Theory of Constraints Golden Nugget
#10 MTA + MTO Mixed environment
In many companies, some SKUs are consumed on a regular basis, whether by one or multiple clients, while other SKUs have a sporadic consumption pattern, either because the demand is rare, or because the SKU is customized for a particular order of the client. In these environments, regular consumption should be supplied immediately from stock (MTA), while sporadically consumed SKUs (as well as exceptionally big orders of regular SKUs1) should be made only to clients’ orders (MTO); in other words, they should operate as a partly MTA, partly MTO environment.
The mechanisms to control both the MTA and the MTO in a mixed environment are the same mechanisms used in an environment of pure MTA or pure MTO. The only difference is that when using load control for providing promised due-dates and for determining the time to release the material for MTO, we regard only the MTO production segment instead of taking into consideration the total capacity and load. More explicitly, the way to allocate the capacity in such mixed environments is as follows: first assign capacity for MTA based on the current coverage; then add 20% protective capacity (Note: The needed protective capacity is not 20% of the total capacity, but only 20% of the capacity required by MTA). The capacity remains is allocated for MTO.
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Theory of Constraints Golden Nugget
#9 – Color Psychology
(Supply Chain)
A company that had started Viable Vision implementation about a year ago had made satisfactory progress. Nevertheless, there was a point that troubled them as well as us: the level of inventory in their regional warehouses did not significantly decrease. It was months after the establishment of a central warehouse, coupled with the activation of daily replenishment according to actual consumption throughout the supply chain. Thanks to having a good level of availability at the central warehouse (99%), the replenishment time to the regional warehouses was cut to a mere fraction of what it originally was. Setting the inventory targets in the regional warehouse in accordance with the shortened replenishment time should have reduced the original high inventory levels there to less than half, even when taking into consideration the additional inventory that was needed for raising the DDP of the regional warehouses from the original performance – below 50% – to the current delightful level of 99%. More than enough time had passed to enable the mountains of excess inventory to be flushed out. So, how come the inventories in the regional warehouses were lowered by just 10%?… Click here to continue reading.
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Theory of Constraints Golden Nugget
#8 – When you say “red”, what do you mean?
(Production)
When we are told that a production company has 20% red orders, what does that mean? Seemingly the answer is clear – it means that if we go to the floor, we will see that 20% of the orders are red. But then again, maybe it means something else – that out of all the completed orders, 20% were finished while being red?
Here we have a situation where one term is being used to describe two different things. This ambiguity wouldn’t be a real problem if the practical implications, stemming from the two different interpretations, where the same. But this is definitely not the case; one of the above meanings of “red” is very important in terms of assessing the state of the operation, while the other has no practical implications and using it leads only to confusion.
In order to clarify the above statement, we ought to better understand the meaning of each definition. The first definition of red percentage is a description of a snapshot – the situation on the floor at a certain moment: how many orders from each color do the production workers see? Figure 1.a schematically shows a distribution of orders’ color on the floor at a specific point of time, under the assumption of a constant stream of incoming orders. The X axis is not a time axis, but rather represents the “age” of an order at the point of time when the snapshot was taken… Click here to continue reading.
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Theory of Constraints Golden Nugget
#7 – Minimum batch progression
(MTO and MTA production)
There are times that a technical consideration at a certain work-center forces us to process a minimum batch which is bigger than the order (e.g. a mixer that requires a minimum of 20 liters). Then, of course, we have no choice but to work on more units than needed for the order. But that doesn’t mean we have to carry those extra units onwards through all the processing chain (after passing the work center responsible for the technical consideration), as is too often done… Click here to continue reading.
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Theory of Constraints Golden Nugget
#6 – Fine tune of the priority system – an exception
(MTO; Production)
The effectiveness of the priority system stems from the fact that it is robust yet simple; only three priority colors, with a strict instruction not to try being super- accurate and pin point which among the same-colored orders should be processed first. That being said, there is one exception – a unique case where refinement of the priority system is very much needed.
The case we refer to relates to situations where there are product families with considerably different production buffers. In such a situation, a product with a relatively long production buffer might have, at some work-centers, touch time which is indeed negligible relative to its own production buffer (< 10%), but is significant in comparison to another, shorter production buffer (> 1/6). Figure 1 schematically demonstrates the described situation… Click here to continue reading.
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Supply Chain article – Golden Rules
Companies need to start using common sense to survive, says business thinker Dr Eli Goldratt. Rebecca Ellinor distils his words of wisdom.
Are we really in troubled times? No, we’re just panicking, says Dr Eliyahu Goldratt. The worldrenowned business management consultant and author of The Goal, which was recently included in The 100 Best Business Books of All Time, has always challenged people to think differently. In The Goal, written 25 years ago when he was a physicist, Dr Goldratt outlined his ‘theory of constraints’, with the premise that the rate of goal achievement is limited by at least one constraining process. He argued that only by increasing fl ow through the constraint can overall throughput be improved.
Originally directed at the manufacturing industry, its central messages hold true today. He now helps organisations to apply his advice, considered so broadly applicable that when he visited the UK this spring the 130-strong audience at his seminar included child psychologists, buyers and senior managers from the public and private sectors…Click here to continue reading
Theory of Constraints Golden Nugget
#5 – Assessing super rapid time at an early stage
(RRR)
To fully enroll the Rapid Response (RR) offer, without taking a risk of deteriorating Reliability, it is required to shrink the production buffer to less than one quarter of the industry lead time. Reaching that stage takes substantial time. Much before that stage – when load control is implemented – the lead time is shorter than half the industry lead time. Since the financial benefits of getting even a fraction of the orders in RR prices are so significant, the S&T tree recommends to start offering RR on a limited volume (less than ten percent of the capacity) immediately after load-control is put in place. We know that the company can safely offer lead times which are half the industry lead time as rapid service, but what can the company offer, at that early stage, as super-rapid service?…Click here to continue reading
Theory of Constraints Golden Nugget
#4 – Inventory target, Asymmetric time constants
(MTA; Production)
When experiencing a decline or increase of consumption for an SKU, the inventory target should be changed accordingly. But many times a change in consumption is merely a statistical fluctuation and not a trend, and therefore should not trigger an inventory target change. Trouble is, when experiencing a lower or higher consumption, we cannot foretell if it signifies a long term change that requires action (changing inventory target), or whether it is just a fluctuation.
We want to react quickly to real changes, but not to noise: If we react too fast, many noises will be treated as real changes, and we will cause undesirable oscillations in the system – frequent changes of the inventory target, back and forth. On the other hand, if the reaction will be delayed, the system will meanwhile suffer from either too high or too low inventory levels. Obviously, we need to decide on a suitable time constant for responding to change – determining for how long should the buffer stay red\green before we react by changing the inventory target.
Up to this point we… Click here to continue reading.
| Watch Dr. Goldratt’s presentation on the TOC solution to adjust inventory levels according to systematic changes in the inventory consumption rate. The robust mechanism called Buffer Management ensures relatively low levels of inventory while having high availability. Specifics of the concept are described and explained in Goldratt’s TOC Golden Nugget #4. | ||||
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Theory of Constraints Golden Nugget
#3 – Immunizing against competitors’ price reduction
(Inventory turns offer; Sales)
One of the reservations initially raised by our clients’ sales people, regarding the inventory turns offer, is that even though they (at last) see the benefits of that offer to their prospects (distributors and/or retailers – resellers), a competitor can still easily win by simply reducing prices.
Not only that there is a decisive answer for such a reservation, but its explanation deepens the sales force… Click here to continue reading.
| Watch Dr. Goldratt’s detailed presentation on defining the target market where capitalizing on the Inventory Turns concept can create a decisive competitive edge. The magnitude of the breakthrough of this solution is well described and explained in Goldratt’s TOC Golden Nugget #3. | ||||
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