Keywords: supply chain management, theory of constraints, thinking process, system approach 1. Theory of constraints TOC — the idea The Theory of constraints TOC is a philosophy [1] that implemented significant improvement in management through focusing on a constraint that prevents a system from achieving a higher level of performance. The Theory of constraints is a concept that emphasizes the role of constraints in limiting the performance of an organization.
A constraint [2] is as any element or factor that limits the system from doing more of what it was designed to accomplish i. A constraint can be capacity, market, or time constraint. Constraints interact to reduce throughput. Moreover, the key to the theory of constraints is to assume that any system can be presented in the form of a chain of events, or a network of chains [3].
This paper is aimed to present a system approach known as the thinking process TP of the Theory of constraints in order to identify constraints and critical success factors in supply chain management, and to understand causal relationships between these factors. TOC knowledge covers the following areas of management [4]: operation production management Make to Order MTO environment and Make to Availability MTA ; Project Management — CCPM — Critical Chain Project Management; distribution and supply chain management supply chain integration, inventory management, distribution, reverse logistics, just in time deliveries, storage and end user distribution, pick and pack, track and trace ; finance and measurements Throughput Accounting ; sales management; marketing developing market offers , managing people; strategy and tactics developing a company.
In literature [5] one can find simple example that explains the idea of thinking process in the theory of constraints. Consider situation where five ships enter the port the same time. Each ship requires 5 person-days to unload the delivery. Each owner wants his ship unloaded as soon as possible. The port resources are five people to unload the ships.
The simplest decision is to assign one worker to each ship, and in that case, if started right away 1 university professor, Czestochowa University of Technology jng zim. But using TOC thinking process means putting all five resources on first ship the first day, all five resources on second ship the second day, third ship the third day etc. Table 1 shows, that the result of the process is much better. Table 1 Unloading of ships Ship New days Old days Saved 1 1 5 4 2 2 5 3 3 3 5 2 4 4 5 1 5 5 5 0 The example illustrates the process of overcoming the constraints, and worth noticing is the fact, that it refers to situation where nobody loses, four of five clients ships are done sooner on zero extra costs.
A compromise is not usually a win-win solution. The working principle of TOC provides a focus to ensure effective ongoing improvements. The principle consists of five focusing steps [7]. The steps are: 1. These may be physical eg. It is important to identify these constraints and also necessary to prioritize them according to their impact on the goal s of the organization. If the constraint is physical, then the objective should be to make the constraint as effective as possible.
A managerial constraint should not be exploited but be eliminated and replaced with a policy which will support to increase throughput. Subordinate everything else to the above decision. This means that every other component of the system non-constraints must be adjusted to support the maximum effectiveness of the constraint.
If existing constraints are still the most critical in the system, rigorous improvement efforts on these constraints will improve their performance. As the performance of the constraints improve, the potential of nonconstraint resources can be better realized, leading to improvements in overall system performance. Eventually the system will encounter a new constraint. If in any of the previous steps a constraint is broken, go back to step 1. Do not let inertia become the next constraint. TOC is a continuous process and no policy or solution will be appropriate or correct for all time or in every situation.
It is critical to recognize that business policy has to be refined to take account of environment changes. The larger portion of this In short, the traditional approach that investment for a supply chain is raw materials or assumes each link can be managed as a single purchased parts. This definition excludes the entity fails to maximise the benefits of added value of labour and overheads.
In a collaboration. Operating expense OE is supply chain profitability. Only those initiatives all the money the supply chain spends in that focus on the constraint s and result in turning investment into throughput. This improvement in its performance will have a includes direct labour and overheads and other significant positive effect on supply chain fixed expenses that would be incurred even it performance.
The chain the constraint would be whatever keeps the members need to rank the increase of chain members from generating more profits. In addition otherwise infinite profit would result. Thus the to this scale of importance, all other local or dilemma of supply chain collaboration can be departmental metrics are less important than resolved if the chain members can identify and the global, or supply chain-wide metrics.
In terms of money, throughput is future. Agreement about the types and or: locations of the constraint s is crucial for initiating supply chain improvement. Physical constraints can The primarily profitability measures for the take the form of raw material shortages, limited supply chain can be determined directly from capacity resources, limited distribution T: net profit NP , productivity P , capacity, and lack of customer demand.
The supply chain net profit is equal to procedures, measures, training, and operating throughput minus operating expenses for a policies that guide the way in which decisions given period or: are made.
The location of a constraint can be either internal or external. Physical constraints are often The supply chain return-on-investment is net driven by human behaviour i. In this case, the retailer chain and thus result in negative impacts on and the supplier need to change this supply chain performance. Because people are replenishment policy to reflect the actual comfortable with regular habits and predictable consumption rate in which the supplier outcomes, they often continue to use outdated replenishes the stores based on number of policies and inappropriate metrics in making products sold.
This means optimising the Simatupang and Sridharan, Besides existing capacity at the constraint, which is outdated policies and inappropriate metrics, frequently wasted by making and selling the flawed mental models and past training can be wrong mix of products and by improper rules constraints that affect human behaviour. Counterproductive decisions and actions cause The chain members need to ensure that the resources to be used in ways which do not identified constraint is working on the right maximise profitability.
It is common that products to maximise profits. For example, if physical constraints reflect, and are sustained product availability is the constraint, the by, obsolete policies and inappropriate metrics. The third step is to subordinate all other current supply chain profitability is determined activities to the constraint. This means to and dictated by the constraint that exists within change traditional rules and metrics that it; the profitability can be improved only if the discourage all other activities to support constraint is permanently removed; and when decisions to exploit the constraint.
The fourth the constraint is removed, the supply chain step is to elevate the constraint. This means to moves to a higher level of profitability, and increase the capacity of the constraint to a immediately encounters another constraint. For instance, a supplier can elevate This process continues again to find and the capacity constraint by redesigning products manage a new constraint. The formal to allow postponement that provides fast procedure of the focusing process is known as response to changing customer needs Lambert the five-step-focusing process Goldratt, et al.
The fifth and last step of the a. The first step is to identify the focusing process is to prevent inertia from constraint in the supply chain that limits supply stopping the process of continuous chain throughput.
The chain members must improvement. If the constraint is broken in step focus on the constraint as the performance of four, a new constraint may appear somewhere the entire supply chain depends on it. As else in the supply chain. It process. However, in measures of the supply chain and the many cases, the resource constraint is caused by five-step-focusing process reveals that there local optima rules that attempt to reduce costs are two implications for the chain members.
For The first implication is the importance of example, the retailer often operates based on modifying the improper business rules min-max inventory levels for each product. If amongst the chain members. This means that because a small order size is not sufficient to fill once the retailer has obtained payment from the truck.
This incentive scheme encourages both parties to focus on The constraint-based approach proposes that throughput because their individual dealing with replenishment rules of matching profitability depends on their collaborative supply and demand at different points of the efforts to increase supply chain throughput.
In the make-to-stock supply chain, the time contribute to supply chain profitability: constraint is often end customers who come to net profit NP , return on investment ROI , the store to buy products. In order to exploit and cash flow CF. The chain members will this constraint, the supply chain needs to have be enabled more easily to understand the the right product in the right place at the right impacts of operational decisions on time Fisher, The idea is to authorise the throughput, investment, and operating chain member with the best knowledge and expense because NP, ROI, and CF can be intuition to make local decisions that improve formulated in terms of throughput, supply chain profitability.
In the retailer and investment, and operating expense. In doing so, the mismatch delivery? Market relation to supply chain profitability. Corrective consumed at the stores.
The finished inventory action is taken to decrease or increase the at the next level of the supply chain serves as a buffer when required.
As the buffer size buffer. The supplier then uses buffer reflects the consumption pattern, the supplier management to identify any changes in the should watch the consumption of the buffer as market demand because the consumption rate the basis to determine appropriate actions. The green zone and so on. The red zone water supply system analogy as a reference represents the high probability of losing sales system to refer to the supply chain and therefore requires emergency delivery.
The water If the buffer of the yellow zone has begun supply system does not store water at to be consumed, then the supplier needs to customers' homes; rather, customers draw watch more closely the consumption of the water only when they need it.
Instead, it has buffers as the activities are evolving. It then several focal points to store water to absorb needs to plan replenishment to the top of the the fluctuations of water consumption.
Once Similarly, the supplier can strategically place the red zone has been penetrated, the supplier buffers at key focal points to protect should take action to speed up the throughput so that holistic performance is replenishment until the buffer has reached enhanced significantly.
Figure 2 depicts that the top of the green zone. The its retailer sites. The supplier can focus on store holds just enough on-hand stocks i. The supplier time Blackstone, Second, the supplier watches the buffer and replenishes it with may enjoy lowered inventory levels due to what has been sold.
The formula for retailer demand risk pooling Goldratt, The warehouse holds only nearer to the time of purchase in order to enough inventory to satisfy the expected reduce costs from risk of inventory and demand demands of the stores during the time it takes uncertainty Lambert et al. The warehouse buffer more demands before deciding on how much level equals the Peak monthly consumption of inventory is delivered to any particular retailers.
The manufacturer holds thereby could dispatch a full truck Stenzel and just enough inventory to replenish what the Stenzel, First, global performance metrics shows the indicators of Supply chain collaboration assumes a fair supply chain profitability such as net profits, amount of trust amongst the partners. For return on investment, and cash flow. Second, example, the retailer trusts the supplier to competitive factors represent product and manage its inventory and the supplier trusts the service features recognised by the market as retailer to effectively serve the market with its superior compared to competitors such as products.
The success of supply chain service, quality, price, and fast response. These collaboration thus depends very much on how factors support the supply chain goal of each party abides by the collaborative scheme. Third, individual to guide participating members in evaluating performance metrics are important to allow whether or not their actions are truly each participating member to be evaluated as contributing to the global goal Goldratt et al.
Finally, the Collaborative performance metrics individual chain member also monitors consist of a set of metrics that specify how supporting metrics such as daily reporting on the progress of collaboration is evaluated at constraint rate, status of all buffers, customer the level of both the individual link and the satisfaction and loyalty, and identification of overall link.
The authors propose a hierarchy of Individual performance metrics should be collaborative performance metrics to assess able to induce the chain members to follow a progress towards a supply chain goal. As shown global plan of the supply chain as a whole, in Figure 3, the chain members monitor the which is to deliver the right products at the right progress of supply chain profitability, time to the right place i. Since can judge the delivery performance of its global operating metrics are measured by suppliers by using the TDD that equals the sum throughput, inventory, and operating expenses of sales dollars times the number of days' delay.
Each player particular area, then the chain members attempts to reach zero TDD with as few IDD as should measure their individual performance possible. In the same way, the supplier can use in terms of throughput, inventory, and TDD to judge the delivery performance of its operating expense Goldratt, b.
There vendors. The supplier will be responsible for the are three individual performance metrics that results as measured by TDD and IDD. In this can be used by the individual member way, IDD and TDD are performance metrics to measure how well it executes the global that help participating members to have plan: throughput-dollar-days TDD , uniformity of accountability. This can be done on the Account page.
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