Introduction to the Theory of Constraints; an Overview

In today's economic climate, many organizations struggle with declining sales and increasing costs.  Some choose to hunker down and weather the storm, hoping for better  results in the future.  However, layoffs and workforce reductions jeopardize future competitiveness.  Organizations that have implemented the Theory of Constraints (ToC)  continue to thrive and grow in difficult times, continuing to achieve real bottom line growth, whether by improving productivity or increased revenues.

Since 1985, the Theory of Constraints (ToC) has been producing startling bottom line results to companies worldwide. An independent study of Theory of Constraints  Implementations around the world found that huge results were consistently achieved:

•    Lead Times - Reduced 69%
•    Cycle Times - Reduced 66%
•    Due Date Performance - Improved 60%
•    Inventory Levels - Reduced 50%
•    Revenue / Throughput - Increased 68%

Many organizations that implement Theory of Constraints (ToC) realize profit improvements over 100% the first year.

The Theory of Constraints (ToC) is a set of holistic processes and insights, all based on a systems approach that simplifies the improving and managing of complex  organizations by focusing on the few physical and logical constraining "leverage" points.  It provides a set of tools to build and implement the "levers" (holistic rules) that  synchronize the parts to achieve an order of magnitude improvement in the performance of the system as a whole.

The crucial insight of the Theory of Constraints is that only a few elements (constraints) in a business control the results of the entire organization. Theory of Constraints  tools identify these constraints, and focus the entire organization on simple, effective solutions to problems that seemed insurmountably complex and unsolvable.

The theory of constraints has three underlying assumptions:

Convergence - Inherent Simplicity ;The more complex a system is to describe, the simpler it is to manage.

Consistency - There are no conflicts in nature; if two interpretations of a natural phenomenon are in conflict, one or possibly both must be wrong.

Respect - People are not stupid; even when people do things that seem stupid they have a reason for that behavior

Eliyahu Goldratt originated the idea in his book The Goal as a way of managing organizations to increase profits. The Theory of Constraints is a proven method that can be  used by existing personnel to increase throughput (sales), reliability, and quality while decreasing inventory, WIP, late deliveries, and overtime. Successful organizations  also adopt the Theory of Constraints (ToC) to help make tactical & strategic decisions for continuous improvement.

The Theory of Constraints is not just a tool to manage bottlenecks. In fact, the scope of tools and breadth of application of Theory of Constraints is substantial.

Theory of Constraints (ToC) Applications
After more than 25 years of development, the Theory of Constraints has several distinct applications or tools:

The Five Focusing Steps of Ongoing Improvement
1.    Identify the system's constraint
2.    Decide how to exploit the system's constraint
3.    Subordinate everything else to the prior decisions
4.    Elevate the system's constraint
5.    If, in the prior steps, the constraint has been broken, go back to step one.

Theory of Constraints Jonah Thinking Processes
•    Evaporating Cloud or conflict diagram
•    Current Reality Tree (CRT)
•    Future Reality Tree (FRT)
•    Negative Branch Reservation (NBR) or branch
•    Prerequisite Tree (PrT)
•    Transition Tree (TrT)
•    Strategy and Tactics Tree (S&T)

Throughput Accounting
•    Throughput (T): The rate at which the system generates money (through sales).
•    Inventory (I): All of money the system invests in items it intends to resell
•    Operating Expense (OE): all the money the system spends to turn inventory into throughput
•    Net Profit (NP) = T- OE
•    Return on Investment (ROI) = NP / I

Generic Solutions
1.    Operations - Drum Buffer Rope (DBR) and Simplified Drum Buffer Rope (SDBR)
2.    Finance - Throughput Accounting
3.    Project Management - Critical Chain Project Management (CCPM)
4.    Distribution - Synchronized pull replenishment
5.    Marketing - Un-refusable or "Mafia" Offers
6.    Sales - Buy in Process
7.    People / Leadership - Using the Thinking Processes for day to day management
8.    Strategy - Viable Vision Templates

Six Necessary and Sufficient Questions on Information Technology
1.    What is the power of the technology?
2.    What limitation does it diminish?
3.    What are the old rules that accommodated the old limitation?
4.    What are the new rules that should be used now?
5.    In light of the new rules, what changes are required in the technology?
6.    How to cause the change to take advantage of the new technology (the new win/win business model)?

Many believe that the Theory of Constraints is the most powerful  improvement methodology in use today because of its simplicity and fast results.