Theory of Constraints - an Overview

In today’s economic climate, many organizations struggle with declining sales and increasing costs. Some choose to hunker down and weather the storm, hoping for better results in the future. However, layoffs and workforce reductions jeopardize future competitiveness. However, organizations that have implemented the Theory of Constraints (ToC) continue to thrive and grow in difficult times, continuing to achieve real bottom line growth, whether by improving productivity or increased revenues.

Since 1985, the Theory of Constraints has been delivering startling tangible results to companies worldwide. An independent study of Theory of Constraints implementations around the world found that huge results were consistently achieved:

Lead Times	Reduced 69%
Cycle Times	Reduced 66%
Due Date Performance	Improved 60%
Inventory Levels	Reduced 50%
Revenue / Throughput	Increased 68%

The Theory of Constraints consists of the Jonah Thinking Processes and an established set of logistical solutions:

The Theory of Constraints is a set of holistic processes and insights, 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. Furthermore, 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.

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, and focus the entire organization on simple, effective solutions to problems that seemed insurmountably complex and unsolvable.

The theory of constraints has three underlying assumptions:

Convergence - Inherent Simplicity; The more complex a system is to describe, the simpler it is to manage.

Consistency - There are no conflicts in nature; If two interpretations of a natural phenomenon are in conflict, one or possibly both must be wrong

Respect - People are not stupid; 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 is a proven method that can be used by existing personnel to increase throughput (sales), reliability, and quality while decreasing inventory, WIP, late deliveries, and overtime. Successful organizations also adopt the Theory of Constraints to help make tactical & strategic decisions for continuous improvement.

The Theory of Constraints is not just a tool to manage bottlenecks. In fact, the scope of tools and breadth of application of Theory of Constraints is substantial.

Theory of Constraints (ToC) Applications

After more than 25 years of development, the Theory of Constraints has several distinct applications or tools:

The Five Focusing Steps of Ongoing Improvement

Identify the system’s constraint
Decide how to exploit the system’s constraint
Subordinate everything else to the prior decisions
Elevate the system’s constraint
If, in the prior steps, the constraint has been broken, go back to step one.

Theory of Constraints Jonah Thinking Processes

Evaporating Cloud or conflict diagram
Current Reality Tree (CRT)
Future Reality Tree (FRT)
Negative Branch Reservation (NBR) or branch
Prerequisite Tree (PrT)
Transition Tree (TrT)
Strategy and Tactics Tree (S&T)

Throughput Accounting

Throughput (T): The rate at which the system generates money (through sales).
Inventory (I): All of money the system invests in items it intends to resell
Operating Expense (OE): all the money the system spends to turn inventory into throughput
Net Profit (NP) = T- OE
Return on Investment (ROI) = NP / I

Generic Theory of Constraints Solutions

Operations – Drum Buffer Rope (DBR) and Simplified Drum Buffer Rope (SDBR)
Finance – Throughput Accounting
Project Management – Critical Chain Project Management (CCPM)
Distribution – Synchronized pull replenishment
Marketing – Un-refusable or “Mafia” Offers
Sales – Buy in Process
People / Leadership – Using the Thinking Processes for day to day management
Strategy – Viable Vision Templates

Six Necessary and Sufficient Questions on Information Technology

What is the power of the technology?
What limitation does it diminish?
What are the old rules that accommodated the old limitation?
What are the new rules that should be used now?
n light of the new rules, what changes are required in the technology?
How to cause the change to take advantage of the new technology (the new win/win business model)?

Pinnacle Strategies developed the proven path to successful implementation of the Theory of Constraints. That is the subject of Mark Woeppel’s book, The Manufacturer’s Guide to Implementing the Theory of Constraints, published by APICS/St. Lucie Press.