Things You Need to Know About the Theory of Constraints (TOC)

The Theory of Constraints (TOC) is a great place to start practicing continuous improvement and can be applied to any organization and practices in any business environment.

THE THEORY OF CONSTRAINTS (TOC) PHILOSOPHY

Students studying operations management are bound to come across the book by Dr. Eliyahu Goldratt called The Goal. In this classic from 1984, Goldratt reveals a set of "thinking tools" he developed, called the Theory of Constraints (TOC), and how he uses them to solve a range of problems at a fictional manufacturing plant.


This concept centers around practical methods for identifying solutions to business problems by deciding:

  • What to change

  • What to change it to

  • How to cause the change


The key focus of the Theory of Constraints is identifying constraints or bottlenecks in any process, and working out how to eliminate or reduce their impact. In his book, a constraint was defined as anything that prevents the system from achieving its goal.


THEORY OF CONSTRAINTS PRINCIPLES

So, what is the Theory of Constraints? Goldratt proposed that every real system must have at least one if not more than one constraint preventing if from achieving better or higher levels of performance. If this was not the case, there would be no limits and growth would be exponential.

These constraints limit performance, and unless they are addressed, performance will not nor cannot improve. Typical Theory of Constraints examples would include:

  • Machine capacity

  • Sales saturation

  • Limited demand

  • Raw material shortage

In each case, unless the constraint is addressed, output is limited by that constraint.


To overcome this, Goldratt proposed five Theory of Constraints steps, know as the five focusing steps. These are:

  • Identifying the limiting constraint

  • Exploit the constraint with existing resources

  • Subordinate and align all associated activities

  • Alleviate the constraint by investing in additional resources and equipment

  • Repeat the process to identify the next constraint


1. Identifying the Limiting Constraint

The constraint could come from a variety of sources, depending on the organization and the process:

  1. Firstly, resources (people, equipment) can be a constraint. Where there is insufficient capacity to process work at an ideal rate. In Lean thinking, we would evaluate how to reduce waste to make better use of our current resources.

  2. Secondly, the market can be a constraint. For example, economic factors such as increased supply in the market or reduced demand for your product are broad examples of market constraints. In these situations, you will want to consider new applications for your products, your equipment, or your people. Be innovative in leverage marketing changes.

  3. Thirdly, policy constraints have occurred when a blanket policy is applied to all processes, regardless of circumstance. Policy constraints are often a problem when it comes to hiring within an organization (i.e. entry-level employees to through the same rigorous and long processes as higher-skilled employees) which creates waste in time, resources, and possibly lost opportunities when individuals cannot wait-out the long process.

  4. Lastly, the dummy constraints are the resource constraints that can easily be broken or changed for instant improvements. An example of a dummy constraint in an administrative environment would be waiting for a certain day of the week, or day of the month to approve a certain task or project. In addition, approvals can be a significant bottleneck, and although interrupting weekly tasks to make approvals on the fly may cost someone their time (and therefore cost the company money) to handle, it allows for tasks to flow through at a greater rate.


2. Exploit the Constraint with Existing Resources

After identifying the constraint(s), you will want to exploit it. The constraint should always be working at full capacity. If the constraint is a specialized task, consider how you can remove non-specialized tasks from the individual/department to improve throughput.


3. Subordinate and Align all Associated Activities

A common symptom of a constraint is the buildup of inventory and work-in-progress (WIP). This is an indicator that there is a constraint where on one side of the process, there is a buildup of work and on the other side of the process there is excess capacity. Some ways to pace the other processes around the bottleneck include Moving steps from one side or the other if possible, reducing the work in process and instead focus on managing the constraint, cross-train others to contribute to the constraint tasks, etc.


4. Alleviate the Constraint by Investing in Additional Resources and Equipment

If all non-investment improvements have been made to improve capacity at the constraint, consider what options are available to invest in the constraint: Investing mat be cross-training employees to execute specialized work, adding additional systems to increase capacity at the bottleneck, increasing resources, such as people, on the constraint, etc. Most importantly, keep in mind Lean practices whereby you want to reduce wastes before increasing resources. Likely there are many innovative ways to improve capacity at the constraint without investing any additional resources.


5. Repeat the Process to Identify the Next Constraint

Once you have increased capacity and relieved a constraint for one process or system, repeat the steps again to find new constraints. Therefore, reorganize, reevaluate, reconsider all the steps and processes throughout the organization until you have created the desired flow.


TAKEAWAYS

Goldratt's TOC enables organizations to develop a continuous improvement mindset. In conclusion, the steps, and theory is relatively simple and can be applied to any process, regardless of the industry or environment. Thus, the TOC process is a great step toward a continuous improvement mindset and can be shared by an organization that is looking to reach their goals faster.


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If you want to learn how to instill a culture of Continuous Improvement within your organization contact us at Chmltech today. We specialize in creating high performing teams and have a proven track records of powerful results.

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