Theory of constraints
Theory of Constraints (TOC) is a philosophy concerning constraints, their management and improvement methodology. It was developed by Dr. Eliyahu M. Goldratt (1947-2011). Goldratt presented it in his business novel entitled The Goal (1984) and further described its application in Critical Chain (1997)[1].
Basic principles and concepts
TOC provides methodology for identifying limitations as well as the tools to improve and eventually eliminate the limiting factors. An organization is perceived as a system of interrelated processes, activities, resources and so on. Every system is deemed vulnerable as it always has at least one constraint. A constraint, also referred to as bottleneck, is a limitation hindering achievement of particular objectives and profits that may inform the system as a whole[2][3].
TOC offers the following tools[4]:
- The Five Focusing Steps - a tool helping in identifying and managing constraints. We distinguish five steps here: 1) Identify, 2) Exploit, 3) Subordinate, 4) Elevate, 5) Evaluate. Continuity of the process is its main characteristics.
- The Logical Thinking Processes - tools intended to help in analyzing and resolving problems
- Throughput Accounting - a technique for measuring performance and guiding management decisions. It employs concepts such as throughput, inventory and operational expense. It shows the interrelations of these and how they impact the overall condition of an organization.
Constrains
Types of constraints[5]:
- Market constraint
- Financial constraint
- Resource constraint
- Material constraint
- Knowledge/ Competence constraint
- Policy constraint
- Vendor/ Supplier constraint
Benefits from the TOC
The main advantages of implementing TOC[6]:
- pinpointing the exact areas of weakness
- quick and effective implementation of improvements and optimization
- foreseeing and elimination of any adverse side effects of changes intended to break a particular constraint
- cost-effective maximization of productivity/ efficiency/ capacity
- continual improvement of an organization as a whole
Although the theory was originally applied in the manufacturing and engineering sectors, nowadays it is a commonly recognized and widely implemented method in fields such as project management, finance and accounting, marketing as well as supply chain amongst others[7].
Footnotes
| Theory of constraints — recommended articles |
| Strategic cost management — Efficiency of management — Management as science — Management by the numbers — Activity-based management — Value management — Process improvement — Added value chain — Capability mapping |
References
- Becker Professional Education, (2017)., ACCA Approved - F5 Performance Management Becker Professional Education Ltd
- Goldratt E., (2017) Critical Chain: A Business Novel Gower Publishing
- Goldratt E., (1984) The Goal, Gower Publishing
- Mabin V., Davies J., (2010)., Theory of Constraints Thinking Processes The MacGraw-Hill Companies
- Schragenheim E., Dettmer W., (2000)., Manufacturing at Warp Speed: Optimizing Supply Chain Financial Performance CRC Press
- Techt U., (2014)., Goldratt and the Theory of Constraints: The Quantum Leap in Management Columbia University Press
Author: Piotr Łabuz
