Theory of Constraints
(Goldratt)

Constraint Management. Explanation of Theory of Constraints of Eliyahu Goldratt.

Herbie

Did you read "The Goal?" Do you remember Herbie? The Theory of Constraints model of Eliyahu Goldratt is the practical result of Eli Goldratt's work about "how to think". In a number of books, Goldratt described certain thinking processes and their applications.
 

Cause and Effect in the Theory of Constraints

Central to the concept of TOC is the acknowledgement of cause and effect. Compare: Cause and Effect Diagram. The Thinking Processes of TOC give us a series of steps which combine cause-effect and our experience and intuition to gain knowledge. TOC is a verifiable philosophy. By knowing how we should think, we can better understand the world around us; by better understanding we can improve.
 

Organizations are a complex web of people, equipment, methods, materials and measures. This detail complexity is bad enough. Then add to it the dynamic complexity of changing customers, suppliers, workforce, regulations, etc. and you have a picture of the challenge faced by today's management team.

Traditionally, management has divided the organization into smaller, more manageable pieces. The objective is to maximize the performance of each part. The global improvement is assumed to be equal to the sum of the local improvements.

Wrong! TOC claims that a change to most of the variables in an organization will have only a small impact on the global performance - on the bottom line. There are very few variables, perhaps only one, where a significant improvement in local performance causes a significant improvement in global performance. Such a variable is called a "Constraint". You can compare it with the weakest link in a chain. Compare: Gantt Chart.

The steps in the Theory of Constraints. approach

The essence of the TOC approach is that If you want to achieve more of your goal, you must:

1. Identify your Constraint.
2. Focus on the Constraint. A company must first know its goal and the necessary conditions for achievement. Then it must identify the Constraint (s), that is/are limiting the level of achievement of that goal.
3. Follow it through. A process of ongoing improvement:

   1. Identify the Constraint.

   2. Exploit it.

   3. Subordinate all other operations to the necessity to exploit the Constraint.

   4. If after #2 and #3 more capacity is needed to meet market demand, elevate the Constraint.

   5. Go back to #1, but don't let inertia become the system's Constraint.

Applications of the Theory of Constraints

• Manufacturing environments - Book: "The Goal" by Goldratt -

• Distribution and Supply Chain - Book: "It's Not Luck?" by Goldratt -

• Marketing - Book: "Necessary But Not Sufficient" by Goldratt -

• Project Management - Book: "Critical Chain" by Goldratt -

• Theoretical treatment - Book: "Theory of Constraints" by Goldratt -

Theory of Constraints Forum

René Villadsen - Denmark

Throughput Accounting

"It is important to notice that the theory of constraints has given birth to a very important management accounting tool; throughput accounting. Throughput accounting challenges conventional wisdom in the management accounting area."

0

Vincent - Canada

Quote by Eliyahu Goldratt

"An expert is not someone that gives you the answer, it is someone that asks you the right question."

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