Theory of Constraints
The topic for my discussion on the Theory of Constraint is the team that handles rental properties for a real estate business. This includes homes as well as commercial properties for rent, from the perspective of the tenant and the landlord.

The organization is a team of real estate agents that specialize in rental properties.

The goal is to generate profitable revenue by ensuring the quota is met for lease contract agreements to go to settlement in the specified time.

Throughput are the number of contracts for the lease of properties that have completed, settled, and funded.

Inventory comprises of available rental properties that have been listed with the company, as well as landlords that are represented by agents of the company.

Operating expenses include costs associated with the listing or showing of rental properties, such as open houses, advertising costs, and transportation of prospective tenants to the property.

The bottleneck is the landlord’s approval and acceptance of the terms of the contract. This will be discussed in more detail in the five steps below.

1) Identify the system’s bottlenecks.
Typically the landlord will want to maximize profit by listing the property for as much as possible. Regardless of the listing price being inline with the market area, or being overpriced, lease offers will often be less than the asking price. With lease offers from more than one prospective tenants require more time in their decision of which tenant to select. Furthermore in addition to the varying lease prices of tenants, contracts may have other requirements from the tenant that require the attention of the landlord for consideration. Such requirements may relate to who is responsible for utilities, taxes, etc. Although the prospective tenant may be a bottleneck, landlords are the more severe bottleneck, as it is ultimately their decision to lease the property.

2) Decide how to exploit the bottlenecks.
To exploit the bottleneck we must first consider ways that such bottleneck came to be. Unrealistic listing prices may come as a result of an uninformed landlord. In the early meetings prior to listing the property the real estate agent must provide data for the market area that supports the listing price, and must communicate with the landlord to determine a reasonable listing price. Also, a real estate agent can reduce the alterations of the terms of a lease agreement by clearly specifying in the listing the tenant’s responsibilities (utilities, taxes, etc).

3) Subordinate everything else to the above decision.
As mentioned earlier, in this example, it’s not the number of listings or showings that is key; the key is to ensure that the contracts close in a timely manner. Ways to subordinate other tasks of this goal are:
Ensure that delays such as inspections conducted by the prospective tenant do not interfere with the closing date.
Perform a pre-inspection of the property and address potential concerns. The alternative is to provide a disclaimer about the issue.
Provide detailed market data to the landlord to support the realistic listing prices. Provide this data to the prospective tenant as well.

4) Elevate the system’s bottlenecks.
Make use of readily available technologies such as electronic signatures will greatly reduce the time to deliver a signed contract.
Create a checklist that lists all necessary documentation for the contract will also help to streamline the approval process.
Although this type of real estate work is paid by commissions, one may be able to increase output by working in a team of more than one agent and sharing such commissions.
To motivate both parties the prospective tenant should provide a security deposit in the amount of the first month’s rent when writing the offer.

5) If, in a previous step, a bottleneck has been broken go back to step 1.
Regardless of how efficient the process is, or how desirable a property can be, there are times where the contract falls through and thus the bottleneck breaks. At this point we revisit the first step to identify the bottleneck again and determine ways to improve the process and to try to keep this from repeating. Theory of Constraint

The business: Commissions from rental properties, although less in comparison to commissions from sales of properties, can prove to be profitable.

throughput the rate at which the system generates money through sales (Page 69). inventory all the money that the system has invested in purchasing things which it intends to sell. (Page 66). operating expense all the money the system spends in order to turn inventory into throughput. (Page 67). bottleneck any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. (Page 145).

The Goal

The context of an organization of which you are a member.

What are the most serious bottleneck that this organization faces?

Discuss the reasons for its selection.

Identify the most serious bottleneck this organization faces.

Apply the 5-step process outlined in the Goal on page 301 to break the bottleneck and increase the organizations throughput.

What are the five steps?????????????????????????????????????
1) Identify the system’s bottlenecks.

The bottleneck is the time in completing the contract process such that the property can be occupied and commissions paid in a timely manner.

2) Decide how to exploit the bottlenecks. legal bottlenecks
Qualified tenants

3) Subordinate everything else to the above decision.
4) Elevate the system’s bottlenecks.
5) If, in a previous step, a bottleneck has been broken go back to step 1.

Page 69:
"Throughput," he says, "is the rate at which the system generates money through sales."
I write it down word for word.
Then I ask, "But what about production? Wouldn't it be more correct to say—"
"No," he says. "Through sales—not production. If you produce something, but don't sell it, it's not throughput. Got it?"
"Right. I thought maybe because I'm plant manager I could substitute—"
Jonah cuts me off.
"Alex, let me tell you something," he says. "These defini- tions, even though they may sound simple, are worded very precisely. And they should be; a measurement not clearly defined is worse than useless. So I suggest you consider them carefully as a group. And remember that if you want to change one of them, you will have to change at least one of the others as well."
"Okay," I say warily.

Page 66
"The next measurement is inventory," he says. "Inventory is all the money that the system has invested in purchasing things which it intends to sell."

Page 67:
"Operational expense," he says. "Operational expense is all the money the system spends in order to turn inventory into throughput."

Page 80:
Lou butts in to settle it, saying, "All this is, if I understand it correctly, is a different way of doing the accounting. All employee time—whether it's direct or indirect, idle time or operating time, or whatever—is operational expense, according to Jonah. You're still accounting for it. It's just that his way is simpler, and you don't have to play as many games."

Page 145:
"A bottleneck," Jonah continues, "is any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. Got that?"
"Right," I tell him.
"Once you have recognized these two types of resources," says Jonah, "you will begin to see vast implications."
"But, Jonah, where does market demand come in?" Stacey asks. "There has to be some relationship between demand and capacity."

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Theory of Constraints – Mizkan Dallas Bottling Line (Vinegar)
You should define
· Throughput: The goal of Mizkan-Dallas is to produce to schedule the cases needed to the customer at the standard rate and to maximize profit we are capable of when delivering the cases to the customer. At Mizkan, we produce vinegar and sales include both bulk shipments (tankers and drums) of vinegar as well as private label bottle vinegar on our one bottling line in four bottle sizes. The bottle sizes include 128 Oz, 64 Oz, 32 Oz and 16 Oz in varying package sizes. The entire Takt time is based on the lead time given to customers (5 days), the lead time starts with the order date to the day of delivery to the customer. When orders are placed the production schedulers builds the plan two to four days ahead of orders. With the schedule set, our materials clerk orders the needed raw materials to arrive at the plant the same day we run the orders (for bottles and boxes); minimum label stock is on hand and vinegar is produced daily and prepared for production in accordance with the production schedule. We run the plant on two 8 or 10 hour shifts (depending on demand) 5-6 days a week and a maximum of 144 hours for the week (in which we rarely use more than 100 hours of production for the week). The amount of throughput is determined by the package size (6/128 = 900 case per hour, 8/64 = 1040 case per hour, 12/32&16 = 800 case per hour). Work in process (WIP) is non-existing; we unload the boxes of bottles from the trailer and take them straight to the production line were they are dumped on the table. From there bottles proceed through the Rinser (bottle cleaner), then the filler (fill at the proper weight), capper, label machine, Casepacker, then to the palletizer/ stretch wrapper and from there the forklift operator loads them straight into another trailer to send to the warehouse which in turn sends the pallets of product to our customers (another individual schedules shipments). We keep no finished product at the plant; however we average approximately 100,000 cases at the warehouse. Depending on the bottle size we average 16-21,000 cases a day of production and sales averages 14-22,000 cases daily.
· Inventory: On average we store 100,000 cases of finished goods in inventory at $5-$7 dollars per case (inventory turns are as little as 10 days). The plant (77,000 square feet) was purchased in 2001 and sits on 10 acres of land and houses all the equipment needed to both produce vinegar (4 acetators, 4 nutrient tanks, 2 alcohol tanks, 2 charge water tanks, 32 storage tanks, filtration system and 2 cut tanks) as well as support equipment (air compressors, boilers, generators, electrical systems, pumps) and the bottling line (pasteurizer, conveyors, Rinser, filler, 2 cappers, label machine, casepacker, palletizer, stretch wrapper, and forklifts) and parts inventory
· Operating expense: All the money the system spends to turn Inventory into Throughput. Includes raw materials (Bill of Materials, BOM); labels, bottles, boxes, vinegar, glue, pallets, direct labor, tape, wrap materials, nitrogen and caps) as well as indirect labor, depreciation, transportation cost, forklift fuel, machine parts, office supplies, warehouse cost, building cost, sales commission and utilities)
· Bottle neck – Filler, heat treatment process; what does that mean, the process of filling a bottle with vinegar includes a heat treatment process. The vinegar is heated up to a minimum of 165 degrees and is held at that temperature for a minimum of 10 seconds; from there it is cooled down to 100 degrees and pumped over to the filler at a rate of 105 GPM. The bottling line is capable of accepting 10-15% more bottles then it currently does; however the pasteurizing system cannot deliver the needed amount of vinegar to the filler in order to add capacity.
5-step process outlined in The Goal
Step 1: Identify the bottle neck: Filler, heat treatment process; the process allows for 105 GPM of vinegar to the filler. The demand on the plant is such that we must operate with 10% OT just to meet customer orders. The bottling line is capable of procuring 10-15% more production; however the heat treatment process is slowing the throughput and adding to cost. The process starts with the supply tank; it is 500 gallons and gets replenished when the level sensor in the tank reaches 25% by the 42,000 gallon storage tank located in the tank farm (outside). As production starts, the filler controls calls for vinegar, the controls sends a message to the supply tank pump and sends 105 GPM of vinegar through the pasteurizer (for heat treatment) until it reaches 165 degrees, it is then cooled to 100 degrees and sent to the filler balance tank (200 gallon capacity) via a network of 2” SS pipes. As the system releases the vinegar to the filler, it fills the bottles at a rate of 90 gallons per minute (GPM) while 15 GPM is recycled back to the supply tank; the extra 15 GPM is needed in order to properly gravity feed the bottles. As the filler’s balance tank reaches 75% or lower the control system will once again call for more vinegar to go through the entire heat treatment process. The constraint is that if we fill the bottles at a higher rate (say 110 GPM), then the balance tank will slowly lose the ability to keep up and will drop too low to properly gravity feed the filler causing low fills (low fills is what it sounds like, bottles must have 130-132 ounces to be legal).
Step 2: To exploit the bottle neck, we must take into account all the restrictions that prevent the filler balance tank from achieving a constant 75% fill level. The vinegar is supplied by a pump that is run by a 30 HP motor connected to a variable drive. The motor runs a pump that is capable of producing 160 GPM under optimal conditions, there is a pasteurizer that contains a heat exchanger that allows the steam system to heat water to 205 degrees and transfers the heat to the vinegar via the heat exchanger. The steam is supplied to the water by two fisher control valves that open and closes as demand is called for by the filler controls. In addition, after the heat treatment process is complete and the vinegar is cooled, the vinegar is then sent to the filler balence tank through two mixing valves that open and close as the heat and situation dictates. In this process the supply pump is not being used at its capability of 160 vs. 105 GPM, there is capacity lose in the piping system and heat treatment but the engineering specs indicate we should see 130-140 GPM. Other factors are keeping us from sending more vinegar to the filler balence tank.
Step 3 and 4: To keep the filler from constantly shutting down we balanced the line for (90 GPM) 105 GPM, once that was done we were able to keep the line running at that rate with little interruption, albeit at a slower rate and continued with OT to cover the inefficiencies while the issue was being addressed. This act freed up our limited technical resources to focus on the bottleneck. To study and elevate the issue we used our limited technical resources and budget to study the system; technical resources were called in from corporate as well as vendor support to assist in solving the issue. It was found that the system had to be tuned, in the past valves were tuned individually and not as a system. Once all the valves, pumps, and drives were properly tuned, as a system, we were able to slowly increase the throughput until we reached the balance that enabled us to reduce OT down to 2-3% and still produce what was needed for the customer. In addition, a method that increased GPM by 2-3% was to recirculate (10%) of the 15% recycled overflow straight to the filler balence tank instead of the supply tank making it available immediately to be used for bottling.
Step 5: The system can now produce at 115 GPM (100 GPM to the bottles); to increase efficiency beyond that we would have to address the next bottle neck, the Casepacker.

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Improve process flow in Hospital’s Emergency department (ED)
In discussing the theory of constraints, I will use an emergency department in a not-for-profit hospital. The business: The ED provides treatment and urgent health care. Staffed by 5 board certified physicians and about 30 nurses that are on-site around-the-clock. Equipped with 43 patient care rooms, the ED cares for more than 70,000 patients in a year and is the busiest part of the hospital. The process: When patients arrive at the ED, they are first evaluated by a "Quick-Look" nurse who examines basic vital health (temperature, pain level, blood pressure). The nurse provides stabilizing care and decides which patients are more urgent and the appropriate area to route them for assistance so as to boost the flow of patients through the ED boarding, evaluation, treatment, admission and discharge process, as well as provide an environment that is favorable to caring for the more seriously ill patients as quickly as possible. All not-so-serious patients sit and wait in reception area. The goal: Urgently provide quality health care and treat patients with a range of health concerns, from minor to more serious injuries/illnesses in the fastest time possible to eliminate suffering. Inventory: Sick patients arriving into the ED and waiting for medical/surgical care. Throughput: The patients that have been treated and discharged or the patients that have been treated and transferred to inpatient admission for further treatment and evaluation. Operating expenses: Salaries, medical/lab equipment, building, beds, computers, furniture, and infrastructure. Step 1: Identity the bottle neck
Slowness of freeing up ED beds/rooms/staff is the bottleneck that is causing overcrowding in ED and long waits times. Challenge is how to move the patient flow faster from arrival to treatment. Step 2: Exploit the system’s constraints
Attempt to increase the output of the bottleneck to increase throughput output by reducing idle time, number of steps, waste, interactions, decision points, reports, length of treatment, cost per patient.
§ To reduce idle time and optimize use of staff, we consider patient volume and analyses of arrival patterns to provide logical basis for staffing and resource allocation such as scheduling physicians and on-call nurses to match patient volume to shorten wait time and avoid burning out staff to ensure quality of patient treatment outcomes.
§ To optimally use available resources and reduce patient suffering in quickest time possible, immediately patients arrive, we decide which patients are treated first using a severity Index to identify and sort patients quickly to predict how many resources each patient require, such as tests, interventions and consultations, and allow quick and precise determination of the priority of patients to expedite patient care. Levels of treatment could be, first are patients requiring immediate life-saving interventions (cardiac arrest), second are high risk patients but stable enough to wait for a bed (high fever), third are patients with stable vital signs but in need of comprehensive evaluation and require multiple resources (body pains), fourth are patients with stable vital signs in need of one resource (cuts), lastly are patients with stable vital signs requiring minimal resources (toothache).
§ Use the first contact “quick-look” nurse and software to quickly diagnose the patient and calculate what resources are needed. Use this diagnosis to complete lab work during the stabilizing process, instead of patients just sitting idly in waiting room. This diagnosis also predicts and ensures needed resources are on stand by to save time.
§ Assess already admitted inpatients that would otherwise be discharged to stop occupying inpatients beds unnecessarily.
§ Boarding time-sensitive critically ill patients in empty inpatient rooms when The ED beds/rooms is at full capacity.
§ Refer less severe and stable cases to primary care physicians to avoid inappropriate use of ED.
§ Serving less urgent patients in ambulances. Don’t free up idle ambulances and load already overcrowded ED.
§ Reduce waste by ensuring physicians are not doing out-of-scope activities like patient scheduling, resource negotiation, and discharge so they concentrate on patient treatment. Step 3: Subordinate everything else to above decision
Use all available resources to support bottleneck output.
§ Ensure the nurses handling registration and stabilizing process is quick and accurate.
§ While physician is taking care of patient, nurses could be taking care of another patient. Avoid a situation where the nurse is just standing by as the physician treats the patient. Information from physician to nurse about tests and next steps required is shared through use of bedside computers.
§ Ensure lab technicians have the understanding of which patients test results are first on queue, so they are in sequence with ED physicians queue system.
§ Call more physicians and nurses on duty in case of high volume or natural disaster.
§ Ensure faster cleaning rooms after patient discharge to avail them quicker to new patients. Step 4: Elevate the system constraint
§ Invest in modern lab equipment so that the test results are almost instant to help quick treatment and free up beds quicker.
§ Invest in advanced technologies and surgeries to shorten treatment time, and efficient diagnostic to shorten multiple evaluations and multiple uses of resources.
§ Invest in more inpatient beds/rooms.
§ Consider training the ‘quick-look’ nurses to learn to do more than just registration and placement such as seal patients’ cuts.
Step 5: If bottle neck has been broken, go back to step: When we’ve applied one improvement and have seen a positive effect, we go back to the beginning to evaluate if the goal is still valid, and if throughput measurement is still correct. We identify the bottleneck again as there is always one depending on what we are measuring. After we solve the first- worst problem of slow patient flow, we focus on the second-worst problem which could be quality of care. We get better and better by repeatedly going through the five focusing steps. After a while, most problems will be solved and results start to show by higher throughput indications.