APPLICATION OF THEORY OF CONSTRAINTS

IN SERVICE INDUSTRY

Abstract:

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 goal. The title comes from the contention that any manageable system
is limited in achieving more of its goal by a very small number of constraints, and that there is
always at least one constraint. The TOC process seeks to identify the constraint and restructure
the rest of the organization around it, through the use of the Five Focusing Steps. This paper
deals with the application of Theory of Constraints in Service Industries.

The theory of constraints (TOC) has been successfully used by several manufacturing
organizations worldwide for improving the competitiveness of their organizations. However, few
applications of TOC in the service sector have been reported. Banks regularly face constraints
that prevent them from achieving a higher level of performance. These organizations can
identify, prioritize, and manage these constraints by applying the TOC principles. Here we
discusses how banks and healthcare organizations can apply the principles of constraint
management to improve their processes to obtain competitive advantage.
Introduction

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 goal. The title comes from the contention that any manageable system is limited in
achieving more of its goal by a very small number of constraints, and that there is always at least
one constraint. The TOC process seeks to identify the constraint and restructure the rest of the
organization around it, through the use of the Five Focusing Steps.

Key assumption

The underlying premise of Theory of Constraints is that organizations can be measured and
controlled by variations on three measures: throughput, operating expense, and investment.
Throughput is money (or goal units) generated through sales. Investment is money the system
invests in order to sell its goods and services. Operating expense is all the money the system
spends in order to turn the investment into throughput.

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 flow through the constraint can overall
throughput be increased. 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 or policy that prevents the organization from
obtaining more of the goal)

2. Decide how to exploit the constraint (get the most capacity out of the constrained
process)

3. Subordinate all other processes to above decision (align the whole system or organization
to support the decision made above)

4. Elevate the constraint (make other major changes needed to break the constraint)

5. If, as a result of these steps, the constraint has moved, return to Step 1. Don't let inertia
become the constraint.
The five focusing steps aim to ensure ongoing improvement efforts are centered around the
organization's constraints. In the TOC literature, this is referred to as the "Process of Ongoing
Improvement" (POOGI).

These focusing steps are the key steps to developing the specific applications mentioned below.

Constraints

A constraint is anything that prevents the system from achieving more of its goal. There are
many ways that constraints can show up, but a core principle within TOC is that there are not
tens or hundreds of constraints. There is at least one and at most a few in any given system.
Constraints can be internal or external to the system. An internal constraint is in evidence when
the market demands more from the system than it can deliver. If this is the case, then the focus of
the organization should be on discovering that constraint and following the five focusing steps to
open it up (and potentially remove it). An external constraint exists when the system can produce
more than the market will bear. If this is the case, then the organization should focus on
mechanisms to create more demand for its products or services.

Types of (internal) constraints

Equipment: The way equipment is currently used limits the ability of the system to produce
more salable goods / services.

People: Lack of skilled people limits the system. Mental models held by people can cause
behaviour that becomes a constraint.

Policy: A written or unwritten policy prevents the system from making more.

The concept of the constraint in Theory of Constraints differs from the constraint that shows up
in mathematical optimization. In TOC, the constraint is used as a focusing mechanism for
management of the system. In optimization, the constraint is written into the mathematical
expressions to limit the scope of the solution (X can be no greater than 5).

Please note: Organizations have many problems with equipment, people, policies, etc. (A
breakdown is just that - a breakdown - and is not a constraint in the true sense of the TOC
concept) The constraint is the thing that is preventing the organization from getting more
Throughput (typically, revenue through sales).
Buffers

Buffers are used throughout Theory of Constraints. They often result as part of the EXPLOIT
and SUBORDINATE steps of the five focusing steps. Buffers are placed before the governing
constraint, thus ensuring that the constraint is never starved. Buffers are also placed behind the
constraint to prevent downstream failure to block the constraint's output. Buffers used in this way
protect the constraint from variations in the rest of the system and should allow for normal
variation of processing time and the occasional upset (Murphy) before and behind the constraint.

Buffers can be a bank of physical objects before a work center, waiting to be processed by that
work center. Buffers ultimately buy you time, as in the time before work reaches the constraint
and are often verbalized as time buffers. There should always be enough (but not excessive)
work in the time queue before the constraint and adequate offloading space behind the constraint.

Buffers are not the small queue of work that sits before every work center in a Kanban system
although it is similar if you regard the assembly line as the governing constraint. A prerequisite
in Theory of Constraints is that with one constraint in the system, all other parts of the system
must have sufficient capacity to keep up with the work at the constraint and to catch up if time
was lost. In a balanced line, as espoused by Kanban, when one work center goes down for a
period longer than the buffer allows, then the entire system must wait until that work center is
restored. In a TOC system, the only situation where work is in danger, is if the constraint is
unable to process (either due to malfunction, sickness or a "hole" in the buffer - if something
goes wrong that the time buffer can not protect).

Buffer management therefore represents a crucial attribute of the Theory of Constraints. There
are many ways to do it, but the most often used is a visual system of designating the buffer in
three colours: Green (OK), Yellow (Caution) and Red (Action required). Creating this kind of
visibility enables the system as a whole to align and thus subordinate to the need of the constraint
in a holistic manner. This can also be done daily in a central operations room that is accessible to
everybody.

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).

For non-material systems, one can draw the flow of work or the flow of processes and arrive at
similar basic structures. A project, for example is an A-shaped sequence of work, culminating in
a delivered project.

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.

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) and a variation called Simplified Drum-Buffer-Rope (S-DBR).

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.

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 drum. Traditional DBR usually calls
for buffers at several points in the system: the constraint, synchronization points and at shipping.
S-DBR has a buffer at shipping and manages the flow of work across the drum through a load
planning mechanism.

The rope is the work release mechanism for the plant. Orders are released to the shop floor at one
"buffer time" before they are due. In other words, if the buffer is 5 days, the order is released 5
days before it is due at the constraint. Putting work into the system earlier than this buffer time is
likely to generate too-high work-in-process and slow down the entire system.

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)

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.

Project management

Critical Chain Project Management (CCPM) is utilized in this area. CCPM is based on the idea
that all projects look like A-plants: all activities converge to a final deliverable. As such, to
protect the project, there must be internal buffers to protect synchronization points and a final
project buffer to protect the overall project.

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. For effective sales management one can apply Drum Buffer Rope to the sales
process similar to the way it is applied to operations. 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.

Theory of Constraints in Service industry-Banks & Health Organizations.

The theory of constraints (TOC) has been successfully used by several manufacturing
organizations worldwide for improving the competitiveness of their organizations. However, few
applications of TOC in the service sector have been reported? Banks regularly face constraints
that prevent them from achieving a higher level of performance. These organizations can
identify, prioritize, and manage these constraints by applying the TOC principles. Here we
discusses how banks and healthcare organizations can apply the principles of constraint
management to improve their processes to obtain competitive advantage.

Analysis of the Banking Industry

Relatively few service firms have succeeded in growing by simultaneously applying multisite
and multiservice strategies.6 The choice of US banks to grow either by duplicating their current
service offerings at additional sites or by broadening their product offerings at existing sites will
increase the chances of success. Expansion by increasing the number of a bank's branches
requires building new facilities or acquiring and adapting existing facilities to meet specialized
banking needs. Building new facilities is expensive and involves long lead times. Acquiring and
adapting existing facilities may result in significantly shorter lead time compared with building
new facilities but may be far more expensive. Recent advances in technology allow banks to
reach the target market segment more cheaply and quickly than the multisite strategy, thereby
rendering the multisite strategy unattractive.
The products offered by banks typically require the use of similar processes and resources. For
example, a credit check is needed in processing applications for automobile loans, mortgages,
and credit cards. The information processing requirements and personnel expertise are largely
similar for all of these products. The commonality of resource requirements makes it attractive
for banks to offer a broader variety of products from existing locations. The multiservice strategy
allows for better use of resources so that new products can be offered to the customer quickly
and at low cost. Even though the multiservice strategy is superior to the multisite strategy, it does
not provide a bank with sustainable competitive advantage. This is because competitors that have
world-class capabilities can readily and quickly duplicate any product offerings. A sustainable
competitive advantage in the banking business can be achieved only by developing and
implementing consistent strategies that enhance operational excellence. Banks compete for
customers using such dimensions as cost, flexibility, time, and quality. To effectively compete
on price, banks have to offer low prices on transactions. An additional element of monetarily
based competition requires banks to offer customers attractive returns on deposits. Flexibility
involves the ability of the bank's systems to introduce new products in a cost-effective manner in
order to meet and exceed customer expectations. The time dimension addresses how quickly new
products can be introduced as well as how promptly products can be delivered. The quality
dimension involves aspects related to product design, the processes that deliver the product to the
customer, and post-delivery service (relationship banking).
 In order to retain customers and to expand customer base, banks have to change their
products and processes in order to meet and exceed customer expectations. These changes can be
accomplished either through continuous improvement or innovations in all areas that are
important to the customers. Technology has been extensively used by banks to improve
efficiency, thereby supporting competition based on price. However, sustaining competitive edge
based on price has become difficult because the low-price strategy can be easily matched by the
competition. Clearly, price has changed from being an order-winning criterion to an order-
qualifying criterion. Strategic flexibility and conformance quality are becoming increasingly
important competitive weapons of the 1990s. Time-based competitiveness and innovation in
products and processes are also emerging as competitive factors of increasing importance.
Banks preoccupied with increasing their market share often lose sight of the factors that help
them retain existing business. For example, banks try to match the product offerings available
from the competition without analyzing the capabilities of underlying processes. According to a
1993 article, customers are turned off more by poor processes than by poor products or services.
This indicates that banks typically rush to introduce products offered by the competition and
frequently disregard the process capabilities.

The advances in technology have diminished the importance of the physical location of an
institution. As a result, banking transactions can now be conducted from remote locations using
personal computers and ATMs. As a result of increasing sophistication and for reasons of time
and convenience, customers tend to conduct all their banking business (e.g., payroll deposit,
mortgages, checking, and money market certificates) with one institution. If any of the demanded
products is not delivered according to customer expectations, a bank runs the risk of losing that
customer to the competition. The advances in technology combined with intense competition in
the financial services industry have allowed the customers to easily and quickly switch
institutions. Clearly, customer dissatisfaction and the resulting switch are directly tied to the
processes within the bank. In their efforts to improve processes, banks typically use incremental
improvement approaches. Researchers have suggested that in addition to applying incremental
approaches, banks should pursue breakthroughs in order to improve their processes. The theory
of constraints can be used to identify candidate processes for incremental as well as radical
transformations, as discussed in the remaining text.
Principles of TOC in Banks
TOC involves identifying and managing constraints in order to improve organizational
performance. These constraints can be classified into the following categories: market, material,
capacity, logistical, managerial, and behavioral. Market constraints are typically defined by
demographic and socioeconomic factors. For example, a retirement community is highly
unlikely to use products involving advanced computer technology. Material constraints typically
do not play a major role in service organizations such as banks. However, shortages of materials
such as forms reduce the effective "throughput." Capacity constraints in banks are created by
inadequate labor and equipment, whereas logistical constraints are created by difficulties related
to the movement of material such as checks. Managerial constraints are the strategies and
policies that adversely affect system performance. For example, getting supervisor's approval for
every check presented for cashing would slow down check processing. Behavioral constraints
involve employee actions aimed at pleasing management that may adversely affect the
customers. The concept of TOC rests on the premise that organizations always face constraints
that limit the achievement of higher performance levels. The TOC helps in identifying the
weakest elements of processes that occur within organizations as constraints. In his Theory of
Constraints, E.M. Goldratt has suggested a five-step focusing process for documenting and
defining processes. These steps are as follows:

1. Identify the system's constraints.

2. Decide how to exploit the system's constraints.
3. Subordinate everything else to this decision.
4. Elevate the system's constraint.
5. If any of the system's constraints has been violated, go back to Step 1.

In order to determine the impact of actions on the organization, Goldratt defines the following
measurements: throughput (T), inventory investment (I), and operating expenses (OE).
Throughput is the rate at which the system generates money through sales. Inventory is the
money the system invests in purchasing items needed to generate throughput, except for labor
and overhead. Operating expenses is all the money the system spends generating throughput.
These measurements have been used by the manufacturing industries, in which T, I, and OE are
easy to quantify. Hence, a meaningful goal for an organization is to increase return on
investment (ROI), which is defined as follows:

ROI = (T-OE)/I

According to Goldratt, the goal of every for-profit organization is to make money. This goal can
be achieved by increasing ROI, which can be accomplished by increasing T, decreasing OE, or
decreasing I.

One major difference between the TOC approach to managing an industrial organization and the
conventional approaches is in the relative priority given to these three measurements. While most
managers consider all three measurements important, the conventional approaches tend to regard
operating expenses (cost) as the most important. The TOC sets different priorities, and suggests
that throughput should be at the top of the list, followed by inventory and operating expenses. To
improve, an organization should first make an effort to increase throughput, then decrease
inventory and decrease operating expenses. A measure of how well the organization's products or
services sell in the competitive marketplace is throughput. Since throughput is the only external
component influencing ROI, it should be elevated as the most important measure. Once an
organization has focused its improvement efforts on increasing throughput, the constraints that
adversely affect throughput and profitability can be identified and eliminated.

The Application of TOC in Banks

In the banking business, the three measures discussed previously are defined as follows:
Throughput is the rate at which a banking system generates revenue for services provided in a
way consistent with goal. Throughput in banks can be generated by investing in such markets as
customer lending, institutional lending, real estate, and investment firms. Moreover, banks
generate money by offering a variety of services such as wire transfers, foreign exchange, and
cashier's checks. Operating expenses include all the money the bank spends in the process of
generating throughput. These expenses include all direct and indirect expenses except for the
cost of obtaining money in the market. Inventory investment is the amount of money spent by a
bank to raise capital necessary to generate throughput. Inventory investment consists of the
principal amount and the interest, if any, paid on deposits. It should be noted that in the banking
business, both the primary input --inventory -- and output consist entirely of money. Banks use
the money obtained from depositors and invest it ventures varying in the degree of risk. In
contrast with manufacturing, banks do not need to convert physical inventory of products into
money through sales. Hence, the length of the process of generating throughput in banks is much
shorter than in manufacturing. It is intuitive that banks that want to grow should have no
difficulty investing unlimited amounts of money obtained from depositors in the market, whereas
manufacturers typically face finite demand for their output. Therefore, because of the nature of
their markets, banks have a stronger incentive to increase both their input and output compared
with manufacturers. On the input side, banks typically base the rate they offer their customers on
the amount of the deposit and the length of time to maturity. They pay no interest for traditional
checking accounts that allow instantaneous withdrawals up to the balance in the accounts.
Longer term deposits pay higher interest compared with shorter-term deposits. Similarly, larger
deposits pay higher interest compared with smaller deposits. As compared with the
manufacturing sector, the banking industry has to pay a higher price for acquiring large deposits
(i.e., a quantity premium as opposed to a quantity discount). On the output side, banks have to
manage their investment risk. If they invest large amounts in a single project (as opposed to
small amounts in multiple projects), they expect high returns because of increased exposure.

Customers conduct a variety of transactions, including direct payroll deposits, money transfers,
and loans. They typically prefer to conduct their business at one bank. The customers who
provide the bank with deposits that contribute to inputs often use the same bank to meet their
needs for loans, which directly affect the bank's output. Hence, a strong link exists between
banks and their customers, on both the input and the output side. A similar supplier
manufacturer-customer relationship does not exist in the manufacturing sector.

Throughput can be enhanced by increasing the number of borrowers and investment projects. It
can also be enhanced by increasing both the number and amount of transactions. Operating
expenses can be reduced by making operations more efficient (e.g., through investments in
technology). Inventory investment can be reduced by reducing the cost of borrowing. As was
established earlier, since banks offer low interest on short-term and small deposits, it is beneficial
for banks to attract a large number of small and short-term depositors which, in turn, will
increase the number of transactions.

A Specific Example.
One example of a service industry that has successfully implemented the principles of TOC is a
bank located in the Midwestern region of the US. The bank identified its weakest link as the
mortgage department. It took the bank too long to process individual home mortgage
applications. The bank wanted to reduce the average processing time to three weeks. In order to
achieve this goal, the management of the bank decided to use the five-step TOC focusing
process. First, it formed a cross-functional group of eight people, who were selected to form the
mortgage improvement team (MIT).

People from different functional levels within the branch and other branches made up the team.
This team was the bank's maiden voyage regarding continuous quality improvement (CQI)
methodology. The team decided that there were basically two groups of customers: one that paid
20% or more down toward their home mortgage insurance and the other that paid less than 20%
down. In this illustration, the focus is on the process of those customers who paid less than 20%
down toward their home mortgage insurance. The team used flow charting as a tool to analyze
processes. An early indication of the complexity of improvement was that it took too long to
verify the employment, conduct appraisal, and survey. On further analysis and discussions, it
was agreed that since all the foregoing activities were independent of each other, they should be
immediately addressed. This was a crucial turning point in the life of the MIT. In addition, the
first TOC step of focusing and identifying the weakest links was accomplished. The next step in
the TOC process is to exploit the constraint. In other words, how can the time taken for
verification of employment, conduct appraisal, and surveys be reducued? The team learned
through data collection that there were several different methods for shortening the processing
time for employment verification, appraisal, and surveys. For example, as far as employment
verification was concerned, the team established a best current method for personnel to obtain
this information. Furthermore, the team learned that in several instances it took a company two
weeks to verify employment status. A solution to this problem was for the loan officer to request
the applicant to bring in alternative documents. It was agreed that bringing the last two years' W-
2 forms and the last month's pay stub would amount to a feasible solution. Similar solutions were
also developed for reducing time in conducting surveys and appraisals.

The preceding example not only illustrates how the bank exploited the constraint but also how it
had personnel subordinate their actions so that the constraint could perform at a higher level of
performance. The subordination is the third step of TOC, meaning that everyone supports the
first two steps of identifying and exploiting the constraint. Furthermore, these actions caused OE
and I to decrease and T to increase. The fourth step of TOC is taken when the exploitation and
subordination steps as related to the constraint have been exhausted and the demand is so great
that additional time for verification can be jus-titled. The fifth step is that once the first four steps
have been completed, inertia is not permitted to become the system's constraint. In other words,
the bank should look for new constraints and start the process over without becoming
complacent regarding its accomplishments. The bank is still discovering new ways to
subordinate and exploit its constraints within the mortgage department and has not reached the
point at which there is a need for more improvement.

Examples from healthcare organizations

It has been shown that the basic philosophy of the TOC is generally applicable to service type
organizations. Goals should be clearly identified, correct measurements should be taken, and the
constraints, be it physical or policy, need to be carefully managed or changed to assure ongoing
improvement. It is interesting now to check whether some of the practical methodologies
developed for the application of TOC in manufacturing can be adopted for use in the service
environment. The drum-buffer-rope shopfloor control technique now being implemented in a
growing number of manufacturing organizations enables better scheduling and decision making
on the shopfloor. The drum is the exploitation of the constraint of the system; the constraint that
dictates the overall pace of the system. The constraints may be a resource, market demand,
scarce raw material, or management policy. The important thing is that the drum has to include a
detailed schedule in order to assure full exploitation of this constraint.
A buffer may be defined as protection time. Buffers are used to protect critical areas, such as the
constraints from disruption of their operation. Disruptions may occur as a result of problems
such as breakdowns, unreliable suppliers, set-up time fluctuations or unavailability of resources.
A rope is a mechanism designed to force all the links of the system to work up to the pace
dictated by the drum and no more. In manufacturing implementation, this is done by creating a
detailed schedule for releasing raw material onto the shopfloor. The drum-buffer-rope technique
stems from the theory of constraint’s five step ongoing improvement cycle . Let us try to apply
this cycle to a service case, for example the Red Cross operation in Florida after the hurricane
storm Andrew. Remembering that the primary goal of this operation was to aid in restoring life
to normal, we start by identifying the operation’s constraints. Surprisingly, these are not the
availability of supplies, nor the availability of transportation, but the control and distribution of
the support to the right people, with proper training and assistance to stimulate rebuilding by the
people themselves. Next, we choose the best way to exploit the constraints. The Red Cross may
choose a detailed implementation schedule to be derived in order to satisfy the maximum sectors
of the area. Physically, the constraints may be composed of the pull of available skilled relief
workers who can guide the operation at various locations. Scheduling of the constraint has an
important implication on the constraint’s exploitation because the subordination areas have to be
aware, in advance, of the drum needs. The purpose of the third step, subordination, is to keep the
exploitation intact. We do that by planning supply buffers in critical areas, in order to prevent
disruptions of the operation. We use another mechanism, the rope, to assure that non-constraints
will contain only supplies that are scheduled by the drum in the next buffer timeframe. We
would prevent, for example, excessive shipments of relief supplies to locations where they
cannot be fully used and may even be wasted or spoiled. Next, we devise plans to elevate the
constraint. In the given example, constraint elevation may include sending in additional social
workers, upgrading the communication systems, or providing financial loans to the people so
that they can start rebuilding. The fifth step is designed to assure ongoing improvement by
closing the cycle and directing attention to newly established constraints.

Now take the case of the University of Michigan Hospital, which tackled the problem of an
inefficient admission and discharge system. Delays in discharging patients caused an average of
three hours’ delay in accepting incoming patients, who had to wait for their rooms to be
prepared. A cross-functional team was able to find several ways to reduce the complexity of the
admission and discharge system and improve the process. Initially, the hospital cut the average
admission time from three hours to 21 minutes and then to 11 minutes. One of the key methods
for achieving such dramatic improvement was better scheduling of housekeepers for cleaning
dismissed patients’ rooms by the utilization of beepers. Clearly, by identifying and better
exploiting the constraints with the aid of a “drum-rope”-type mechanism, the hospital was able to
cut down on the inventory of non-admitted patients and to increase its output. The cross
functional team is still in operation, and has the goal of zero admission time – from the hospital’s
door directly to the patient’s room.

In another example, the University of Michigan Hospital significantly improved the utilization of
its operating rooms by the use of a drum-buffer-rope-type solution. The hospital’s operating
rooms were running inefficiently at more than capacity. After analysing the scheduling process
and identifying the constraints, a hospital team made several significant changes. The operating
room schedulers were assigned to work exclusively with a particular group of specialists, so that
each scheduler could become familiar with each doctor who practised that specialty. The
scheduler, for example, would know that if a certain doctor asked for 15 minutes he should
reserve at least 30 as a buffer. In addition, operating room clean-up teams were established to
expedite clean-up after each procedure.

It is evident from these examples that techniques and methodologies developed originally for
manufacturing organizations can be adopted and used in service operations. These applications
require a certain degree of abstraction. However, abstraction may sometimes be a necessary
ingredient of any thinking process to ensure its success.

Conclusion
Management philosophies used by manufacturing organizations can be applied to improve the
performance of service-oriented organizations, even those which are not for profit. The concepts
outlined by TOC can be used effectively to identify the organizational goal, locate the constraints
to achieving maximum performance, and develop practical measurement to assure a process of
ongoing improvements in the direction of the global organization goal.
Since constraints are frequently found to be policies and procedures rather than capacity or
equipment, the same thinking process can generally be used in manufacturing and service
environments. Service organizations can be modelled as systems with measurements comparable
to manufacturing. Metrics such as throughput, operating expense and inventory can be identified
in order to measure progress towards the global organization’s goal.

Although requiring a higher abstraction level, even shopfloor control techniques, such as the
drum-buffer-rope methodology, can be applied to service organizations in support of effective
exploitation of constraints and subordination of resources to it.

The concepts outlined by the TOC can be used effectively to identify the organization's goal,
locate the constraints to achieving maximum performance, and develop practical measurement to
facilitate process improvements. Constraints in banks are frequently found to be policies and
procedures rather than capacity or equipment. Finally, measures of throughput, operating
expense, and inventory, all of which are crucial for the application of TOC, have been identified
for banks.

Reference

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