Theory of Constraints

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Theory of Constraints (TOC) is an overall management philosophy introduced by Dr. Eliyahu M. Goldratt in his 1984 book titled The Goal, that is geared to help organizations continually achieve their goals.[1]

According to Rand, a system's constraint "is that part of the system that constrains the objective of the system."[2] Goldratt states that:

"In our reality any system has very few constraints ... and at the same time any system in reality must have at least one constraint."[3]

While he makes passing reference to proofs based on LP and sensitivity analysis, Goldratt's main argument is the "line of marching soldiers" analogy. [4] (See convergence, below)

The TOC process of ongoing improvement seeks to identify the constraint and restructure the rest of the organization around it, through the use of the Five Focusing Steps.


[edit] Basic principles of TOC

The principles are treated as axioms. Goldratt provides[5],[6] some indication on why he chose these as basic assumptions or principles upon which to base TOC. The first two are a derivation of Newton's words: natura valde simplex est et sibi consona (nature is exceedingly simple and conformable to herself), while the third is a bridge on how to deal with human reactions and motivations.

[edit] Convergence

The first principle: Convergence, also called "Inherent Simplicity" states that "The more complex a system is to describe, the simpler it is to manage." Or that the more interconnected a system is the fewer degrees of freedom it has, and consequently the fewer points must be touched (managed) to impact the whole system. A corollary of this principle is that every organization has at least one constraint active in any given point of time (otherwise it would achieve infinite performance relative to its goal). The more complex and interconnected the organization is the fewer constraints it will have.[4]

[edit] Consistency

The second principle: Consistency, also called "There are No Conflicts in Nature" states that "If two interpretations of a natural phenomenon are in conflict, one or possibly both must be wrong". That is, when in an organization with a common goal, two parts are in conflict (or in a dilemma) this means that the reasoning that led to the conflict must contain at least one flawed assumption.

[edit] Respect

The third principle: Respect, also called "People are not Stupid" states that "Even when people do things that seem stupid they have a reason for that behavior". In other words, this principle is stating that people are not inherently irrational.

[edit] Basic processes

[edit] The five focusing steps

Theory of Constraints is based on the premise that the rate of goal achievement is limited by at least one constraining process. Only by increasing throughput (flow) at the bottleneck process can overall throughput be increased. The five focusing steps aim to ensure ongoing improvement efforts are centered around the organization's constraints.

Assuming the goal of the organization has been articulated (e.g., "Make money now and in the future") the steps are:

1. Identify the constraint (the resource/policy that prevents the organization from obtaining more of the goal)
2. Decide how to exploit the constraint (make sure the constraint's time is not wasted doing things that it should not do)
3. Subordinate all other processes to above decision (align the whole system/organization to support the decision made above)
4. Elevate the constraint (if required/possible, permanently increase capacity of the constraint; "buy more")
5. If, as a result of these steps, the constraint has moved, return to Step 1. Don't let inertia become the constraint.

[edit] Applications

The focusing steps, or this Process of Ongoing Improvement has been applied to Manufacturing, Project Management, Supply Chain / Distribution generated specific solutions. Other tools (mainly the TP) also led to TOC applications in the fields of Marketing and Sales, and Finance. The solution as applied to each of these areas are listed below.

[edit] Operations

Within manufacturing operations and operations management, the solution seeks to pull materials through the system, rather than push them into the system. The primary methodology use is Drum-Buffer-Rope (DBR),[1] and a variation called Simplified Drum-Buffer-Rope (S-DBR).[7]

Drum-Buffer-Rope is a manufacturing execution methodology, named for its three components. The drum is the physical constraint of the plant: the work center or machine or operation that limits the ability of the entire system to produce more. The rest of the plant follows the beat of the drum. They make sure the drum has work and that anything the drum has processed does not get wasted. [1]

The buffer protects the drum, so that it always has work flowing to it. Buffers in DBR have time as their unit of measure, rather than quantity of material. This makes the priority system operate strictly based on the time an order is expected to be at the buffered operation. Traditional DBR usually calls for buffers at several points in the system: the constraint, synchronization points and at shipping.[1] S-DBR requires only a single buffer at shipping.[7]

The rope is the work release mechanism for the plant. Only at "buffer time" before an order is due does it get released into the plant. Pulling work into the system earlier than a buffer time guarantees high work-in-process and slows down the entire system.[1]

[edit] Plant types

There are four primary types of plants in the TOC lexicon. Draw the flow of material from the bottom of a page to the top, and you get the four types. They specify the general flow of materials through a system, and they provide some hints about where to look for typical problems. The four types can be combined in many ways in larger facilities.

  • I-Plant: Material flows in a sequence, such as in an assembly line. The primary work is done in a straight sequence of events (one-to-one). The constraint is the slowest operation.
  • A-Plant: The general flow of material is many-to-one, such as in a plant where many sub-assemblies converge for a final assembly. The primary problem in A-plants is in synchronizing the converging lines so that each supplies the final assembly point at the right time.
  • V-Plant: The general flow of material is one-to-many, such as a plant that takes one raw material and can make many final products. Classic examples are meat rendering plants or a steel manufacturer. The primary problem in V-plants is "robbing" where one operation (A) immediately after a diverging point "steals" materials meant for the other operation (B). Once the material has been processed by A, it cannot come back and be run through B without significant rework.
  • T-Plant: The general flow is that of an I-Plant (or has multiple lines), which then splits into many assemblies (many-to-many). Most manufactured parts are used in multiple assemblies and nearly all assemblies use multiple parts. Customized devices, such as computers, are good examples. T-plants suffer from both synchronization problems of A-plants (parts aren't all available for an assembly) and the robbing problems of V-plants (one assembly steals parts that could have been used in another).

[edit] Supply chain / logistics

The solution for supply chain is to move to a replenishment to consumption model, rather than a forecast model.

  • TOC-Distribution
  • TOC-VMI (vendor managed inventory)

[edit] Finance and accounting

The solution for finance and accounting is to apply holistic thinking to the finance application. This has been termed throughput accounting. Throughput accounting suggests that one examine the impact of investments and operational changes in terms of the impact on the throughput of the business. It is an alternative to cost accounting.

The primary measures for a TOC view of finance and accounting are: Throughput (T), Operating Expense (OE) and Investment (I). Throughput is calculated from Sales (S) - Totally Variable Cost (TVC). Totally Variable Cost usually considers the cost of raw materials that go into creating the item sold.

[edit] Project management

Critical Chain Project Management is utilized in this area. Based on the realization that all projects look like A-plants: all operations must converge to a final deliverable. As such, synchronization of activities is a common problem that CCPM seeks to address.

[edit] Marketing and sales

While originally focused on manufacturing and logistics, TOC has expanded lately into sales management and marketing. Its role is explicitly acknowledged in the field of sales process engineering[8]. For effective sales management one can apply Drum Buffer Rope to the sales process similar to the way it is applied to operations (see Reengineering the Sales Process book reference below). This technique is appropriate when your constraint is in the sales process itself or you just want an effective sales management technique and includes the topics of funnel management and conversion rates.[citation needed]

[edit] The TOC thinking processes

The Thinking Processes are a set of tools to help managers walk through the steps of initiating and implementing a project. When used in a logical flow, the Thinking Processes help walk through a buy-in process:

  1. Gain agreement on the problem
  2. Gain agreement on the direction for a solution
  3. Gain agreement that the solution solves the problem
  4. Agree to overcome any potential negative ramifications
  5. Agree to overcome any obstacles to implementation

TOC practitioners sometimes refer to these in the negative as working through layers of resistance to a change.

[edit] Development and practice

TOC was initiated by Dr. Eliyahu M. Goldratt, being still the main driving force behind the development and practice of TOC. There is a network of individuals and small companies loosely coupled as practitioners around the world. TOC is sometimes referred to as "Constraint Management". TOC is a large body of knowledge with a strong guiding philosophy of growth.

[edit] Criticism

The TOC has a group of adherents who believe that its applicability goes much beyond its origin of factory scheduling. Regardless of how valid this belief might be, the TOC is not part of the mainstream curriculum in business or Operations Research programs.

Criticisms that have been levelled against TOC include:

[edit] Effectiveness of Drum-Buffer-Rope

While TOC has been compared favorably to linear programming techniques[9], D. Trietsch from University of Auckland argues that DBR methodology is inferior to competing methodologies. [10][11]

[edit] Unacknowledged debt

Duncan (as cited by Steyn) [12] says that TOC borrows heavily from systems dynamics developed by Forrester in the 1950s and from statistical process control which dates back to World War II. And Noreen Smith and Mackey, in their independent report on TOC, point out that several key concepts in TOC "have been topics in management accounting textbooks for decades." [13]

People claim[citation needed] Goldratt's books fail to acknowledge that TOC borrows from more than 40 years of previous Management Science research and practice, particularly from PERT/CPM and JIT. A rebuttal to these criticisms is offered in Goldratt's "What is the Theory of Constraints and How Should it be Implemented?", and in his audio program, "Beyond The Goal". In these, Goldratt discusses the history of disciplinary sciences, compares the strengths and weaknesses of the various disciplines, and acknowledges the sources of information and inspiration for the Thinking Processes and Critical Chain methodologies.

[edit] See also

[edit] References

  1. ^ a b c d e Cox, Jeff; Goldratt, Eliyahu M. (1986). The goal: a process of ongoing improvement. [Croton-on-Hudson, NY]: North River Press. ISBN 0-88427-061-0. 
  2. ^ Rand, G.K. (2000). "Critical chain: the theory of constraints applied to project management.". International Journal of Project Management 3 (18): 173–177. 
  3. ^ Goldratt, Eliyahu M. (1990). What is this thing called Theory of Constraints an how should it be implemented. [Croton-on-Hudson, NY]: North River Press. pp. 4. ISBN 0-88427-166-8. 
  4. ^ a b Goldratt, Eliyahu M. (1997). Critical Chain. North River Press. pp. 138-140. ISBN 0-88427-153-6. 
  5. ^ Goldratt, Eliyahu M. (Director, Presenter). (2002). TOC - Self Learning Program [Computer CD-ROM]. Goldratt Marketing Group.
  6. ^ Goldratt, Eliyahu M. (Director, Presenter). (2003). Necessary and Sufficient [Computer CD-ROM]. Goldratt Marketing Group.
  7. ^ a b Eli Schragenheim and H. William Dettmer (2000) (PDF). Simplified Drum-Buffer-Rope: A Whole System Approach to High Velocity Manufacturing. Retrieved on 2007-12-08. 
  8. ^ Paul H. Selden (1997). Sales Process Engineering: A Personal Workshop. Milwaukee, WI: ASQ Quality Press. pp. 33-35, 264-268. 
  9. ^ Qui, Mabel; Fredendall, Lawrence; Zhu, Zhiwei (2002). "TOC or LP? [production control]". Manufacturing Engineer 81 (4): 190-195. 
  10. ^ D. Trietsch, From Management by Constraints (MBC) to Management By Criticalities (MBC II), Human Systems Management (24) 105-115, 2005
  11. ^ D. Trietsch, From the Flawed “Theory of Constraints” to Hierarchically Balancing Criticalities (HBC), Department of Information Systems and Operations Management, University of Auckland, Working Paper No. 281, May 2004.
  12. ^ Steyn, Herman (2000). "An Investigation Into the Fundamentals of Critical Chain Project Scheduling.". International Journal of Project Management (19): 363–369. 
  13. ^ Eric Noreen; Debra Smith, James T. Mackey (1995). The Theory of Constraints and its implications for Management Accounting. North River Press. pp. 149. ISBN 0-88427-116-1. 

[edit] Further reading

  • John Tripp TOC Executive Challenge A Goal Game. ISBN 0-88427-186-2
  • Cox, Jeff; Goldratt, Eliyahu M. (1986). The goal: a process of ongoing improvement. [Great Barrington, MA]: North River Press. ISBN 0-88427-061-0. 
  • Goldratt, Eliyahu M. (1994). It's not luck. [Great Barrington, MA]: North River Press. ISBN 0-88427-115-3. 
  • Goldratt, Eliyahu M. (1997). Critical chain. [Great Barrington, MA]: North River Press. ISBN 0-88427-153-6. 
  • Carol A. Ptak; Goldratt, Eliyahu M.; Eli Schragenheim. Necessary But Not Sufficient. [Great Barrington, MA]: North River Press. ISBN 0-88427-170-6. 
  • Goldratt, Eliyahu M.. Essays on the Theory of Constraints. [Great Barrington, MA]: North River Press. ISBN 0-88427-159-5. 
  • Goldratt, Eliyahu M.. Theory of Constraints. [Great Barrington, MA]: North River Press. ISBN 0-88427-166-8. 
  • Goldratt, Eliyahu M.. Beyond the Goal : Eliyahu Goldratt Speaks on the Theory of Constraints (Your Coach in a Box). Coach Series. ISBN 1-59659-023-8. 
  • Dr Lisa Lang. Achieving a Viable Vision: The Theory of Constraints Strategic Approach to Rapid Sustainable Growth. Throughput Publishing, Inc. ISBN 0-9777604-1-3. 
  • Goldratt, Eliyahu M. (1990). The haystack syndrome: sifting information out of the data ocean. [Great Barrington, MA]: North River Press. ISBN 0-88427-089-0. 
  • Fox, Robert; Goldratt, Eliyahu M. (1986). The race. [Great Barrington, MA]: North River Press. ISBN 0-88427-062-9. 
  • Goldratt, Eliyahu M.. Production the TOC Way with Simulator. North River Pr. ISBN 0-88427-175-7. 
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