Plant Improvement by TOC (Theory of Constraints)
-The Goal: A Process of Ongoing Improvement-
It is believed that business world is continually changing. To cope with the changing and to survive the business competition, The Goal shows how to succeed plant improvement within short period by the Theory of Constraints (TOC). This paper focuses on the improvement process the plant made and the contents are as follows: (1) Understanding the company goal, (2) Organizational value index, (3) Use of the constraint resources, (4) The Five Steps of TOC, and (5) Conclusion.
I. Understanding the company goal
The base of the theory of constraints is that nearly all products and services are created through a series of linked processes (Cecil & Robert, 2008). Each process step has a specific capacity to produce output or take in input. In every case, there is at least one process step that limits throughput for the entire chain, and this process step is called the constraint. Increasing the capacity at any other process step except the constraint will not increase throughput for the entire process chain. Therefore, the theory of constraints is the idea that the system must be seen as a whole, not individual process. When the system is analyzed as a whole, it is possible to see the effects of the decisions in relation to the goal. One example was shown by Alex’s explanation of the installment of robots in the plant. Alex tried to make it clear to Jonah that the robots were increasing the plant’s productivity. Even though efficiencies increased by thirty six percent, what Alex did not recognize is that it only increased in that one area. Jonah explained the increase in production by those robots was only contributing to build up more assembled inventory, which moved them away from their goal. What is the company’s real goal? It is to make money. Those factors of technology, quality, the prime cost, market share, and customer satisfaction are only means to the goal. The increase in production meant more money tied up in inventory and less money being spent on improvements to their system. The side effect of problem-by-problem solutions is that when seen individually, they do not allow an organization to see the consequences of their actions. Those who chose to follow TOC begin thinking in a new way that allowed them to see their operations as a system instead of individual processes. They used a five-step process that allowed them to find the underlying problem in their system, and this will be explained later in this paper.
II. Organizational value index
Whether a company’s activities are beneficial or not is evaluated by whether the company earns money. Then, how do we know the company is really earning money? Only productivity and efficiency are not appropriate to explain company is earning money. Therefore, three measures - throughput, inventory, and operational expense - are used in TOC to explain the company is really earning money (Goldratt, 2004). Their definitions are as follows: 1. Throughput: the rate at which the system generates money through sales 2. Inventory: all the money that the system has invested in purchasing things, which it intends to sell. 3. Operational expense: all the money the system spends in order to turn inventory into throughput.
One thing that we need to look close is those three measures are all measured in dollar amount. In other words, to explain the company’s goal, which is earning money, TOC defines throughput as money that comes into the system, inventory as money that is locked in the system, and operational expense as money that should be paid.
According to the TOC, a company earns money based on a sale not on a production. The company earns money when the products really sold to customers. Moreover, TOC do not consider the value added to raw material through direct labor as the value of the stockpile. Accordingly, all employees’ hours, whether they are...
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