Implementation of Constraint Management on Asia Ghee Mills

Bahawalpur
REPORT
Submitted to: Mr. SALMAN AZA!
G!"#$ M%MB%!S
M#AMMA& A!""N AM%%! '()*)+
M#AMMA& S%ZA& '(),,+
I!-AN ALI '().)+
M#AMMA& SAL%%M BA//I '()*0+
BAC%L"! "- B#SIN%SS S/#&I%S
'BBS -INANC%+ M)
&epartment of Management S1ien1es
Islamia University of Bahawalpur
/able of Contents
/able of Contents.............................................................................................................................)
Introduction of Asia Ghee Mill.....................................................................................................2
Introduction....................................................................................................................................2
Constraint.........................................................................................................................................2
Capacity.......................................................................................................................................2
/3pes of 1onstraints.........................................................................................................................4
Mar5et 1onstraint.........................................................................................................................4
Bottlene15 1onstraint...................................................................................................................4
/heor3 of Constraint........................................................................................................................4
ow the firm6s operational measures relate to its finan1ial measures.............................................,
In7entor3......................................................................................................................................,
/hroughput..................................................................................................................................,
"perating %8pense '"%+..............................................................................................................,
Se7en 5e3 prin1iples of the theor3 of 1onstraints............................................................................,
/he -i7e -o1using Steps..................................................................................................................*
Step "ne 9 Identif3 the Constraint..............................................................................................0
Step /wo 9 %8ploit the Constraint...............................................................................................0
Step /hree 9 Subordinate and S3n1hroni:e to the Constraint.....................................................0
Step -our 9 %le7ate $erforman1e of the Constraint....................................................................0
Step -i7e 9 !epeat the $ro1ess....................................................................................................0
&rum ; Buffer..................................................................................................................................
Introduction of Asia Ghee Mill
Introduction
Asia Ghee Mill is situated (,5m awa3 from Bahawalpur at <ara1hi !oad. /his Ghee and "il
manufa1turing unit was established in (==4 and start produ1tion in =
th
>une (==0.
Asia Ghee Mill o11upied a land area of appro8imatel3 2 a1res.
/he area of Asia Ghee Mill is di7ided in two heads:
a. Production Area
b. Non Production Area
Non?produ1tion area 1onsists of offi1es@ par5ing fa1ilit3@ and a big lawn. In non?produ1tion area
the3 ha7e their own nurser3. Asia Ghee Mill has a 7er3 attra1ti7e outloo5 be1ause the3 ha7e
wide 7ariet3 of plants and flowers in the lawn and nurser3. /he offi1e interior of Asia Ghee Mill
is 7er3 good be1ause the offi1es are full3 air?1onditioned and heaters are also a7ailable in 1old
weather.
Constraint Management
Constraint
An3 fa1tors that limit performan1e of a s3stem ; restri1ts its output
In Asia ghee mils the produ1tion area 1onsist of different se1tions related to produ1tions@ stores@
printing@ plant and pa15aging of Ghee and "il in different si:es. /here is a ph3si1al 1onstraint in
Asia ghee mil that is the limited pa15aging units.
Capacity
It is the ma8imum rate of output of a s3stem.
Asia ghee mil has a 1apa1it3 of (,A tons per da3 but 1urrentl3 the3 are using ,AB of their total
1apa1it3 be1ause of this 1onstraint.
Tyes of constraints
(. $h3si1al
). Mar5et
2. Managerial
Mar!et constraint
/he maCor problem is related with the distribution networ5 and utili:ation of produ1tion 1apa1it3
of the organi:ation. /he organi:ation is utili:ing limited produ1tion 1apa1it3 be1ause it has a
limited mar5et and not suppl3 its produ1ts all o7er the 1ountr3 but onl3 in Bahawalpur and
Multan. -urthermore firm is rel3ing on pri7ate dealers for distribution of its final produ1ts. So
be1ause of limited mar5et@ sometimes these dealers refuse to ta5e the suppl3 be1ause of ha7ing
old sto15 unsold@ so that6s wh3 in7entor3 remains in the stores whi1h 1ause the in1rease in
holding 1ost and 1ash shortage problems for the organi:ation.
"ottlenec! constraint
An3 resour1e whose 1apa1it3 limits the organi:ation6s abilit3 to meet 7olume@ produ1t mi8@ or
flu1tuating demand reDuirements b3 the mar5et pla1e.
Asia Ghee Mills is importing four different t3pes of oil from Singapore and Mala3sia@ whi1h are
not a7ailable lo1all3. /his is the main 1ause of the material shortage whi1h leads to restri1t the
produ1tion 1apa1it3 of final produ1t.
Theory of Constraint
TOC is a s3stemati1 management approa1h that fo1uses on a1ti7el3 managing those
1onstraints that impede a firm6s progress toward its goal of ma8imi:ing profits and
effe1ti7el3 using its resour1es.
It outlines a deliberate pro1ess for identif3ing and o7er1oming 1onstraints.
TOC methods in1rease the firm6s profits b3 fo1using on materials flow through the entire
s3stem.
#o$ the firm%s oerational measures relate to its financial measures
In&entory
All the mone3 in7ested in a s3stem in pur1hasing things that it intends to sell. Asia ghee mil has
a 1apa1it3 of (,A tons per da3 but 1urrentl3 the3 are using ,AB of their total 1apa1it3 be1ause of
this 1onstraint.
/he mill should redu1e their e8tra in7entor3 when the3 use in7entor3 in the reDuirement of the
mar5et demand@ the3 will not bear e8tra 1ost of the storage of the in7entor3 A de1rease in I leads
to an in1rease in net profit@ !"I@ and 1ash flow.
Throughut
/he rate at whi1h a s3stem generates mone3 through sales. An in1rease in / leads to an in1rease
in net profit@ !"I@ and 1ash flows. Asia ghee mills throughput is high due to its profit and 1ash
flow in1rease.
Oerating E'ense (OE)
All the mone3 a s3stem spends to turn in7entor3 into throughput. A de1rease in "% leads to an
in1rease in net profit@ !"I@ and 1ash flows. Asia ghee mill manager use best strategies of
redu1tion operating e8penses due to this@ their operating e8penses are de1reases and net profit@
!"I and 1ash flow in1reases.
*e&en !ey rinciles of the theory of constraints
/he fo1us should be on balan1ing flow@ not on balan1ing 1apa1it3. Asia ghee mills follow the
first prin1iple theor3 of 1onstraint Asia ghee mill has a 1apa1it3 of (,A tons per da3 but 1urrentl3
the3 are using ,AB of their total 1apa1it3 be1ause of this 1onstraint. If the3 fo1us on balan1ing
1apa1it3 the3 should bear loss.
Ma'imi+ing the output and effi1ien13 of e7er3 resour1e ma3 not ma8imi:e the throughput of the
entire s3stem. /he manager of Asia ghee mills impro7es their effi1ien13 and output of e7er3
resour1e.
An hour lost at a bottlenec! or a 1onstrained resour1e is an hour lost for the whole s3stem. In
1ontrast@ an hour sa7ed at a non bottlene15 resour1e is a mirage be1ause it does not ma5e the
whole s3stem more produ1ti7e. In ghee mill bottlene15 is shortage of raw material if a one hour
last at this stage its impa1t on whole s3stem. /he manager tr3 to not an hour lost on bottlene15
due to a la15 of 1han1e of loss.
In&entory is needed onl3 in front of the bottlene15s in order to pre7ent them from sitting idle@
and in front of assembl3 and shipping points in order to prote1t 1ustomer s1hedules. Building
in7entories elsewhere should be a7oided. /he management of Asia ghee mill 5eep in7entor3 of
those things whi1h the3 needed on bottlene15 when organi:ation 5eep in7entor3 of bottlene15
the3 1an meet the reDuirement of 1ustomers.
,or!@ whi1h 1an be materials@ information to be pro1essed@ do1uments@ or 1ustomers@ should be
released into the s3stem onl3 as freDuentl3 as the bottlene15s need it. Bottlene15 flows should be
eDual to the mar5et demand. $a1ing e7er3thing to the slowest resour1e minimi:es in7entor3 and
operating e8penses. /he management of Asia ghee mills release wor5s on those s3stems where
the3 needs. /he3 not release e8tra wor5 an3 s3stem therefore the3 donEt bear e8tra 1ost of
e8penses. /he Asia ghee mills management strong the3 5now where the3 need wor5.
-nbalanced Caacity
S3n1hronous manufa1turing 7iews 1onstant wor5station 1apa1it3 as a bad de1ision. In Asia ghee
mill not fo1us on 1onstant wor5 station 1apa1it3 but their fo1uses on balan1ing flow. /here is no
unbalan1ed 1apa1it3 follow in Asia ghee mill the3 use balan1e 1apa1it3.
The .i&e .ocusing *tes
/he /heor3 of Constraints pro7ides a spe1ifi1 methodolog3 for identif3ing and eliminating
1onstraints@ referred to as the -i7e -o1using Steps. As shown in the following diagram@ it is a
131li1al pro1ess.
*te One / Identify the Constraint
In this step@ the manufa1turing pro1ess is re7iewed
to identif3 the 1onstraint. A simple but often
effe1ti7e te1hniDue is to literall3 wal5 through the
manufa1turing pro1ess loo5ing for indi1ations of
the 1onstraint.
*te T$o / E'loit the Constraint
In this step@ the obCe1ti7e is to ma5e the most of
what 3ou ha7e 9 ma8imi:e throughput of the 1onstraint using 1urrentl3 a7ailable resour1es. /he
line between e8ploiting the 1onstraint 'this step+ and ele7ating the 1onstraint 'the fourth step+ is
not alwa3s 1lear. /his step fo1uses on Dui15 wins and rapid reliefF lea7ing more 1omple8 and
substanti7e 1hanges for later.
*te Three / *ubordinate and *ynchroni+e to the Constraint
In this step@ the fo1us is on non?1onstraint eDuipment. /he primar3 obCe1ti7e is to support the
needs of the 1onstraint 'i.e. subordinate to the 1onstraint+. %ffi1ien13 of non?1onstraint eDuipment
is a se1ondar3 1on1ern as long as 1onstraint operation is not ad7ersel3 impa1ted.
*te .our / Ele&ate Performance of the Constraint
In this step@ more substanti7e 1hanges are implemented to Gbrea5H the 1onstraint. /hese 1hanges
ma3 ne1essitate a signifi1ant in7estment of time andIor mone3 'e.g. adding eDuipment or hiring
more staff+. /he 5e3 is to ensure that all su1h in7estments are e7aluated for effe1ti7eness
'preferabl3 using /hroughput A11ounting metri1s+.
*te .i&e / Reeat the Process
In this step@ the obCe1ti7e is to ensure that the -i7e -o1using Steps are not implemented as a one?
off impro7ement proCe1t. Instead@ the3 should be implemented as a 1ontinuous impro7ement
pro1ess.
0rum 1 "uffer
-or /he Asia Ghee Mills bottlene15 s1hedule is the drum be1ause it sets the beat or in1rease the
produ1tion rate be1ause if this industr3 will fo1us on the !aw materials whi1h is its problem
point it will in1rease the produ1tion and the produ1tion output is lin5ed to mar5et demand so this
1onstraint management will lead it to in1rease profits
/he buffer is the time whi1h maintains the in7entor3 le7el for a firm. In Asia Ghee mills it is
Ne1essar3 to maintain buffer sto15 so that the produ1tion pro1esses did not disrupt and it will
in1rease the produ1tion pro1esses 1apa1it3 be1ause the issue is raw material input.
!ope is the rate at whi1h the bottlene15 1ontrols the throughput of the entire plant@ ere in the
Asia ghee mills the rope s3stem should maintain the ma8imum input in7entor3 to 1ontrol the
problem a11ording to its needs for dail3 produ1tion le7el reDuirements