Theory of Constraints– Eliminate Bottlenecks– Focus, Leverage, Manage: Structure Organization Around It…

Theory of Constraints (TOC) is a management paradigm that views any manageable system as being limited in achieving its goals due to the effects of a few, one or two, key constraints-bottlenecks in the system…

‘Constraints’ are defined as restriction(s) that inhibit the desired outcome. Theory of Constraints (TOC) is the philosophy of ‘how to think’, which was originated by Dr. Eliyahu M. Goldratt…

According to Goldratt; if people know ‘how to think’, they can greatly influence the outcome of a situation where constraints exist. In any situation, process, system… there is always at least one constraint-bottleneck that adversely effect overall performance and outcome of a process… hence, TOC uses a focusing methodology to identify and eliminate the key restrictions, and then restructures the rest of the organization around it…

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TOC is big-picture approach that encompasses issues, which occur both within and between processes… and its aims is to identify and resolve the few key constraints–bottlenecks that have the most significant impact on the outcome… There are many ways that constraints-bottlenecks can show up, but a core principle within TOC is that there is at least one, but at most only a few, in any given system… and an internal constraint is in evidence when the demand is more than the system can deliver… and an external constraint exists when the system can produce more than the market will bear…

The typical constraints are; equipment, people, policy, process… A constraint-bottleneck is broken when it’s no longer the limiting factor in the system… However, if the system still under-performs the limiting factor is now in another part of the system, or may even be external to the system…  

Theory of Constraints– Five Focusing Steps: Where do you intervene? What steps do you take? When you first start; you can see so much that can be improved… Where do you start? What will have biggest effect? Then, what do you do next? The Theory of Constraints gives a simple, powerful framework to guide the process improvement: The Five Focusing Steps are:

  • Step 0: What is the goal? The first and most difficult step is to determine (and agree on) the goal of a system, and to determine the goal you must ask: Who uses the results, the output of the system and what do they value? Try to find the metrics that measure the amount of valuable output produced. The Theory of Constraints calls this the ‘throughput‘ of the system…
  • Step 1: Where is the bottleneck? The fundamental insight of the Theory of Constraints is; the output of any system is determined by one bottleneckA chain is as strong as its weakest link. If we want to make the chain stronger, then work on weakest link…
  • Step 2: Exploit the bottleneck: If the output of the system is constrained by the output of the bottleneck, you must first try to increase the output of the bottleneck. Any idle time of bottleneck reduces output of the system. What can you do? First, remove all non-value-adding work. Remove or limit interruptions. Remove impediments. Carefully prioritize the bottleneck’s work so that you always work on the most important tasks…
  • Step 3: Subordinate every other decision to the bottleneck: When you have fully exploited the bottleneck, you must subordinate every other decision to exploit the bottleneck. All the resources that aren’t bottlenecks have, by definition, some slack, then use these slacks to support the bottleneck…
  • Step 4: Elevate the bottleneck: This is the step most people will intuitively apply first, for example; add more people, more machines, more training, more tools, more of everything… But, only take this step when all the ‘free’ improvements have been performed. Than elevate by; adding more people, machines, training and mentoring, better tools, faster machines, switching to a different technology…
  • Step 5: And again! When you’ve applied one improvement and have seen a positive effect, you go back to the beginning, and ask: Is the goal still valid? Is measurement of ‘throughput’ still correct? Where’s the bottleneck? After some improvements you may have solved the worst problem… But in most systems there’s always a bottleneck, and so now the second-worst problem needs focus, as the new bottleneck…

In the article Systems Thinker Blog by Michael Gerber writes: Every real system, such as a business; must have at least one real constraint [limitation or restriction]. If this were not the case then the system could produce unlimited amounts of whatever it was striving for, e.g.; profit in the case of a business… In other words, every business or system has something preventing it from reaching its full potential– a weakness that limits its performance and output, and the weakest point or constraint determines the maximum capacity of the entire system… Bottlenecks in business systems and processes are among the most damaging constraints and a barrier to achieving maximum results…

A bottleneck is any step whose capacity is equal to or less than the demand placed upon it; it can’t keep up with the inputs. A non-bottleneck is any step whose capacity is greater than the demand placed upon it… You can only improve the results or ‘throughput’ of a process by elevating the performance of the weakest step– the bottleneck… Improving other steps will not increase the system output... 

Bear in mind that the objective is not just to eliminate the bottleneck of a particular process, but to elevate the entire system that constrains the ‘throughput’ of the whole business… The core of the business systems must work in synchronization to achieve highest efficiency and throughput. The more you reduce the constraints, the closer it come to realize full potential… Represented as formula it’s: Theory of Constraints: Performance = Full Potential – Constraints…

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In the article Theory of Constraints– New Way to Manage by Eric Ronney writes: The key to understanding Theory of Constraints is to think about complexity in organizations. How complex is yours? How many people? How many functions and processes? How many products and services? How many suppliers and customers? It’s no surprise that even small companies are complex. And it doesn’t take a genius to know that complex companies are difficult to manage…

So, how do you manage a complex company? You dissect it into– smaller parts, business units, functions, departments… And because each ‘division’ is smaller than the whole company then by definition, it’s easier to manage… But complexity is about more than number of divisions… The real problem in an organizations is that things that happen in one part of an organization have impact on one or more places elsewhere… It’s many ’cause/effect relationships’ that criss-cross an organization that makes it complex…

In most complex company, there are very few ‘things’ that must be managed in order to improve performance of the entire company. These few things are the leverage points for performance or the ‘constraints’ of the business… In other words, the more complex a company is– the fewer degrees of freedom there are– and thus the fewer constraints that must be managed… The great thing is– once you identify the constraints of the business, you know what to focus on. You know exactly what has to be done in order to optimize the performance of the company; thus, management attention can be directed to the few things that make a ‘real’ difference…

According to Larry Webber and Michael Wallace; people are funny creatures: If they have jobs like printing paychecks, counting nails, or whatever… and they can work very fast as to pile up work ahead of a constraint, they quickly learn to slow down and soak up the time. The maxim that– work expands to fill the time allotted is true. What this means for an organization is that a constraint may not always be obvious if the behavior of other links in the operating chain disguises it… Look at the entire process from end-to-end to identify areas that may be walking slowly– adding non-value-added steps– to soak up the excess time…

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According to neadmin; there are numerous factors that play a role in the ultimate success or failure of the business. Understanding and being cognizant of the biggest elements that decide success for a given business is one of the most important actions for management to take; often times an analysis of constraints will reveal issues that a business did not even realize they were facing, and thereby allow them to develop workarounds to handle some of these road blocks…

The management of constraints often involve the process of trading constraints: If the opportunity cost presented by one constraint is higher than that of another, then the trade is a good one to make… But understand that with TOC, the ‘cost world’ is replaced by the ‘throughput world’… A major difference between the ‘cost world’ and ‘throughput world’ is– the ‘cost world’ focus is on ‘reducing cost’, whereas the ‘throughput world’ the focus is on increasing ‘throughput’ or ‘outcome’ as the primary means for improvement…

According to Kamran Khan; implications of this theory are far-reaching in terms of understanding bottlenecks in a process, and better managing the bottlenecks to create an efficient process flow: Simply put the theory states; the throughput of any system is determined by one constraint (bottleneck)… Thus to increase the throughput, one must focus on identifying and improving the few bottlenecks-constraints that have a major impact on the system… and by simply shifting work without any additional cost, the efficiency of the system can be significantly improved…

It’s obvious that the Theory of Constraints can also be applied to enhance other vital business systems and management skills, such as; conflict resolution, communications, team building, delegation of authority, workers empowerment… in all of these endeavors to improve performance; it’s critical to focus on the few but key bottlenecks-constraints that are responsible for making a ‘real’ difference in improving performance outcome…