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Categories: Theory of Constraints
Tools to Identify Constraints Part 2

Tools to Identify Constraints Part 2

By Bob Sproull

Review

In my last post, we discussed several simple actions to help identify a system constraint that exists within many manufacturing facilities. We also presented four tools you can use to help you identify your constraint as follows:

  • Process- flow diagram
  • Time analysis
  • Load analysis
  • Cost-utilization diagram

And finally, we discussed the first three tools—the process-flow diagram, time analysis, and load analysis.

In today’s post, we will discuss the cost-utilization diagram and how it helps identify the system constraint in your organization. I mentioned in my last post that there is a book written by (1)Boaz Ronen and Shimeon Pass entitled Focused Operations Management – Achieving More with Existing Resources, that I highly recommend for everyone trying to identify, remove or reduce the impact of constraints.

Cost-Utilization Diagram

A cost-utilization (aka, CUT) diagram of a system is a simple graphic tool that was originally developed to analyze computer systems (Borovitz and Ein-Dor, 1977) and later adopted for analysis of system constraints (Ronen and Spector, 1992). A CUT diagram is a simple bar graph or histogram whereby each bar represents one of the resources. The height of the bar represents the load on the resource (0 to 100%) while the width is the cost of the resource, based on the marginal cost of one unit of the resource. To understand the value of a CUT diagram, examine the process in the figure below. Also, consider the load and resource cost of the various departments in the table below.

Resource

Load (%)

Cost of Resource ( $K )

Department A

55

100

Department B

80

50

Department C

45

40

Department D

65

100

Department E (Constraint)

100

280

     

Load Analysis with a Constraint

The CUT Diagram in the figure below uses the data from the above table. It demonstrates that the constraint is Department E, as it is the only one that is operating at maximum capacity (i.e. 100% Utilization). The CUT Diagram also demonstrates that the constraint is very expensive when compared to the four other departments. For example, suppose Department E was using an expensive CNC machine while the remaining departments were using inexpensive the equipment.

When this situation is at play, there are some things in need of attention:

  • Management must decide if the constraint should be an internal resource or, whether strategically and economically, it should operate at excess capacity
  • When a system like this has excess capacity in the non-constraint operations, the company should consider selling, or even renting out this excess capacity in an external market
  • Management must evaluate the selling price of products that use constraint resources

There are other situations to evaluate. For example, suppose all of the resources have excess capacity meaning that the market is the constraint. In this case, management should consider taking on additional work, making certain that the new work does not create another constraint. The CUT diagram is also a useful tool for assessing the impact of a make or buy decision. Additionally, the tool is useful for choosing the products to subcontract to an outside contractor.

The most common constraint for a business is the market constraint. However, internal constraints occur frequently. Using these four tools can assist in the endeavor to find and remedy a constraint.

Next Time

In my next post, we will begin a new discussion on a different improvement tool to use to help optimize flow. As always, if you have questions or comments about any of my posts, leave a message and I will respond.

Until next time.

Bob Sproull

References:

[1] Boaz Ronen and Shimeon Pass, Focused Operations Management – Achieving More with Existing Resources published by John Wiley & Sons, Inc., 2008

Bob Sproull

About the author

Bob Sproull has helped businesses across the manufacturing spectrum improve their operations for more than 40 years.

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