Theory of Constraint: Eliyahu M. Goldratt
Introduction
The Theory of Constraints (TOC) is a philosophy of management and improvement originally developed by Eliyahu M. Goldratt and introduced in his book, The Goal. It is based on the fact that, like a chain with its weakest link, in any complex system at any point in time, there is most often only one aspect of that system that is limiting its ability to achieve more of its goal. For that system to attain any significant improvement, that constraint must be identified and the whole system must be managed with it in mind.

The body of knowledge and analytical tools (the TOC Thinking Processes) that give power to TOC come from experience in the “accurate sciences” and are based on rigorous, but easily understood, cause-and-effect logic. These tools also provide the ability to support the development of breakthrough solutions through the premise that in the real world, all systemic conflicts that inhibit action are the result of unexamined assumptions that can be identified and corrected for true win-win solutions.

The TOC approach emphasizes the differences between global and local performance improvement. Thus, TOC encourages “Systems Thinking.” It takes a global perspective of decision making and emphasizes that decisions should be made for the good of the entire system.

TOC’s Global Measures of Performance
Throughput (T): The rate at which the system generates money through salesGoldratt’s definition of throughput differs significantly from the conventional definition of the term. In conventional usage, throughput is the rate at which the system produces products. TOC, however, views a business as a money making machine; the formula for determining throughput in the TOC world is “sales revenue minus cost of materials used in the items sold.”

Inventory (I): All the money invested in purchasing things the system intends to sellThe definition of inventory is also a little different from the usual meaning. Here, inventory includes money invested in equipment, because ultimately inventory is salable. So is the facility. Advocates of constraint management do not recognize the value-added component of inventory accounting. Rather, finished goods are values according to the price paid for the raw materials; value added by the system, even the direct labor consumed to make the goods, is not taken into account.

Operating Expense (OE): All the money the system spends, turning inventory into throughput.TOC defines operating expense as the cost of turning inventory into throughput. The definition of operating expense is simple and avoids making arbitrary distinctions.

Five-step focusing process
Step 1: Identify the System’s Constraint(s) A constraint may be a physical resource, such as time on a particular work center, or raw materials. It might be money. It might also be a policy or regulation or the market. Most constraints in system performance turn out to be policies.

Step 2: Decide how to Exploit the System’s Constraint(s) Exploitation of a constraint requires that its output, relative to a system’s goals, must be maximized. If the constraint is physical, it must be used to produce the greatest contribution to the system’s goals. If the system’s goal is to make money, and the constraint is a work center, exploitation would mean that the most money possible should be obtained from each minute of the constraint’s time.

Step 3: Subordinate Everything Else to that Decision Subordination often deals with the process of scheduling. Typically, this means that the work must be started and sequenced in such a way that the constraint can always work.

Step 4: Elevate the System’s Constraints Elevating the constraint means identifying ways that will improve the performance of the system relative to its goals. If the constraint is a work center, elevation might include additional preventive maintenance, or it might involve purchasing additional machines to increase capacity.

Step 5: If a Constraint Has Been Broken in Previous Steps, Go Back to Step 1 Can we stop with the fourth step? The answer is intuitively obvious. If we elevate the constraint, eventually the constraint will no longer be the constraint. The performance will now be dictated by another link that has now become the weakest.

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