THEORY OF CONSTRAINTS

SUBMITTED BY
S. MADHULA
ROLL NO: 52
PGP 2010-12
IIM RAIPUR
Theory of constraints is a body of knowledge which helps in understanding the way a system functions
and identifies those elements which constrain the system from achieving its goals. There are no systems
in this world with unconstrained ability to achieve continuous growth. In the context of business systems
where finite goals are sought to be achieved by an organization, TOC helps us understand what
constraints the business from achieving its goals. This helps optimize resource deployment to the right
areas so that the goals are achieved with minimum inputs.

TOC has been widely applied in production and operations management and in logistics. Where
constraints are easily identifiable and definable. They generally are as simple as the "The lathe machine"
or the "supplier from Nasik". They have thus become a tremendous success in operations and production
management. However TOCs relevance and importance stretches beyond clear and quantifiable parts of
management. In the context of management TOC techniques form a powerful help in determining
resource deployment, growth and costing. TOC's influence on costing has thrown open an entirely new
model on which costs are estimated and prices determined. But understanding TOC is fundamental for
utilizing it.
Five Focusing Steps (5FS)
These are the original Goldratt "process of ongoing improvement" (POOGI) steps for identifying,
exploiting and managing the system's constraints, whether the system is manufacturing, distribution,
sales, or project management.
1) Identify the system's constraint(s).
2) Decide how to exploit the constraint(s).
3) Subordinate everything else to the above decision.
4) Elevate the constraint.
5) If, in any of the above steps, the constraint has been broken, go back to Step 1.
The 0th step is to agree on the goal of the system and choose global measures of progress towards it.
The process appears simple, yet to clear off the cobwebs of entrenched existing thinking and adopting to
TOC takes much more than just pure concepts but hardnosed application of these concepts and right
measures to evaluate their effectiveness. These measures and the goal that should be achieved form the
fulcrum of TOC implementation.

APPLYING THEORY OF CONSTRAINTS PRINCIPLES AND LEAN THINKING AT THE

The Maintenance Center for the Marine Corps Logistics Base, Albany, Georgia, launched a program in
2001 combining principles drawn from the Theory of Constraints and Lean thinking. The Center had been
constantly plagued by apparent capacity shortages in virtually every department and additional manpower
was being considered. An analysis using Theory of Constraints revealed that there was, in fact, more than
adequate capacity to handle the workload. The perceived lack of capacity was due to policy constraints
imposed on the Center as a result of a push scheduling mechanism. By implementing a pull system for
scheduling repairs, the Center revealed capacity that had been masked. Today, the Center is ahead of, or
on schedule, for 99 percent of the production lines where the Theory of Constraints principles have been
implemented.

THE THEORY OF CONSTRAINTS AND THE CRITICAL CHAIN

In the 1980s, Goldratt and Cox (1992) presented Theory of Constraints as a methodology for managing
production planning and scheduling. The Theory of Constraints is based on the principle that the goal of
any economic enterprise is to make money, now and in the future, and that a system’s constraints
determine its capacity to make money. Goldratt prescribed a five step focusing process to enable a process
of ongoing improvement: a) identify the system’s constraint(s), b) decide how to exploit the system’s
constraint(s), c) subordinate everything else to the decision in step b, d) elevate the system’s constraint(s),
e) return to step 1 if the system’s constraints were changed.
In 1997, Goldratt introduced the Critical Chain methodology to apply Theory of Constraints concepts to
manage large projects. Program Evaluation and Review Technique (PERT) is probably the single most
popular project management tool, and it has been in use for decades. PERT provides the means for
identifying the critical path, which is the major determinant of the project completion date since the
critical path is the single longest chain of linked events embedded in the overall project. The Critical
Chain methodology expands on this notion of the critical path and presents a means of determining where
buffers should be placed to prevent unplanned disruptions from delaying the project completion. Figure 1
presents a simple example that illustrates the Critical Chain methodology. This figure represents a project
that has four sets of activities that must be completed before a synchronization operation, represented by
C4 in the figure, can be completed.

The synchronization operation could be one of a variety of operations. For instance in a manufacturing
setting it could be an assembly operation, and in a project management setting it could represent the
commissioning operation.

IMPLEMENTING THE CRITICAL CHAIN AT THE MAINTENANCE CENTER

The overhaul process at the Center starts with disassembly of each vehicle to determine its work scope,
the amount and nature of the work to be done on that product. The work scope also indicates which parts
can be repaired and which parts need to be replaced. Parts that require repair are routed through a series
of support shops that include cleaning, blasting, painting, machining, body work, weapons work, and so
on. Parts that need replacement are either replaced from existing spare-parts stock or ordered from an
external source. Some of these parts are difficult to procure if they are not in stock for a variety of
reasons, including obsolescence.

THE BOTTLENECK
As a first step toward applying TOC, the Center’s management sought input from throughout the
organization on where bottlenecks were believed to be a serious problem limiting output. Opinions varied
as to what were and were not bottleneck activities, but every major activity in the Center was believed to
be an important bottleneck by at least someone in the facility. In applying the Theory of Constraints to
address the Center’s problems, the main shop, where the main products were first disassembled and
subsequently reassembled, and the support shops (cleaning, repair, etc.), were modeled as the Critical
Chain. The Critical Chain analysis of the data collected revealed that, contrary to everyone’s opinion, the
facility had more than enough of capacity to carry out the activities required to meet the demand for
repair and overhaul of 10 MK-48s per month. The root cause of the consistent shortfalls and high
inventory levels seemed to be the scheduling system in place that was pushing products out to the shop
floor without regard for the status of the resources. The bottleneck was thus not a physical resource
constraint. Rather, it was a policy constraint introduced by the scheduling process. This discovery
allowed Vector Strategies to use a Simplified Drum-Buffer-Rope (S-DBR) technique to model and
schedule the activities in the shops that processed components removed from the main products.

THE SIMPLIFIED DRUM-BUFFER-ROPE TECHNIQUE

One of the tools used by TOC to manage production is the Drum-Buffer-Rope (DBR) system. The DBR
is a pull-scheduling system that releases material based on a signal from the bottleneck. The traditional
DBR model releases orders into the production process such that it synchronizes with the production rate
of the least capable resource in the process. This least capable resource is referred to as the
capacity-constrained-resource (CCR). If the CCR works at a rate that is less than the rate of output
demanded by the customer, then it is the bottleneck. (Otherwise, the external demand rate, the market, is
the bottleneck.) In the standard DBR model, the production rate of the CCR is referred to as the drum,
and the drum beat (production rate of the CCR) paces production for the system. The rope in DBR refers
to the mechanism that releases work into the production process. The rope is essentially a communication
device that ensures that raw material is not introduced into the shop floor at a rate faster than the CCR can
handle. If the CCR is not the bottleneck, then the rope ensures that the raw material is not introduced into
the shop floor at a rate faster than the customer demand rate. Finally, to prevent the CCR from ever
having to wait for work if it becomes free (protect the CCR from being starved), a time buffer is placed
ahead of the CCR to ensure that jobs arrive at the CCR well in advance before they are scheduled for
processing at the CCR. Another buffer, called the shipping buffer, protects the situation where the
customer’s order might be delayed. The standard DBR model is presented in Figure 2. The standard DBR
model requires specialized DBR software to implement it. For enterprises that already have common
MRP systems in place, an alternate technique known as the Simplified Drum-Buffer-Rope (S-DBR)
model can be used, when the enterprise is not constrained by any internal resource (the situation at the
Center as revealed by the initial Critical Chain analysis). The drum in S-DBR is based on firm orders. As
orders come in, a quick check is made on the total load on the CCR. If the CCR is not too heavily loaded,
the order is accepted and released into the shop floor for processing. The only buffer maintained is the
shipping buffer. The rope is no longer tied to the CCR schedule. Instead, the material release schedule is
directly generated by firm orders received. See Figure 3.
APPLYING THEORY OF CONSTRAINTS PRINCIPLES AND LEAN THINKING

The S-DBR model has some advantages. It does not require any specialized software, and this can be a
significant benefit for enterprises that might be unwilling or unable to invest in specialized DBR software
(Schragenheim & Dettmer, 2000). Another advantage of the S-DBR approach is that it does not have to
require two buffers, but needs just one. Finally, the S-DBR approach is more focused on market demand
and ties the organization to its customers more directly.

RESULTS FROM THE IMPLEMENTATION OF CRITICAL CHAIN AND S-DBR

The Center was able to use an S-DBR approach to scheduling in conjunction with the existing MRP II
business system as described above. Only the Critical Chain portion of their solution required additional
software.3 The MRP II system that was used for scheduling now facilitates the S-DBR schedules. The
MRP II database also stores data on lead times for items supplied by vendors. Table 1 presents the results
of implementing the Critical Chain on the MK-48 and the LAV-25, the landing assault vehicle that was
the focus of the second Theory of Constraints/Critical Chain implementation effort. As Table 1 indicates,
repair cycle times for the MK-48 were reduced by a factor of 3, from an average of 167 days to an
average of 58 days. For the LAV- 25, the corresponding figures were 212 days and 119 days, before and
after.

Work in process levels (relative to demand) was also reduced significantly, as shown in the table. Other
products showed similar reductions in cycle times and work in process. The cost to repair products also
went down by 25 to 30 percent, mainly because the reduction in delays resulted in more throughput
without any increase in the cost of repair. All the product lines are now 99 percent on schedule to
customer requirements. Figure 4 shows the increase in output realized on the MK-48 line. The capacity
for the MK-48 line is now much more flexible, and can work with a rate of anywhere between 10 units
per month to as high as 23 units per month, as indicated by the figure.
COMBINING LEAN THINKING WITH TOC PRINCIPLES

The principles in Theory of Constraints can be used in conjunction with Lean thinking to leverage even
more benefits for the enterprise. Like Theory of Constraints, Lean thinking is a means of enabling a
growth strategy.4 Unlike Theory of Constraints, which primarily focuses on the bottleneck, Lean thinking
is focused on reducing waste at all levels and in the process of doing so, it uncovers additional capacity
that could be deployed for further growth. At the Maintenance Center, a corporate plan was developed for
implementation of Lean thinking and a Lean team was set up. Some of the results of the Lean efforts
resulted in the Center being subject to a 6-S activity and a reengineering of the supply warehouse. (6-S is
a set of practices aimed at cleaning and organizing a workplace to improve operations and safety.) The 6-
S activity resulted in a significant increase in available shop floor space. Hundreds of man-hours
associated with the testing and repair of cables on the Assault Amphibious Vehicle (AAV) and Light
Armored Vehicle (LAV) family of vehicles were saved. Tools in excess of $200,000 were turned in for
redistribution and future use. The process flows in production work centers were streamlined. Another
major benefit from the convergence of Lean thinking and TOC was that it resulted in increased morale for
the employees of the Center. The workplace is cleaner, less cluttered, and safer. The Center has become
extremely flexible and better positioned to meet its responsibilities for regeneration and reconstitution of
critical supplies.

CONCLUSION

The work carried out to date has made the Albany Maintenance Center a showcase of world-class
overhaul and repair performance. Weekly tours are conducted, hosting officers and executives from
government and private overhaul and repair operations. The Center’s Web site and monthly reports
prominently features Theory of Constraints and Lean applications. Although the Center has achieved
significant successes, Theory of Constraints and Lean thinking are a process of ongoing improvement.
One instance of improvement that may be a candidate for future consideration is the manner in which
products are repaired. Currently, the mode of operation is to employ a station-build. The Center could
consider operating the repair facility as a flow-cell using a moving line. This is a subject of future
research.