Manufacturing Strategy
 - Part 6: Optimised Production Technology (OPT)

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Introduction

OPT is possibly the most radical of the 3 production strategies to be discussed as it requires a new way of thinking, not only about production but also about the basic accounting principles. In many areas this demands radical or revised thinking by our accountants and new approaches to the fundamentals of accounting.
OPT begins by stating that the goal of a manufacturing business is to make money both now and in the future. This might seem to be rather simple but it provides a framework for all the other decisions involved in the business.

The aim of OPT is to increase 'throughput' (the rate at which the company generates money through sales) whilst simultaneously decreasing inventory and operating expense. If an action does not directly improve one of the three measures then it is irrelevant at best and damaging at worst, do not do it.

The traditional approach has been to optimise each sub-system irrespective of its importance (i.e. to improve the output of the welder) but the OPT approach is to optimise the total system to maximise throughput (i.e. if the welder is not limiting your throughput then don't work on it and put your efforts somewhere else). OPT states that the optimum of each sub-system is not necessarily the optimum of the whole system.

OPT defines a 'bottleneck' as any resource whose capacity is equal to or less than the market demand placed upon it. The bottleneck is thus the constraint that is preventing increased throughput from your factory. Improvements here will tend to optimise the whole system and have an increased payback by directly increasing throughput. Bottlenecks are easy to spot in the average factory - they are the operations that have lots of work in progress stacked up in front of them. In this sense a non-bottleneck is any resource whose capacity is greater than the market demand placed on it and improvements here will be irrelevant in terms of increased throughput.

Figure 1: Spotting the bottlenecks

Operation C is the obvious bottleneck for the factory. Running A at capacity will lead to a build up of inventory in front of B. Running B at capacity will lead to a massive build up in inventory in front of C. Investment or improvement in A, B or D will do nothing to improve throughput, the only meaningful investment area would be C where the ability of the plant to earn money can be rapidly improved.

Operation C must be protected from loss of output for any reason. It is the operation that controls the income of the factory. In reality the choice is never this clear and the important thing is to balance the flow and not the capacity.

The bottleneck concept is best explained in the hiking analogy from The Goal. The speed of a group of hikers needs to be maximised to get to the campsite by nightfall but the actual speed of the whole group is limited by the speed of the slowest hiker (the bottleneck). Placing the slowest hiker at the front of the group slows down the whole group and increases the time required i.e. reduces the throughput. Placing the slowest hiker anywhere else in the group still slows the whole group and also increases the length of the group (the inventory).

Thus the only way to reduce the length (the inventory) and achieve the fastest transit time the throughput) is to find a way of moving the slowest hiker faster i.e. working on the bottleneck. An hour lost at a bottleneck, for any reason is an hour to the whole system and cannot be recovered. Don't think you can get it back later because the way we defined a bottleneck means that you cannot. The cost for this lost hour is the total cost of running the whole factory for one hour, after all the bottleneck is governing the throughput.

Factory scheduling is at the heart of OPT and a critical factor in this is the location and elimination or management of bottlenecks, a fact which is not explicitly dealt with by JIT. The set up time reduction techniques of JIT appear again but are not formally recognised by OPT. An hour saved in the set-up time of a bottleneck is an hour saved for the whole system. OPT goes on to say that an hour saved on a non-bottleneck machine simply increases inventory and does nothing to improve throughput. It is wasted effort, so don't do it.

In a sense OPT shares a lot of philosophy with JIT and both concentrate on quality, lead times, lot sizes and machine set-up times. A major difference is that OPT regards the 'river and rocks' analogy of JIT as being fundamentally flawed. In OPT terms the river is not the flat evenly flowing stream that JIT assumes but has waves on inventory moving through it depending on the order situation in the factory.

All can be fine until the inventory is at the trough of a wave. If you hit a problem then it is likely to rip the bottom out of the boat and sink the business! The OPT approach is much more like reality than the JIT approach in this situation, in other words don't take any analogy too far. An underlying rule forgotten at your peril.

Figure 2: The OPT view of rocks in the river

In the same way OPT shares a computer based approach with MRPII and both require a large complex database of product and machine information for schedule calculation. OPT also requires information on how the product is made, the route through the factory and both set-up and run times. OPT can generally pirate a lot of this information from an existing MRPII system.

One problem with MRPII is that it ignores the in-build variation of any machine and assumes that a machine will work at capacity at all times. OPT is more realistic in accepting that the actual capacity is affected by statistical fluctuations and a dependence on previous operations to supply product for processing. In many cases this makes MRPII scheduling unrealistic and time buffers are built in to cater for this. OPT can be more realistic in scheduling than MRPII by taking this into account and also allowing for improvement in times and routing.

OPT is based on a set of rules which need to be adopted completely by management and basic statements are incorporated into these rules.

The OPT rules

  1. Balance the flow, not the capacity.
  2. Let bottlenecks determine usage of the non-bottlenecks and do not seek machine utilisation. If a resource is activated when output cannot get through the constraint then all it produces is inventory.
  3. Utilisation and activation of a resource are not the same thing. Activation is when a resource is working but utilisation is when it is working and doing useful work. Producing stock for inventory is not useful work.
  4. An hour lost at a bottleneck is an hour lost for the whole system and cannot be recovered.
  5. An hour saved at a non-bottleneck is a mirage.
  6. Bottlenecks govern both throughput and inventory.
  7. A transfer batch is not necessarily equal to a process batch i.e. just because you have to cut 20 frames at a time on the optimiser saw it does not mean that you have to push them all on to the welder at one time. You can break the process batch (20 frames) down into small transfer batches (1 order).
  8. Process batches should be variable and not fixed. Later work shows that the best results are achieved by using a drum-buffer-rope technique to control the system. You must first find the true bottlenecks that govern the factory throughput.

The bottlenecks that beat out the pace like a drum for the whole factory should be kept fully scheduled and working at all times. The bottlenecks must be protected against any interruption caused by breakdowns, quality, set-up times, labour concerns or any other variation. This protection is achieved by building in time buffers. These are a focus for process improvements. All other operations are then synchronised to the bottleneck operation and work is pulled through as if it were on a rope.
Without computers the drum-buffer-rope concept works very well for limited variety production. The introduction of variety leads to shifting bottlenecks and the need for complex computer software to run the system.

OPT requires maximising the flow of materials and rarely requires large investment in machinery or restructuring of the plant. By improving the flow of the product OPT seeks to get inventory moving and can make an immediate financial impact. OPT needs to be carried through to the whole company and encourages the view of the production area as a real profit maker for the company.

For and Against

For

Against

Summary

OPT is relatively new in terms of production management systems and is an overall philosophy for running the business rather than simply being about production management. OPT starts by assuming that manufacturing is all about making money and looks at optimising the complete system to achieve this rather than just optimising individual operations on a piecemeal basis.

OPT is a proprietary system in the full version (rather than just the philosophy) owned by a software and consultancy company. This does not prevent the adoption of some of the excellent ideas it contains and generates.

OPT is a trademark of the Scheduling Technology Group. The only, but excellent, book on the subject is 'The Goal' by E Goldratt and J Cox.

In the previous pages we have looked at 3 different methods of production management and have reviewed the significant areas for improvement and change. As an overall summary MRPII does not seek to change anything whereas JIT actually forces a fundamental but painful search for excellence. OPT is probably even more powerful because it uses many of the JIT ideas and also follows through into the overall system. The current strategy of many companies uses a blend of these three main methods at various points in the company to achieve the right blend of success.

"The Manufacturing Strategy" Series

"The Manufacturing Strategy" series is designed to give production managers and their staff some insights into new manufacturing methods and to prompt the industry into considering the benefits of alternative approaches to manufacturing. The series is:

Part 1: Setting the strategy

Part 2: The systems and MRP II

Part 3: Just in time (1) 

Part 4: Just in time (2) 

Part 5: Just in time (3) 

Part 6: Optimised Production Technology (OPT) (This section)

Part 7: A fundamental quality

Part 8: Quality management techniques & tools

Part 9: ‘There's no accounting for manufacturing strategy’

Part 10: Performance measurement

Part 11: Changing roles and things to do NOW!

 

Last edited: 11/03/10

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