The Theory of Constraints is a method of process improvement that can be applied to manufacturing, supply chain, marketing, sales, finance, or any other area of business. This guide will give you the basic toolkits to get started with TOC.
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What is the Theory of Constraints?
The Theory of Constraints is a management philosophy aimed at continually improving business processes and helping organizations meet their goals.
Eliyahu M. Goldratt, the creator of the theory, has called it “a thinking process that enables people to invent simple solutions to seemingly complex problems”.
The base stipulation in the Theory of Constraints is that every system or process has a constraint that can be regarded as the most important limiting factor in the system. The Theory of Constraints itself is a method of identifying said constraint and improving it until it is no longer the biggest hindrance in the process.
In simple terms, the TOC concentrates on identifying the weakest link in the process and making it stronger.
What is a constraint?
A constraint could be anything that impedes a process. According to the Theory of Constraints, however, there is usually only one (and never more than a few) major constraint in any given system.
In manufacturing, constraints are often referred to as bottlenecks. These may occur in the production process, but also in procurement, sales, marketing, etc.
Constraints can be divided into two:
- Internal constraints manifest as an inability to fully respond to market demand, i.e. not being able to produce as much as to meet customers’ needs. Internal constraints can be related to equipment (e.g. when operating practices are sub-par, or when machinery is outdated or ill-maintained); people (lack of skilled people or lack of motivation); or policy (rules in the company that prevent maximum output, e.g. a “no overtime” policy).
- External constraints are related to insufficient demand for the produced goods in the marketplace or insufficient supply of the materials required to produce the goods. As such, they can often be alleviated by improving marketing or sales, or by finding better suppliers.
A company may experience many problems, internal and external, but according to the Theory of Constraints, they should be solved in a highly focused manner, prioritizing constraints one at a time. If the throughput of a constraint is improved up to a point where it is no longer the most pressing one in the system, the constraint has been “broken”.
Also read about Throughput Time.
The Five Focusing Steps in the Theory of Constraints
The Five Focusing Steps is the methodology the Theory of Constraints provides to identify and improve internal physical constraints. The steps are:
- Identify the constraint. Make sure to choose the weakest link in the organization because if you strengthen any other part of your business, the weakest link will negate most progress made elsewhere.
- Exploit existing resources to improve upon the constraint. Learn to maximize the utilization and productivity of the constraint. Operate the constraint 24/7 with a full staff. Perform regular maintenance. Train the constraint operators. Measure the constraint’s Overall Equipment Effectiveness (OEE) to find out the reasons for inefficiencies if they are not apparent at first. Do not just buy more of the constraint in lieu of trying to make it as efficient as possible.
- Subordinate all other processes to support the constraint. This means avoiding overloading the constraint, slowing down other processes if necessary. If other processes produce more than what the constraint can handle, the results can be excess WIP inventory, longer than usual lead times, and frequent firefighting. In addition, you will have to make sure to never deprive the constraint of activity. Maintain a certain level of safety stock to make sure that the constraint gets quality inputs at all times. It is also very important to train your employees according to the new focus on eliminating the constraint.
- Elevate the constraint by bringing in more resources to support it. If you have maximized the capacity of the constraint, you can start investing in additional support – equipment, human resources, space, etc. This step should never be taken as a first measure unless you find that the cause of the constraint is related to insufficient resources allocated to the process.
- Repeat the process to ensure continuous improvement in your processes. If you elevate a constraint up to a point where it is no longer the weakest link, move back to the first step and find a new constraint to improve.
If you follow these five steps, you are bound to find and alleviate your constraints. You do not have to worry about identifying a wrong constraint as the Five Focusing Steps auto-correct the errors quite quickly.
The Theory of Constraints Thinking Processes
The TOC Thinking Processes, also called TP Tools, are process improvement devices used mostly in the case of non-physical constraints. These tools can be applied, for example, to sales, marketing, and finance – but they can also be used as a personal growth toolkit.
You can also use the Thinking Processes to resolve internal policy constraints and to motivate the workforce, or bring it in as a supplement to The Five Focusing Steps when resolving issues related to production, inventory, or supply chain processes.
The essential questions the Thinking Processes aim to give answers to are:
- What needs to change?
- What it needs to change to?
- How to bring on the change?
The central premise of the Thinking Processes is that all issues arise from a core problem. That means issues are often merely symptoms of a larger, more deeply rooted problem.
To effectively utilize the Thinking Processes, they are implemented in a group. This prevents any one person from imposing their personal view of what the constraint or the UDEs are and allows the organization as a whole to work through the individual “layers of resistance”, and get the bigger, more objective picture of the problem.
The questions are approached by creating a “tree diagram” out of the symptoms (Undesirable Effects or UDEs), desired effects, new ideas (also called Injections in the TOC literature) concerns, conditions, tactics, and strategies. These trees are related to the essential questions mentioned above.
1. What needs to change?
The Current Reality Tree (CRT) maps out all the cause-effect relations between the Undesirable Effects (UDEs) and helps identify the core problem.
2. What it needs to change to?
The following additions to the tree diagram deal with projecting the Desirable Effects, Injections, possible outcomes, and conditions that need to be met.
The Future Reality Tree shows the ideal state of the processes. It takes the Current Reality Tree and adds Injections (or new ideas to be implemented) that should lead to better outcomes (Desirable Effects).
The Negative Branch Reservations map out concerns anyone might have regarding the outcomes of the Injections. This phase basically deals with the question “What could be the larger implications of a change?”
Evaporating Cloud Tree is used to iron out conflicts that may arise due to making changes. It diagrams the logic behind them in the following basic way:
The A in the diagram represents a common objective, the blue B and C boxes are requirements for achieving the objective, and the D and D’ represent opposing prerequisites. So the basic formula says that in order to achieve A, either B or C is necessary, but B cannot be achieved with D’, and C cannot be achieved with D.
3. How to bring on the change?
The Strategy and Tactics Tree maps out all the smaller objectives needed to be achieved before the larger goal can be reached. It gives a detailed description of the action plan that needs to be followed and sets up metrics that allow the team to measure their progress.
Using the Theory of Constraints with an ERP system
Even though the two have been seen as alternatives to one another, using the Theory of Constraints in conjunction with an ERP system has some great advantages:
1. An ERP system provides you with information about how your resources are performing, making identifying a constraint a much easier process.
By using shop-floor reporting data, the system can automatically calculate OEE and TEEP (Total Effective Equipment Performance) and other metrics.
2. In the process of lifting the constraint, the real-time data collecting capability of an ERP system can be used to get an accurate indication of how well the system works after making changes.
You do not need to wait for the end of a week or month to get reports, as soon as data comes in from the shop-floor, reports are updated and historical trends can be observed.
3. But most importantly, an ERP software provides both a high-level overview of the business in general, but also makes the current situation more transparent, which already helps a user to notice, communicate, and remove many of the constraints naturally.
The system provides means to communicate with co-workers, leave important notes, document procedures, provide updated instructions at all times, and guide processes in a better way. All in all, this makes the organization more nimble when it comes to change management.
- The Theory of Constraints is a collection of methods that is used to eliminate obstructions from systems and processes. Even though it was originally developed for the manufacturing industry, the TOC has been applied to everything from inventory management to finances to personal growth.
- A constraint can be anything that impedes a process, but according to the TOC, only one constraint exists at any given time – this is the weakest link in the system. In manufacturing, constraints are called bottlenecks. These can be found in the production process, but also anywhere else in the business.
- Constraints can be eliminated by using the Five Focusing Steps and the Thinking Processes methodologies. While the Five Focusing Steps is mostly used in order to eliminate internal physical constraints, and the Thinking Processes is used to alleviate non-physical constraints, the two approaches can also be used together.
- The beneficial effects of implementing the TOC can be incrementally expanded when used in conjunction with an ERP system.
Eliyahu M. Goldratt and Jeff Cox. The Goal: A Process of Ongoing Improvement.
Eliyahu M. Goldratt. What Is This Thing Called Theory of Constraints and How Should It Be Implemented.
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