Theory Of Constraints

The Theory of Constraints (TOC) was postulated in the early 1980s by Dr Eliyahu Goldratt, an Israeli physicist, educator, and management specialist.

It is a business philosophy which seeks to strive towards the global objective, or goal, of a system through an understanding of the underlying cause and effect dependency and variation of the system in question. As a systemic approach, TOC is concerned with the system as a whole, not with parts of a system in isolation. What's more it shows and importantly proves that the local optimisation approach of modern businesses with their cost accounting practices is counter productive to overall system performance. This is a statement of extreme importance and ramifications.

TOC has developed a number of tools which help articulate cause and effect logic and necessity logic. Collectively these tools are called the ThinkingProcesses. They are extremely effective in helping people overcome the LayersOfResistance.

If a business had no constraints then what would the earnings be? What if there was nothing at all to restrict the flow of money into the business? Clearly the earnings would be infinite. And so, obviously, every business must have constraints of some kind because we all no it is nonsense for a business to have infinite earnings.

In Theory of Constraints, Goldratt states that the goal of a business is to make more money, now and in the future. There is an inflow of money into the business from sales and an outflow of money to pay for truly variable costs such as raw materials. The difference between these two sums is called Throughput.

If the constraint is the rate limiting part of the business in terms of Throughput, then what will happen when we focus on other parts of the business? What if we improve other parts of the business through capital investment, or just by getting them to run at optimal efficiency. Will the overall Throughput of our business system increase? Clearly it cannot! It is the constraint which limits the rate of Throughput generation. Only by increasing the Throughput through the constraint can we improve overall system Throughput.

In fact, rather than run the rest of the business components, departments, equipment or what have you at optimal efficiency, it is only the constraint which should be run at optimal efficiency. This will maximise Throughput. We are much better off to subordinate the rest of the business to the requirements of the constraint to achieve that overall system optimsation. If that means some part of the business are running at very poor efficiencies then so be it. If they are non-constraints then they don't determine the overall business Throughput any way. And running them only to meet the requirements of the constraint greatly reduces the overall complexity in the business.

Instead of focussing on everything all of the time, TOC shows us that focussing all our efforts on the constraint has the greatest impact to improve overall system performance. And who really cares what efficiency some other department or workstation is running at? In cost accounting this is deemed important but isn't the performance of our overall business system more important? After all, it is only the performance of the whole, not of the individual components, that determines how profitable the business will be.

For a comprehensive introduction to TOC as well as in-depth explanations, you cannot find a better online resource than the website by Kelvyn Youngman.

"Theory of Constraints" is named quite purposefully and scientifically. In science there are no facts, only theories and postulations. A theory can never be proven absolutely, no matter how many proofs are put forward. It takes only a single rebuttal based on good science to refute any theory. This is both the beauty and tragedy of scientific endeavour. As Thomas Henry Huxley said in 1870, "The great tragedy of Science - the slaying of a beautiful hypothesis by an ugly fact". Of course a theory is based on certain assumptions and the wider the application of the theory in explaining our observations of the natural world, the more "true" we believe that theory to be. If some observation comes to light which cannot be explained by the theory then it may not mean the theory is now "wrong". Perhaps there are other assumptions that can be made which better explain the new behaviour and hence the theory is adapted into one that is "more true" or replaced by a new theory founded on a set of different assumptions.

And so to be scientific, TOC does not assert itself as absolute truth. It is a theory put forward and exposed in the business and scientific community for someone else to disprove through experiment and observation. And yet, in over 25 years, with all the demonstrated successes of TOC implementations around the world, nobody has been able to demonstrate the "theory" is not the practical reality.

As soon as they hear the word "constraint", it is a little surprising how many people immediately jump to the assumption that they know all about the subject. They assume it is a simple de-bottlenecking concept, or linear programming, or something else they already know about. Perhaps this is because the word constraint is a part of everyday language and they know what a constraint is, hence they assume they must know what the "Theory of Constraints" is all about.

TOC has proven applications in project management, distribution, sales and marketing and even accounting. Clearly, then, it is something more than a simple de-bottlenecking decision to purchase another machine.

Theory of Constraints (TOC) has developed over the decades into a large body of knowledge centred on the concept that any (indeed every) system must have a constraint - a single factor that more than any other limits the ability of the system to achieve its goals.

This idea is not new, indeed it is a very old concept, well understood in the pure sciences (such as physics), where the search for basic, fundamental relationships is the very essence of the science. What is more recent is the application of these principles to systems that previously defied such approaches, such as the study of human systems and businesses in particular.

TOC can be applied to determine the constraint of each business system and then modify that system to improve performance at the constraint and overall. TOC principles of cause and effect logic, as well as sufficiency and necessity logic, also allow the location of the constraint to be controlled and can buffer out the negative effects of natural system variability. But TOC is not for the faint hearted. Installing TOC management and measurement systems requires a paradigm shift in thinking from the traditional cost accounting approach.

TOC introduces significant change into an organisation but brings with it powerful tools necessary to answer the following questions:

• What to Change?
• What to Change to?
• How to Cause the Change?

TOC introduces a completely new way of thinking about problems and implements solutions that have a dramatic and immediate impact on the bottom line. TOC changes bring measurable benefits in days and weeks, instead of the usual months and years (if at all). Improvements come so fast because TOC works on the key leverage point in the business; the Archimedean Constraint.

TOC provides 5 Focusing Steps for implementing a ProcessOfOngoingImprovement (POOGI).

To find out more you can Google "Theory of Constraints", "Drum Buffer Rope" and "Critical Chain Project Management". The best online resource for TOC is the one written by Kelvyn Youngman.