Theory Of Constraints


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Theory Of Constraints - short version

Only a few barriers stand in the way of success for any person, process, or organization.



Theory Of Constraints - long version

The theory of constraints (TOC) adopts the common idiom "A chain is no stronger than its weakest link" as a new management paradigm. This means that processes, organizations, etc., are vulnerable because the weakest person or part can always damage or break them or at least adversely affect the outcome. The analytic approach with TOC comes from the contention that any manageable system is limited in achieving more of its goals by a very small number of constraints, and that there is always at least one constraint. Hence the TOC process seeks to identify the constraint and restructure the rest of the organization around it, through the use of five focusing steps.

The underlying premise of theory of constraints is that organizations can be measured and controlled by variations on three measures: throughput, operational expense, and inventory. Throughput is the rate at which the system generates money through sales. Inventory is all the money that the system has invested in purchasing things which it intends to sell. Operational expense is all the money the system spends in order to turn inventory into throughput.

The goal itself is to make money. All other benefits are derived, in one way or another, from that single primary goal. Theory of constraints is based on the premise that the rate of goal achievement is limited by at least one constraining process. Only by increasing flow through the constraint can overall throughput be increased.nAssuming the goal of the organization has been articulated (e.g., "Make money now and in the future") the steps are:

1. Identify the constraint (the resource or policy that prevents the organization from obtaining more of the goal)

2. Decide how to exploit the constraint (get the most capacity out of the constrained process)

3. Subordinate all other processes to above decision (align the whole system or organization to support the decision made above)

4. Elevate the constraint (make other major changes needed to break the constraint)

5. If, as a result of these steps, the constraint has moved, return to Step 1. Don't let inertia become the constraint.

The five focusing steps aim to ensure ongoing improvement efforts are centered around the organization's constraints. In the TOC literature, this is referred to as the process of ongoing improvement (POOGI).

A constraint is anything that prevents the system from achieving more of its goal. There are many ways that constraints can show up, but a core principle within TOC is that there are not tens or hundreds of constraints. There is at least one and at most a few in any given system. Constraints can be internal or external to the system. An internal constraint is in evidence when the market demands more from the system than it can deliver. If this is the case, then the focus of the organization should be on discovering that constraint and following the five focusing steps to open it up (and potentially remove it). An external constraint exists when the system can produce more than the market will bear. If this is the case, then the organization should focus on mechanisms to create more demand for its products or services.

Types of (internal) constraints

* Equipment: The way equipment is currently used limits the ability of the system to produce more salable goods/services.

* People: Lack of skilled people limits the system. Mental models held by people can cause behaviour that becomes a constraint.

* Policy: A written or unwritten policy prevents the system from making more.



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