Theory of Constraints
(Goldratt)

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Constraint Management. Explanation of Theory of Constraints of Eliyahu Goldratt.

Herbie

Did you read "The Goal?" Do you remember Herbie? The Theory of Constraints model of Eliyahu Goldratt is the practical result of Eli Goldratt's work about "how to think". In a number of books, Goldratt described certain thinking processes and their applications.
 

Cause and Effect in the Theory of Constraints

Central to the concept of TOC is the acknowledgement of cause and effect. Compare: Cause and Effect Diagram. The Thinking Processes of TOC give us a series of steps which combine cause-effect and our experience and intuition to gain knowledge. TOC is a verifiable philosophy. By knowing how we should think, we can better understand the world around us; by better understanding we can improve.
 

Organizations are a complex web of people, equipment, methods, materials and measures. This detail complexity is bad enough. Then add to it the dynamic complexity of changing customers, suppliers, workforce, regulations, etc. and you have a picture of the challenge faced by today's management team.

Traditionally, management has divided the organization into smaller, more manageable pieces. The objective is to maximize the performance of each part. The global improvement is assumed to be equal to the sum of the local improvements.

Wrong! TOC claims that a change to most of the variables in an organization will have only a small impact on the global performance - on the bottom line. There are very few variables, perhaps only one, where a significant improvement in local performance causes a significant improvement in global performance. Such a variable is called a "Constraint". You can compare it with the weakest link in a chain. Compare: Gantt Chart.

The steps in the Theory of Constraints. approach

The essence of the TOC approach is that If you want to achieve more of your goal, you must:

1. Identify your Constraint.
2. Focus on the Constraint. A company must first know its goal and the necessary conditions for achievement. Then it must identify the Constraint (s), that is/are limiting the level of achievement of that goal.
3. Follow it through. A process of ongoing improvement:

   1. Identify the Constraint.

   2. Exploit it.

   3. Subordinate all other operations to the necessity to exploit the Constraint.

   4. If after #2 and #3 more capacity is needed to meet market demand, elevate the Constraint.

   5. Go back to #1, but don't let inertia become the system's Constraint.

Applications of the Theory of Constraints

• Manufacturing environments - Book: "The Goal" by Goldratt -

• Distribution and Supply Chain - Book: "It's Not Luck?" by Goldratt -

• Marketing - Book: "Necessary But Not Sufficient" by Goldratt -

• Project Management - Book: "Critical Chain" by Goldratt -

• Theoretical treatment - Book: "Theory of Constraints" by Goldratt -

Theory of Constraints Special Interest Group

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Theory of Constraints Forum

Arrie Van Niekerk - South Africa

Drum - Buffer - Rope Method

"The Theory of Constraints is also built on the understanding that the combined effect of variation and interdependence destroys the flow. The Drum-Buffer-Rope Methodology helps to overcome this phenomenon in a unique, simple and powerful solution that can easily increase production flow by at least 10-30%. There are many examples of success of this approach all over the world. The concept was developed in "The Goal" by Dr Eli Goldratt."

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Antony - USA

Current Reality Tree

"A useful tool that Goldratt uses to identify bottlenecks is the Current Reality Tree (CRT). Similar to a Root Cause Analysis, a current reality tree is a statement of an underlying core problem and the symptoms that arise from it. It maps out a sequence of cause and effect from the core problem to the symptoms. Most of the symptoms will arise from the one core problem or a core conflict. Remove the core problem and we may well be able to remove each of the symptoms as well. Operationally we work backwards from the apparent undesirable effects or symptoms to uncover or discover the underlying core cause."

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Venu - India

Neural Network In SCM?

"Hi, (how) can the concept of Neural Networks be applied in the world of Supply Chain for managing the flow of orders between upstream and downstream systems?"

2

René Villadsen - Denmark

Throughput Accounting

"It is important to notice that the theory of constraints has given birth to a very important management accounting tool; throughput accounting. Throughput accounting challenges conventional wisdom in the management accounting area."

2

Vincent - Canada

Quote by Eliyahu Goldratt

"An expert is not someone that gives you the answer, it is someone that asks you the right question."

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