Most people encounter TOC for the first time through Dr. Eliyahu Goldratt’s bestselling book “The Goal.” This business novel narrates the story of a plant manager name Alex Rogo who was faced with a challenge: to turn a profit in his manufacturing plant within just 3 months or be closed down by the corporate head office! Ultimately, the plant is saved through a combination of clear thinking, teamwork and implementing Drum-Buffer-Rope, the TOC solution for production management.
Due to its success in managing operations, many are left with the mistaken impression that the Theory of Constraints is only applicable in Production Management. But over the years, the same TOC Thinking Processes which brought us Drum-Buffer-Rope have analyses other functions, industries and environments to create a whole array of TOC solutions, known as Applications, including
Production Management: Simplified Drum-Buffer-Rope (S-DBR)
The classic TOC approach to production management is known as Simplified Drum-Buffer-Rope. Rather than seeking to maximize the output of every resource and operation; S-DBR seeks to maximize the output of the bottleneck resource(s) only. This bottleneck resource is referred to as the “Drum” because the entire operation should ‘march to its beat.’ An inventory “Buffer” is used to protect the Drum from upstream disruptions, and ensure that it is never starved for input material. We streamline operations and avoid accumulating excess WIP by restricting the release or raw materials at the gating (first) operation in line with market demand as well as capacity at the Drum for the given time horizon. This governing mechanism, know as a “Rope,” ensures timely communication and coordination between all line functions in the plant. “Buffer management” serves as a dynamic real-time monitoring system to makes potential problems visible without creating false alarms. Color coding (Red/Yellow/Green) serve to communicate priories and ensure on-time delivery of all orders. Recommended Readings in Production Management
Project Management: Critical Chain Project Management (CCPM)
Project success is measured by meeting completing the full scope within budget before the due date. Almost every project environment has such a high level of risk and uncertainty that projects rarely satisfy all three of these commitments. Project managers are forced to sacrifice some commitments to protect others. This conflict puts the success of all projects in the organization at risk (the TOC approach to project management is particularly powerful in multi-project environments).
Traditionally, project management deals with this inherent variation by padding individual task completion estimates with a safety factor. The project manager’s job becomes chasing & enforcing the projected finish dates of each task and attempting to minimize their damage to the overall project schedule. This practice makes projects frustrating to manage and practically impossible to control.
Critical Chain Project Management (CCPM) acknowledges that most of the variation and uncertainty in individual project tasks cannot be eliminated. It improves the accuracy of project plans by dealing with this variation at the project level by using strategically located buffers, or time cushions. These buffers aggregate the safety factor of individual tasks and help the project meet its overall commitments. They also focus the attention of project managers to direct their interventions where help is needed the most. These seemingly trivial distinctions result in enormous improvements in on-time project completion, and has worked successfully in a wide range of project environments.
Multi-tasking is another common practice that can easily jeopardize a project. CCPM calls for systematic eradication of bad multi-tasking through the prioritization of projects and tasks for individual resources, particularly the capacity constrained resource. This is also achieved by freezing lower value projects, and controlled project release to ensure that projects do not get crowded out and move rapidly toward completion. Recommended Readings in TOC Project Management
Sales & Marketing: The Mafia Offer
Dr. Goldratt's was fond of claiming that marketing is like spreading corn to attract the ducks. Sales, then, should be like shooting a flock of sitting ducks. But rather than focusing on how to improve our value to the customer (expressed most clearly by the price they are willing to pay), we alternate our energies between push selling and creative discounting schemes.
Creating an “unrefusable Mafia Offer) involves studying the uppermost pain points and analyzing the core conflict of your customer segment. The idea is to thoroughly understand how your product causes problems to the customer, and modify it to create a significantly better proposition. While each Mafia Offer is unique, they usually do NOT require a significant change in the existing features of the product. Rather it could be things like guaranteed availability, pay-per-use, very short lead time, vendor-managed-inventory (VMI), etc. The Mafia Offer includes significant benefits for the seller as well, such as higher prices, better payment terms, guaranteed volumes, etc. In other words, it creates a win-win situation wherein the customer and seller both benefit SIGNIFICANTLY.
Depending upon the offer, it may require a significant period of preparation, operational improvements and testing before going to market. The Mafia Offer will not sell itself. Most salespeople are accustomed to pitching features and benefits. They may need to be trained to access higher-level decision makers and to sell 'business solutions'. This preparation and training is an essential part of TOC marketing solution. Recommended Readings in Sales & Marketing
Distribution, Retail & Supply Chain: Replenishment
The constraint of a supply chain is usually availability in terms of cash or physical space. In other words, we must have the right product available in the right place at the right time at an acceptable price. But holding unlimited inventory is not possible because it occupies shelf space and consumes cash, not to mention the nasty tendency toward theft (shrinkage), damage and obsolescence. Most supply chains PUSH products into the distribution channel based on sales forecasts and attempt to stock as close as possible to the point of purchase. The inevitable forecasting errors lead to excess inventory, fire-sale discounts, and the like.
The TOC Distribution Solution moves from a PUSH system to a PULL system across the supply chain. Since variation in demand for individual products is far greater at the point of purchase keep only enough on-hand to supply our immediate needs, as defined by the replenishment period. When demand is aggregated across worldwide consumption, the variation is dramatically reduced. Therefore TOC distribution seeks to hold smaller inventory levels at the point of purchase and larger ones at the point of production, and then to ensure a rapid replenishment system to service regional warehouses and retail outlets, in line with what they actually sell. This replenishment methodology cascades upstream and downstream across the supply chain. The plant replenishes only what regional distribution warehouses ship, while in turn ordering only enough raw material to replenish what they produce. The regional distribution warehouse close the loop by ordering only what retail consumers buy. The total inventory in the supply chain reduces dramatically while end customer availability rises as well, boosting sales across all links in the supply chain. Recommended Readings in Supply Chain, Retail & Distribution
New Technology Development
Dr. Goldratt's technology development framework examines how best to get the benefits from new technology, through rigorous analysis of the following series of questions:
Other Specific Applications
- Capital Equipment
- Custom Job Shops (external site)
- Healthcare (external site)
- Primary Education (external site)
- Process Industries (external site - in German)
- Integrating TOC with Lean and Six Sigma Linked-in group
- Turnarounds (external site)
- Other industries typically use a combination of past case history and the TOC Thinking Processes for customizing unique solutions
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