A “Theory” No More.
It’s Proven to Help You Increase Productivity.
What is Theory Of Constraints?
A Method for Uncorking Bottlenecks and Increasing Profit!
Theory of Constraints (TOC) is a management technique pioneered by business veteran Eli Goldratt in his novel, The Goal. His business optimization process revolutionized the manufacturing industry by isolating bottlenecks in businesses’ production processes, reducing their limitations, and developing optimal productivity along with continuous improvement over time.
The term ‘constraint’ describes a limiting factor preventing a company from achieving their greatest potential. Identifying and managing a constraint can be the best opportunity for improving workflow and growing value. Limiting factors can be external and internal. For all practical purposes, the technique focuses on a constrained resource within the factory.
Theory of Constraints’ model of success focuses on profitability. Many businesses and companies think success lies in producing as much product as possible with all or most available resources. This “stack ‘em high” method of operating is a mistake. What is most important to Theory of Constraints’ method is total profitability, that is, the amount of return a business makes after resources and expenses. Increasing throughput is the goal.
Eli’s optimization process differs from lean manufacturing, which emphasizes waste reduction. Theory of Constraints focuses on the amount of money you can make with your business by optimizing production strictly for customer demand. Using throughput accounting with his system, businesses don’t focus on cutting costs or creating the most inventory. Rather, businesses focus on actually selling their goods and what processes will help create the most throughput.
To help you better understand Theory of Constraints and how we leverage it for businesses, we’ve compiled a list of key terms below.
TOC Key Terms
A limiting factor preventing a company or business from achieving their greatest profitability, sustainable growth, and optimal production potential. E.g., a machine or work center can only produce “x” number of parts per hour or per day.
Five Focusing Steps
The multi-step process through which a constraint is identified, resolved, and continuously improved. The five focusing steps are referred to as IESES:
- “Identify” the constraint.
- “Exploit” the constraint by restructuring current processes and resources to alleviate the constraint.
- “Subordinate” the constraint by adjusting processes connected to your constraint to support resolution of the limitation.
- “Elevate” the constraint by investing additional resources and support to improve the capacity or productivity at the constraint.
- “Sustain Improvement” (or “Prevent Inertia”) by consistently addressing constraints and always improving your business’ processes.
Visualization tools used during the five focusing steps outline problems within a company, possible solutions, and potential resistance to structural changes.
- Root Cause Analysis: A “current reality tree” (CRT) will show current business processes, underlying core problems and their symptoms, pinpointing where root constraints begin.
- Future Expectations: A “future reality tree” (FRT) will show possible solutions to limitations–called ‘injections’–which produce desirable effects. Added to these will be ‘negative branch reservations’, to represent team members’ concerns about specific changes.
- Lastly, an “evaporating cloud” (EC) resolves conflicts and visualizes the optimized, best practices for a business reaching its full potential.
A business accounting model which focuses on profit-based success. Opposed to lean manufacturing, which emphasizes waste reduction, Theory of Constraints optimization emphasizes throughput–a business’s return on product or services after expenses. In throughput accounting, business won’t utilize lean methods to cut process costs or create the most inventory possible. Instead, businesses will focus on actually selling their product or services through improved processes which meet optimal customer demand (~120%) to create the most throughput.
A method of scheduling for optimal time utilization, drum-buffer-rope targets constraints involving limited resources within systems of production.
- The drum is your limited resource, as it constrains the overall production of your larger system process–setting the rhythm for your work in progress.
- Like rests in a piece of music, buffers are used to provide time around the process with this limited resource to keep the drum working consistently on rhythm, without unexpected disruption.
- The rope loops in all of the other non-constraint resources in this process and subordinates them to the constraint drum’s beat to best support the rhythm.
Similar to a constraint, a bottleneck is one of the weaker processes, or ‘links’, in the chain of a larger production process. The limited capacity of this weaker process results in reduced capacity for the greater production chain. Bottlenecks can result in inconsistent production time, overproduction, unmet customer demand, and wasted resources.
Theory of Constraints vs. Lean
Theory of Constraints focuses on profitability, restructuring businesses’ production processes to make them the most money. TOC’s alleviation of constraints directs a business towards optimal production for their customers’ demand (~120%) overproduction, thereby optimizing time usage, labor and resources. Lean Manufacturing focuses on efficiency, directing improvement toward reducing waste in production processes. But eliminating processing costs, or producing as much product for the lowest rate possible will not always translate to profitability.
Advanced Planning and Scheduling Software
Software tools which help a business to optimize their manufacturing management processes to best utilize raw production materials and process capacity to meet customer demand.
Analysis tools used to promote optimal movement of materials through production to best schedule business processes.
- A ‘V plant’ processes one material that can become many different products–defined as one-to-many plant structure.
- An ‘A plant’ will process many different materials which all join to create one final product.
- A ‘T plant’ processes a number of materials and products which are then used to create more, various products (often wasting resources and limited by inefficient scheduling).
- An ‘I plant’ is very similar to an assembly line, where a set of step-by-step processes create one product.
What TOC Solves
You Need Some TOC if…
You Want To:
- Build profit, output, or sales
- Increase productivity and efficiency
- Reduce scheduling bottlenecks
- Maximize your production timelines
- Optimize your output for your customer’s true demand (~120%)
- Solve hidden problems you can’t pinpoint to one main constraint
- Have many interwoven constraints in productivity that require restructuring of processes
- Reach your business’s greatest potential
- You experience random, unpredictable buildups of components across the shop floor
- You often rely too much on unwritten, or unclear, rules and procedures (tribal knowledge) and spreadsheets
- Your on-time delivery performance continuously falls short of commitments
- You have unsold product collecting in warehouses
- You experience low-performance material flow
- Your processing has bottlenecks that move throughout your production chain each day
- Your production has inefficient supply-chain management
- You have constant shortages on the final assembly line
- You have decentralized manufacturing and storage locations
- You have inadequate throughput
- Your team members are overextended, or their talents are not optimally utilized
How We Use TOC
Where On-Time Edge Comes In
We use a multi-theoretical approach to bring your business to its highest potential, and sustain growth with ‘continuous improvement’. Using Theory of Constraints, we pivot your business improvement towards profitability.
Using IESES and Thinking Processes, we will do the following:
- Identify your constraints, improve them within your larger production chain, and consistently evaluate their progress to ensure a system of bottleneck resolution is always in place.
- Increase your throughput by working towards production optimization–helping you develop the best capacity to meet your customer’s true demand (~120%).
- Incorporate advanced scheduling software to support your production timeline, and restructure time for best utilization of labor and resources.
- Implement drum-buffer-rope planning to alleviate resource constraints in your production chains.
- Use lean manufacturing principles to reap the cost reduction and money saving benefits of lean. Lean will help us to reduce waste in your production chains.
- Utilize six sigma as a data-based valuation metric to bring your production process to as close to error-free as possible.
By combining these three systems (we call it TLS), we can optimize your system to reduce bottlenecks, improve constraints, eliminate waste, increase throughput, optimize scheduling, and decrease production errors.
Optimizing Your Business With IESES
Our consultants optimize your business by following Eli’s method of targeting constraints to reduce limitations, strengthen larger processes, and then constantly evaluate our progress to sustain a continuous improvement paradigm. We follow the five steps of analysis, IESES, to answer three main questions to improve your constraints:
- What needs to be changed?
- What should it be changed to?
- How to change it?
First and foremost, we want to ‘Identify’ the system constraints within your business process. Where are the most significant limitations in your business? What aspects of your production process and scheduling are preventing you from achieving your optimal potential–and, your main goal, the greatest profitability?
Once your constraints are identified, we can begin the process of strengthening them. With some constraints, remedying may be a quick fix. With extra product, your answer can be quite simple: you need to evaluate how much demand there is for your product, and produce more optimally. But your constraint can also be more complex, if it involves the work of many different employees conducting intricate, interwoven processes.
After identifying a complex constraint that needs some more attention, we begin to make some bigger changes to shift this constraint from a restriction to a benefit by ‘Exploiting’ the constraint. This requires you to inspect your business like you would your refrigerator before making dinner, and look at what you have. We aren’t going to the grocery store–yet–we want to work with what is already in place and in stock. Here we will work to best utilize and revise this constraint without any greater monetary investment on your part.
We then ‘Subordinate’ all other processes to the constraint. Let’s imagine you have a lot of broccoli in the fridge, and your constraint is that you have to make dinner featuring this less than ideal main ingredient. You will build your new recipe and your processes around the less pleasant vegetable to make it taste better. That means, for your business, if you have a machine that doesn’t work efficiently, you need to change how your workers are using the machine and your production times to help improve this constraint. If you have an employee that needs extra support in a step of your production process, you need to adjust your other workers’ schedules to best help this employee make the greater process, or your larger chain, run better.
If your constraint still needs help, it is time to “Elevate”, and invest in more resources. But before you go to the grocery store or your bank account, we will need to evaluate if this investment is worth it. We will measure whether the return on investment is worth the expense to address your constraint in this way.
Lastly, we want to “Sustain” progress. This means that once you help one constraint, you constantly want to return to your original constraints to address new constraints that may develop, or new opportunities to improve other potential constraints. You can always make your recipe more delicious–because no business is totally optimized. This is the process of continuous improvement, or what Eli termed POOGI, the “process of ongoing improvement” to ensure that your business is always getting better. At On-Time Edge, we’re dedicated to being your outsourced office of continuous improvement.
Ready to reorganize the fridge? Let’s help your business, and make some delicious meals together.