INTRODUCTION Today, more than ever, change is essential to satisfying expectations.
Customers expect higher product and service quality than the price they’re willing to pay to acquire those products and services. More than ever, employees expect security in their jobs. Shareholders expect that today’s investments will yield a higher rate of return over a shorter timeframe. Yet, “to make ends meet,” management is constantly pressured to keep costs under control. In light of today’s competitive pressures and a rapidly changing environment, to not change is to give way to one’s competitors. Hence, we should understand that to improve means to change. We know that to improve means we must: • Provide products and services that solve customers’ problems • Release products and services consistent with market demand • Reduce variability in our processes • Have measurements that indicate success relative to achieving our goal
For an organization to have a process of ongoing improvement. certain basic questions need to be answered faster and more effectively. The more complex a system is to describe.There are no conflicts in nature. one or possibly both must be wrong Respect .Inherent Simplicity. all based on a systems approach that simplifies the improving and managing of complex organizations by focusing on the few physical and logical constraining “leverage” points.
. Those fundamental questions are: • “What To Change?” • “What To Change To?” • “How To Cause The Change?” The Theory of Constraints is a set of holistic processes and insights. The Theory of Constraints is a proven method that can be used by existing personnel to increase throughput (sales). Furthermore. the simpler it is to manage. it provides a tool set to build and implement the “levers” (holistic rules) that synchronize the parts to achieve an order of magnitude improvement in the performance of the system as a whole. or being subjected to random internal change.• Reward people for their contribution to change Rather than reacting to external change. Consistency . Even when people do things that seem stupid they have a reason for that behavior Eliyahu Goldratt originated the idea in his book The Goal as a way of managing organizations to increase profits. The theory of constraints has three underlying assumptions: Convergence . The crucial insight of the Theory of Constraints is that only a few elements (constraints) in a business control the results of the entire organization. Theory of Constraints tools identify these constraints. If two interpretations of a natural phenomenon are in conflict. many organizations have concluded that a process of on-going improvement is an absolute necessity.People are not stupid. effective solutions to problems that seemed insurmountably complex and unsolvable. and focus the entire organization on simple. reliability.
Assuming the goal of a system has been articulated and its measurements defined.. The Theory of Constraints is not just a tool to manage bottlenecks. Subordinate everything else to above decision (align the whole system or organization to support the decision made above) 4. Only by increasing flow through the constraint can overall throughput be increased. Goldratt adopted the concept with his book Critical Chain.. Before the goal itself can be reached. operational expense. WIP. the system's throughput) is limited by at least one constraint. In fact. inventory. Decide how to exploit the system's constraint(s) (how to get the most out of the constraint) 3.  1971). published 1997. late deliveries. Inventory is all the money that the system has invested in purchasing things which it  intends to sell. Key
The underlying premise of theory of constraints is that organizations can be measured and controlled by variations on three measures: throughput. Elevate the system's constraint(s) (make other major changes needed to break the constraint)
. The concept was extended to TOC with respectively titled publication in 1999. Identify the system's constraint(s) (that which prevents the organization from obtaining more of the goal in a unit of time) 2. The
five focusing steps
Theory of constraints is based on the premise that the rate of goal achievement by a goal-oriented system (i. However. and  operating expense is a critical requirement. Whether it is the goal or a necessary condition. Necessary Conditions must first be met. Throughput is the rate at which the system generates money through sales. legal obligations. The argument by reductio ad absurdum is as follows: If there was nothing preventing a system from achieving higher throughput (i. publishing house of the German newspaper Frankfurter Allgemeine Zeitung. This typically includes safety. etc. and overtime. the scope of tools and breadth of application of Theory of Constraints is substantial.e. and inventory. Successful organizations also adopt the Theory of Constraints to help make tactical & strategic decisions for continuous improvement. its throughput would be infinite — which is impossible in a real-life system. the goal itself is to make money. for many organizations and non-profit businesses. more goal units in a unit of time). Operational expense is all the money the system spends in order to turn inventory into throughput.e. 1963) and following with hisEnergo-Kybernetic System (EKS. making money is a necessary condition for pursuing the goal. understanding how to make sound financial decisions based on throughput. the steps are: 1. An earlier propagator of the concept was Wolfgang Mewes in Germany with publications on power-oriented management theory (Machtorientierte Führungstheorie. The publications of Wolfgang Mewes are marketed through the FAZ Verlag. the paradigm Theory of constraints was first used by Goldratt.
The theory of constraints (TOC) is an overall management philosophy introduced by Eliyahu M. quality. Goldratt in his 1984  book titled The Goal.and quality while decreasing inventory. However. For most businesses. that is geared to help organizations continually achieve their goals. later renamed Engpasskonzentrierte Strategie as a more advanced theory of bottlenecks.
An internal constraint is in evidence when the market demands more from the system than it can deliver. An external constraint exists when the system can produce more than the market will bear. 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.
The concept of the constraint in Theory of Constraints differs from the constraint that shows up in mathematical optimization. In a balanced line. 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 optimization. but a core principle within TOC is that there are not tens or hundreds of constraints. The goal of a commercial organization is: "Make money now and in the future"). Buffers Buffers are used throughout the theory of constraints. etc. people. Types of (internal) constraints
Equipment: The way equipment is currently used limits the ability of the system to produce more salable goods/services. when one work center goes down for a period
. (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. 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). the constraint is written into the mathematical expressions to limit the scope of the solution (X can be no greater than 5). The five focusing steps aim to ensure ongoing improvement efforts are centered around the organization's constraint(s). Warning!!!! If in the previous steps a constraint has been broken. Constraints A constraint is anything that prevents the system from achieving more of its goal. They often result as part of the exploit and subordinate steps of the five focusing steps. Buffers are placed before the governing constraint. waiting to be processed by that work center. Buffers are also placed behind the constraint to prevent downstream failure to block the constraint's output. There are many ways that constraints can show up. this is referred to as the ''process of ongoing improvement(POOGI). Please note: organizations have many problems with equipment. If this is the case. There is at least one and at most a few in any given system. but do not  allow inertia to cause a system's constraint. Policy: A written or unwritten policy prevents the system from making more. and operating expenses. In TOC. If this is the case.5. and its measurements are given by throughput accounting as: throughput. investment. People: Lack of skilled people limits the system. Buffers can be a bank of physical objects before a work center. then the organization should focus on mechanisms to create more demand for its products or services. revenue through sales). 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. In the TOC literature. These focusing steps are the key steps to developing the specific applications mentioned below. Buffers ultimately buy you time. as in the time before work reaches the constraint and are often verbalized as time buffers. as espoused by Kanban. the constraint is used as a focusing mechanism for management of the system. A prerequisite in the theory is that with one constraint in the system. policies. Constraints can be internal or external to the system. go back to step 1. Mental models held by people can cause behaviour that becomes a constraint. There should always be enough (but not excessive) work in the time queue before the constraint and adequate offloading space behind the constraint. thus ensuring that the constraint is never starved.
There are four primary types of plants in the TOC lexicon. and you get the four types. The primary work is done in a straight sequence of events (one-to-one). such as a plant that takes one raw material and can make many final products.
For non-material systems. the only situation where work is in danger. Applications The focusing steps. are good examples. Customized devices. Buffer management therefore represents a crucial attribute of the theory of constraints. then the entire system must wait until that work center is restored. Most manufactured parts are used in multiple assemblies and nearly all assemblies use multiple parts. rather than push them into the system. This can also be done daily in a central operations room that is accessible to everybody. The rest of the plant follows the beat of the drum. Other tools (mainly the "thinking process") 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.
I-plant: Material flows in a sequence. for example is an A-shaped sequence of work. this process of ongoing improvement. The four types can be combined in many ways in larger facilities. A project. Drum-buffer-rope is a manufacturing execution methodology. Draw the flow of material from the bottom of a page to the top.longer than the buffer allows. but the most often used is a visual system of designating the buffer in three colours: green (okay). and they provide some hints about where to look for typical problems. Classic examples are meat rendering plants or a steel manufacturer. In a TOC system. They specify the general flow of materials through a system. V-plant: The general flow of material is one-to-many. 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. Operations Within manufacturing operations and operations management. sickness or a "hole" in the buffer – if something goes wrong that the time buffer can not protect). Once the material has been processed by A. The constraint is the slowest operation. is if the constraint is unable to process (either due to malfunction. The primary methodology use is drum-buffer-rope (DBR) and a  variation called simplified drum-buffer-rope (S-DBR). supply chain/distribution generated specific solutions. They make sure the drum has work and that anything the drum has processed does not get wasted. 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. which then splits into many assemblies (many-to-many). such as computers. it cannot come back and be run through B without significant rework. such as in a plant where many sub-assemblies converge for a final assembly. named for its three components. culminating in a delivered project. the solution seeks to pull materials through the  system. 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). have been applied to manufacturing. The primary problem in A-plants is in synchronizing the converging lines so that each supplies the final assembly point at the right time. such as in an assembly line. T-plant: The general flow is that of an I-plant (or has multiple lines). A-plant: The general flow of material is many-to-one. There are many ways to do it. one can draw the flow of work or the flow of processes and arrive at similar basic structures. T-plants suffer from both synchronization problems of A-plants (parts aren't all available for an assembly) and the robbing problems of Vplants (one assembly steals parts that could have been used in another). project management.
synchronization points and at shipping. Orders are released to the shop floor at one "buffer time" before they are due. #:Following this rule may result in a make-to-order manufacturer converting to make-to-stock. Buffers in DBR have time as their unit of measure. there is no advantage in holding more inventory in a location than the amount that might be consumed before more could be ordered and received. In all stocking locations. a general rule of thumb is 20% of the RT. Replenishment Time (RT) is the sum of the delay. plus additional stock to protect in case a delivery is late. 2. when on hand plus inbound inventory is less than the buffer. In other words. Supply
chain / logistics
In general. the buffer is reduced by one third (and don’t forget rule 3). This makes the priority system operate strictly based on the time an order is expected to be at the drum. When the on hand inventory level is in the upper third of the buffer for a full RT. To ensure buffers remain correctly sized even with changes in the rates of demand and replenishment. even if that system comprises many different companies. In other words. This approach ensures smoothed demand at the aggregation point. before an order is placed plus the delay after the order is placed until the ordered goods arrive at the ordering location. however. S-DBR has a buffer at shipping and manages the flow of work across the drum through a load planning mechanism. the sum of the on hand value of such buffers are 25–75% less than currently observed average inventory levels. Traditional DBR usually calls for buffers at several points in the system: the constraint. no replenishment orders are placed as long as the quantity inbound (already ordered but not yet received) plus the quantity on hand are equal to or greater than the buffer size. The rope is the work release mechanism for the plant. The buffer size is equal to the maximum expected consumption within the average RT. so that it always has work flowing to it. Once buffers have been established. Typically. a simple recursive algorithm called Buffer Management is used.The buffer protects the drum. when the on hand inventory is in the bottom one third of the buffer for too long. the buffer is increased by one third (and don’t forget rule 4). Before explaining these new rules. 5. The purpose of the TOC distribution solution is to establish a decisive competitive edge based on extraordinary availability by dramatically reducing the damages caused when the flow of goods is interrupted by shortages and surpluses. The distribution centers holding the aggregated stock are able to ship goods downstream to the next link in the supply chain much more quickly than a make-to-order manufacturer can. orders are placed as soon as practical to increase the inbound inventory so that the relationship On Hand + Inbound = Buffer is maintained. rather than quantity of material. requiring proportionally less inventory.
. Following this rule causes surplus inventory to be bled off as it is consumed. initial inventory buffers are set which effectively create an upper limit of the inventory at that location. The definition of ―too long‖ may be changed depending on required service levels. The TOC distribution solution is effective when used to address a single link in the supply chain and more so across the entire system. 3. 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. 4. Moving buffers up more readily than down is supported by the usually greater damage caused by shortages as compared to the damage caused by surpluses. Alternatively. For any reason. Inventory is held at an aggregation point(s) as close as possible to the source. 1. The inventory added at the aggregation point is significantly less than the inventory reduction downstream. after the first consumption following a delivery. the solution for supply chains is to create flow of inventory so as to ensure greater availability and to eliminate surpluses. This approach uses several new rules to protect availability with less inventory than is conventionally required. if the buffer is 5 days. the order is released 5 days before it is due at the constraint. the term Replenishment Time must be defined.
One caveat should be considered. 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). to protect the project. Project
Critical Chain Project Management (CCPM) is utilized in this area. The primary measures for a TOC view of finance and accounting are: throughput. Gain agreement on the direction for a solution 3. Totally variable cost is usually calculated as the cost of raw materials that go into creating the item sold. the benefits to the non-TOC customers are sufficient to meet the purpose of capitalizing on the decisive competitive edge by giving the customer a powerful reason to be more loyal and give more business to the upstream link. However. When used in a logical flow. Finance
The solution for finance and accounting is to apply holistic thinking to the finance application. Throughput is calculated from sales minus totally variable cost. TOC has expanded lately into sales management and  marketing. Doing so has the effect of smoothing the demand from the customer and reducing order sizes per SKU. A stocking location that manages inventory according to the TOC should help a non-TOC customer (downstream link in a supply chain.Once inventory is managed as described above. operating expense and investment. supplier minimum order quantities (both per SKU and per order) and customer order batching. the supply chain or a specific link may sell less as the surplus inventory in the system is sold. The current levels of surpluses and shortages make each case different. the immediate sales lift due to improved availability is a countervailing factor. Gain agreement on the problem 2. late deliveries. Marketing
While originally focused on manufacturing and logistics. continuous efforts should be undertaken to reduce RT. The
TOC thinking processes
Main article: Thinking Processes (Theory of Constraints) The thinking processes are a set of tools to help managers walk through the steps of initiating and implementing a project. CCPM is based on the idea that all projects look like A-plants: all activities converge to a final deliverable. whether internal or external) manage their inventory according to the TOC process. Agree to overcome any potential negative ramifications 5. This type of help can take the form of a vendor managed inventory (VMI). The TOC distribution link simply extends its buffer sizing and management techniques to its customers’ inventories. Its role is explicitly acknowledged in the field of sales process engineering. thanks to the adaptive nature of Buffer Management. Agree to overcome any obstacles to implementation
. It is an alternative to cost accounting. the Thinking Processes help walk through a buy-in process: 1. When the end consumers buy more the whole supply chain sells more. there must be internal buffers to protect synchronization points and a final project buffer to protect the overall project. This has been  termed throughput accounting. 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. Throughput accounting suggests that one examine the impact of investments and operational changes in terms of the impact on the throughput of the business. Any improvements in these areas will automatically improve both availability and inventory turns. Initially and only temporarily. As such. More than that. Gain agreement that the solution solves the problem 4. VMI results in better availability and inventory turns for both supplier and customer.
the management of processes. the current reality tree (CRT) and future reality tree (FRT) have been applied to an argumentative academic  paper. 3. product development and projects (single and multiple). the resulting steps to maximizing the performance of a value-chain are: 1. Although the 5 Steps of TOC can be applied to every process at every level in an organization. TOC is a large body of knowledge with a strong guiding philosophy of growth. Subordinate and synchronize everything else to the above decisions. continue: 4. and decision-making. supply chains. the performance of any value-chain is dictated by its constraint. Elevate the performance of the constraint. 2. which is how TOC is frequently often implemented. which include.
THE FIVE FOCUSING STEPS OF TOC How can any generic solution have such broad applicability? It turns out that no matter what an organization’s offering is – products and/or services – the methods for most effectively and efficiently managing processes and resources are basically the same. If in any of the above steps the constraint has shifted. go back to Step WARNING DO NOT LET INERTIA BECOME THE SYSTEM’S CONSTRAINT These are called the 5 Steps of TOC and provide the foundation for many of TOC’s generic solutions. 5. who until his recent death was still the main driving force behind the development and practice of TOC. To use another powerful analogy: just as the strength of a chain is dictated by its weakest link.TOC practitioners sometimes refer to these in the negative as working through layers of resistance to a change. Recently. Development
TOC was initiated by Goldratt. the
. inventory. TOC is sometimes referred to as "constraint management". To improve the performance of that same value-chain. personnel. Decide how to exploit the constraint. Identify the constraint. Recognizing this. There is a network of individuals and small companies loosely coupled as practitioners around the world.
comes from: • Understanding the interdependencies between and across processes that contribute to delivering a product or service. to be a methodology for consistently and significantly increasing the overall performance of systems.and results . and • Appropriately buffering for interdependencies and normal variability so that that performance can be predictably and consistently high. Market Demand-Pull AGI’s TOC Supply Chain Management Solution For supply chain. but in fact. overall performance. • Understanding the impact that those interdependencies and normal variability have on their combined. plant operationsand distribution managers who are dealing with the challenges of ensuring availability of the right products at the right place and time — while maintaining profitable operations.
. the TOC Project Management Solution provides a comprehensive tool set that addresses: • The nature of project planning • Project scheduling • Resource behavior • Project visibility and control · • Multiple project synchronization 10 Understanding these three points allows the 5 Steps of TOC to be much more than simply another methodology for managing processes. the TOC Supply Chain Solution enables the organization to: • Rapidly respond to actual market demand • Improve on-time deliveries • Reduce the need for overtime and expediting • Better utilize capacity to meet customer expectations TOC Project Management Solution For organizations and project managers who are working to improve theirability to continually meet the three seemingly illusive project commitments — budget. time and content.true power .
The TOC Thinking Processes enable it to develop strategies to seize those opportunities in a way that result in significant strategic advantage and value to all stakeholders
.The 5 Steps of TOC implemented in this context enables an organization to create a stable and reliable value delivery system from which its leadership can quickly respond to any opportunity that presents itself.