4For a more comprehensive discussion of the OPT software, see Fry, Cox, and Blackstone (1992).

5The more elaborate DBR methodology, like the ones described in the last part of The Haystack Syndrome (Goldratt, 1990a) and in the Disaster software developed at the end of the 1980s, included an algorithm to identify and plan several capacity constraints in detail. Still, having to live with interactive capacity constraints was viewed as causing the system to be unstable and the direct recommendation was to elevate the interactive constraints, so only one capacity constraint would remain.

6Technically the operations on divergence operations, where the parts could go to different end products, were given a schedule to prevent stealing. However, the capacity of these resources was not checked and the other operations of those resources were not scheduled.

7 E. M. Goldratt used by permission, all rights reserved.

8Green-yellow-red buffer regions are the backbone of BM. This topic is mentioned in Chapter 8, and the assumption we adopt here is that the reader is familiar with the basic concept.

9In scheduling the CCR and especially when trying to save setups on the CCR, it could be the case that an order whose due date is later in time would be scheduled earlier to save CCR setup time.

10Sometimes different families of products are going through different work centers and thus it could be the case that one family has a specific resource whose load control dictates the planning, while another family has a different resource where load control is required.

11In all situations, the scheduler should ensure that all materials, specs, tooling, etc., are available prior to release of the manufacturing order to the shop floor (full kitting).

12In DBR, the production buffer would be equal to the constraint buffer plus the shipping buffer. In simplified DBR, the production buffer would be equal to the shipping buffer.

13Other actions such as overlapping processes can also be implemented to reduce lead time significantly.

14There are several exceptions to the rule. Most notably are shops where a dedicated assembly line dominates production. These types of "I"-plants have naturally very low WIP within the line itself.

15BM is also the source for focusing the efforts on balancing the flow. This is mentioned later in this chapter as POOGI-a process for ongoing improvement.

16Different families of products could have considerably different production buffers. We do assume that using a different buffer size is done only when the buffer size is at least 25 percent more or less than buffer sizes already defined.

17The reason is that most orders are found close to the end of the production process when the customer complains. Top management then increases the capacity of these operations, thinking these operations are the cause of the problem of lateness. Thus, normally the last operations have ample protective capacity.

18Actually, this perception is wrong because the processing time is a negligible part of the lead time and the main part dictating the delivery time is the required waiting for the resource with the least capacity.

19The APICS Dictionary (Blackstone, 2008, 56) defines funnel experiment- "An experiment that demonstrates the effects of tampering. Marbles are dropped through a funnel in an attempt to hit a flat-surfaced target below. The experiment shows that adjusting a stable process to compensate for an undesirable result or an extraordinarily good result will produce output that is worse than if the process had been left alone. "( APICS 2008, used by permission, all rights reserved.) 20A detailed discussion on how to deal with sequence-dependent-setups can be found in Schragenheim, Dettmer, and Patterson (2009, 7986).

21When orders are late we sometimes call them "black." The author believes that black is not part of the priority system and not necessarily a black order has higher priority over red orders.

22For a more detailed discussion, see Schragenheim et al. (2009, 7479).

23The TOCICO Dictionary (Sullivan et al., 2007, 27) defines "I-plant-A production environment where materials generally flow through a direct sequence of operations. The logical flow of materials resembles the letter I in the sense that is, there are few divergent points, as in a V-plant, and few convergent points, as in an A-plant. Examples: Transfer or assembly lines such as used to assemble lawn mowers." ( TOCICO 2007, used by permission, all rights reserved.) 1For those interested, marketing is covered in Chapter 22 and sales management is covered in Chapter 23 of this Handbook.

2For those unfamiliar with MRP see, for example, Arnold, Chapman, and Clive (2008).

3In the MRP literature, this condition is called nervousness, which the APICS Dictionary (Blackstone, 2008, 86) defines as "(t)he characteristic in an MRP system when minor changes in higher level (e.g., level 0 or 1) records or the master production schedule cause significant timing or quantity changes in lower level (e.g., level 5 or 6) schedules and orders." ( APICS 2008, used by permission, all rights reserved.) 4The difference we mean here between sales and consumption is when certain items "vanish," either because they were scrapped, stolen, or lost. The default action here is still to replenish them.

5The shipping buffer is a time buffer used in DBR to protect the due date of an order. In MTA, we need to protect the availability, so it has to be a different type of a buffer but for the same purpose of protecting the satisfaction of the clients. Thus, the quotation marks mean that it is not the same but the objective is similar.

6Replenishment time in TOC differs considerably from traditional inventory management. In both the min-max and reorder point/economic order quantity inventory system, items are sold over some time period and only when the minimum point or the reorder point is reached and an order is placed. Replenishment time starts when an order is placed for an item and ends when the item is restocked and available for sale. Note in the TOC, replenishment is triggered by time (daily or weekly maybe) and in traditional methods triggered by an inventory level falling to or below some reorder level.

7Note that the term "reliable replenishment time" is different than the term "replenishment time," which is the average.

8The author defines the abstract term of "protective capacity" as the level where the lack of immediate available capacity starts to cause real damage.

9The regular planned load is the one for daily use. A full planned load will be defined later as consisting of all required replenishments including those that were not released.

10It could be the case where the minimum batch is aimed to keep another resource, with long setups but fast processing pace, from becoming a bottleneck. Therefore, the minimum batch is a must, but once this is under control the capacity control is focused on the CCR.

11Deming devised an experiment to show the results of such tampering before a process has stabilized. The funnel experiment in the APICS Dictionary (Blackstone, 2008, 56) is defined as "An experiment that demonstrates the effects of tampering. Marbles are dropped through a funnel in an attempt to hit a flat-surfaced target below. The experiment shows that adjusting a stable process to compensate for an undesirable result or an extraordinarily good result will produce output that is worse than if the process had been left alone." Here you are adjusting again before the process has stabilized. ( APICS 2008, used by permission, all rights reserved.) 12Of course, we assume here that all the efforts to exploit the current capacity of the CCR have been done. Actions like staggering breaks and lunches plus overlapping shifts reduce or eliminate down time on the constraint and increase capacity by over 10 percent.

13Goldratt (2009) compares and contrasts the traditional assembly line, the Toyota Production System, and drum-buffer-rope. Based on his analysis, Goldratt provides four concepts of supply chains. These four concepts were discussed in Chapter 9. The fourth concept, flow, relates heavily to MTA.

14The APICS Dictionary (Blackstone, 2008, 144) defines vendor-managed inventory (VMI) as "(a) means of optimizing supply chain performance in which the supplier has access to the customer's inventory data and is responsible for maintaining the inventory level required by the customer. . ." ( APICS 2008, used by permission, all rights reserved.) 15Forecasting the demand means manually changing the target levels according to the "maximum" forecast within the reliable replenishment time and doing it before the peak is supposed to start.

16This problem is not unique to TOC. Manufacturers have long been trying to identify hybrid production systems that would work under the push system. The APICS Dictionary (Blackstone, 2008, 61) defines hybrid production method as "(a) production planning method that combines the aspects of both the chase and level production planning methods." ( APICS 2008, used by permission, all rights reserved.) 17When we speak about a dedicated production line, then the production lead time could be very fast and the actual replenishment time is the wait time for the line itself.

18See Chapters 16 and 20 in this volume.

1Editors' note: This chapter describes a state-of-the art software package and how it addresses the realities of complex manufacturing and supply chain environments. The author was invited to contribute to the handbook as he has studied these environments using the TOC Thinking Processes, has an in-depth understanding of the causal linkages from symptoms to core problem(s) and has struggled with developing comprehensive solutions to these core problems. He is an expert in this development work.

2In distribution, the APICS Dictionary (Blackstone 2008, 131) makes a significant distinction between the meanings of these two terms. A product is a good within the supply chain, while an SKU is defined as: "an item at a particular geographic location." APICS 2008, used by permission, all rights reserved.

3Sales at the end of the chain in the long-term are the only measures that matter. If a sale is made within the links of the supply chain, it is to fill inventory positions for future sales at the end of the chain. Therefore, once the supply chain is filled it will sit without movement until the consumer purchases at the consumption point. Most managers within a traditional supply chain focus only on sales to the next link, not sales at the end of the chain.

Copyright 2010 by Amir Schragenheim.

4In TOC terminology, we call these undesirable effects (UDEs) and we search for the core problem causing these UDEs.

5Throughout this chapter I will use the term manufacturer/distributor to represent either a supply chain based on a company that manufactures the majority of parts that flow through its supply chain or a company that purchases parts from one or several manufacturers and distributes them through its supply chain.

6The Z-value from a normal distribution table for .05 in the right tail is 1.645.

7A wide array of forecasting methods exists for modeling trend, seasonal, cyclic, and random factors, and their combinations at the aggregate level but all perform poorly at the consumption point.

8The sudden death of Michael Jackson caused the sales of his CDs to stockout most of the complete supply chain of all of his recordings. The same phenomenon occurred with Elvis Presley's death.

9In most push systems, since the finished goods inventory is predominantly at the retailer end of the chain, manufacturing warehouses are generally small and hold only a few days of inventories. In a pull system, a larger warehouse is generally needed as inventory is held higher in the chain at the source.

10The supply factor is usually ignored in tactical and strategic decision making. Most efforts for improvement are directed at the demand side, especially trying to come up with more sophisticated forecast algorithms. Most new ERP systems developers keep coming up with new forecasting algorithms, neglecting the supply side completely.

11The replenishment part of the TOC pull distribution solution can be compared with a min-max model of replenishment where the min equals the max.

12I group the two methods together even though there are some minor differences. If we set the difference between the min and max values of the min-max model at the EOQ value then the results are quite similar. In traditional management this min-max gap is often set at the EOQ. Under these conditions we get very similar graphs. The two systems will give different results only when the EOQ is quite small or, alternatively, the consumption is chaotic rather than continuous.

13Despite the fact that the TOC solution discourages using forecasts, sometimes (like in the case of seasonality discussed later in the chapter) forecasts are still needed.

14The use of S-DBR, The TOC methodology for managing production in supply chains is covered in detail in Chapter 9 of this volume.

15The TOCICO Dictionary (Sullivan et al., 2008, 49) defines totally variable cost (TVC) as "Those costs that vary 1-to-1 for every increase in the number of units produced." ( TOCICO 2007, used by permission, all rights reserved.) 16In some extreme cases, it is better to use different sizes of zones especially when the replenishment time is more than three months or, alternatively, the products are short shelf-life products.

17Note that these relate to all types of consumption points-shops, regional warehouses (RWHs), plant warehouse (PWH), central warehouse (CWH), raw materials warehouse (RMWH), etc.

18See the Inherent Simplicity Web site for an example and complete discussion of this concept at: URL= http://www.inherentsimplicity.com/.

19Too long is a term that depends on the specific environment-typically one to two weeks.

20It is important to note that this categorization is done after the TOC solution has been put in place. Therefore, the stock levels are already adjusted based on reality and not on a managerial decision.

21We use the number of turns here in a relative sense. If one did a Pareto analysis of retailer items based on inventory turns and ranked the items by number of turns, the A items (cheetahs) would have a high number of turns relatively speaking, the B items (regularly running) would have a moderate (around the mean) number of turns, and the C items (elephants) would have a low number of turns.

22This conclusion also stems from analyzing the sales results obtained from TOC implementations.

23The APICS Dictionary (Blackstone, 2008, 67) defines inventory turnover as "(t) he number of times that an inventory cycles, or 'turns over,' during the year. A frequently used method to compute inventory turnover is to divide the average inventory level into the annual cost of sales. For example, an average inventory of $3 million divided into an annual cost of sales of $21 million means that inventory turned over seven times" The traditional definition for replenishment lead time in the APICS Dictionary (Blackstone, 2008, 117) is "(t) he total period of time that elapses from the moment it is determined that a product should be reordered until the product is back on the shelf available for use." ( APICS 2008, used by permission, all rights reserved.) 24Of course, there are always exceptions to any rule, so judicially choose candidates you want to eliminate. Maybe you get a low margin on bread (necessity goods), but a grocery store that doesn't stock it might lose a lot of business for all other items. Complementary goods are another class of goods that require scrutiny in that one may have a high margin and another a low margin (toothpaste and toothbrush, for example).

25A year is generally used but for seasonal or fashion goods, the length of time must be modified to fit the situation.

26If severe fluctuations exist, a larger fluctuation factor should be used but beware of demand patterns in an environment where volume discounts are given. These discounts distort the demand pattern significantly.

27See the Inherent Simplicity's Web site for references at: http://www.inherentsimplicity.com/.

28For example, think about the change in demand for beer consumption for the summer versus the winter; for a national holiday weekend across the country versus a regular weekend; for a home football game weekend for a major college town versus a regular weekend in that same town.

29Inherent Simplicity is a leading provider of TOC distribution/replenishment software, and has faced and solved these situations based on client needs. I will discuss several different scenarios that exist in reality and the solution methods derived for a pull system by this company. This is not meant as an endorsement of the software but to illustrate a practical way of addressing that issue if it exists in your environment.

30A forecast can be as simple as noticing that retail sales on the weekend of a college football game increase six times over a normal session weekend. By determining when the next season's home football games are, one can plan to have inventories to cover these peaks for the season.

31The Inherent Simplicity methodology involves a series of steps to be performed for each SDC and for each SKU group separately.

32BM priority during this time might be skewed as well. Suppose the buffer was 100 and now it increases to 400. Even if we had a full buffer at the site, the VBP at the site would now show a 75 percent penetration-quite deep in the red.

33It is imperative that management judgment is used to determine if there is a decrease in demand immediately following the SDC and therefore make adjustments for the SDC impact. An advertising campaign based on price reduction for a cereal is an example of a sales decrease. There are also situations where the normal demand would resume almost immediately. For example, while retail sales are high (SDC) for a football game weekend (caused by out-of-town consumers), normal demand resumes almost immediately.

34If you know the number of SKUs in your system, then you can skip this step; it just shows the calculations of converting items by locations to SKUs.

35A supply chain board game comprised of three products, six retailers, two RWHs, and one PWH has been used to teach the differences between managing under the traditional push systems (ROP/EOQ and min-max) and the TOC distribution/replenishment system. It is described in Cox and Walker (2006).

36See "The Science of Successful TOC Holistic Implementation" presented by Mickey Granot at the TOCICO 2008. For further references of Inherent Simplicity, please refer to Inherent Simplicity's Web site at: http://www.inherentsimplicity.com/.

37As in all business functions, distribution goes through cycles of centralization for cost control to decentralization for flexibility/responsiveness. CWH has been tried using distribution requirements planning and distribution resource planning (traditional push systems) and failed. The move then was to decentralization. Now organizations are switching back to centralization with ERP and supply chain software.

1When considering an APS, an understanding of the materials of this chapter and other chapters in this section is necessary.

1An excellent summary may be found in Johnson and Kaplan (1987, Chapter 2).

2For a critical review of textbook treatment of Frederick Taylor's principles and the Hawthorne experiments by Elton Mayo and others, see Whitehead (1938) and Olson et al. (2004).

3A long-time acquaintance, a senior partner in an international audit firm who had majored in accounting during his undergraduate years, confessed to the author that he would recommend that his children major in finance, not accounting.

4See Peters and Waterman (1982, 3439) for a discussion of this situation and relevant references.

5See especially Chapters 6 and 8 of Johnson and Kaplan.

6Also sometimes called "margin" costing or "contribution margin" costing since the first subtotal on this type of statement is called "contribution margin" or "gross margin."

7Dopuch and Birnberg (1969, 472) relate the original internal flow concern to a 1936 article (Harris, 1936).

8Time-driven allocations later were promoted in an attempt to overcome some of these deficiencies (Kaplan and Anderson, 2003; Everaert and Bruggeman, 2007), but were generally unsuccessful (Cardinaels and Labro, 2009).

9While Kaplan and Norton generally are credited with the development of the balanced scorecard, their renowned book states in the preface that a dozen companies met bi-monthly throughout 1990 to develop a new model (Kaplan and Norton, 1996, vii).

10Many dissertations have been based on balanced scorecard concepts. For example, Deem (2009) conducted a study that found a positive relationship of balanced scorecard effectiveness and organizational culture.

11This is not for lack of improvement opportunities in accounting. Simply reducing the time typically required to close the books would be of great benefit.

12Kaizen blitz(SM) is a service mark term of the Association of Manufacturing Excellence.

13An extensive example later in the chapter shows the unintended negative effect of inventory reduction on the income statement.

14The vast majority of recent budget research concerns governmental budgeting, which has unique issues (Kelly and Rivenbark, 2008) and will not be addressed here.

15Due to space constraints, most textbooks illustrate quarterly budgets (Hilton, 2009, Chapter 9; Garrison et al., 2010, Chapter 9), but companies need budgets prepared on at least a monthly basis in order to accurately predict cash needs and when it might be possible to invest extra cash.

16It is the author's experience that marketing people make the most sophisticated presentations.

17If an organization has more than one constraint, the typical accounting recommendation is to use linear programming to find the best product mix. This material is frequently skipped by accounting professors.

18The 80 units of Product Z would require 400 minutes on Resource 2, the 90 units of Product X would use 1800 minutes, and 10 units of Product Y would use the final 200 minutes. In reality, capacity usage would not be scheduled at 100 percent, but a lower capacity availability for all resources would not change the essential results presented here.

19For example, labor allocated according to minutes spent on each product; fixed manufacturing overhead allocated based on total variable manufacturing costs, only whole units may be sold, etc.

20Located on the Web at: www.mhprofessional.com/TOCHandbook.

21Three pools, Planning, Processing, and Support, along with individual drivers, are used to allocate all costs to products and arrive at total product profit per unit as shown in cells G128-J135 of the "Throughput_Examples" spreadsheet located at: www.mhprofessional.com/TOCHandbook.

22Revenues minus variable cost of sales, minus other variable expenses (general, selling, and administrative), to show Throughput (contribution margin or gross margin), minus Operating Expenses (fixed costs) to arrive at operating income before income tax expense.

23See a complete illustration of the Throughput format in the second spreadsheet of the file entitled "InventoryReductionExample" located at www.mhprofessional.com/TOCHandbook.

24See the section on direct or variable costing income statements, which contain all the elements of a Throughput income statement.

25Only 10 units of Product Y are planned for production, therefore 10 .07 = 0.7.

26Total weekly wages of $4800, divided by 9600 (40 hr 60 min 4 resources) total labor minutes. This is the actual cost of labor per minute; the traditional applied rate of $0.53333 is based on expected production matching demand which requires 9000 labor minutes.

27This problem originally was pointed out in Goldratt (1990, 9799).

28[$183 throughput (contribution margin) for Product Y] 2 units = $366.

29Note that many companies using traditional costing also (incorrectly) would include savings in fixed overhead costs that will merely be transferred to other products.

30See the "Total Time Used/Week" schedule-P27: U33-in the Throughput Example file located at www. mhprofessional.com/TOCHandbook.

31See Throughput_Examples spreadsheet located at www.mhprofessional.com/TOCHandbook, cells CH1: CO40.