WikiPortallus: Theory of Constraints.html

Theory of Constraints (TOC) is an overall management philosophy. Dr. Eliyahu M. Goldratt introduced the Theory of constraints in his 1984 book titled The Goal. It is based on the application of scientific principles and logic reasoning to guide human-based organizations. The publicity and leadership behind these ideas has been dominated by Dr. Goldratt through a series of books, seminars and workshops.

TOC is based on a set of basic principles (axioms)³, a few simple processes (Strategic Questions, Focusing Steps, Buy-In processes, Effect-Cause-Effect), logic tools (The Thinking Processes or TP) and through the logical derivation of these some applications to specific fields (Operations, Finance, Distribution, Project Management, People Management, Strategy, Sales and Marketing).

According to TOC, every organization has - at any given point in time - at least one constraint which limits the system's performance relative to its goal (see Liebig's law of the minimum). These constraints can be broadly classified as either an internal constraint or a market constraint. In order to manage the performance of the system, the constraint must be identified and managed correctly (according to the Five Focusing Steps below). Over time the constraint may change (e.g., because the previous constraint was managed successfully, or because of a changing environment) and the analysis starts anew.

Basic principles of TOC

Explicitly articulated in SLP 7 — Managing People³ and Necessary and Sufficient — Unit 2 The Basic Assumptions of TOC⁴

The principles are treated as axioms, and therefore have no proof. Even so Goldratt provides³,⁴ some indication on why he chose these as basic assumptions or principles to base TOC upon.

The first two are a derivation of Newton's words: natura valde simplex est et sibi consona (nature is exceedingly simple and conformable to herself), while the third is a bridge on how to deal with human reactions and motivations.

Convergence

The first principle: Convergence, also called "Inherent Simplicity" states that "The more complex a system is to describe, the simpler it is to manage." Or that the more interconnected a system is the fewer degrees of freedom it has, and consequently the fewer points must be touched (managed) to impact the whole system. A corollary of this principle is that every organization has at least one constraint active in any given point of time (otherwise it would achieve infinite performance relative to its goal). The more complex and interconnected the organization is the lower the number of constraints it will have.

Consistency

The second principle: Consistency, also called "There are No Conflicts in Nature" states that "If two interpretations of a natural phenomenon are in conflict, one or possibly both must be wrong". That is, when in an organization with a common goal, two parts are in conflict (or in a dilemma) this means that the reasoning that led to the conflict must contain at least one flawed assumption.

Respect

The third principle: Respect, also called "People are not Stupid" states that "Even when people do things that seem stupid they have a reason for that behavior". In other words, this principle is stating that people are not inherently irrational.

Basic processes

The five focusing steps

One of the most important processes of the 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 throughput (flow) at the bottleneck process can overall throughput be increased.

The key steps in implementing an effective process of ongoing improvement according to TOC are:

Applications

The focusing steps, or this Process of Ongoing Improvement has been applied to Manufacturing, Project Management, Supply Chain / Distribution generated specific solutions. Other tools (mainly the TP) also led to TOC applications in the fields of Marketing and Sales, and Finance. The solution as applied to each of these areas are listed below.

Operations

Within manufacturing operations and operations management, the solution seeks to pull materials through the system, rather than push them into the system. The primary methodology use is Drum-Buffer-Rope (DBR),¹ and a variation called Simplified Drum-Buffer-Rope (S-DBR).⁵

Drum-Buffer-Rope is a manufacturing execution methodology, named for its three components. The drum is the physical constraint of the plant: the work center or machine or operation that limits the ability of the entire system to produce more. The rest of the plant follows the beat of the drum. They make sure the drum has work and that anything the drum has processed does not get wasted. ¹

The buffer protects the drum, so that it always has work flowing to it. Buffers in DBR have time as their unit of measure, rather than quantity of material. This makes the priority system operate strictly based on the time an order is expected to be at the buffered operation. Traditional DBR usually calls for buffers at several points in the system: the constraint, synchronization points and at shipping.¹ S-DBR requires only a single buffer at shipping.⁵

The rope is the work release mechanism for the plant. Only at "buffer time" before an order is due does it get released into the plant. Pulling work into the system earlier than a buffer time guarantees high work-in-process and slows down the entire system.¹

Plant types

There are four primary types of plants in the TOC lexicon. Draw the flow of material from the bottom of a page to the top, and you get the four types. They specify the general flow of materials through a system, and they provide some hints about where to look for typical problems. The four types can be combined in many ways in larger facilities.

Supply chain / logistics

The solution for supply chain is to move to a replenishment to consumption model, rather than a forecast model.

Finance and accounting

The solution for finance and accounting is to apply holistic thinking to the finance application. This has been termed throughput accounting. Throughput accounting suggests that one examine the impact of investments and operational changes in terms of the impact on the throughput of the business. It is an alternative to cost accounting.

The primary measures for a TOC view of finance and accounting are: Throughput (T), Operating Expense (OE) and Investment (I). Throughput is calculated from Sales (S) - Totally Variable Cost (TVC). Totally Variable Cost usually considers the cost of raw materials that go into creating the item sold.

Project management

Critical Chain Project Management is utilized in this area. Based on the realization that all projects look like A-plants: all operations must converge to a final deliverable. As such, synchronization of activities is a common problem that CCPM seeks to address.

Marketing and sales

While originally focused on manufacturing and logistics, TOC has expanded lately into sales management and marketing. For effective sales management one can apply Drum Buffer Rope to the sales process similar to the way it is applied to operations (see Reengineering the Sales Process book reference below). This technique is appropriate when your constraint is in the sales process itself or you just want an effective sales management technique and includes the topics of funnel management and conversion rates.^{citation needed}

The TOC thinking processes

The Thinking Processes are a set of tools to help managers walk through the steps of initiating and implementing a project. When used in a logical flow, the Thinking Processes help walk through a buy-in process:

TOC practitioners sometimes refer to these in the negative as working through layers of resistance to a change.

Development and practice

TOC was initiated by Dr. Eliyahu M. Goldratt, being still the main driving force behind the development and practice of TOC. There is a network of individuals and small companies loosely coupled as practitioners around the world. TOC is sometimes referred to as "Constraint Management" but this understates enormously what TOC is. TOC is a large body of knowledge with a strong guiding philosophy of growth.

Criticism

Some academics in the Operations Research and Management Science communities claim^who? that the TOC founder, Eliyahu M. Goldratt, and some of his followers display a strong guru-like and sales pitch attitude that it is not compatible with the spirit of true scientific investigation.^{citation needed}

In particular, people claim^{citation needed} Goldratt's books fail to acknowledge that TOC borrows from more than 40 years of previous Management Science research and practice, particularly from PERT/CPM and JIT. A rebuttal to these criticisms is offered in Goldratt's "What is the Theory of Constraints and How Should it be Implemented?", and in his audio program, "Beyond The Goal". In these, Goldratt discusses the history of disciplinary sciences, compares the strengths and weaknesses of the various disciplines, and acknowledges the sources of information and inspiration for the Thinking Processes and Critical Chain methodologies.

D. Trietsch from University of Auckland argues that DBR methodology is inferior to competing methodologies. ⁶⁷

It is not clear that this criticism acknowledges that the earlier approaches did not explain the Theory nor did they lead to the level of results that are routinely achieved through TOC. Goldratt's position is that the methodologies should not compete; they should work together to create better results and generate and disseminate more knowledge. Moreover, it is arguable that earlier approaches were often centered around: continuous mass production rather than discrete batch production, assumptions of infinite capacity rather than finite capacity, and many localised but ineffective safety buffers rather than one or a few critical global safety buffers. Perhaps most importantly TOC is argued to be "portable" over a wide range of logistical problems that were previously intractable.

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