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Theory of Constraints ( TOC )

       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.

1.What is THE GOAL?

The Goal of any for profit organization is “To make money now in the future”! This really is not any big news in itself! However, the real point offered was that there are conflicting “Goals” within the organization that really might be “constraining the success” of the organization. Managers simply usually assume that it is ok to have multiple goals they usually call sub-goals or prime objectives in order to reach The Goal. The truth is that there really should be only one Goal and the rest are classified as “Necessary Conditions”. It is important to understand the difference and the very dangerous potential for The Goal to be constrained by the high potential for interference between the important “Necessary Conditions” if they are treated as a Goal in isolation from the rest!

2.Are we making The Goal?

Yes, TOC highlighted a particular constraint that exists in most organizations. There is a real disconnect between The Goal and the all the decision makers in the organization. NP, ROI, and Cash Flow are poor internal daily minute to minute decision making tools. TOC introduced three simple common sense metrics. Throughput, Inventory, and Operating Expense (T, I, and OE). TOC relates T,I, and OE to the traditional metrics with the formulas NP=T-OE, and ROI= (T-OE)/I.

3.What about the other types of Constraints?

TOC recognized that the five step process was not the process for the other types and recognized that most constraints were the symptoms of thinking constraints or invalid assumptions! It introduced a set of techniques based on three questions of change.
1. What to change?
2. What to change to?
3. How to cause the change? The techniques are logic based techniques that diagram the logic and expose the invalid assumptions in thinking! The techniques consist of a
1. Current Reality Tree (logic diagram)
2. Evaporating Cloud (Conflict Diagram) for break through ideas.
3. The Future Reality Tree (New Solution) with Negative Branches.
4. The Prerequisite Tree (Road Map of the Obstacles)
5. The Transition Tree (Action cause effect).

4.There seems like a lot to learn?

Yes, there is a large body of knowledge but the basics are really common sense! The terminology is sometimes confusing but it depends on how you learn. There is quite a bit of consensus on the logic of the TOC offering but little and much distortion on the practical application. TOC really taught me how to think and challenge assumptions to be valid or invalid. It taught me that the powerful solutions come from finding the invalid assumption that everyone thinks to be valid

5. What is a CONSTRAINT?

TOC defines a constraint as “Anything that limits the organization from achieving more of its Goal”. The reality is that there are such things called constraints and they play a significant part in whether the organization achieves more of its GOAL. I remember, the common sense saying, “If you don’t manage your constraints, they will certainly manage you!” There are several types of constraints. Physical, Behavior, System (procedure), Policy, and Mind-set thinking! Mind-set thinking is the root cause constraint for the rest. TOC introduced a 5 step Continuous Improvement Process for Physical Constraints.
1. Identify the constraint
2. Exploit (Squeeze more out) of the constraint
3. Subordinate everything to the constraint
4. Elevate (get more of) the constraint
5. Avoid inertia (Go back to step 1 if the Constraint is broken)

6.Are we maximizing the Throughput?

TOC worked extensively to show the relationship of a Critical Capacity Constraint Operation and the effects on Throughput, Inventory and Operation Expense. It highlighted the need to challenge many invalid assumptions about how we manage Throughput through a process. TOC introduced a new methodology called Drum, Buffer, Rope with Protective Capacity that helps to protect the Throughput Process Chain from the natural tendency of the statistical fluctuations in dependent events to move T, I, and OE the opposite direction of The Goal.

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