Tactics (S&T) - the overall project plan and metrics that will lead to a successful implementation and the ongoing loop through POOGI. Goldratt adapted three operating level performance measuresthroughput, inventory and operating expenseand adopted three strategic performance measuresnet income, return on investment, and cash flowto maintain the change. Some observers note that these processes are not fundamentally very different from some other management change models such as PDCA "Plan-Do-Check-Act" (aka "Plan-Do-Study-Act") or "SurveyBSC Page 44

management change models such as PDCA "Plan-Do-Check-Act" (aka "Plan-Do-Study-Act") or "SurveyAssess-Decide-Implement-Evaluate", but the way they can be used is clearer and more straightforward. More on this can be seen on Goldratt's Theory of Constraints - A Systems Approach to Continuous Improvement by William Dettmer ISBN 0-87389-370-0.

Software
jThinker is an open-source tool for visual building of thinking processes diagrams. Harmony is a Strategy & Tactics Expert System. Flying Logic a cross platform TOC thinking process suite.

Books
H. William Dettmer. The Logical Thinking Process: A Systems Approach to Complex Problem Solving (2007). ISBN 978-0-87389-723-5 H. William Dettmer. Strategic Navigation: A Systems Approach to Business Strategy (2003). ISBN 0-87389-603-3 Eliyahu M. Goldratt and Jeff Cox. The Goal: A Process of Ongoing Improvement. ISBN 0-88427-061-0 Eliyahu M. Goldratt. It's Not Luck. ISBN 0-88427-115-3 Eliyahu M. Goldratt. Critical Chain. ISBN 0-88427-153-6 Eliyahu M. Goldratt, Eli Schragenheim, Carol A. Ptak. Necessary But Not Sufficient. ISBN 0-88427-170-6 Lisa J. Scheinkopf Thinking For a Change: Putting the TOC Thinking Processes to Use. ISBN 1-57444-101-9 Eli Schragenheim. Management Dilemmas: The Theory of Constraints Approach to Problem Identification and Solutions. ISBN 1-57444-222-8 John Tripp TOC Executive Challenge A Goal Game. ISBN 0-88427-186-2
Pasted from <http://en.wikipedia.org/wiki/Thinking_Processes_(Theory_of_Constraints)>

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More definitions
14 2011 . 12:30

Line-haul Point-of-use inventory Takt

the transporting of items or persons between terminals the practice of storing any inventory you have at the point where it will be used (in contrast to inventory that is stored in a warehouse, or at some other secondary location) In JIT takt sets the pace for manufacturing lines The time needed to complete work on each station has to be less than the takt time in order for the product to be completed within the allotted time. Takt = Daily operating time / required quantity per day is any mechanism in a lean manufacturing process that helps an equipment operator avoid (yokeru) mistakes (poka). Its purpose is to eliminate product defects by preventing, correcting, or drawing attention to human errors as they occur. PYS (Poka-Yoke System) implies 100% control. shows source and application of fund

Poka-yoke

Cash flow statement

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