What is Theory of Constraints?

The Theory of Constraints is a unique methodology for identifying the most important limiting factor that stands in the way of achieving a goal and then systematically improving that constraint until it is no longer the limiting factor for the company. In the manufacturing process, the constraint is quite often referred to as a bottleneck.

The Theory of Constraints takes a scientific route for the overall improvement. It hypothesizes that every complex system, including the various manufacturing processes, comprises of multiple linked activities, one of which acts as a constraint upon the entire system and is the weakest link in the chain.

The ultimate and vital goal of most manufacturing companies is to make profits both in the short term and long term. The Theory of Constraints provides a powerful set of tools and methods to achieve that goal also including the below mentioned:

• The Five Focusing Steps that works as a methodology for identifying and eliminating the various constraints
• Thinking Processes working as the tools for analyzing and resolving issues.
• Throughput accounting that is a method for measuring performance and guiding the important management decisions

Dr. Eliyahu Goldratt conceived the Theory of Constraints TOC and introduced it to a wide audience through his bestselling novel, “The Goal” in the year of 1984.

Since then, the concept has continued to evolve and develop in various ways, and today it is a major factor within the world of best management practices.

One of the most appealing characteristics of the Theory of Constraints is that it innately prioritizes improvement activities and its top priority is always the current constraint. In environments where there is an urgent need to improve, the theory offers a highly focused methodology for creating speedy improvement.

Benefits of Theory of Constraints

• Increased profit: It is the primary goal of TOC for most of the companies.
• Fast improvement: It is a result of focusing all attention on one critical area that is the system constraint.
• Improved capacity: It helps to optimize the constraint and enables more products to be manufactured.
• Reduced lead times: It helps to optimize the constraint resulting in the smoother and faster product flow.
• Reduced inventory: It helps to eliminate bottlenecks and means there will be less amount of work-in-process.

Theory of Constraints Strategy

The management philosophy of the Theory of Constraints can be practically executed. The rate of the throughput is delayed by the bottleneck. To identify, reinforce or eliminate the bottleneck it is important to follow the below mentioned five steps:

Step 1 : Identify the system constraints and issues

The weakest link in an organization is identified and the aftermath it must be decided whether its causes are physical or policy-related.

Step 2 : Decide how to exploit the constraint

The organization and the management as a whole determine how this constraint can be eliminated as a result of which the throughput can actually be increased at every level. Should these actions not lead to an increase, it is considered advisable to abandon the breakthrough of this constraint totally.

Step 3 : Subordinate everything else to the above decision

The organization as a whole must side with the adopted solution, as a result of which the constraint or a bottleneck is solved. It is a wise decision to make an assessment in between steps 3 and 4, to establish whether performance is still being hindered by this earlier constraint or not.

Step 4 : elevate the performance of the constraint

Other adjustments can be used to break through the figured out constraints. This could involve changes in the existing system by the way of reorganization, increase of sales or changes in the market strategy. Such adjustments require investments and will only be deployed after all other options have been considered wisely and accurately.

Step 5 : continuous process

After the implementation of the opted solution and post the elimination or breakthrough of the constraint, the process starts all over again from the first step. On the one hand, the impact of the implemented solution is looked at and checked plus on the other hand, new constraints are identified and broken through.

Theory of Constraints: Internal and external constraints

Constraints can be an internal and an external part of any organization. Internal constraints are the ones when there is too little output to meet the demands in the market.

By identifying and reinforcing this constraint, a breakthrough is realized eventually.

Examples of such constraints are badly deployed production methods in the firm, lack of competent employees, and bad policies as a result of which a system cannot function optimally and efficiently.

External constraints indicate a too large output with respect to the overall demand in the market. In that case, an organization should cultivate the market which leads to a higher demand for the offerings but this often requires huge capital investments.

Eliyahu Goldratt was in favor of looking at one constraint per cycle of the approach. By focusing all attention only on one constraint, this could be dealt with in an adequate manner.

The other links in the system are regarded as non-constraints in nature and are therefore not reinforced.

Reinforcement or breakthrough of the identified constraint will automatically lead to another constraint or bottleneck that will have to be identified again starting the whole process all over again. Therefore the Theory of Constraints encourages an organization to improve its system continuously and on a consistent basis.

Combining the Theory of Constraints and Lean Manufacturing

One of the most powerful aspects of the Theory of Constraints is its laser like focus on improving the constraint in the process. While Lean Manufacturing can be focused, more typically it is implemented as a broader spectrum tool within the organization.

In the real world, there is always a need to compromise, since all companies have finite resources available to them. Not every aspect of every process is truly worth optimizing in nature and not all the waste is truly worth eliminating.

Theory of Constraints can serve as a highly effective and qualitative mechanism for prioritizing on the improvement of projects, while Lean Manufacturing can provide a rich toolbox of all the improvement techniques.

The result is that the manufacturing efficiency is significantly increased by eliminating waste from the parts of the system that are the largest constraints and obstacles on the firm’s opportunity and profitability.

While the tools of Lean Manufacturing are primarily applied to the constraint, they can also be applied to equipment that is subordinated to the constraint.