Theory of Constraints

Theory of Constraints | TOC

In order to define Theory of Constraints (ToC), it is necessary to define what a constraint is. A constraint is anything that limits the system (organization, enterprise, group, process…) from achieving higher performance relative to its purpose.

  • A constraint does always exist, otherwise the system would be infinitely successful, constantly achieving higher performance.
  • A constraint can be part of the system or lying outside of it, e.g. supplies limit the transformation of material, dull market limits the sales, regulation limits operations, etc.

The Theory of Constraints is a “business philosophy” or “management paradigm” that takes into account the existence of constraints, focuses on the one that limits the performance of the whole system and strives to achieve more of its goal. The TOC allows you to plan for and manage constraints in dynamic, uncertain environments and despite scarce resources.

Eliyahu M. Goldratt introduced Theory of Constraints in his 1984 book, The Goal. It is based on the idea that the throughput of a process, value stream, or system is limited only by its constraints or bottlenecks. The methodology is used to identify – and improve or eliminate – the constraint, which restricts or prevents a process from achieving its throughput goal.

Focus on the constraint?

The constraint is often referred to as the weakest link of the chain (metaphor for the whole process), which limits the performance of the chain. It is therefore useless to improve any other link as long as the weakest has not been strengthened. ToC claims to focus on the most critical factor (the weakest link), while Lean in comparison is often deployed in unfocused way, wasting resources to improve any link of the chain without really improving the whole chain.

Theory of Constraints: Three Dimensions

The Theory of Constraints focuses on reducing system bottlenecks as a means to continually improve the performance of the entire system. Rather than viewing the system in terms of discrete processes, TOC addresses the larger systematic picture as a chain or grid of interlinked chains. The performance of the weakest link determines the performance of the whole chain.

TOC considers three dimensions of system performance in the following order:

  • Throughput (total sales revenues minus the total variable costs for producing a product or service)
  • Inventory (all the money a company invests in items it sells)
  • expense (money a company spends transforming inventory into throughput).

Focus on these dimensions can lead a company to abandon traditional management cost accounting while at the same time causing an improvement in competitive price advantage.

Theory of Constraints: Five Focusing Steps

  1. Evaluate current-state process and identify constraint that limits achieving throughput goal
  2. Exploit constraint by making small and rapid improvements to the process at constraint location
  3. Subordinate all other steps and activities in the process to focus on the constraint, ensuring they support improvements to the constraint
  4. Elevate constraint in the process to successfully achieve throughput goal by applying more advanced and sustainable improvements; this step is considered as “breaking” the constraint, and may result in identifying a constraint somewhere else in the process
  5. Repeat the continuous improvement cycle for additional or new constraints that limit or prevent the process from achieving throughput goal.

TOC : Tools

Tools and inputs that may be used in the Theory of Constraints cycle include Pareto analysis, flow charts, process maps, scorecards, RACI matrix, SIPOC diagram, 5 Why root-cause analysis, cause-and-effect diagram, affinity diagram, brainstorming, multivoting and nominal group technique.

The benefits of Theory of Constraints include:

  • Improved process throughput of a product or service
  • Increased profitability through achieving a throughput goal
  • Increased productivity, capacity, and quality
  • Reduced lead times and inventory levels
  • Improved customer satisfaction
  • Improved culture, employee engagement, and problem solving

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