WHAT IS THE THEORY OF CONSTRAINTS?
The Theory of Constraints is a methodology for identifying the most important limiting factor (i.e., constraint) that stands in the way of achieving a goal and then systematically improving that constraint until it is no longer the limiting factor. In manufacturing, the constraint is often referred to as a bottleneck.
The Theory of Constraints takes a scientific approach to improvement. It hypothesizes that every complex system, including manufacturing processes, consists of multiple linked activities, one of which acts as a constraint upon the entire system (i.e., the constraint activity is the “weakest link in the chain”).
So what is the ultimate goal of most manufacturing companies? To make a profit – both in the short term and in the long term. The Theory of Constraints provides a powerful set of tools for helping to achieve that goal, including:
- The Five Focusing Steps: a methodology for identifying and eliminating constraints
- The Thinking Processes: tools for analyzing and resolving problems
- Throughput Accounting: a method for measuring performance and guiding management decisions
Dr. Eliyahu Goldratt conceived the Theory of Constraints (TOC), and introduced it to a wide audience through his bestselling 1984 novel, “The Goal”. Since then, TOC has continued to evolve and develop, and today it is a significant factor within the world of management best practices.
One of the appealing characteristics of the Theory of Constraints is that it inherently prioritizes improvement activities. The top priority is always the current constraint. In environments where there is an urgent need to improve, TOC offers a highly focused methodology for creating rapid improvement.
A successful Theory of Constraints implementation will have the following benefits:
- Increased Profit: the primary goal of TOC for most companies
- Fast Improvement: a result of focusing all attention on one critical area – the system constraint
- Improved Capacity: optimizing the constraint enables more product to be manufactured
- Reduced Lead Times: optimizing the constraint results in smoother and faster product flow
- Reduced Inventory: eliminating bottlenecks means there will be less work-in-process
BASICS OF TOC
The core concept of the Theory of Constraints is that every process has a single constraint and that total process throughput can only be improved when the constraint is improved. A very important corollary to this is that spending time optimizing non-constraints will not provide significant benefits; only improvements to the constraint will further the goal (achieving more profit).
Thus, TOC seeks to provide precise and sustained focus on improving the current constraint until it no longer limits throughput, at which point the focus moves to the next constraint. The underlying power of TOC flows from its ability to generate a tremendously strong focus towards a single goal (profit) and to removing the principal impediment (the constraint) to achieving more of that goal. In fact, Goldratt considers focus to be the essence of TOC.
The Five Focusing Steps
The Theory of Constraints provides a specific methodology for identifying and eliminating constraints, referred to as the Five Focusing Steps. As shown in the following diagram, it is a cyclical process. https://www.leanproduction.com/theory-of-constraints/
The Thinking Processes
The Theory of Constraints includes a sophisticated problem solving methodology called the Thinking Processes. The Thinking Processes are optimized for complex systems with many interdependencies (e.g., manufacturing lines). They are designed as scientific “cause and effect” tools, which strive to first identify the root causes of undesirable effects (referred to as UDEs), and then remove the UDEs without creating new ones.
The Thinking Processes are used to answer the following three questions, which are essential to TOC:
- What needs to be changed?
- What should it be changed to?
- What actions will cause the change?
Throughput Accounting is an alternative accounting methodology that attempts to eliminate harmful distortions introduced from traditional accounting practices – distortions that promote behaviors contrary to the goal of increasing profit in the long term.
In traditional accounting, inventory is an asset (in theory, it can be converted to cash by selling it). This often drives undesirable behavior at companies – manufacturing items that are not truly needed. Accumulating inventory inflates assets and generates a “paper profit” based on inventory that may or may not ever be sold (e.g., due to obsolescence) and that incurs cost as it sits in storage. The Theory of Constraints, on the other hand, considers inventory to be a liability – inventory ties up cash that could be used more productively elsewhere.
In traditional accounting, there is also a very strong emphasis on cutting expenses. The Theory of Constraints, on the other hand, considers cutting expenses to be of much less importance than increasing throughput. Cutting expenses is limited by reaching zero expenses, whereas increasing throughput has no such limitations.
These and other conflicts result in the Theory of Constraints emphasizing Throughput Accounting, which uses as its core measures: Throughput, Investment, and Operating Expense.
In addition, Throughput Accounting has four key derived measures: Net Profit, Return on Investment, Productivity, and Investment Turns.
In general, management decisions are guided by their effect on achieving the following improvements (in order of priority):
- Will Throughput be increased?
- Will Investment be reduced?
- Will Operating Expenses be reduced?
The strongest emphasis (by far) is on increasing Throughput. In essence, TOC is saying to focus less on cutting expenses (Investment and Operating Expenses) and focus more on building sales (Throughput).
Drum-Buffer-Rope (DBR) is a method of synchronizing production to the constraint while minimizing inventory and work-in-process.
The “Drum” is the constraint. The speed at which the constraint runs sets the “beat” for the process and determines total throughput.
The “Buffer” is the level of inventory needed to maintain consistent production. It ensures that brief interruptions and fluctuations in non-constraints do not affect the constraint. Buffers represent time; the amount of time (usually measured in hours) that work-in-process should arrive in advance of being used to ensure steady operation of the protected resource. The more variation there is in the process the larger the buffers need to be. An alternative to large buffer inventories is sprint capacity (intentional overcapacity) at non-constraints. Typically, there are two buffers:
- Constraint Buffer: immediately before the constraint; protects the constraint
- Customer Buffer: at the very end of the process; protects the shipping schedule
The “Rope” is a signal generated by the constraint indicating that some amount of inventory has been consumed. This in turn triggers an identically sized release of inventory into the process. The role of the rope is to maintain throughput without creating an accumulation of excess inventory.
Basics of Theory of Constraints
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Goldratt's Theory of Constraints
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Necessary but not sufficient : a theory of constraints business novel : Goldratt, Eliyahu M., 1947-2011 : Free Download, Borrow, and Streaming : Internet Archive
The goal : a process of ongoing improvement : Goldratt, Eliyahu M., 1948- : Free Download, Borrow, and Streaming : Internet Archive