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THEORY OF CONSTRAINTS Performance Measurement Financial1. Profit an absolute measurement in dollars2. Return on investment a relative measure based on investment3. Cash flow a short-term survival measurement Performance Measurement Operational 1. Throughput the rate at which money is generated by the system through sales 2. Inventory all the money that the system has invested in purchasing things it intends to sell 3. Operating expenses all the money that the system spends to turn inventory into throughput Productivity does not guarantee profitability Has throughput increased? Has inventory decreased? Have operational expenses decreased? Earlier, we discussed balancing assembly lines in JIT. The goal was constant cycle time across all stationsSynchronous manufacturing views constant workstation capacity as a bad decision a waste.u Rather than balancing capacities, the flow of product through the system should be balanced.u Also, it may not be necessary or advisable to re-layout the plant as in the JIT solution. Some Capacity Related Terminologyu Capacity Available time for productionu Bottleneck Work Center (BNWC) Capacity is less than demand placed on resourceu Nonbottleneck Capacity is greater than demand placed on resourceu Capacity-constrained resource (CCR) Capacity is close to demand placed on resource, almost a BNWC. TOC RULES OF PRODUCTION SCHEDULING u DO NOT BALANCE CAPACITY - BUT BALANCE FLOW.u AN HOUR LOST AT A BOTTLENECK IS AN HOUR LOST FOR THE ENTIRE SYSTEM.u AN HOUR SAVED AT A NONBOTTLENECK IS A MIRAGE.u BOTTLENECKS GOVERN THROUGHPUT AND INVENTORY.u TRANSFER BATCHES AND PROCESS BATCHES DO NOT HAVE TO BE THE SAME.u PRIORITIES CAN BE SET ONLY BY LOOKING AT THE CONTRAINTS OF THE SYSTEM.u THESE RULES ARE IN STARK CONTRAST TO JIT AND JOB SHOPS.THEORY OF CONSTRAINTS u IDENTIFY SYSTEM CONSTRAINTS.u DECIDE HOW TO EXPLOIT CONSTRAINTS.u ABOVE STRATEGIES ARE DOMINANT.u INCREASE CAP OF BNWC AS NECESSARY.u REPEAT THIS ANALYSIS EFFECTIVELY ELIMINATING CONSTRAINTS.u ALWAYS KEEP THE BNWC BUSY, IT DETERMINES THE OUTPUT OF THE FIRM.Drum, Buffer, RopeABCDEFBottleneck (Drum)Inventorybuffer(time buffer)Communication(rope)Market Typical FINAL Questions.1. Eli Goldratt developer of TOC feels that the goal of a firm should be to make money, true or false?2. From an operations standpoint, one of the goals of the firm under the Theory of Constraints is to increase throughput while simultaneously reducing inventory and reducing operating expense, true or false?3. Under Theory of Constraints the term Productivity is defined as all those actions that bring a company closer to its goals, true or false? The answer is TRUE.4. Eli Goldratt feels that the goal of a firm should be to maximize the TOC concept of productivity, true or false? The answer is TRUE.Alternative 4, Eli Goldratt feels that the goal of a firm should be to maximize the traditional measure of individual work center productivity, true or false? The answer is FALSE.5. Which of the following is an Eli Goldratts Theory of Constraints concept?A. Identify system constraintsB. Decide how to exploit system constraintsC. Elevate system constraintsD. All of the aboveE. None of the above6. Under the Theory of Constraints which of the following are Operational Measurements that can be used to measure the firms ability to make money?A. Net profitB. ThroughputC. Return on investment D. All of the aboveE. None of the above7. Under the Theory of Constraints which of the following are Operational Measurements that can be used to measure the firms ability to make money?A. InventoryB. ThroughputC. Operating expenses D. All of the aboveE. None of the above8. Which of the following is an approach to dealing with a bottleneck in a TOC application?A. Keep a buffer inventory in front of it to make sure that it always has something to work onB. Always use Johnsons sequencing rules to balance things outC. Dont worry about the CCR it will take care of itselfD. All of the aboveE. None of the above9. Which of the following are important concepts in TOC?A. BNWCB. RopeC. DrumD. BufferE. All of the above10. In developing the Theory of Constraints Eli Goldratt suggested several rules to guide production planning. Which of the following is (are) Goldratts Rule of Production Scheduling for the Optimized Production Technology?A. An hour saved at a nonbottleneck is a mirageB. Bottlenecks do not govern throughput or inventory in the systemC. A process batch should not be variable along its route or in timeD. All of the aboveE. None of the above11. Which of the following are included in Eli Goldratts Theory of Constraints concept?A. Identify system constraintsB. Decide how to exploit system constraintsC. Elevate system constraintsD. All of the aboveE. None of the above12. Which of the following is a Goldratts Rule of Production Scheduling for TOC?A. Do not balance capacity, balan

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