Introduction to Theory of Constraints

…. leveraging the potential

 Theory of Constraints provides a set of Holistic processes and
rules, all based on a Systems approach, that exploits the inherent simplicity
within complex systems through FOCUSING on the FEW physical & logical
“LEVERAGE POINT(S)” as a way to SYNCHRONIZE the parts to achieve
ongoing & step change improvement in the performance of the system as
a whole…
THEORY OF CONSTRAINTS
After more than 25 years of Development and Evolution…

Part 1 Part 2 Part 3 Part 4 Part 5

5 Thinking
Focusing Steps
1. Identify the System’s
Constraint
2. Decide how to Exploit the
Constraint
3. Subordinate everything to the
above decisions
4. Elevate the System Constraint
5. If in the previous steps a
constraint has been broken, Go
back to step 1.
Processes
1. UDE Evaporating Cloud (EC)
2. Current Reality Tree (CRT)
3. Core Conflict Cloud (CCC)
4. Future Reality Tree (FRT)
5. Negative Branch Reservations
(NBR)
6. Pre-requisite Tree (PRT)
7. Transition Tree (TrT)
8. Strategy & Tactics (S&T)
Throughput
Accounting
1. Throughput (T): The rate at which
the system generates money through
Sales (SR - VC)
2. Investment (I): The money tied up
in the organization
3. Operating Expenses (OE): All the
money spent by the system to convert
investment into throughput
4. Net Profit (NP) = T – OE
5. Return on Investment (ROI) = NP/I
TOC Generic 6 N&S
Solutions questions on
Technology
1. Operation – Drum-Buffer-Rope 1. What is the power of the
technology?
2. Finance – Throughput Acct.
2. What limitation does it diminish?
3. Projects – Critical Chain
3. What old rules helped
4. Logistics – Pull Replenishment accommodate the limitation?
5. Marketing – “Mafia” offers
4. What are the new rules that
6. Sales – “Buy-in” Process should be used now?
7. People – “Empowerment” 5. In light of the change in rules,
what changes are required to the
8. Strategy – “1+4x4 process” technology?
6. How to cause the change (the new
win/win business model)?

…. leveraging the potential

 Assumption or Beliefs of TOC

• Inherent Simplicity
– as opposed to inherent complexity

• Inherent WIN-WIN
– Inherent conflicts

• Inherent good people

– Inherent bad people

…. leveraging the potential

 Inherent Simplicity

• The traditional approach to complexity

“The best way to deal with Complex
Systems / Problems is to break it up
into its (simpler) parts and
analyze/improve each of the parts”
Or a belief that…
“ System =
The sum of its parts ”
““AACent
Centplus
plus aacent
cent plus….will
plus….will finally
finally
accumulate
accumulate to
to aafortune…”
fortune…”
Realist
Realist
…. leveraging the potential
• TOC Approach

“All Complex systems are governed by Inherent

Simplicity” Or
“System
/ Whole  The sum of its Parts ”

““Give
Giveme
meaalever,
lever,(a
(aleverage
leveragepoint)
point)and
andaa
place
placeto
tostand
standand
andII will
willmove
movethe earth...”
theearth ...”
Archimedes,
Archimedes,200
200BC
BC

…. leveraging the potential

 Systems Approach

Patient Analogy : Addressing the many Symptoms directly , not the Root Cause(s)
“Cure” Symptoms If the
symptoms
Aspirin Muscle Pain don’t go away,
it is probably
because we
Stay in Bed Chills have not
addressed the
Cough Syrup Cough root cause…

Cold Medicine Fever

Pneumonia?
….but are these the only drawbacks?

…. leveraging the potential

 Inherent Win-Win
WHY do Constraints exist in reality?
Or at least
What really limits or blocks us from overcoming
Physical Constraints or changing Limiting “Rules”?

“Unresolved
“Unresolvedproblems
problemsonly
onlyexist
existas
asaaresult
resultof
of Unresolved
Unresolved
Conflicts
Conflicts……and
……andin inPhysics,
Physics,we
webelieve
believe there
thereare
areNO
NOreal
real
conflicts
conflictsin
inreality…
reality…only
onlyour
ourerroneous
erroneousassumptions
assumptions about
about
reality”
reality” Dr.
Dr.Eli
EliGoldratt
Goldratt

…. leveraging the potential

 Dealing with conflicts

STRATEGY IMPROVE It seems we are stuck between a

PROFITS / ROI
now
now and
and in
in the
the “Rock and Hard Place”…
future
future

Protect
Protect &
& Control
Control &
&
How do we deal with such a
Increase
Increase
Sales
Sales
Reduce
Reduce
Costs
Costs
Dilemma?

TACTICS
We compromise - But it’s called a
Focus
Focus onon Focus
Focus onon WIN
WIN
Win
Win for
for for
for compromise because we end up
Customers
Customers
(Effectiveness)
(Effectiveness)
Shareholders
Shareholders
(Efficiency)
(Efficiency) “compromising” on one or both
System Needs…
EFFECTS
FOCUS

Compromise
In reality, the “Oscillation” between
these CONFLICTING policies and
metrics (Modes of operations) has
Undesirable Effects Undesirable Effects
-- High
High Costs
Costs // Investment
Investment -- More
More Customer
Customer complaints
complaints devastating effects on the Overall
-- -- Lower
Lower Sales
Sales (Qty
(Qty // Price)
--
Lower
Lower Profits
More
Profits // ROI
More shareholder
ROI
shareholder complaints
complaints -- Higher
Higher Rework
Rework CostCost
Price)
System Goal (Survival & Growth)
-- Less
Less Investment
Investment // Cash
Cash -- Lower
Lower Profits
Profits // ROI
ROI

…. leveraging the potential

 Win-Win
THE POWER OF “AND”
STRATEGY
IMPROVE
PROFITS
PROFITS // ROI
ROI
now
now and
and in
in the
the future
future

Protect
Protect and
and Control
Control and
and
Increase
Increase Reduce
Reduce
Sales
Sales Costs
Costs

TACTICS
The Way to deal with conflicts is NOT
FOCUS ON WHAT WILL to find better compromises…
GIVE A WIN/WIN
FOR
FOR CUSTOMERS
CUSTOMERS &
& SHAREHOLDERS
SHAREHOLDERS

EFFECTS
The Way to deal with conflicts is to
Win/Win BREAK the conflict by finding the
No Compromise WRONG ASSUMPTION that blocks
the Win/Win and achievement of
Desirable Effects Desirable Effects more goal units
-- Lower
Lower Costs
Costs // Investment
Investment -- Less
Less Customer
Customer complaints
complaints
-- Better
Better Profits
Profits // ROI
ROI -- More
More Sales
Sales (Qty
(Qty & & Price)
Price)
-- Happier
Happier Shareholders
Shareholders -- Less
Less Rework
Rework Costs
Costs
-- More
More Investment
Investment // Cash
Cash -- Higher
Higher Profits
Profits // ROI
ROI

The key to break a conflict is to look for the assumption(s) that block a
real WIN/WIN

…. leveraging the potential

 Inherent Good People

Undesirable
Undesirable
Effects
Effects

Two
TwoTypes
Typesof
of
Undesirable Undesirable Behaviour
UndesirableAction
Action/ / Undesirable Behaviour
Behaviour
Behaviourof
of
1.1. Doing
Doingwhat
whatthey
theyshould
shouldnot
not
have done
someone…
someone… have done
2.2. Not
Notdoing
doingwhat
whatthey
theyshould
should
have done
have done
WHY?
Common Belief TOC Belief
Conflicting
Conflicting
Bad
BadPerson?
Person? OR “Rules”
“Rules”oror
Metrics
Metrics

““Bad”
Bad”
Assumption
Assumption
…. leveraging the potential