Theory of Constraints

Santanu Mandal
10DSDHH010009
Research Scholar
IBS,Hyderabad
Agenda

 Introduction
 What is going on in today’s projects?
 What is Theory of Constraints?
 What it covers :
 Five Focusing Steps
 Thinking Processes
 Buffers & Dealing with Uncertainty
 Drum - Buffer - Rope
 Discussion of the Research paper :IT in OM: A TOC Approach.
What’s going on in today’s
Projects - Processes - Systems?
 Constraints Happen
Whether you are a functional manager over the production of widgets or a Project Manager over
the development and implementation of the next major whiz bang solution to the market’s
needs, you rely on a good production / process flow or project network to ensure the success.

The problem is that…

 “constraints happen”

 ...and things don’t go according to the plan.

Theory of Constraints (TOC) takes the “systems approach” to overcome those constraints.TOC
focuses on the few critical elements that truly influence / control the productivity of the system
instead of trying to control all of the elements.

The Theory of Constraints (TOC) is based on two premises:

The Goal of a business is to make more money, … in the present and in the future.

A system’s constraint(s) determine its output.

 What kinds of things go wrong in projects?

 Usually original due dates are not met.

 Too often resources are not available when needed (even
when promised).
 There is constant pressure to add more projects.
 Necessary things are not available on time (information,
specifications, materials, designs, authorizations, etc.)
 There are fights about priorities between projects.
 There are budget over-runs.
 There is pressure to begin before specs are written.
 There are too many changes… etc. etc. etc.
 What is the key to success?
 According to Tom Peters… “Velocity”...

 ...Faster = more market share

 ...Faster = shorter pay-back period

 ...Faster = more rapid learning and change

 ...Faster = smaller target for changes

So…What is
Theory of Constraints?
 Theory of Constraints
 Goldratt contends that systems are analogous to chains, or networks
of chains. Like a chain, the system performance is limited by the
weakest link.

 This means that no matter how much effort you put into improving the
processes of a system, only the improvements to the weakest link will
produce any detectable system improvement.

 Throughput is limited by the weakest link... the constraint!

 (A system might be generally defined as a collection of interrelated, interdependent components or

process that act in concert to turn inputs into some kind of outputs in pursuit of some goal.)
 Theory of Constraints………

 Every system can be modeled as a net of chains

 The weakness of the system is the weak link in the chain,

the constraint

 A project schedule to get a product rapidly through the

system must account for the constraint

 Improving the throughput of the system (company) is the

highest leverage point for improving profitability
Constraint
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.
TOC Performance measures
Key assumption
The underlying premise of Theory of Constraints is
that organizations can be measured and controlled by
variations on three measures: throughput, operational
expense, and inventory.
Throughput (T): The rate at which the system
generates money through sales.

Inventory (I): All the money invested in purchasing

things needed by the system to sell its products.

Operating Expenses (OE): All the money the system

spends, turning inventory into throughput.
Theory of Constraints Covers Many Things

Five
Focusing
Steps
Thinking
Processes

Buffers &
Dealing Drum
with Buffer
uncertainty Rope
Five Focusing Steps?
 Theory of Constraints - FIVE FOCUSING STEPS
(Which will Strengthen the Chain)

1. Identify the Constraint

2. Exploit the Constraint

3. Subordinate everything
to the Constraint

4. Elevate the Constraint

5. Repeat for the new

Constraint
 Theory of Constraints - FIVE FOCUSING STEPS
1. Identify the System's constraints.
The process is analyzed so that a task or activity that limits the productivity of an entire system can be
identified. A system constraint may be identified by a long queue of work or long processing times.

2. Decide how to exploit the system's constraints.

In this step, decisions must be made on how to modify or redesign the task or activity so that work
can be performed more effectively and efficiently.

3. Subordinate everything else to the above decision. (step 2)

Now, management directs all its efforts to improving the performance of the constraining task or
activity and any other task or activity and any other task or activity that directly affects the constraining
task or activity.

4. Elevate the system's constraint.

In this step, additional capacity is obtained that will increase (elevate) the overall output of the
constraining task or activity. This differs from step 2 in that the added output comes from additional
purchased capacity, such as buying a second machine tool or implementing a new information
technology.

5. If, in the previous step, a constraint has been broken, go back to step 1
but do not allow inertia to cause a new constraint
This sets up a process of ongoing improvement. As a result of the focusing process, the improvement
of the original constraining task or activity may cause a different task to become a constraining task or
activity. Inertia could blind management from taking steps to improve the system's output now limited
by a new constraint.(1)
Thinking Processes?
 Theory of Constraints - THINKING PROCESSES
- Purpose-

The purpose of the thinking processes is to help one answer

questions essential to achieving focused improvement:
• What to change?
• What to change to?
• How to cause the change?
• Why Change?
• How to maintain the process of ongoing improvement
(POOGI)?
 Theory of Constraints - THINKING PROCESSES

1.Current Reality Tree (CRT) — evaluates the network of cause-effect

relations between the undesirable effects (UDE's, also known as gap
elements) and helps to pinpoint the root cause(s) of most of the undesirable
effects.

2.Evaporating Cloud (conflict resolution diagram or CRD) - solves conflicts

that usually perpetuate the causes for an undesirable situation.

3.Core Conflict Cloud (CCC) - A combination of conflict clouds based several

UDE's. Looking for deeper conflicts that create the undesirable effects.
‘
4.Future Reality Tree (FRT) - Once some actions (injections) are chosen (not
necessarily detailed) to solve the root cause(s) uncovered in the CRT and to
resolve the conflict in the CRD the FRT shows the future states of the
system and helps to identify possible negative outcomes of the changes
(Negative Branches) and to prune them before implementing the changes.
5.Negative Branch Reservations (NBR) - Identify potential negative ramifications
of any action (such as an injection, or a half-baked idea). The goal of the NBR is
to understand the causal path between the action and negative ramifications so
that the negative effect can be "trimmed."

6.Positive Reinforcement Loop (PRL) - Desired effect (DE) presented in FRT

amplifies intermediate objective (IO) that is earlier (lower) in the tree. While
intermediate objective is strengthened it positively affects this DE. Finding out
PRLs makes FRT more sustaining.

7.Prerequisite Tree (PRT) - states that all of the intermediate objectives

necessary to carry out an action chosen and the obstacles that will be overcome
in the process.

8.Transition Tree (TT) - describes in great detail the action that will lead to the
fulfillment of a plan to implement changes (outlined on a PRT or not).

9.Strategy & Tactics (S&T) - the overall project plan and metrics that will lead to
a successful implementation and the ongoing loop through POOGI. Goldratt
adapted three operating level performance measures—throughput, inventory
and operating expense—and adopted three strategic performance measures—
net income, return on investment, and cash flow—to maintain the change.
Buffers
&
Dealing with Uncertainty
Buffers
  A protection against Murphy, i.e. the assumption that if something can go
wrong, it will!
 BM will help identify resources likely to restrict Throughput and/or increase
Inventory and is also key to maintaining continuous improvement.
 BM will firstly help to ensure the schedules for the CCRs, and thereby the total
schedule, are maintained . Secondly, by identifying trouble-making non CCRs, it
can also focus attention on these and point towards areas for improvement.
 In any plant, there are only a few Capacity Constraint Resources (CCRs). All
CCRs are identified, and the various orders that are to be processed through
them are scheduled according their capacity potential and to the market
demand. The schedule established for the CCRs determines the drum beat for
the system.
 Dealing with Uncertainty

Traditionally we protect TASKS from uncertainty by adding

“Safety” to our schedule and by working to “Due Dates”
… So what is the impact of working to Due Dates and Putting
Safety Everywhere?

Believe it or not . . .
 Safety is wasted
 Delays are passed on
 Gains are not
Drum - Buffer - Rope?
 Theory of Constraints - THE DRUM CONCEPT

DRUM BUFFER ROPE

• Within manufacturing operations and operations management,

the TOC seeks to pull materials through the system, rather than
push them into the system.
• The Drum Concept utilizes a common resource between
projects to act as the drum beat (with some protection - buffer)
for
 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 is a period of time to protect the drum resource from problems that
occur upstream from the drum operation. 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.

 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.

• Drum. :Output of the constraint is the drumbeat

 Sets the tempo for other operations

 Tells upstream operations what to produce
 Tells downstream operations what to expect
 Buffer :
• Stockpile of work in process in front of constraint

• Precaution to keep constraint running if upstream operations are

interrupted

 Rope

• Sequence of processes prior to and including the constraint

• Want to “pull” the rope at the maximum speed

• Speed of the constraint

Information technology in operations management: a theory of
constraints approach
A.Coman & B.Ronen

 Failure of many software projects

 Detection of errors

 Different definitions of quality

 Insufficient interaction between OM and IT is a major

obstacle in the rationalization of the IT industry.
 Application of TOC Model

Applied at 3 levels:

(1)Business policy Level: constraint focus

(2)Production Management Level:

• Cost/utilization for capital investment decision making

• Constraint management cycle for production resource
management

(3)Production floor operations level: Drum/buffer/rope

methodology
 Business constraint focus:
 Value Chain constraints:

 External supply(limitations on supply availability)

 Internal production constraint (limitations on production

resources availability)

 External demand constraint (limitations on the demand for

products or services)

 Hierarchical constraints :
• Capacity
• Policy
• Dummy
TOC ‘s Constraint Management
Cycle
 Cost/utilization-TOC’s capital investment technique:

 It focuses on bottlenecks that constitute long term

constraints rather than formulating the short run decision
problem.
 It prescribes the optimal location of constraint resources in
the production flow and helps policy makers to determine the
location and size of buffers in the business flow.

 Drum-buffer-rope-TOC’s production scheduling procedure:

 Drum-dictating the overall pace of the system
 Buffers protect the constraint from disruptions
 Rope is the mechanism forcing all the parts of the system to
work up to the pace set by the drum
 TOC AND IT Interactions

 3 modes :

1. IT-aiming

2. IT-constraints

3. Computer-aided-TOC(CAT)
 Constraints at the organizational level

 Coman's (1992) top-down methodology for the definition of IT

policy. Identifies 3 dimensions:
• Organizational dimension.
• Product lifecycle dimension.
• Professional IT dimension.

 Before applying TOC to IT, analysis of organization is

necessary.

 Order can be-mission, performance measures, locating

system’s constraints.

 Role of IT is to exploit the constraint ,help subordinate non-

constraint resources or elevate the constraint.
Model 1:Stakeholder Analysis
 Model 2 :The Value Chain

 Primary Activities: internal constraints

 Support Activities : policy constraints
 DEC
 Intel Corporation
 Model 3: Product Portfolio

 Exploit the cash flow constraint.

o Question mark products: market share growth
o Star products: sales growth
o Cash cow products: sales income
o Dog products : liquidation value.
 Conclusion

• This article linked three domains: TOC,strategic models

and IT.

 Described TOC at 4 levels.

 Business policy(Top level)

 7 step OM focusing methodology
 Investment decision making technique
 Drum-buffer –rope production scheduling methodology

 3 tools discussed extend TOC to examine potential

future constraints in addition to current constraints.
Thank you