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Theory of Constraints (TOC)

Theory of Constraints

There is a body of knowledge in the international continuous improvement field called the Theory of Constraints (TOC). This was developed by a physicist named Eli Goldratt who was drawn into improving manufacturing processes by the Israeli government and by friends in Israel. He applied the methodologies and mindset of a research physicist to the challenge of improving manufacturing processes and then to improving Project Management methods and from thence to other common business processes and practices. In 1984, he published a book named The Goal. (Please see the Client Suggested Reading Library for bibliographic info.)

This article is a summary of The Goal and presents the 5 steps of Goldratt’s Process for Continuous Improvement :

1.) Identify the System Constraint

The main method used for this was to view the entire process as a set of contiguous links, very much like a chain. The strength of this chain was obviously physically limited by the strength of the weakest link. In process throughput vernacular, this was referred to as the “bottleneck.” This was the one constraint that limited the throughput or “Value” delivery capacity of the entire system.

This perspective of viewing the system as being controlled by very, very few root constraints was the offshoot of theoretical physics, as applied to physical systems. Prior to this, improvements in a given process, say manufacturing, would have entailed improving each of the steps in that process.

Goldratt contended that improving anything except for the bottleneck was a waste of resources and would not produce an increase in throughput at the end of the process… or at the end of the day. You would end up spending resources (time, people, money, strategic planning, what ever else was involved) to improve processes and receive neither more bang for your buck nor a reduction in your level of hassle.

This perspective of looking over the entire system whether it crossed either departmental or external organizational boundaries or not (or indeed specifically because it did cross departmental and organizational boundaries) was brand new to the improvement process arena. This applied whether the system in question was a door-to-door physical production flow within a manufacturing plant or a service delivery flow or an information flow, or a systems-design, problem-solving flow… or some combination of any or all of these flow types.

This book was very, very successful in communicating the basic steps of process improvement that had fallen on deaf finance and accounting departments for decades.

2.) Exploit the Constraint

In other words, squeeze all of the capacity you can out of the bottleneck resource; even if this requires communication between different departments or between management and unions or between whomever. The bottleneck, as the bottleneck, is constraining the value of flow to the final customers of this process, and therefore constraining the value of the security and compensation that result from that flow to everyone in the entire process, management as well as labor. It means such things as arrange schedules differently so that this process never stops.

3.) Subjugate Everything Else to This Constraint

Since the thing you’re working on, the bottleneck, is the constraint for the entire system, everything else in the system needs to either feed or take care of this constraint. This constraint, this bottleneck resource (whether it’s a physical item like a machine, an information processing item like a computer or something else that is expensive or difficult to get a hold of, or human resource item, like for example, an attorney who is very expensive and difficult to replace), is constraining the entire throughput. The idea is to always provide this resource with material and information so it can do what it does for the process. Once something has gone through this process, you treat it like gold!

The reason you treat it like gold is because, since it has gone through the bottleneck process, you can’t replace it because there’s no extra capacity at the bottleneck process.

An implication of this analysis is that time lost at a non-bottleneck doesn’t count. Time lost at the bottleneck costs the entire organization for the time that is lost at the bottleneck. This leads to a very, very different cost-accounting perspective.

As an example, I had a client whose bottleneck process was their large batch processing paint booth. I was finally able to persuade them that improvements at the paint booth would be systematically cost effective, because the loss of an hour at the paint booth did not just cost them loss of the painter’s time… it cost them the loss of the production time of everyone in the building as well as the loss of the rent, the overhead, the Sales Department staff salaries, the senior administration salaries and everyone else’s salaries at that facility. They were all a loss for that hour that the paint booth was down. In addition, loss of time at a different place, for example welding or assembly, did not count because those resources had capacity to catch up, because they were NOT the bottleneck resource.

4.) Elevate the Constraint

This very simply means get additional capacity, even if the additional capacity is not “efficient.” “Efficient” refers to non-bottleneck resources, where they have to justify their own existence… locally.

An option, based on the above example, would have been to install a small paint booth to take the load of small parts off of the automobile-sized paint booth that was the plant bottleneck. No, it was not particularly cost effective, when viewed as a local expense, because it took more fuel to heat the air in the plant or from outside to dry the parts. It would not be as locally-cost-efficient as the large automobile booth. However, it would increase the capacity of the entire plant and therefore use everybody’s wages and rent and overhead etc. etc. etc. much more effectively.

5.) Repeat

This means that once the constraint is elevated in capacity, it may not be the overall systemic constraint anymore. The overall systemic constraint may have moved to some other physical, informational, or problem-solving location. Go back to “Identify the System Constraint” and do it all over again … and again… and again…!

The AVIT Flow Modules article, which is the next article, provides more insight into selecting and establishing systemic control points which change much less frequently.