Back in the 1980s — several lifetimes ago as time is reckoned in the computer industry — Eliyahu Goldratt published The Goal, his seminal exploration of the Theory of Constraints. Actually more of a management philosophy than any kind of a hard scientific theorem, the Theory of Constraints (TOC) posits the notion that companies (particularly manufacturers) can and should be able to identify something that is hindering their progress as a company. This "something," once identified, becomes the constraint on the company's performance and can then be improved upon.

TOC is basically an advanced planning and scheduling (APS) approach to improving profitability and productivity. A constraint, according to Goldratt's Theory, can be thought of as the weak link in a manufacturing process. The weakest link, obviously, should be dealt with first, i.e., changed or improved upon. If you imagine a chain, no matter how much effort is put into improving any of the other links, that chain will still be limited in strength to the capacity of its weakest link. So TOC challenges a company to concentrate its efforts on improving the weakest link (constraint) first.

Goldratt's theory goes well beyond manufacturing; in fact, a kind of sub-culture has evolved around the theory, which Goldratt (along with Jeff Cox) was canny enough to write up in The Goal as a corporate thriller rather than a straight management textbook. This article will not attempt to revisit the evolution of TOC as an accepted management philosophy (however, those curious about what Goldratt is up to these days will find him an interview with him elsewhere in this issue); instead, the focus here will be on those companies who have incorporated TOC into their commercial products, which are now in wide use among manufacturing organizations.

The "goal" is for a manufacturing company to make money, and the Theory of Constraints explains that the three ways for a manufacturer to make money are to increase throughput, reduce inventory and reduce operating expenses. "These are the three bottom-line results that a manufacturer expects to get out of an implementation of TOC-based software," explained Pratik Jain, co-founder and vice president of services with Thru-Put Technologies (San Jose, Calif.), a company that provides APS solutions based on TOC.


A five-step program

TOC, as described in The Goal, features five focusing steps that serve as the guiding logic for an organization seeking continuous improvement:

1. Identify the system's constraint(s).
   
   
2. Decide how to exploit the system's constraint(s).
   
   
3. Subordinate everything else to the above decision.
   
   
4. Elevate the system's constraint(s).
   
   
5. If in the previous steps a constraint has been broken, go back to step 1, but do not allow inertia to cause a system's constraint.

Thru-Put's software product, Resonance, uses Drum-Buffer-Rope (DBR), a TOC solution for managing production environments. DBR addresses the concept that manufacturing systems have a finite, rather than infinite, capacity. "The elegance of TOC/DBR is in its simplicity," according to Mai Thomson, a manufacturing systems manager with FMC Wellhead Equipment Division (Houston, Tex.), a producer of wellhead drilling and completion equipment. FMC used Resonance to reduce the costs of late delivery, which had risen to as much as $250,000 per day.

"With TOC, we identified those work centers that were most heavily loaded," Thomson explained. "These were our constraints. We had to subordinate and synchronize the rest of our plant to what these constraints could do. Using DBR techniques, our constraint served as the drum, establishing the beat for the rest of our plant. In front of each drum has been placed a time buffer, holding only enough inventory to keep its constraint busy for a predetermined time while protecting the constraint from process fluctuations. To eliminate unnecessary queues, material is pulled into production and tied directly to the production schedule of the constraint. This tie is the rope." All told, FMC credits TOC/DBR for saving the company $4 million in inventory costs.

Thru-Put's Jain pointed out that there are two key aspects to a successful implementation of TOC software: "One is installing and modeling the software to a manufacturer's existing operations. The second — and most important — aspect is for a company to change its policies, which will lead to changes in the measurements and ultimately, will lead to changes in behavior."

He provided an example: "Let's say I have five different departments in my company, with a manufacturing manager responsible for each department. In each department, the managers are being measured on their local efficiency, so all they're interested in is optimizing the efficiency through their department. Every manager is keeping their people busy working all the time, machining parts whether the machined parts are going to be sold or not, or just sitting in inventory. No one really cares.

"What's needed is an education process in the importance of global efficiency. Global efficiency will be reached if we optimize not each and every operation, but instead the key operation which is constraining the flow of materials through the organization. It is extremely important for a manufacturing organization to understand that if they continue to do the same thing that they were doing before they installed the TOC software, they cannot expect anything different in return."


Deploying TOC throughout the supply chain

Jain has found that Resonance works most effectively in companies where manufacturing complexity is very high, with a huge variety of product mix, a short product lifecycle, multiple levels of bills of materials, and long routing processes. Thru-Put also decided to concentrate on discrete manufacturing rather than process manufacturing.

Falling into that category is Meritor Automotive (Troy, Mich.), a supplier of drivetrain components and systems for more than 800 OEMs. Meritor is currently beta testing Resonance 5.0, which adds supply chain capabilities to its APS functionalities. For multi-plant supply chains, the software intelligently routes inter-plant demand from one plant to another, keeping track of the parts relationships between various plants and routing requests appropriately.

Jeff Waite, director of materials and logistics at Meritor Heavy Vehicle Systems (HVS), explained, "Each plant had their own material management process, so we worked with each plant independently to incorporate DBR principles. Then we created links between the plants to manage the HVS supply chains. Incorporating DBR allows each plant to get on-line quicker without having to wait to develop a process reached by consensus across our 19 plants."


The OPT approach

Scheduling Technology Group (Hounslow, Middlesex, U.K.), a company that, like Thru-Put, was founded to commercialize TOC-based software solutions, has expanded upon the theoretical aspects of TOC to develop what it calls an optimized production technology (OPT) approach. According to STG, there are nine fundamental principles in the OPT approach:

1. Balance flow, not capacity.
   
   
2. The level of utilization of a non-constraint is not determined by its own potential but by some other constraint in the system.
   
   
3. Utilization and activation of a resource are not synonymous.
   
   
4. An hour lost at a constraint is an hour lost for the total system.
   
   
5. An hour saved at a non-constraint is just a mirage.
   
   
6. Constraints govern both throughput and inventories.
   
   
7. The transfer batch may not, and many times should not, be equal to the process batch.
   
   
8. The process batch should be variable, not fixed.
   
   
9. Schedules should be established by looking at all of the constraints simultaneously. Lead times are the result of a schedule and cannot be predetermined.

A number of European companies, such as Brother Industries UK (a typewriter and word processor manufacturer), Morgan Matroc (a manufacturer of technical ceramics) and Bunzl (a manufacturer of plastic molded parts), are using STG's ST-Point software, an OPT-based solution that focuses on just-in-time material procurement and best-due-date performance.

Among other companies with TOC-based software solutions are Acacia Technologies (Lisle, Ill.) and i2 Technologies (Irving, Texas). Acacia's Quick Response Engine, an APS software system, manages demand and simultaneously synchronizes both materials requirements and production load to resource availability, with DBR constraint scheduling and optimal sequencing of production. i2's Rhythm is an intelligent supply chain management tool that includes constraint-based planning capabilities that allow it to identify and manage resource constraints throughout the supply chain for maximum throughput.

More interesting than the software tools themselves, of course, are the payoffs they can provide in the real-world. For example, Toshiba Semiconductor (Tokyo, Japan) had been experiencing long and complex planning cycle times. The semiconductor manufacturer had been plagued by a lack of integration between demand and production data; as a result, a disconnect between sales and production planning was affecting Toshiba's productivity as well as its ability to respond quickly to customer orders. Thanks to its implementation of the Rhythm solution, Toshiba has been able to reduce its planning cycle time by 66 percent, in the process improving its productivity and ability to meet customer orders on time.

Aircraft manufacturer Boeing (Seattle, Wash.) has used TOC Thinking Processes taught by the Avraham Y. Goldratt Institute (New Haven, Conn.) at its Printed Circuit Board Center. Thanks to a three-year program implementing Drum-Buffer-Rope scheduling techniques, Boeing's PCB Center saw scrap reduced from 35 percent to 3 percent, lead-time reduced 75 percent, and an increase of 100 percent in throughput. Overall, the center has reported a "significant improvement in on-time delivery" of its products. Boeing will continue to use TOC as part of its on-going improvement process.


Theory of Scheduling

For all the attention TOC has gotten in recent years, to date only a relative handful of software vendors are currently offering constraint management solutions. To get a quick leg up on their competitors, some companies are leveraging the back-up plan of partnering with existing TOC providers. An even more tried-and-true product strategy is to acquire another vendor outright, which is exactly what DataWorks (San Diego, Calif.), an ERP vendor for mid-range companies, did when it recently acquired C-Way Systems, a supplier of APS software for manufacturers. C-Way's product, the Production Reservation System, will be incorporated into DataWorks' ERP system, Avanté, to henceforth be known as Avanté APS.

The Production Reservation System (PRS) software incorporates the Theory of Scheduling, a constraint-based scientific theory developed by C-Way founders Dick Conway and Bill Maxwell at roughly the same time as Goldratt's TOC. PRS is a group of integrated scheduling applications that offers finite capacity scheduling, "what if" scenarios to instantly show the impact of changes, forward/backward bottleneck scheduling, and a message-bus architecture that will make integration with DataWorks' ERP systems effective.

Maxwell, now a senior scientist with DataWorks, explained the Theory of Scheduling: "Generally, people know where their critical resources are — what remains at issue is the question of how critical, and what tradeoffs are possible. For instance, you might know your punchpress is overloaded, but you have no idea how much an extra hour is worth to you — it could be $10 an hour, or $10,000 an hour. It depends upon how constrained you are.

"The Theory of Scheduling gets you to think about what the marginal benefit would be from having that extra hour, taking everything into consideration, not just one particular work order. It allows you to look at the situation from a system point of view. It allows you to step back a little bit and look at the big picture of not only what's going on at one work station but also where the material is coming from, and what the alternatives are. In general, the theory says that once you've invested in a piece of equipment, even if it's very, very expensive, if you're not using it, then it's not worth anything to you to have it," Maxwell observed.

The theory asks a manufacturer to consider the marginal benefit of having extra capacity, "so if you're up against a constraint, it's important to you to change it, and if you're not up against a constraint, it's really not worth a thing to change the constraint at all," he said.

"The combination of C-Way's APS applications and DataWorks' ERP solutions is key to our mid-market supply chain solution," said Stuart Clifton, DataWorks' president and CEO. "These APS tools are designed to allow customers to optimize their operations. This means they can minimize total cost and maximize overall plant operations to fill orders on time and meet their customers' supply chain demands."

Ultimately, it will be up to the manufacturing organizations rather than the software vendors to determine if TOC will be a key component of 21st Century manufacturing solutions. However, if "buzz" is any indication of potential success, the future looks very rosy. AMR Research (Cambridge, Mass.), a market research firm, has predicted that the APS marketplace will reach $3 billion by the year 2000. Given the very real advantages to incorporating TOC into an APS solution, expect to see quite a few manufacturers in the coming months extolling the benefits of constraint-based solutions.

David Blanchard is the senior editor of Evolving Enterprise

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