Is TOC just one more theory?
Despite it’s name, the “Theory of Constraints” is not particularly theoretical. Rather, it helps find practical, effective solutions to business problems. The Theory of Constraints is a suite of management concepts developed by Dr. Eliyahu Goldratt as introduced in the landmark book “The Goal”.
It helps managers decide:
1. What to change?
2. What to change it to?
3. How to cause the change?
TOC systematically focus efforts, energy and attention on the “system constraint.” This constraint, or bottleneck, restricts the output of the entire system and at the same time represents the primary leverage point for improving it. Simply put, TOC means identifying constraints and managing them. Implementing the Theory of Constraints has yielded remarkable results for many companies around the world. The following results were observed during a study.
To accomplish this, TOC shifts the focus of management from optimizing separate assets, functions and resources to increasing the flow of throughput generated by the entire system.
The following are the 5 Focusing Steps of TOC:
1. Identify the Constraint
There are 3 types of constraints, namely, resource constraints, policy constraints and permanent constraints. In order to increase the throughput of the system, you must alleviate the current bottleneck — the thing currently limiting you from attaining your goal. A common failure in identifying the constraint is the discovery of future assumed constraints. Remember that alleviating a constraint will result in the emergence of a new constraint
2. Exploit the Constraint
Once the constraint is identified, you should maximize productivity at the constraint. In other words, the constraint should be 100% utilized. As the constraint is the slowest or most limiting aspect of the system in terms of attaining your goal, ensuring the constraint is utilized is the first step in increasing throughput.
3. Subordinate Everything Else to the Constraint
The constraint is the slowest or most limiting aspect of the system. Non-constraints should therefore provide the constraint with exactly enough resources to fully utilize the constraint. The constraint should never be starved of input.
4. Elevate the Constraint
Once the productivity at the constraint has been maximized, the resources addressing the constraint must be expanded in order to further increase the throughput of the system. Increasing the capacity at the constraint requires investment, perhaps in purchasing new equipment or hiring additional staff.
5. Prevent Inertia from Becoming the Constraint
Once a constraint has been elevated, a new constraint will emerge within the system. To further increase the throughput of the system, you must identify the new constraint, exploit the new constraint, subordinate everything else to the new constraint, and then elevate the new constraint.
To achieve organizations goals it must:
▪ Increase Throughput
▪ Reduce Inventory
▪ Reduce Operating Expenses
TOC is also known by various other names, including Constraint(s) Management, Synchronous Flow Manufacturing (SFM), Synchronous Production (SP), and OPT.
Dr. Goldratt’s Theory of Constraints is being used by thousands of corporations, and is taught in over 200 colleges, universities and business schools.
To know more on the importance of TOC, the business novel, titled “The Goal”, by Eliyahu M Goldraatt will be useful.
His books have sold over 4 million copies and have been translated into 23 languages. Hindi version here: The Goal
The Goal is one of the 3 books recommended by Jeff Bezos to his top management.