Theory of Constraint
TOC is a management philosophy introduced by Dr - Theory of Constraint introduction. Eliyahu M. Goldratt in his 1984 book The Goal, which is geared to help organizations continually achieve their goal. Based upon the contention that any manageable system is limited in achieving more of its goal by a small number of constraints (that there is always at least one). The TOC process seeks to identify the constraint and restructure the rest of the organization around it, through the use of the Five Focusing Steps. 2.0 Discussion
The basic premise of TOC as applied to business is that improving any process is best done not by trying to maximize efficiency in every part of the process, but by focusing on the slowest part of the process, called the constraint. For instance, during the early days of the American Civil War, several units calling themselves legions were formed, consisting of combined infantry, artillery, and cavalry. This arrangement did not last because the entire unit could only maneuver as fast as the slowest part. So, the artillery was the constraint. Throughput costing, sometimes called super-variable costing recognizes only direct materials costs as being truly variable and thus relevant to the calculation of throughput margin. All other manufacturing costs are ignored because they are considered fixed in the short run. Throughput margin = Sales – Direct materials
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2.2The Five Steps of TOC
The theory of constraints should be used as a dynamic process and managers can improve throughput by following the steps: 1) Identify the system’s constraint.
2) Decide how to exploit the system’s constraint.
3) Subordinate everything else to the above decision.
4) Elevate the system’s constraint.
5) If in the previous step the constraint has been broken, go back to Step 1. 2.3 Evaluation
In terms of the core of TOC, it assumes that any origination is composed of a number of subsystems. It is an organized way to approach a business operation and to try to improve it. TOC takes the analytical and diagnostic process and lays it out into a step-by-step procedure. Also, the theory of constraints allows the managers involved in the process to focus on the constraints in the process. TOC is potential for tremendous increases in productivity with minimal changes to operations as the most powerful and cost effective tool for increasing production capacity. Furthermore, it is very simple to communicate and apply, making it ideal for departments and also great for fostering teamwork as different areas become aware of the constraint and the need to work together to assist the constraint process. It improves capacity decisions in the short-run and allows growth of productivity without the need for additional space or staff and establishes clearly defined quality measurements and utilizes this to select the best options, and drive the right decisions. 2.3.2 Disadvantages
Some criticisms of Goldratt’s theory of constraints include the idea that Goldratt himself treats the theory as a product to sell and he acts as a salesman. Also, some say Goldratt’s theory of constraints borrows ideas and concepts from previous studies and theories, but Goldratt does not acknowledge these contributions to his theory. For example, it only focuses on short-term goals and emphasis on increasing sales and volume, not quality. It has a negative impact on non-constrained areas. Moreover, it may lead organization away from strategy. 2.4 Example
TOC is practiced in many different industries, including automotive, computers, telecommunications, furniture, retail food, consumer goods, and apparel. Rockland Manufacturing is the small manufacturer of attachments for heavy construction equipment made more profit in the two years following its TOC implementation that in the previous ten years. Since most orders require special fittings or brackets to attach to various pieces of equipment, so the lead time is the constraint. After attending TOC training at the Goldratt Institute, Rockland began the process of changing over to a Drum-Buffer-Rope method of operation .After that, Rockland was showing a 25% increase in throughput and a 35% reduction in WIP inventory. Over the next 18 months, the company handled approximately 2,500 customer orders and only had one late shipment – due to a clerical error. It has been able to increase its business, add onto the plant and offices and pay increasingly higher profit-sharing bonuses each year since adopting TOC. As one team member said, the TOC methodology has given them “the tools to solve the problems that may come up.” As the old saying goes: Give a man a fish and he’ll eat for one day. Teach a man to fish and he’ll eat for a lifetime. The TOC method is definitely in the latter category. TOC also helped Bethlehem Steel to have the Sparrows Point Division to improve its own time delivery from 60-75% to over 99%. It helped General Motors to have the Cadillac Division to improve its delivery time from 75 days to 19 days, fill rate (delivery promises kept) from 60% to over 95%, and inventory to 20% of earlier inventory. It helped the Ford Motor Company to have the Electronics Division to reduce its lead-time from 8.5 days to 2.2 days to currently less than two shifts. It also helped an Indian Capital Goods Manufacturer to turn around in 100 days that had been losing money in the previous two and half years without laying off employees. 3.0 Conclusion
In conclusion, the theory of constraints is a management philosophy approach to identify the most important constraint that stands in the way of achieving a goal and then systematically improving it until it is no longer the limiting factor. This is the way to achieve total system improvement, not just localized improvements. It provides a powerful set of tools for helping to achieve that goal that is to make a profit both in the short term and in the long term. Nowadays, TOC methods are used by managers and sales personal to improve the management and sales of their companies.
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