Understanding the Theory of Constraints
The Theory of Constraints (TOC) is a suite of management concepts developed by Dr. Eliyahu Goldratt as introduced in the landmark book "The Goal." It helps managers decide:
Watch this 4-minute video to see Dr. Goldratt explains what is TOC in brief:
Despite it's name, the "Theory of Constraints" is not particularly theoretical. Rather, it helps find practical, effective solutions to business problems.
TOC systematically focus efforts, energy and attention on the "system constraint." This constraint, or bottleneck, restricts the output of the entire system and at the same time represents the primary leverage point for improving it. Simply put, TOC means identifying constraints and managing them, resulting in:
To accomplish this, TOC shifts the focus of management from optimizing separate assets, functions and resources to increasing the flow of throughput generated by the entire system. TOC's key processes are focused on removing barriers that prevent each part from working together as an integrated whole.
Constraints are the Key to Unlocking Performance
Like the weakest link in a chain, every system must have a bottleneck or "CONSTRAINT" which governs it's output. We know this because no system has infinite output ... if you check the financial results of a company, you will never observe infinite profits! A particular type of machine, employee, or even shelf space might serve as the constraint. So could supplies, orders, or cash.
Constraints restrict output whether we acknowledge them or not. When properly identified and managed, constraints provide the fastest route to significant improvement and form the bedrock for continuous growth. When ignored, the constraint may lie idle, squandering large amounts of capacity. An out-of-control constraint may also wreck havoc on delivery schedules and cause unpredictable delays. It is therefore crucial for any manager to make the most of their constraint and manage it well.
Delivering Extraordinary Performance Improvements
implementing the Theory of Constraints has yielded remarkable results for companies around the world. An independent study discovered that companies achieved the following impact (on average):
These results were observed across various geographies and industries. In many cases, they represent a partial implementation of TOC tools, leaving us to wonder what sort of impact might have been possible using the the full set of applications.
Constraint Theory Works for Services Also
The overwhelming popularity of Dr. Goldratt’s bestselling business novel “The Goal” (set in a manufacturing company) has led some to believe that the Theory of Constraints applies primarily to the manufacturing environment.
Although initially developed in response to specific challenges in this sector, other TOC applications have been developed for a wide variety of industries using the TOC Thinking Processes. These are successfully implemented in sectors like Heavy Capital Equipment, Retail, Banking, FMCG, Logistics, Job Shops, Mining, Healthcare, etc. TOC has also been applied in Not-for-Profits including primary education, organized religion, the military, the judicial system and others with equally impressive results.
Overview of TOC Applications
Eli Goldratt developed specific applications or tools to assist in specfic industry situations:
Recommended Reading: Theory of Constraints
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