Theory of Constraints

leverage

Give me a lever large enough and I will move the earth – Archimedes

 

Theory of Constraints or TOC, developed by Israeli scientist Dr. Eliyahu Goldratt, is based on the principle of finding those leverage points (constraints) in the system that, if managed well, can have a huge impact on the organization’s performance. TOC has grown over the years by leaps and bound and today incorporates a vast body of knowledge. There have been hundreds of successful implementations of TOC across the globe delivering amazing results for the organizations implementing TOC. An independent study of companies, that have adopted TOC, reported very impressive results, as shown below.

 

 

 

Five Focusing Steps

A fundamental component of  TOC approach is 5 Focusing Steps (5FS) as depicted below. This distinguishes TOC from other approaches by focusing on the areas of maximum leverage.

 

1. Identify the system’s constraint

2. Decide how to exploit the system’s constraint

3. Subordinate everything else to the above decision

4. Elevate the system’s constraint

5. If the constraint is broken go back to step one but do not allow Inertia to cause the system’s constraint

 

TOC Applications

Over the years, several TOC solutions have been developed for various environments that have proved to be path breaking and have resulted in immense benefits for the organizations implementing them.

 

TOC Distribution (Supply Chain) solution

TOC distribution solution is a pull based solution that is based on the premise that the sales forecasts are inaccurate and one needs to have lower (not higher) levels of inventory at the retail joints with more frequent replenishment. The solution aims to manage dependency and variability in the supply chain and incorporates a sophisticated buffer management mechanism to provide high level of availability with low level of inventory. TOC distribution solution is relevant for Consumer Goods, FMCG, Retail, Apparel and Fashion and Automobile Components industries.

 

TOC Critical Chain Project Management (CCPM) solution

Most project management approaches either focus on the technical aspects or the human aspects of project management. CCPM solution incorporates both the aspects and hence is a far better and more effective solution. The impact of implementing CCPM  solution is higher delivery due date reliability, more frequent earlier delivery and conservation of project cost. The solution is relevant for New Product Development in any industry including Financial Services, Consumer Products, Engineering etc.; Custom Order Fulfillment and Complex Maintenance Projects such as aircraft maintenance etc.

 

TOC Manufacturing solution

TOC manufacturing solution is also called Drum Buffer Rope (DBR). It involves identification of the system constraint (which is a capacity-constrained resource), maximizing utilization of the constraint, implementing a buffering mechanism and a signaling mechanism based on customer orders. When DBR is implemented, it leads to a very high delivery reliability and a very significant reduction in lead time. TOC manufacturing solution is relevant to any manufacturing company that has good volumes and does not have high degree of stability in in its order patterns and product mix.

 

 

TOC Thinking Processes

TOC Thinking processes are a set of logic based techniques to analyze the current state of the organization to identify core problems and develop a solution based on a logical, step by step process. The components of Thinking Processes are:

 

1. The Current Reality Tree (CRT)

2. The Evaporating Cloud (EC)

3. The Future Reality Tree (FRT)

4. The Pre-requisite Tree (PRT)

5. The Transition Tree (TT)

 

TOC Thinking Processes are extremely useful for building consensus based on win-win paradigms and implementing change.

 

 

TOC has evolved over many years to now have a vast body of knowledge. Some of the other powerful constructs in TOC include Throughput Accounting, Decisive Competitive Edge, Unrefusable Offer and Strategy and Tactics (S&T) Trees.