Theory of Constraints

Theory of Constraints

The Theory of Constraints is an organizational change method that is focussed on profit improvement. The essential concept of TOC is that every organization must have at least one constraint. A constraint is any factor that limits the organization from getting more of whatever it strives for, which is usually profit. The Goal focuses on constraints as bottleneck processes in a job-shop manufacturing organization. However, many non-manufacturing constraints exist, such as market demand, or a sales department’s ability to translate market demand into orders.

The Theory of Constraints defines a set of tools that change agents can use to manage constraints, thereby increasing profits. Most businesses can be viewed as a linked set of processes that transform inputs into saleable outputs. TOC conceptually models this system as a chain, and advocates the familiar adage that a "chain is only as strong as its weakest link." Goldratt defines a five-step process that a change agent can use to strengthen the weakest link, or links. In The Goal, Goldratt proves that most organizations have very few true constraints. Since the focus only needs to be on the constraints, implementing TOC can result in substantial improvement without tying up a great deal of resources, with results after three months of effort.

The Five Steps of the Theory of Constraints

1. Identify the System Constraint

The part of a system that constitutes its weakest link can be either physical or a policy.

2. Decide How to Exploit the Constraint

Goldratt instructs the change agent to obtain as much capability as possible from a constraining component, without undergoing expensive changes or upgrades. An example is to reduce or eliminate the downtime of bottleneck operations.

3. Subordinate Everything Else

The non-constraint components of the system must be adjusted to a "setting" that will enable the constraint to operate at maximum effectiveness. Once this has been done, the overall system is evaluated to determine if the constraint has shifted to another component. If the constraint has been eliminated, the change agent jumps to step five.

4. Elevate the Constraint

"Elevating" the constraint refers to taking whatever action is necessary to eliminate the constraint. This step is only considered if steps two and three have not been suc...

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...stem to control production, and implement production leveling.

• Performance measures that support lean implementation

Replacing traditional financial metrics of asset utilization and burden absorption with Goldratt’s Throughput, Inventory, and Operating Expense measures will help management see the benefits of Lean Thinking.

Reproduced with permission from the Lean Enterprise Institute.

Resources

Dettmer, William H. Goldratt's Theory of Constraints A Systems Approach to Continuous Improvement. Milwaukee, Wisc.: ASQ Quality Press, 1997.

Goldratt, Eliyahu M. and Cox, Jeff. The Goal. Great Barrington, Mass.: The North River Press, 1992.

Goldratt, Eliyahu M. What is this thing called Theory of Constraints and how should it be implemented? Great Barrington, Mass.: The North River Press, 1990.

Noreen, Eric, Debra Smith, and James T. Mackey. The Theory of Constraints and its Implications for Management Accounting. Great Barrington, Mass.: The North River Press, 1995.

Rother, Mike and John Shook. Learning to See. Brookline, Mass.: The Lean Enterprise Institute, 1998.

Womack, James P. and Daniel T. Jones. Lean Thinking. New York: Simon and Schuster, 1996.