Ryoma Shiratsuchi - 12 TOCPA Conference - Eng - April 2014 - Russia - New - FIN

12th International Conference of the
TOC Practitioners Alliance TOCPA

www.tocpractice.com
April 26-27, 2014 Moscow, Russia
How to Exploit Both Constraints

Market and Capacity
through a Case Study of MTO and MTA
Implementation in a V Plant
Ryoma Shiratsuchi, Juntos, Japan

April 26th, 2014
Ryoma Shiratsuchi
Ryoma Shiratsuchi is a manager of Juntos,Co.Ltd.,
and has over 7 years of TOC experience as practitioner,
trainer and consultant.
Since 2007, he has been working with >10 companies
for implementing TOC logistical solutions MTO, MTA
and CCPM.
In 2008-2011, he was a faculty member of Goldratt
Schools, and participated in writing Goldratt Schools
book TOC for Production Management (2010)
He taught Operations Management and Project
Management as a lecturer at Education & Research
Center of Manufacturing, Kyushu University.
ryoma.shiratsuchi@gmail.com
www.juntos.co.jp/consulting/
He is also one of the Founding members of TOCPA

TOC Practitioners Alliance.
www.tocpractice.com
12th International Conference of the TOC Practitioners Alliance - TOCPA
Agenda
1. Market Constraint vs. Capacity Constraint
2. Case Study
i.
MTO Implementation
ii. Exploiting the Internal Constraint

iii. Results
iv. MTA Implementation
3. Lessons Learned
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Constraint(s)
CONSTRAINT(s):
Factors or elements that determine how much
the system can accomplish
Capacity
Market
Lead-time
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Contradiction?
If a company has Market Constraint, does it mean that

the company has no Capacity Constraint?
Market Constraint Too few customer orders

Capacity Constraint Too many customer orders
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Primary and Secondary

The reality shows that many manufacturing companies
have both constraints at the same time.
Therefore, even though we know that the market is always
the primary constraint, the suggested solution should
address the capacity problem as it is the secondary
constraint.
If we want to satisfy market demand all the time, we need to

ensure enough protective capacity even of a CCR.
However, we have a dilemma here.
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Dilemma/ Conflict
Market demand
is well exploited
Accept customers
request that kills
CCR capacity
Manage
production well
C
CCR capacity is
well exploited
D
Do not accept
customers request
that kills CCR
capacity
What kind of customer request is the biggest capacity killer?
Urgent order!
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Urgent Order
Urgent order is generated when:
1. Not enough buffers for the rest of the flow
2. Not enough capacity available for priority lane
The more urgent, the bigger the damage on capacity.
Production does not want to have urgent orders.

However
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Reliability
Reliability is the ability to keep what is promised.
Promising is done by giving a commitment to a customer.
And it makes customers expectation.
Deeper the relationship with the customer, higher the
customers expectation. That means regular customers are
not satisfied only by meeting on-time delivery.
Reliability will be achieved by:
1. Ensuring on-time delivery of the promised orders
2. Ensuring availability to give a good response to
urgent orders
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Case Study
Company profile:
Taika Industry Co. Ltd.

Founded in 1957
Sales: 40 million Euro
# of Employee: 150 people
2 plants in Japan
Product: Stainless steel sheet
Mode of Supply: Mainly MTO (20% of work orders are released by
MTS for short delivery to specific customers)
The market wants:

Shorter response time with smaller quantity
Small size products
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Supply Chain Overview
Distributer
Plant K
RM
Coil Shearing
(CS)
User
Sheet Shearing
(SS)
Scope of the implementation

Plant N
Distributer
Polishing
FG
User
Other Supplier
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Core Conflict Cloud
Take actions to
decrease yield rate
Ensure flexible
response to
customers demand
(Ex. Accept orders with a short

delivery time/small quantity)
Manage
production well
Control cost
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Do not take actions to

decrease yield rate
SDBR Implementation
MTO Injections 1-4 are implemented and therefore:
The flow is improved.

No excess WIP and reduced Production Lead Time (PLT) from
4.8 days to 1.5 days
Open work orders (WOs) are controlled.
The management monitors Length of Stay (LoS) and the number
of Red and Black WOs
The flow was improved. However, the following capacity

problems (UDEs) still existed while there was no increase
in sales at that moment:
Often do not have sufficient capacity to meet all demands

Too much overtime of the resources of Sheet Shearing (SS)
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Observations
Revealed hidden excess (protective) capacity of the CS
resources (as Non-CCR) while the SS resources had no
excess capacity.
We can improve the flow by choking the release. But, it
does not always bring higher productivity.
Littles Law: TP = WIP/CT
The company had given a quotation of delivery date with

consideration for the available capacity of the production.
Yet, the market wants for the company to meet standard
lead time all the time.
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Identify the Internal Constraint

Started implementation of MTO Injections 6-7 with the CCR
the operators of Sheet Shearing (SS)
The team conducted a work analysis for the CCR and
found some activities that could be offloaded.
4%
10%
5%
7%
2%
19%
43%
Machine Set-up
Roughing Cut
Cut Process
Material Preparation
Packing
Shipping
Material post-preparation
Other
10%
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Analyze the Situation

The production had stock of fixed-scale items in front of
SS that was directly shipped to customers (as finished
goods) and also served to SS as a material.
These stock items were produced by MTS work orders.
Stock of fixed-scale items
Distributer
RM
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CS
SS
User
Decide How to Exploit the

Internal Constraint
Suggested way
Current way
The team suggested the following idea with the aim of

exploiting the capacity of the CCR (SS).
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MTS
WO
MTO
WO
CS
SS
Roughing
Cut
Fixed-scale
Cut
Cut
Process
MTO
WO
CS
Case-by-case
Cut
SS
Roughing
Cut
Cut
Process
Yes, BUT
SSs capacity will be ensured

IF
Load on CS will
be increased
CS will be overloaded!
is implemented
FG stock of Fixed-scale
items will be redundant
FG stock of
Fixed-scale items
will be reduced
Yield rate
will be
decreased!
Our responsiveness for short

delivery times will go down!
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Trimming NBRs
CS has excess capacity.
AND
SSs capacity will
be
ensured
Mechanics to monitor the load/
CSs capacity is in place
IF
Load on CS will
be increased
is implemented
CS will be overloaded!
Mindset:
Flow is no.1 consideration
FG stock of Fixed-scale
items will be redundant
FG stock of
Fixed-scale items
will be reduced
Yield rate
will be
decreased!
Production LT is reduced
significantly
Our responsiveness for short
delivery times will go down!
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Subordinate to the Decision

The company decided to stop placing MTS WOs for
building FG stock of fixed-scale items.
Resources of CS have enough protective capacity. But,

the suggested idea demands load increase on them.
When exploiting the capacity of a CCR, we need to ensure

enough protective capacity of Non-CCRs.
Therefore, in order to fully focus on the internal

constraint, we have to monitor and manage the load on
Non-CCRs to prevent them from being overloaded.
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Monitoring the Load
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Results
Inventory Turns
Net Profit
37
29
26
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Results
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Next Challenge
The improved performance of the production is
recognized by the market, and it led to receiving more
customer orders.
Sales people are happy with the excellent service level of

the production through the TOC solution.
However, the increased demand starts to cause the

resources of CS to become CCR.
Should we return to the previous way?
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MTA Implementation
Distributer
Plant K
RM
Coil Shearing
(CS)
User
Sheet Shearing
(SS)
Plant N
Distributer
Polishing
FG
User
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Why MTA?
The Managing Director asked me to conduct a Management
Workshop to introduce the concept of managing stock the
TOC way.
Plant N gives purchase orders (POs) to Plant K, and hence
the raw materials (RMs) are supplied by MTO.
Due to the fact that their supply lead time is longer than
customers tolerance time, some POs are placed by using a
forecast.
Consequently, Plant N has both shortages and excess
stock of RMs, and it leads to placing urgent orders that
kills the capacity of CS resources of Plant K.
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MTA Implementation
Carefully selected 17 SKUs as MTA items and has kept
100% availability for one month while reducing on-hand
stock by 30%.
During the implementation, we had following difficulties:
Minimum batch policy from quality aspects
Recorded consumption did not represent the real demand.

RMs are withdraw when sales people tentatively book necessary
stock for fictitious orders based on a forecast.
Too big quantity of consumption within a short period
Now added 7 SKUs, hence 24 SKUs are supplied by MTA.
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DBM Report
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Lessons Learned
If the market wants both Reliability and Responsiveness,
focusing on Lead-time Constraint provides a bridge
between Market Constraint and Capacity Constraint.
Establishing the mindset that flow is no.1 consideration helps the

management to make decisions to give more explicit priority to
the CCR for the sake of better utilization of its capacity.
With a balanced flow, the additional CCR capacity obtained by
offloading can be served as protective capacity for reducing
overtime and/or receiving urgent orders while securing reliable
response time to the market.
It is necessary to monitor the load of not only a CCR but

also Non-CCRs in terms of exploiting the CCR capacity
with a sense of security.
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Summary
1. Build a new mechanism to balance flow based on Market
Constraint so that the system establish the right mindset.
Immediate and significant reduction of PLT has a strong impact

on the managers perception for this direction.
2. Use BM statistics to identify the internal constraint (as

secondary constraint).
3. Analyze the wasting time due to the current way of dealing
with the internal constraint and develop the solution
aimed to exploit it.
Additional TOC Injections may be required
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Ryoma Shiratsuchi - 12 TOCPA Conference - Eng - April 2014 - Russia - New - FIN

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12th International Conference of the

TOC Practitioners Alliance TOCPA

April 26-27, 2014 Moscow, Russia

How to Exploit Both Constraints

Ryoma Shiratsuchi, Juntos, Japan

He is also one of the Founding members of TOCPA

12th International Conference of the TOC Practitioners Alliance - TOCPA

ii. Exploiting the Internal Constraint

12th International Conference of the TOC Practitioners Alliance - TOCPA

12th International Conference of the TOC Practitioners Alliance - TOCPA

If a company has Market Constraint, does it mean that

Market Constraint Too few customer orders

12th International Conference of the TOC Practitioners Alliance - TOCPA

Primary and Secondary

If we want to satisfy market demand all the time, we need to

However, we have a dilemma here.

12th International Conference of the TOC Practitioners Alliance - TOCPA

What kind of customer request is the biggest capacity killer?

12th International Conference of the TOC Practitioners Alliance - TOCPA

The more urgent, the bigger the damage on capacity.

Production does not want to have urgent orders.

12th International Conference of the TOC Practitioners Alliance - TOCPA

12th International Conference of the TOC Practitioners Alliance - TOCPA

Taika Industry Co. Ltd.

The market wants:

12th International Conference of the TOC Practitioners Alliance - TOCPA

Supply Chain Overview

Scope of the implementation

12th International Conference of the TOC Practitioners Alliance - TOCPA

Core Conflict Cloud

(Ex. Accept orders with a short

Do not take actions to

12th International Conference of the TOC Practitioners Alliance - TOCPA

The flow is improved.

The flow was improved. However, the following capacity

Often do not have sufficient capacity to meet all demands

12th International Conference of the TOC Practitioners Alliance - TOCPA

Littles Law: TP = WIP/CT

The company had given a quotation of delivery date with

12th International Conference of the TOC Practitioners Alliance - TOCPA

Identify the Internal Constraint

12th International Conference of the TOC Practitioners Alliance - TOCPA

Analyze the Situation

12th International Conference of the TOC Practitioners Alliance - TOCPA

Decide How to Exploit the

The team suggested the following idea with the aim of

12th International Conference of the TOC Practitioners Alliance - TOCPA

SSs capacity will be ensured

Our responsiveness for short

12th International Conference of the TOC Practitioners Alliance - TOCPA

12th International Conference of the TOC Practitioners Alliance - TOCPA

Subordinate to the Decision

Resources of CS have enough protective capacity. But,

When exploiting the capacity of a CCR, we need to ensure

Therefore, in order to fully focus on the internal

12th International Conference of the TOC Practitioners Alliance - TOCPA

Monitoring the Load

12th International Conference of the TOC Practitioners Alliance - TOCPA

12th International Conference of the TOC Practitioners Alliance - TOCPA

12th International Conference of the TOC Practitioners Alliance - TOCPA

Sales people are happy with the excellent service level of

However, the increased demand starts to cause the

Should we return to the previous way?