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Information about Theory Of Constraints

Theory of Constraints (TOC) is an overall management philosophy that aims to continually achieve more of the goal of a system. If that system is a for-profit business, then the goal is to make more money, both now and in future. TOC consists of two primary collections of work: 1) The five focusing steps and their application to operations; 2) The Thinking Processes and their application to project management and human behavior.

According to TOC, every organization has one key 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).

The publicity and leadership behind these ideas has been dominated by Eliyahu M. Goldratt through a series of books, seminars and workshops. The TOC ICO has been established as a certification organization.

The Five Focusing Steps

Theory of Constraints is based on the premise that the rate of revenue generation is limited by at least one constraining process (i.e. a bottleneck). Only by increasing throughput (flow) at the bottleneck process can overall throughput be increased.

The key steps in implementing an effective TOC approach are:
  1. Articulate the goal of the organization. Frequently, this is something like, "Make money now and in the future."
  2. Identify the constraint (the thing that prevents the organization from obtaining more of the goal)
  3. Decide how to exploit the constraint (make sure the constraint is doing things that the constraint uniquely does, and not doing things that it should not do)
  4. Subordinate all other processes to above decision (align all other processes to the decision made above)
  5. Elevate the constraint (if required, permanently increase capacity of the constraint; "buy more")
  6. If, as a result of these steps, the constraint has moved, return to Step 1. Don't let inertia become the constraint.


This Process of Ongoing Improvement has been applied to Manufacturing, Project Management, Supply Chain / Distribution, 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.
  • Drum-Buffer-Rope (DBR)
  • Simplified Drum-Buffer-Rope (S-DBR)
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.

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. In traditional DBR usually calls for buffers at several points in the system: the constraint, synchronization points and at shipping. S-DBR requires only a single buffer at shipping.

The rope is the work release mechanism for the plant. Only a "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.

For reference, you can read Chapter 37 of "The Goal", where DBR is summarized. S-DBR is discussed in a paper by Eli Schragenheim and Bill Dettmer, Simplified Drum-Buffer-Rope: A Whole System Approach to High Velocity Manufacturing.

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.
  • I-Plant: Material flows in a sequence, such as in an assembly line. The primary work is done in a straight sequence of events (one-to-one). The constraint is the slowest operation.
  • A-Plant: The general flow of material is many-to-one, such as in a plant where many sub-assemblies converge for a final assembly. The primary problem in A-plants is in synchronizing the converging lines so that each supplies the final assembly point at the right time.
  • V-Plant: The general flow of material is one-to-many, such as a plant that takes one raw material and can make many final products. Classic examples are meat rendering plants or a steel manufacturer. The primary problem in V-plants is "robbing" where one operation (A) immediately after a diverging point "steals" materials meant for the other operation (B). Once the material has been processed by A, it cannot come back and be run through B without significant rework.
  • T-Plant: The general flow is that of an I-Plant (or has multiple lines), which then splits into many assemblies (many-to-many). Most manufactured parts are used in multiple assemblies and nearly all assemblies use multiple parts. Customized devices, such as computers, are good examples. T-plants suffer from both synchronization problems of A-plants (parts aren't all available for an assembly) and the robbing problems of V-plants (one assembly steals parts that could have been used in another).

Supply chain / logistics

The solution for supply chain is to move to a replenishment model, rather than a forecast model.
  • TOC-Distribution
  • TOC-VMI (vendor managed inventory)

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.

See Throughput accounting for more details.

Project management

  • Critical Chain Project Management. 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. First data shows that the sales system is massively constrained and TOC offers significant opportunity to increase enterprise throughput = sales results
  • Solution for Sales

The six necessary and sufficient questions relating to technology

This discussion comes out of The Haystack Syndrome.
  1. What is the real power of the technology?
  2. What limitation does it diminish?
  3. What old rules helped accommodate the limitation?
  4. What are the new rules that should be used now?
  5. In light of the change in rules, what changes are required to the technology?
  6. How to cause the change (the new win/win business model)?

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:
  1. Gain agreement on the problem
  2. Gain agreement on the direction for a solution
  3. Gain agreement that the solution solves the problem
  4. Agree to overcome any potential negative ramifications
  5. Agree to overcome any obstacles to implementation


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

The Thinking Processes, as codified by Goldratt and others:
  • Current Reality Tree (CRT, similar to the current state map used by many organizations) - evaluates the network of cause-effect relations between the undesirable effects (UDE's, also known as gap elements) and helps to pinpoint the root cause(s) of most of the undesirable effects.
  • Evaporating Cloud (conflict resolution diagram or CRD) - solves conflicts that usually perpetuate the causes for an undesirable situation.
  • Core Conflict Cloud (CCC) - A combination of conflict clouds based several UDE's. Looking for deeper conflicts that create the undesirable effects.
  • Future Reality Tree (FRT, similar to a future state map) - Once some actions (injections) are chosen (not necessarily detailed) to solve the root cause(s) uncovered in the CRT and to resolve the conflict in the CRD the FRT shows the future states of the system and helps to identify possible negative outcomes of the changes (Negative Branches) and to prune them before implementing the changes.
  • Negative Branch Reservations (NBR) - Identify potential negative ramifications of any action (such as an injection, or a half-baked idea). The goal of the NBR is to understand the causal path between the action and negative ramifications so that the negative effect can be "trimmed."
  • Positive Reinforcement Loop (PRL) - Desired effect (DE) presented in FRT amplifies intermediate objective (IO) that is earlier (lower) in the tree. While intermediate objective is strengthened it positively affects this DE. Finding out PRLs makes FRT more sustaining.
  • Prerequisite Tree (PRT) - states that all of the intermediate objectives necessary to carry out an action chosen and the obstacles that will be overcome in the process.
  • Transition Tree (TT) - describes in detail the action that will lead to the fulfilment of a plan to implement changes (outlined on a PRT or not).
  • Strategy & Tactics (S&T) - the overall project plan and metrics that will lead to a successful implementation and the ongoing loop through POOGI.
Some observers note that these processes are not fundamentally very different from some other management change models such as PDCA "Plan-Do-Check-Act" (which is quite often now displayed as PDSA for Plan-Do-Study-Act as 'checking' merely indicates it's been looked at where 'studying' fosters a proactive approach) or "Survey-Assess-Decide-Implement-Evaluate", but the way they can be used is clearer and more straightforward. More on this can be seen on Goldratt's Theory of Constraints - A Systems Approach to Continuous Improvement by William Dettmer ISBN 0-87389-370-0.

Development and practice

TOC has been initiated by Eliyahu M. Goldratt and is being actively developed by a loosely coupled community of practitioners around the world. TOC is sometimes referred to as "Constraint Management".

The TOC International Certification Organization maintains a variety of TOC certifications.

Criticism

TOC has received criticism from academics in the Operations Research and Management Science communities on the following grounds:
  • In spite of its name, TOC has little "theory" and it is better viewed as a collection of useful, but quite loose, managerial guidelines.
  • 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. In particular, Goldratt´s books fail to acknowledge that TOC borrows from more than 40 years of previous Management Science research and practice, specially from PERT/CPM and JIT.
  • It has been argued that DBR methodology can be shown to be inferior to other competing methodologies. [D. Trietsch, From Management by Constraints (MBC) to Management By Criticalities (MBC II), Human Systems Management (24) 105-115, 2005][D. Trietsch, From the Flawed “Theory of Constraints” to Hierarchically Balancing Criticalities (HBC), Department of Information Systems and Operations Management, University of Auckland, Working Paper No. 281, May 2004.]

See also

References

Business novels

  • Eliyahu M. Goldratt and Jeff Cox. The Goal: A Process of Ongoing Improvement. ISBN 0-88427-061-0
  • Eliyahu M. Goldratt. It's Not Luck. ISBN 0-88427-115-3
  • Eliyahu M. Goldratt. Critical Chain. ISBN 0-88427-153-6
  • Eliyahu M. Goldratt, Eli Schragenheim and Carol A. Ptak. Necessary But Not Sufficient. ISBN 0-88427-170-6
  • Richard Klapholz and Alex Klarman The Cash Machine - Using The Theory of Constraints for Sales Management ISBN 0-88427-177-3
  • Ray Immelman. Great Boss-Dead Boss. ISBN 0-9740369-1-9
  • Julie Wright and Russ King. We All Fall Down: Goldratt's Theory of Constraints for Healthcare Systems. ISBN 0-88427-181-1

Theory of Constraints

  • Eliyahu M. Goldratt. Essays on the Theory of Constraints ISBN 0-88427-159-5
  • Eliyahu M. Goldratt. What is this thing called Theory of Constraints and how should it be implemented? ISBN 0-88427-166-8
  • Eliyahu M. Goldratt. Beyond the Goal: Eliyahu Goldratt Speaks on the Theory of Constraints ISBN 1-59659-023-8
  • Eliyahu M. Goldratt. Dr Lisa Lang. Achieving a Viable Vision: The Theory of Constraints Strategic Approach to Rapid Sustainable Growth. ISBN 0-9777604-1-3

Manufacturing

  • Eliyahu M. Goldratt. The Haystack Syndrome - Sifting Information Out of the Data Ocean ISBN 0-88427-089-0
  • Eliyahu M. Goldratt and Robert E. Fox. The Race ISBN 0-88427-062-9
  • Eliyahu M. Goldratt. Production the TOC Way ISBN 0-88427-175-7
  • Mark J. Woeppel. The Manufacturer's Guide to Implementing the Theory of Constraints. ISBN 1-57444-268-6

Supply chain

  • Eli Schragenheim and H. William Dettmer. Manufacturing at Warp Speed ISBN 1-57444-293-7

Strategy

  • William A. Levinson and Raymond Rerick. Lean Enterprise: A Synergistic Approach to Minimizing Waste ISBN 0-87389-532-0
  • H. William Dettmer. Strategic Navigation - A Systems Approach to Business Strategy ISBN 0-87389-603-3
  • Robert E. Spector. How Constraints Management Enhances Lean and Six Sigma Supply Chain Management Review, Jan/Feb 2006
  • Robert E. Spector. The Art of Lean Program Management Supply Chain Management Review, Sept/Oct 2006
  • Dr Lisa Lang. Achieving a Viable Vision: The Theory of Constraints Strategic Approach to Rapid Sustainable Growth. ISBN 0-9777604-1-3

Accounting and finance

  • Eric W. Noreen and Debra A. Smith and James T. MacKey. Theory of Constraints and Its Implications for Management Accounting ISBN 0-88427-116-1
  • Janice Bell and Monte Swain and Jan Bell and Shahid Ansari. The Theory of Constraints and Throughput Accounting ISBN 0-07-027589-0
  • Thomas Corbett. Throughput Accounting ISBN 0-88427-158-7
  • Dr Lisa Lang. Maximizing Profitability: The Theory of Constraints Approach to Maximizing Profits. ISBN 0-9777604-0-5

Project management

  • Lawrence P. Leach. Critical Chain Project Management ISBN 1-58053-903-3
  • Mark J. Woeppel. Projects in Less Time; A Synopsis of Critical Chain. ISBN 1-4196-2053-3
  • Robert C. Newbold. Project Management in the Fast Lane: Applying the Theory of Constraints. ISBN 1-57444-195-7

Continuous improvement and the thinking processes

  • H. William Dettmer. Goldratt's Theory of Constraints - A Systems Approach to Continuous Improvement ISBN 0-87389-370-0
  • H. William Dettmer. Breaking the Constraints to World-Class Performance ISBN 0-87389-437-5
  • James F. Cox II and Michael S. Spencer The Constraints Management Handbook ISBN 1-57444-060-8
  • Eli Schragenheim. Management Dilemmas: The Theory of Constraints Approach to Problem Identification and Solutions. ISBN 1-57444-222-8
  • Lisa J. Scheinkopf. Thinking For a Change: Putting the TOC Thinking Processes to Use. ISBN 1-57444-101-9
  • Dr Lisa Lang. Achieving a Viable Vision: The Theory of Constraints Strategic Approach to Rapid Sustainable Growth. ISBN 0-9777604-1-3

Sales and marketing

  • William A. Woehr and Dietrich Legat. Unblock the power of your salesforce!. ISBN 3-7083-0082-3
  • Richard Klapholz and Alex Klarman. The Cash Machine: Using Theory of Constraints for Sales Management. ISBN 0-88427-177-3
  • Dr Lisa Lang. Achieving a Viable Vision: The Theory of Constraints Strategic Approach to Rapid Sustainable Growth. ISBN 0-9777604-1-3
  • Gerald I. Kendall. Viable Vision: Transforming Total Sales into Net Profit. ISBN 1-932159-38-X

Healthcare

Education

  • Khaw Choon Ean. Thinking Smart: Applying the Theory of Constraints in Development Thinking Skills. ISBN 967-978-918-7

Software engineering

  • David J. Anderson. Agile Management for Software Engineering: Applying the Theory of Constraints for Business Results. ISBN 0-13-142460-2

Personal leadership application

  • Jeff 'SKI' Kinsey with Thayer Bennett. Foreword by H. William Dettmer. Purple Curve Effect: SKIs Throughput on Command. ISBN: 0976069202

External links

Goldratt and TOC "official" links

TOC-related software

Liebig's Law of the Minimum, often simply called Liebig's Law or the Law of the Minimum, is a principle developed in agricultural science by Carl Sprengel (1828) and later popularized by Justus von Liebig.
..... Click the link for more information.
Eliyahu M. Goldratt (1948 - ) is an Israeli physicist turned business consultant, the originator of the Theory of Constraints (abbreviation: TOC). He claims that he applied the scientific method to resolving some permanent problems of organizations.
..... Click the link for more information.
Operations management is an area of business that is concerned with the production of goods and services, and involves the responsibility of ensuring that business operations are efficient and effective.
..... Click the link for more information.
Throughput accounting (TA) is an alternative to cost accounting proposed by Eliyahu M. Goldratt. It is not based on Standard Costing or Activity Based Costing (ABC). Throughput Accounting is not costing and it does not allocate costs to products and services.
..... Click the link for more information.
Cost accounting is the process of tracking, recording and analyzing costs associated with the products or activities of an organization. Cost accounting does not follow generally accepted accounting principles, or GAAP. Costs are measured in units of currency by convention.
..... Click the link for more information.
Throughput accounting (TA) is an alternative to cost accounting proposed by Eliyahu M. Goldratt. It is not based on Standard Costing or Activity Based Costing (ABC). Throughput Accounting is not costing and it does not allocate costs to products and services.
..... Click the link for more information.
Critical Chain Project Management (CCPM) is a method of planning and managing projects that puts more emphasis on the resources required to execute project tasks. This is in contrast to the more traditional Critical Path and PERT methods, which emphasize task order and rigid
..... Click the link for more information.
Thinking processes in Eliyahu M. Goldratt's Theory of Constraints, are the five methods to enable the focused improvement of any system (especially business system).
..... Click the link for more information.
Current reality tree refers to the repair activity for ships. An initial inquiry check for availability of dock space and repair berth, vessel draft restriction, repair scope compared with yard work load estimating and forward any queries.
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The Evaporating Cloud is one of the five Thinking Processes in the Theory of Constraints initially developed by Eliyahu M. Goldratt to enable the focused improvement of any system (especially business system).
..... Click the link for more information.
In Theory of Constraints POOGI stands for the Process of Ongoing Improvement.

The way to get POOGI in your organization is to follow the Five Focusing Steps.
..... Click the link for more information.
PDCA ("Plan-Do-Check-Act") is an iterative four-step problem-solving process typically used in quality control. It is also known as the Deming Cycle, Shewhart cycle, Deming Wheel, or Plan-Do-Study-Act.
..... Click the link for more information.
Eliyahu M. Goldratt (1948 - ) is an Israeli physicist turned business consultant, the originator of the Theory of Constraints (abbreviation: TOC). He claims that he applied the scientific method to resolving some permanent problems of organizations.
..... Click the link for more information.
Operations Research or Operational Research (OR) is an interdisciplinary branch of mathematics which uses methods like mathematical modeling, statistics, and algorithms to arrive at optimal or good decisions in complex problems which are concerned with optimizing the maxima
..... Click the link for more information.
Management science, or MS, is the discipline of using a mathematical model, and other analytical methods, to help make better business management decisions. The field is also known as Operations research (OR) in the United States or Operational Research in the United
..... Click the link for more information.
Eliyahu M. Goldratt (1948 - ) is an Israeli physicist turned business consultant, the originator of the Theory of Constraints (abbreviation: TOC). He claims that he applied the scientific method to resolving some permanent problems of organizations.
..... Click the link for more information.
JIT may refer to:
  • Various meanings of Just In Time:
  • Just-in-time compilation - a technique for improving the performance of Virtual Machines in computing.

..... Click the link for more information.
Liebig's Law of the Minimum, often simply called Liebig's Law or the Law of the Minimum, is a principle developed in agricultural science by Carl Sprengel (1828) and later popularized by Justus von Liebig.
..... Click the link for more information.
This is a list of topics related to the Theory of Constraints.

: Top - 0–9 A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

B

C

  • Causality
  • Constraint
  • Constraint Management
  • Constraints accounting

..... Click the link for more information.
Systems thinking is an approach to integration that is based on the belief that the component parts of a system will act differently when isolated from the system's environment or other parts of the system.
..... Click the link for more information.
The joint decision trap was identified by the political scientist Fritz Scharpf in a 1988 scholarly article. It is understood to be a situation in which interdependent government decisions must be taken at the lowest common denominator because other governments may otherwise veto
..... Click the link for more information.
twelve leverage points to intervene in a system were proposed by Donella Meadows, a scientist concerned with the environment. The leverage points, first published in 1997, were inspired by her attendance at a NAFTA meeting in the early 1990s where she realized that a very large new
..... Click the link for more information.
Donella "Dana" Meadows (March 13, 1941 Elgin, Illinois, USA - February 20, 2001, New Hampshire) was a pioneering American environmental scientist, teacher and writer. She is known as lead author of Limits to Growth.
..... Click the link for more information.
Constraint may refer to:
  • Constraint (mathematics)
  • Constraint algorithm (mechanics) such as SHAKE, or LINCS
  • Constraint (design)
  • Constraint (information theory)
  • Theory of Constraints, in business management
  • Constraint satisfaction, in computer science

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throughput is the rate at which a system produces money, in contrast to output, which may be sold or stored in a warehouse. The signal provided by throughput is received (or not) at the point of sale -- exactly the right time.
..... Click the link for more information.
Quantum Improvement Method is a way to quickly find the types of technology and where to implement it in and organization to get exponential increases in productivity. Quantum Improvement identifies technologies by certain characteristics ordering them by increasingly productive levels.
..... Click the link for more information.
The Goal is a novel by Eliyahu M. Goldratt, the business consultant who created the Theory of Constraints model for systems management. It was published in 1984.

Setting


..... Click the link for more information.
Critical Chain

First edition cover
Author Eliyahu Goldratt
Country United States
Language English
Subject(s) Project Management
Genre(s) Business Novel
..... Click the link for more information.
Thinking processes in Eliyahu M. Goldratt's Theory of Constraints, are the five methods to enable the focused improvement of any system (especially business system).
..... Click the link for more information.


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