Theory of Constraints
One of business management theories is The theory of constraints ( TOC ),its created by Dr. Eli Goldratt,and it is based on:
" a assumption
that every system has at least one constraint limiting it from getting
more of what it strives for. If this were not true, then the system
would produce infinite output."
For example, a for-profit organization would make business
process management and endless profits. Constraints determine the
output of a system whether they are acknowledged or not. Therefore, it
is in a manager’s best interest to identify and “exploit” system
constraints within the organization.
The theory of constraints is both descriptive and prescriptive in
nature; it not only describes why system constraints happen but also
offers guidance on what to do about them. This page provides an
overview of both; however, it begins with a discussion of some key
underlying concepts:
· Systems as chains
· Throughput, inventory, and operating expense (T, I, OE)
Systems as chains
A system is generally defined as a collection of interrelated,
independent processes that work together to turn inputs into outputs in
the pursuit of some goal.
As pictured above , the chain has one “weakest link.” If force is
applied to the chain at an increasing rate, it would eventually break
at this point.
Therefore, the weakest link is the constraint that prevents the
chain (system) from doing any better at achieving its goal
(transmitting force).
Goldratt states that there is only one constraint in a system at any
given time limiting the output of the entire system. The remaining
“links” are known as nonconstraints.
When one constraint is strengthened, however, the system does not
become infinitely stronger. The constraint simply migrates to a
different component of the system, i.e., some other link is now the
weakest and all other links are nonconstraints. The system is stronger
than it was but still not as strong as it could be.
To better understand the theory of Constraints and nonconstraints,
consider a sample production system that runs raw materials through
three component processes and turns them into a finished product, as
pictured
Within the system, each process is equivalent to a link in the
production chain. Where is the constraint in this chain? Process B is
the weakest link since it
produces only six units per day no matter how many the rest of the
components produce. Where are the nonconstraints? Everywhere else.
Imagine that the manufacturer improves process B until it can
produce 18 units per day. Now, process C becomes the system constraint
while the nonconstraints are everywhere else. If process improvements
continue until all processes are producing 18 units/day or higher, the
system constraint becomes the marketplace, which can accept only 15
units per day.
At this point, internal constraints have been replaced by an
external constraint. Overall, the theory of constraints emphasizes
fixing the weakest link in the chain—the system constraint—and
temporarily ignoring the nonconstraints. In this way, the theory has a
profound impact on process improvement.
Rather than spreading limited time, energy, and resources
across an entire system (which may or may not result in tangible
results), teams focus on that part of the system with the potential to
produce immediate
system improvement.
Throughput, inventory, and operating expense
In order to determine the effect that any local action has on progress
toward a system goal, Goldratt created a simple relationship between
three system-level dimensions: throughput (T), inventory (I), and
operating expense (OE), as defined below .
Given Goldratt’s three dimensions, organizations have three
different options for system improvement: increasing T, reducing I, or
reducing OE.
The practical limits of reducing inventory and operating expenses
are relatively low, as a system can’t produce many outputs without
them. Theoretically, there’s no upper limit to how much an organization
can increase its throughput, but market sizes are limited.
Still, the potential for increasing T is always likely to be
much higher than the potential for decreasing I and OE. Therefore, a
basic model for system improvements is to expend as much as effort as
possible on activities that tend to primarily increase T and make
reduction of I and OE a secondary priority, as shown below
Together, the concepts of T, I, OE and systems as chains are woven
into the theory of constraint’s descriptive and prescriptive nature.
The content that follows examines these in turn by first considering
the TOC’s underlying principles (descriptive) and then discussing its
primary steps and tools for improvement (prescriptive).
Basic principles
Goldratt outlines several principles that help create a environment conducive to the prescriptive part of his theory.
The prescriptive part of the theory of constraints is designed to
help organizations answer three management questions regarding systems
and their constraints:
· Where is the constraint? (what to change)
· What should we do with the constraint? (what to change to)
· How do we implement the change? (how to cause the change)
The five focusing steps
Step 1: Identify the system constraint.
In the first step, an organization identifies what part of the
system constitutes the weakest link and determines whether it is a
physical constraint or a policy-related issue.
Step 2: Decide how to exploit the constraint.
Organizations “exploit” the constraint by utilizing every bit of
the constraining component without committing to potentially expensive
changes and/or upgrades.
Step 3: Subordinate everything else.
With a plan in place for exploiting the constraint, organizations
adjust the rest of the system to enable the constraint to operate at
maximum effectiveness and then evaluate the results to see if the
constraint is still holding back system performance. If it is, the
organization proceeds to Step 4. It it’s not, the constraint has been
eliminated and the organization skips ahead to Step 5.
Step 4: Elevate the constraint.
If an organization reaches Step 4, it means that Steps 2 and 3 were
not sufficient in eliminating the constraint. At this point, the
organization elevates the constraint by taking whatever action is
needed to eliminate it. This may involve major changes to the existing
system, such as reorganization, divestiture, or capital improvements.
Since these typically require a substantial up-front investment, the
organization should be certain that the constraint cannot be broken in
Steps 1 through 3 before proceeding.
Step 5: Go back to Step 1
But beware of inertia. After a constraint is broken, the
organization repeats the steps all over again, looking for the next
thing constraining system performance. At the same time, it monitors
how changes related to subsequent constraints may impact the
constraints that are already broken, thus preventing solution inertia.
The five logical tools
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· Current reality tree (CRT). Helps organizations work
backward from an undesirable effect to identify the core problem, i.e.,
the constraint pursued in the five focusing steps.
· Conflict resolution diagram (CRD). Allows organizations to
resolve hidden conflicts that usually perpetuate chronic problems (also
known as the “evaporating cloud”)
· Future reality tree (FRT). Enables organizations to verify
that an action will produce the desired results and to identify and
remove any unfavorable new consequences the action might have
· Prerequisite tree (PRT). Helps organizations implement a decision by providing a recommended sequence of events and identifying potential obstacles
· Transition tree (TT). Provides organizations with a
detailed, step-by-step action plan for implementing a decision The
“glue” holding all of the trees together is known as the categories of
legitimate reservation (CLR): eight rules, or tests, of logic governing
the trees’ construction. These include:
· Clarity.
· Entity existence.
· Causality existence.
· Cause sufficiency.
· Additional cause.
· Cause-effect reversal.
· Predicated effect existence.
· Tautology.
To be logically sound, a tree must be able to pass all of these
tests. In practice, the five logic trees can be used individually or
together as an integrated thinking process. picture below shows how the
five tools can be used together in answering the three management
questions about change.
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