What is TOC (Theory of Constraints)?

TOC is a proven most productive business methodology, 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.

It is equally applicable to for-profit and not-for-profit organizations for: strategy, personnel, marketing, sales, distribution, manufacturing, design, and project management.

It is likely that you will have arrived at this material from a number of different directions;

In each case we are making insufficient of whatever it is that the organization needs to make in order to be successful. In other words, we are, in some way, constrained.

Although Theory of Constraints developed out of for-profit based manufacturing, it has much broader and more general applicability. People in not-for-profit organizations, or service organizations, or a paper-based transaction will find the principles equally relevant and applicable.

The Four Distinct Level to TOC

The TOC represents a large and growing body of knowledge. It makes sense to start to describe the TOC by focusing on outcomes. ANY organization using the TOC as the basis for their performance improvement positions itself to realize faster, larger, and more easily attained improvements than by any other approach. This is regardless of the nature or size of the organization.

There are four distinct levels to the Theory of Constraints:

1st Level (Highest Level)
At its highest level it is a philosophy for performance improvement, developed by Dr. Eliyahu M. Goldratt. It is based on the premise that the performance of any real system relative to the goal of that system is limited by the system’s constraints.

Consequently, if an organization wants to improve performance it must first identify and then correctly manage its constraints … which also carries an implication of correctly managing non-constraints.

Most managers agree this is just common sense. (Unfortunately, it takes only minutes to demonstrate that this is not common practice in most organizations.)

2nd Level
The 2nd level is a set of 5 Focusing Steps that translate the philosophy into types of actions.

These steps provide an organization with a powerful process of continuous improvement based on identifying and correctly managing constraints and non-constraints.

Again, most managers agree … these steps are simply common sense. (And again, unfortunately, it takes only minutes to demonstrate that they are not common practice.)

Constraints take physical forms – for example, for a manufacturing business they might appear to be a lack of capacity, a lack of sales, a limited supply of materials.

But underlying the existence of any physical constraint there is always a cause – a policy or procedure or measurement or rule or behaviour, written or unwritten, formal or informal, that (perhaps) at one time made sense but today creates the physical constraint or prevents the constraint from being broken.

These are the more damaging, more insidious, almost invisible Policy Constraints. Such constraints usually pass unchallenged because they are almost invisible. If they are thought of at all, it is in terms of them being “just the way things are done round here,” or worse, “that’s how we have to do things around here.”

Accordingly, the 2nd level of the TOC was developed in response to the question, “How do you identify Policy Constraints? ”

3rd Level
The Third level of the TOC is a suite of Five Thinking Processes originally developed to enable managers to identify and replace Policy Constraints.

These Thinking Processes have proven to be more than probably anyone ever envisaged, and they have a variety of uses today.

However, their principal role has been to:

• enable managers to examine a set of performance symptoms,
• uncover a core problem or core conflict giving rise to them all,
• construct a simple, practical and highly effective solution to the problem and the symptoms,
• develop and implement this solution quickly and smoothly.

Sometimes the solution is case-specific. The symptoms might be unique, or they might be common to other organizations, but the shape of the solution is unique to the specific organization in its specific circumstances.

Sometimes, however, the symptoms are common to other organizations involved in similar activities and the solution is equally generic. The same solution, with some differences in detail perhaps, would resolve the same symptoms in a variety of organizations.

4th Level
These generic solutions are the TOC Applications. These Applications form the fourth level of the TOC, and the only level many users see.

They are:

• Synchronous Manufacturing (Operations/Production)
• Critical Chain Project Management
• Throughput Accounting
• Distribution / Supply Chain
• Sales / Marketing

TOC & Applications

Synchronous Manufacturing. This gives manufacturers the fastest and most direct path to large-scale, bottom-line improvements. Typical results include reduced inventories, reduced manufacturing lead times, increased service levels/superb on-time delivery, and increased productivity. Companies using Synchronous Manufacturing will consistently out-perform conventional world-class performers who are relying on the variety of popular techniques classified today as “Best Practices.” A company already committed to “Best Practices” will discover that they gain faster and larger results if they apply these practices through the TOC filter of Synchronous Manufacturing. A Synchronous Manufacturing implementation is typically completed at a fraction of the effort and expense of other popular improvement techniques.

Throughput Accounting. Even the accounting profession has conceded that traditional fully-allocated Cost Accounting causes managers to make wrong decisions. Activity-Based-Costing is just as bad, possibly worse. Throughput Accounting is the alternative, a basis for sensible decision making for manufacturers. Throughput Accounting is a natural partner of a Synchronous Manufacturing implementation.

Critical Chain Project Management. This is an extraordinarily powerful new approach to Project Management that offers results that continue to astonish project-experienced managers. Critical Chain enables organizations to generate schedules that are 25% shorter than traditionally planned schedules, AND to meet the promised completion date 85% or more of the time. Better still, organizations are finding up to 100% more productivity from the same project resources when they follow the Critical Chain approach.

Distribution. The TOC approach to distribution is deceptively simple; without need of DRP (Distribution Requirements Planning) software or it’s kind, TOC offers an approach to having the right parts in the right location in the right quantity at the right time, with a minimum of effort … while contradicting most of the rules of conventional Distribution thinking.

Supply Chain. The TOC approach to Supply Chain management is so much more powerful than, and so far beyond the conventionally popular and superficial view of Supply Chain, that it really deserves a different name. When a retailer, garment manufacturer, cloth manufacturer and yarn manufacturer set-up their TOC supply chain they caused sales to increase throughout the system by 30% or more, and each unit in the supply chain realized a substantial increase in ROI.

Sales/Marketing. Organizations are using the Thinking Processes in a methodical way to cause their customers to perceive increased value in their products and services – to such an extent that they are willing to pay more for essentially the same product if they buy it from a TOC company! Yes, we know it sounds outrageous; but hundreds of companies world-wide have successfully applied this. The TOC approach to sales enables companies to charge more for their products, or win new business, or both.

>> Contact us to learn more on how to implement TOC into your company.