APICS is the premier professional association for supply chain management.

Investigating the Theory of Constraints

by APICS CEO Abe Eshkenazi CSCP, CPA, CAE | N/A 2012 | 0 | 0

APICS Operations Management NowTwo concepts that should be instantly familiar to any supply chain and operations management professional are Just-In-Time (JIT) and the theory of constraints (TOC). JIT, of course, represents the idea of reducing waste and shrinking lot sizes to their absolute minimums to increase agility. Nearly synonymous with the Toyota Production System, JIT is an essential element of lean manufacturing. Meanwhile, TOC was developed by Eliyahu Goldratt as a way of understanding complex systems by the rate of flow of materials or information. The bottleneck, or slowest part of the system, represents the constraint, which defines the maximum throughput of the entire system.

These are robust concepts with long histories, and each has its own advocates and opponents. It was quite interesting, then, to read about these ideas compared and contrasted in the real world. Business Standard, an Indian newspaper published in both English and Hindi, recently examined the role of TOC and JIT in automotive factories across the subcontinent. Satyashri Mohanty, director of the Vector Consulting Group, says the Indian automotive sector “swears by JIT in an effort to replicate Toyota’s success in Japan.” However, JIT has not been successfully implemented at some of these organizations. Instead of tighter inventories and a produce-to-demand environment, “you will find a huge mismatch of inventory__one to two months’ worth of stocks for some parts, while others are out of stock.” The answer, Mohanty suggests, is TOC.

The article goes on to highlight some of the extensive changes that TOC is bringing at factories across the Indian automotive sector. One consequence is that the previously accepted realities of forecasting and operating at full capacity are losing ground to replenishment ordering. When a downstream partner or process runs out of a specific component, quick changeovers to different platforms must be performed at the supplier to meet demand. “Things we had produced would now lie around and we would be scrambling to make something else,” says Vijay Gokhale, chief operating officer at Fleetguard, an automotive filter manufacturer. It is painful, and suppliers become caught in the same vicious cycle, he says. 

Yet, some companies have realized great benefits from a TOC implementation. At Filtrum Tools and Components, manufacturing lead times are down five days, while red-zone inventory situations have gone from 5 percent to 1 percent. As Mohanty explains, manufacturing to replenishment levels has made the company far more agile.

The right tool for the job

Finding the best solution to a supply chain or operations problem isn’t easy. Managers need to assess all the different options available and decide which methodology is the most appropriate. In different circumstances, the right answer might be lean, six sigma, JIT, or TOC. A strong background in APICS principles guides the way. 

According to the Basics of Supply Chain Management (BSCM) module of the APICS Certified in Production and Inventory Management (CPIM) program, “TOC departs from traditional organizational thinking.” While it focuses on the same goals as traditional manufacturing__to increase output and sales__it goes about it in a different way. The weakest link in the chain is the only one that demands to be strengthened: “Improving a link that is already strong will not make the whole chain stronger.”

As always, we are very interested in your thoughts and opinions about this subject and the entire APICS body of knowledge. Discuss JIT, TOC, and any other manufacturing philosophy in the APICS Supply Chain Channel. 

Of course, the other interesting part of the article is its focus on manufacturing in India, an area that tends to receive less attention from Westerners than China, for example. However, India is growing rapidly, and articles such as the one in Business Insider demonstrate that many Indian companies are experiencing a need for supply chain and operations management insights and strategies. To that end, APICS will host its first conference in India: APICS Asia Supply Chain & Operations 2013, April 4–5, in Mumbai. This event will feature thought leaders from around the world demonstrating proven methods of creating value and strengthening relationships across the extended supply chain. 

I encourage you to save the date, and to inform your colleagues and counterparts in the region about this networking and educational event. To learn more and to sign up to receive alerts, including when to register, visit the APICS website.

Continue the discussion on the APICS Supply Chain Channel.

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