-
Notifications
You must be signed in to change notification settings - Fork 10
/
s11-08-identifying-and-managing-bottl.html
160 lines (143 loc) · 13 KB
/
s11-08-identifying-and-managing-bottl.html
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
100
101
102
103
104
105
106
107
108
109
110
111
112
113
114
115
116
117
118
119
120
121
122
123
124
125
126
127
128
129
130
131
132
133
134
135
136
137
138
139
140
141
142
143
144
145
146
147
148
149
150
151
152
153
154
155
156
157
158
159
160
<!DOCTYPE html>
<html>
<head>
<meta charset="UTF-8">
<link href="shared/bookhub.css" rel="stylesheet" type="text/css">
<title>Identifying and Managing Bottlenecks</title>
</head>
<body>
<div id=navbar-top class="navbar">
<div class="navbar-part left">
<a href="s11-07-cost-plus-pricing-and-target-c.html"><img src="shared/images/batch-left.png"></a> <a href="s11-07-cost-plus-pricing-and-target-c.html">Previous Section</a>
</div>
<div class="navbar-part middle">
<a href="index.html"><img src="shared/images/batch-up.png"></a> <a href="index.html">Table of Contents</a>
</div>
<div class="navbar-part right">
<a href="s11-09-be-aware-of-qualitative-factor.html">Next Section</a> <a href="s11-09-be-aware-of-qualitative-factor.html"><img src="shared/images/batch-right.png"></a>
</div>
</div>
<div id="book-content">
<div class="section" id="heisinger_1.0-ch07_s08" condition="start-of-chunk" version="5.0" lang="en">
<h2 class="title editable block">
<span class="title-prefix">7.8</span> Identifying and Managing Bottlenecks</h2>
<div class="learning_objectives editable block" id="heisinger_1.0-ch07_s08_n01">
<h3 class="title">Learning Objective</h3>
<ol class="orderedlist" id="heisinger_1.0-ch07_s08_l01" numeration="arabic">
<li>Understand the theory of constraints.</li>
</ol>
</div>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p01"><em class="emphasis">Question: As we noted in <a class="xref" href="heisinger_1.0-ch06#heisinger_1.0-ch06">Chapter 6 "How Is Cost-Volume-Profit Analysis Used for Decision Making?"</a>, many companies have limited resources in such areas as labor hours, machine hours, facilities, and materials. These constraints will likely affect a company’s ability to produce goods or provide services. Companies facing constraints often use a variation of differential analysis to optimize the use of constrained resources called the theory of constraints. </em><em class="emphasis bolditalic">What are constrained resources, and how does the theory of constraints help managers make better use of these resources?</em></p>
<p class="para block"> </p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p02">Answer: Constrained resources are often referred to as <em class="emphasis">bottlenecks</em>. A <span class="margin_term"><a class="glossterm">bottleneck</a><span class="glossdef">A process in which the work to be performed exceeds available capacity.</span></span> is a process in which the work to be performed exceeds available capacity. The <span class="margin_term"><a class="glossterm">theory of constraints</a><span class="glossdef">A five-step approach to managing bottlenecks.</span></span> is a recently developed approach to managing bottlenecks.</p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p03">We will look at an example to help explain how the theory of constraints works. Assume Computers, Inc., produces desktop computers using six departments as shown in <a class="xref" href="#heisinger_1.0-ch07_s08_f01">Figure 7.15 "Production Process at Computers, Inc."</a>. Computers are assembled in departments 1, 2, and 3 and are then sent to department 4 for quality testing. Once testing is complete, products are packaged in department 5. Department 6 is responsible for shipping the products.</p>
<p class="para block"> </p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p04"><em class="emphasis">Question: The theory of constraints provides five steps to help managers make efficient use of constrained resources. </em><em class="emphasis bolditalic">What are these five steps, and how will they help Computers, Inc.?</em></p>
<p class="para block"> </p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p05">Answer: The five steps are described here, with a narrative indicating how Computers, Inc., would utilize each step.</p>
<p class="para block"> </p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p06"><strong class="emphasis bold">Step 1. Find the constrained resource (bottleneck).</strong></p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p07">In this step, the process that limits production is identified. The management at Computers, Inc., has identified department 4, quality testing, as the bottleneck because assembled computers are backing up at department 4. Quality testing cannot be performed fast enough to keep up with the inflow of computers coming from departments 1, 2, and 3. A limitation of labor hours available to perform testing is causing this backlog.</p>
<p class="para block"> </p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p08"><strong class="emphasis bold">Step 2. Optimize the use of the constrained resource.</strong></p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p09">The constrained resource has been identified as the number of labor hours available to perform testing. At this point, Computers, Inc., would like to optimize the labor hours used for quality testing. To assist in this goal, we will calculate the contribution margin per unit of constraint (the unit of constraint is <em class="emphasis">labor hour</em> in this example). Production will then focus on products with the highest contribution margin per labor hour. <a class="xref" href="#heisinger_1.0-ch07_s08_f02">Figure 7.16 "Contribution Margin per Unit of Constrained Resource for Computers, Inc."</a> provides this information for each product. (We first introduced the concept of calculating a contribution margin per unit of constraint in <a class="xref" href="heisinger_1.0-ch06#heisinger_1.0-ch06">Chapter 6 "How Is Cost-Volume-Profit Analysis Used for Decision Making?"</a>.)</p>
<div class="figure large editable block" id="heisinger_1.0-ch07_s08_f02">
<p class="title"><span class="title-prefix">Figure 7.16</span> Contribution Margin per Unit of Constrained Resource for Computers, Inc.</p>
<img src="section_11/f5352d9c914d27037374abd56a7a7ccd.jpg">
</div>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p10">Based on the information presented in <a class="xref" href="#heisinger_1.0-ch07_s08_f02">Figure 7.16 "Contribution Margin per Unit of Constrained Resource for Computers, Inc."</a>, and given that labor hours in department 4 is the constraint, Computers, Inc., would optimize the use of labor hours by producing the S150 model because it provides a contribution margin of $800 per labor hour versus $500 for the A100 model, and $625 for the P120 model.</p>
<p class="para block"> </p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p11"><strong class="emphasis bold">Step 3. Subordinate all nonbottleneck resources to the bottleneck.</strong></p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p12">The goal in this step is to shift nonbottleneck resources to the bottleneck in department 4. At this point, improving efficiencies in other departments does little to alleviate the bottleneck in department 4. Thus Computers, Inc., must try to move resources from other areas to department 4 to reduce the backlog of computers to be tested.</p>
<p class="para block"> </p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p13"><strong class="emphasis bold">Step 4. Increase bottleneck efficiency and capacity.</strong></p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p14">Management’s goal is to loosen the constraint by providing more labor hours to department 4. For example, management may decide to move employees from departments 1, 2, and 3 to the quality testing department. Another option is to authorize overtime for the workers in department 4. Perhaps management will consider hiring additional workers for department 4.</p>
<p class="para block"> </p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p15"><strong class="emphasis bold">Step 5. Repeat steps 1 through 4 for the new bottleneck.</strong></p>
<p class="para editable block" id="heisinger_1.0-ch07_s08_p16">Once the bottleneck in department 4 is relieved, a new bottleneck will likely arise elsewhere. Going back to step 1 requires management to identify the new bottleneck and follow steps 2 through 4 to alleviate the bottleneck.</p>
<div class="key_takeaways editable block" id="heisinger_1.0-ch07_s08_n02">
<h3 class="title">Key Takeaway</h3>
<ul class="itemizedlist" id="heisinger_1.0-ch07_s08_l02">
<li>Most companies have limited resources in areas such as labor hours, machine hours, facilities, and materials. The theory of constraints is an approach that enables companies to optimize the use of limited resources. Five steps are involved. First, find the constrained resource (or bottleneck). Second, optimize the use of the constrained resource. Third, subordinate all nonbottleneck resources to the bottleneck. Fourth, increase bottleneck efficiency and capacity. Fifth, repeat the first four steps for the new bottleneck.</li>
</ul>
</div>
<div class="exercises block" id="heisinger_1.0-ch07_s08_n03">
<h3 class="title">Review Problem 7.8</h3>
<p class="para" id="heisinger_1.0-ch07_s08_p17">Southside Company produces three types of baseball gloves: child, teen, and adult. The gloves are produced in separate departments and sent to the quality testing department before being packaged and shipped. A machine-hour bottleneck has been identified in the quality testing department. Southside would like to optimize its use of machine hours (step 2) by producing the two most profitable gloves. The machine hours required for each glove follow:</p>
<div class="informaltable" frame="none">
<table cellpadding="0" cellspacing="0">
<tbody>
<tr>
<td>Child glove</td>
<td>0.25 machine hours</td>
</tr>
<tr>
<td>Teen glove</td>
<td>0.40 machine hours</td>
</tr>
<tr>
<td>Adult glove</td>
<td>0.50 machine hours</td>
</tr>
</tbody>
</table>
</div>
<p class="para" id="heisinger_1.0-ch07_s08_p18">Price and variable cost information is as follows:</p>
<div class="informaltable" frame="all">
<table cellpadding="0" cellspacing="0">
<tbody>
<tr>
<td></td>
<td align="right"><strong class="emphasis bold">Price</strong></td>
<td align="right"><strong class="emphasis bold">Variable Cost</strong></td>
</tr>
<tr>
<td>Child glove</td>
<td align="right">$15</td>
<td align="right">$ 5</td>
</tr>
<tr>
<td>Teen glove</td>
<td align="right">20</td>
<td align="right">8</td>
</tr>
<tr>
<td>Adult glove</td>
<td align="right">35</td>
<td align="right">22</td>
</tr>
</tbody>
</table>
</div>
<ol class="orderedlist" id="heisinger_1.0-ch07_s08_l03" numeration="arabic">
<li>Calculate the contribution margin per unit of constrained resource for each glove.</li>
<li>Which two gloves would Southside prefer to produce and sell to optimize the use of machine hours in the quality testing department?</li>
</ol>
<p class="simpara">Solution to Review Problem 7.8</p>
<ol class="orderedlist" id="heisinger_1.0-ch07_s08_l04" numeration="arabic">
<li>
<p class="para"> </p>
<div class="informalfigure large">
<img src="section_11/2007b8316a4fde21108eb4e2e2983077.jpg">
</div>
</li>
<li>The company would prefer to produce and sell the child and teen gloves, since these products have the highest contribution margin per machine hour.</li>
</ol>
</div>
</div>
</div>
<div id=navbar-bottom class="navbar">
<div class="navbar-part left">
<a href="s11-07-cost-plus-pricing-and-target-c.html"><img src="shared/images/batch-left.png"></a> <a href="s11-07-cost-plus-pricing-and-target-c.html">Previous Section</a>
</div>
<div class="navbar-part middle">
<a href="index.html"><img src="shared/images/batch-up.png"></a> <a href="index.html">Table of Contents</a>
</div>
<div class="navbar-part right">
<a href="s11-09-be-aware-of-qualitative-factor.html">Next Section</a> <a href="s11-09-be-aware-of-qualitative-factor.html"><img src="shared/images/batch-right.png"></a>
</div>
</div>
</div>
<script type="text/javascript" src="shared/book.js"></script>
</body>
</html>