Applying TOC (Theory of Constraints) in manufacturing operations

Efficiency and productivity have received greater attention for performance measurement. However, E.M. Goldratt emerged as one of the greatest adversaries in the use of efficiency for performance measurement. We use a lot of charts, graphs and analysis for depicting operations scenario, but it fails during implementation in real world situation. Bottlenecks exists everywhere, although they are used primarily in manufacturing operations. The current article focuses primarily on manufacturing operations, but it is applicable even for services. 

According to Goldratt, there are three variables that can be used to control and measure manufacturing operations i.e. throughput, operational expense and inventory. He argued that any activity in the organisation can be grouped under the three categories. Throughput is the rate at which system produces output. Operational expense is the total expense incurred in running of manufacturing operation. And inventory represents all the amount that has been tied up in assets which the organisation intends to sell. 

Next, and important concept is identification of bottleneck which hinder the progress of entire chain. A chain is as strong as its weakest link, thus if one identifies the weakest link or bottleneck, than efforts need to be taken in improving the efficiency. This can be accomplished by investing resources and focusing upon improvements in bottleneck operations. At any given point of time, there is one bottleneck and upon resolving the speed of such bottlenecks, it moves. Hence, bottlenecks are moving within the organisation. It might also be the case that bottleneck moves from manufacturing and into sales and marketing operations. For all it is a continuous improvement and need is to identify the bottleneck. A bottleneck operation in the shop floor usually relates to a work station which has large queue of materials in front of it and usually affects succeeding operations. 

A typical manufacturing environment is characterised by preceding relationship and statistical fluctuations. The operations are always carried out in a predetermined sequence and have associated variance in processing times. Because of the effect of these two factors, uncertainty prevails and it becomes necessary to identify the most influential operation which determines throughput. More and more a system tries to move towards 100% balancing, there exists greater chances in failure of the system. Thus, it is sometimes fine to have resources with slack and substantial amount of inventory. Since, faster response in serving the customers will result in improving customer satisfaction and bringing new customer.        

Summarising steps for applying TOC in manufacturing operations are:

Step 1: Determine precedence relationship between operations
Step 2: Identify bottleneck or weakest link in the operation
Step 3: Continuous improvement, redistribution / addition of resources and outsourcing  

Step 4: Go to step 1