The Bee Hive

The Theory of Constraints

The Theory of Contraints (TOC) essentially is a managerial philosophy that focuses on helping managers identify impediments to their goal(s) and effect the changes necessary to remove them. In his best-selling business book The Goal, Dr. Eli Goldratt, the founder of TOC, says the essence of management is determining the answers to three questions:

1. What to change? Pinpoint the core problems.
2. What to change to? Construct simple, practical solutions
3. How to cause the change? Induce the appropriate staff to buy into such solutions

To help managers address these questions and guide them in their quest to manage their own constraints, Goldratt offers a five-step process to improve the performance of any system.

Step 1. Identify the system’s constraints. If you could choose to add more of a single resource, which one would allow your system to increase its throughput (amount of product or service delivered to the customer)? If the constraint is physical in nature, it could be:

• Materials - the input to the process
• Capacity - insufficient amount of a specific resource relative to market demand; or
• Market - isufficient sales to consume product being produced or servioce availability with the existing capacity.

However, experience have shown that many constraints reflect managerial policies or paradigms.

Step2. Decide how to exploit the system’s constraints. Determine how to work with the system’s constraint to maximize throughput. For instance, if the constraint is a specific raw material, ensure no waste of the material. If the constraint is in sales, determine hot to capture more sales. If the constraint is a specific internal resource, ensure the resource is productive all of the time. This is a difficult process, and extracting the most throughput from the system often entails strategic decisions.

Step3. Subordinate everything else to the above decision(s). This synchronizes the rest of the organization with the capabilities of the constraint and the decisions made regarding how best to utilize it. For instance, if the constraint is a machine on the line, establish inventory buffers to protect its abilities to produce and base the release of materials into the plant on the schedule for that constraint and the amount of buffer time established.

It is here that most of the organization’s traditional peformance measures must be changed. For example, every single resource that is not the constraint severely damages the organization if it strives for 100 percent utilization. However, in traditional operational settings, that’s exactly how the resources are measured.

Step 4. Elevate the system’s constraint. In previous steps, managers ensure the organization is optimized via nothing more than procedure/policy changes. In this step, managers actually alter the constraint. For instance, if the constraint has been a machine in the plant, the manager would add physical capacity. How?

1. Reducing set-up and process times
2. Investing in other process improvements
3. Increasing overtime, hiring more staff, buying another machine, or taking any other action that eliminates the machine as the constraint.

Step 5. Don’t let inertia become the system’s constraint. Some or all of the policies established in steps two and three may not be appropriate now that the original constraint has been removed. The manager must reexamine the policies’ applicability and effectiveness under the new operating situation and, in particular, determine where the new constraint is located by revisiting step one.

By using TOC five-step focusing process, a company validates its commitment to continuous improvement.