Theory of Constraints (Goldratt)

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Summary

Organizations are Complex

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.

Traditional Management Methods

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. Right?

The Theory of Constraints

No, 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. By trying to improve everything everywhere, the risk is that nothing will be improved that really counts. Why? Because if only a few key variables in any system influence overall system performance at any given time, trying to improve most of the system will be counterproductive.

Theory of Constraints provides a set of holistic processes and rules, all based on a systems approach that exploits the inherent simplicity within complex systems through focusing on the few variables – called Constraints - as a way to synchronize the parts to achieve ongoing improvement in the performance of the system as a whole.

Goldratt likens systems to chains, or to networks of chains. Like a chain, a system is only as strong as its weakest link.

An interesting phenomenon about chains is that strengthening any link except the weakest one does not improve the strength of the whole chain. Strengthening the weakest link produces an immediate increase in the strength of the whole chain — but only up to the level of the next weakest link.

Similarly, in business systems, it is usually the capacity of one element that determines the overall performance of the business, and striving to improve any aspect of the system other than that constraint won’t do anything.

The TOC Process. Steps

A company must first know its goal and the necessary conditions for achievement. Then it has to follow the “Process Of Ongoing Improvement (POOGI)” to identify, exploit and perhaps elevate the Constraint(s) in a continuous way:

Identify (choose) the system’s constraint.
Decide how to exploit the system’s constraint.
Subordinate everything else to the above decision.
(Evaluate various alternatives to) Elevate the system’s constraint.
If the constraint is broken go back to step 1, but do not allow inertia to cause the system’s constraint.

The Main Types of Constraints of a Commercial System

Capacity Constraint: A resource which cannot provide timely capacity as demanded by the system.
Market Constraint: The amount of customers’ orders is not sufficient to sustain the required growth of the system.
Time Constraint: The response time of the system to the requirement of the market is too long to the extent that it jeopardizes the system’s ability to meet its current commitment to its customers as well as the ability of winning new business.

TOC Solution Areas

Operation (production) management - Make to Order (MTO) environment and Make to Availability (MTA)
Project Management - CCPM - Critical Chain Project Management
Distribution & Supply Chain Management - DTA - Distribute to Availability
Finance & Measurements - Throughput Accounting
Sales Management
Marketing – Development of Market Offers
Managing People - Management Tools (MT)
Strategy & Tactics – How to develop a company-wide improvement plan
Thinking Processes – Everything within a system is connected by cause and effect relationships. Identification of the causes leads us to the core problem/contradiction/conflict and this is the level for sustainable solutions. The use of cause and effect relationships helps us to structure our thinking, log our analysis and understand the suggested solution for any problem. The TOC - thinking processes provides a set of tools in doing so.

Useful resources about the Theory of Constraints

Manufacturing Environments - Book: "The Goal" by Goldratt
Distribution and Supply Chain - Book: "Isn’t it obvious" by Goldratt
Applied Thinking Processes in Software Development - Book: "Necessary But Not Sufficient" by Goldratt
Project Management - Book: "Critical Chain" by Goldratt
Marketing - Book: "It’s not Luck" by Goldratt
Theoretical Treatment - Book: "Theory of Constraints" by Goldratt

Special Interest Group

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Forum about the Theory of Constraints.

What's the Difference Between Constraints and Bottlenecks?
Constraint and bottleneck are different concepts:
- A constraint is a restriction of a process, it might be, equipm (...)

4 comments

Theory of Constraints - PQ Game and GSIM Game
I have been using GSIM ad PQ games regularly to teach TOC fundamentals and concepts to my students in Business schools.< (...)

🔥	NEW Theory of Constraints Applied to Bonus Payments for Quantity Produced and Product Quality Hi everyone, I guess we all agree that if we want to change things we need to use "system thinking"…! There is a "b (...) 4 1 comments

Theory of Constraints and Throughput Accounting
It is important to notice that the theory of constraints has given birth to a very important management accounting tool; (...)

1 comments

New Book on Theory of Constraints & Deming Methodology
In 'Sechel: Logic, Language and Tools to Manage Any Organization as a Network' (January 2011), Dr. Domenico Lepore, co-a (...)

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Big Box Retail - TOC Application at Store Level
I'm looking for any examples of Theory of Contraints at the store level. Such as for Home Depot, Lowe's, Walmart. Succes (...)

4 comments

Theory of Constraints in Mining
Hi All, I am currently pursuing a project on the application of TOC in Underground Coal Mining in Australia. I am lookin (...)

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Theory of Constraints in Education / Quality Assurance?
The Theory of Constraints has been applied in several areas such as the manufacturing environments, distribution and sup (...)

2 comments

Neural Network In SCM?
Hi, (how) can the concept of Neural Networks be applied in the world of Supply Chain for managing the flow of orders bet (...)

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Best Practices

The top-rated topics about the Theory of Constraints. Here you will find the most valuable ideas and practical suggestions.

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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Impediments Analysis?
What is impediments analysis? Any help, please?

Editor: An inpediment is something that impedes; a hindrance or obstr (...)

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Current Reality Tree
A useful tool that Goldratt uses to identify bottlenecks is the Current Reality Tree (CRT).
Similar to a Root Caus (...)

5 comments

The Dice Game by Goldrat
I am using Goldrat's dice game in my classes. It is very helpful for the students to understand variation and the 6 side (...)

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Expert Tips

Advanced insights about the Theory of Constraints. Here you will find professional advices by experts.

	Dealing with Changing Constraints Theory of Constraints Often Management and Business Consultants reported the feelings that Constraints are continuously changing over the spac (...)
	What are Constraints? Theory of Constraints Scientific Approach A Constraint is something that limits an organization in reaching a higher level of performance. Generally, constraints (...)
	Constraints in the Business World Practical Examples of Constraints In the business world constraints can be categorized in three main different types. 1. Physical Constraints: those reso (...)
	Three Dimensions of the Theory of Constraints (TOC) Teaching the Theory of Constraints There are basically three dimensions of the theory of constraints: mindset, measurements and methodology . 1. M (...)
	Drum-Buffer-Rope Methodology and Time Buffers Buffer Management The Theory of Constraints is also built on the understanding that the combined effect of variation and interdependence d (...)
	Time Buffers in Theory of Constraints TOC Approach to Variability Production Activities are characterized by perturbations that derive from casual events such as out of order machines, d (...)
	Buffer Management in Theory of Constraints TOC Approach to Variability What is the right size of the Time Buffer? According to TOC, the higher is the variability the bigger should be the Time (...)
	3 Potential Categories of (Root) Causes Root Cause Analysis, Ishikawa, 8D, TOC Latino and Latino consider in a 1999-paper called 'Root Cause Analysis – Improving Performance for Bottom Line Results' (...)
	How to tackle Constraints? Practical Tools from Theory of Constraints Over the years, TOC School of Thought developed a set of tools to tackle constraints of different nature and in the dif (...)
	Theory of Constraints Key Indicators Reaching The Final Goal In TOC vision any action made by an organization is valued in respect of its impact on the final goal of the organizatio (...)
	Inventory Estimate Investiments To analyze the amount of a company cash out- flow TOC raised the following question: how much money is invested in a com (...)
	Throughput Accounting TOC Controlling System From the disruptive Theory of Constraints descends a new Management Accounting methodology known as Throughput Accountin (...)
	Throughput Concept Estimate Profits According to the TOC Measurement System, the first question every manager should answer is: how many profits does a comp (...)
	What is an Accurate Finance System in the TOC Perspective? Finance TOC is a methodology and a set of processes to maximize a system’s ROI/ROCE equation. By employing solutions that ident (...)

Information Sources

Various sources of information regarding the Theory of Constraints. Here you will find powerpoints, videos, news, etc. to use in your own lectures and workshops.

	Introduction to Goldratt's Theory of Constraints Theory of Constraints, TOC, Just-in-time, Drum-Buffer-Rope, Shop Floor, Decision Making Presentation about TOC, that briefly discusses the traditional approach to managing organizations and making decisions a (...)
	Theory of Constraints 101 TOC, Theory of Constraints, Eliyahu Goldratt, Focus on the Bottleneck Concise 3-minute intro to the 5 main steps in Eliyahu Goldratt's Theory of Constraints. (...)
	Theory of Constraints vs. ABC Compare TOC and ABC Two system-based views exist regarding managerial value chain analysis: Theory of Constraints (TOC) and Activity-Based C (...)
	Supply Chain Collaboration SCC, Theory of Constraints Successful supply chain collaboration (SCC) practices are rather exceptional, yet collaboration is believed to be the si (...)
	TOC Reference Sheet TOC Reference Guide Here is a TOC reference guide from an expert in TOC, David Camp. I hope you find it useful. (...)
	Distribution TOC way Managing Distribution According to TOC Principles The Theory of Constraints (TOC) analyzes the impact of supply together with the demand over the management of the supply (...)