Theory of Constraints

Theory of constraints is a management philosophy introduced by Eliyahu Goldratt.

The ultimate goals of incorporating TOC are increasing profit, fast improvement, improving
capacity, reducing lead times and reducing inventory.
Some of the basic terms related to TOC are as follows:
Throughput: It is the rate at which the business generates money through sales.

Inventory: It is the money spent on purchasing items that the business intends to process and
sell.

Operational Expense: The money spent by the business for converting its inventory into
throughput.

Constraints/Bottleneck: A constraint is anything that prevents the system from achieving its
goal.
Exception- Breakdown, employee absenteeism etc.
Constraints are mainly of two types i.e. internal constraint and external constraint.
Following steps are required to carryout TOC in an organisation:

1. Identify the bottleneck/constraint.

2. Synchronise the process w.r.t. constraints.
3. Procure according to the bottleneck to avoid investing more money than required into
inventory.
4. Find the different quality techniques to eliminate the constraints or minimise the
effect of the constraint.
5. Repeat the entire process.

To improve productivity in TOC,

i. Minimize the WIP in between two intermediate process.

ii. Transfer batch size as small as possible.
iii. Minimise impact of bottleneck on profits.
Summary of Goldratt Simulator:

Demand: Product A =40, Product D = 50, Product F = 40.

RM required: A=65, C=65, E=35, F=30.
There was some WIP so RM procurement was according to it.
The target was to achieve the profits and meetings the demand on time.

Constraints:
1. Limited amount of machinery available for processing.
2. Fixed time i.e. 5 days, 8 hrs a day.
3. Setup time of the machines/equipments.

Operation started with procuring the RM, finding out the bottleneck in the system i.e. for
product-2 blue machine was the bottleneck, so process started according to the bottleneck and
other processes according to it and some were simultaneous as per machines availability.

Goldratt simulator incorporates the steps of the TOC to improve the operational efficiency
via. Software simulation also it teaches how effectively sources, RM can be used to meet the
demand.