Profit generation in a machining service provider - Optimization combining Theory of Constraints and contribution margin concept

This paper proposes a method for machining service providers to determine cutting speeds that could maximize their financial returns. This is done based on measures considered by the Theory of Constraints (TOC) and the contribution margin concept. It starts by defining the cutting parameters and their relationship to the machining costs. Also, TOC principles are examined in relation to the financial gains obtained as a result of the bottleneck analysis. Finally, this paper proposes to combine both sets of concepts in such way that a relationship between financial gains and cutting speed is established. A graphical solution identifies the cutting speed that maximizes the financial gains for a given part and a linear programming approach expands the concept for real life situations where several different parts are machined at the bottleneck. Hence this approach could be helpful to machining service providers for maximizing their profitability fully utilizing their bottleneck equipment.