Theory of Constraints — A Concise, Expert Management Briefing

TOC includes a suite of 8 applications plus "Thinking Processes" to generate custom solutions Benefits are typically fast, direct, massive improvements in any organization TOC is not either/or with other bodies of knowledge

Theory of Constraints

The Theory of Constraints operates at many levels.

It is certainly a management philosophy - in terms of, guiding managers to make better decisions.

It is explicitly a tool for global systems thinking — ensuring an alignment of an operation that provides maximum global, not necessarily local, performance.

It includes a 5-step process for improving a system in a manner that gains the largest possible results in as short a time as possible; without sacrificing the big picture and the long term picture.

Another key component is a set of Five "Thinking Processes" that people can use to analyze"problem soup" situations to quickly home-in on a deep-rooted core problem, construct an outside-the-box solution, and implement it in the smoothest and fastest possible way. The same tools can be used by Kindergarten-age children (and are) to resolve conflicts and to understand the consequences of their actions.

Then there are the applications; formal "solutions" that can be applied to production, finance & measurements, distribution and supply chain, project management, marketing, sales, strategic thinking, and people problem solving & communication skills.

The common threads through all the above: a consistent set of principles. A consistent vocabulary. Consistent foundation for performance measurements. A formal basis for focusing improvement efforts. And the leverage in terms of effort and investment that comes from applying that focus to the pin-point precise aspect of a company's performance that yields the largest global-scale results in the shortest time in a manner that is sustainable.

Benefits

Typically fast, massive, sustainable improvement relative to the goal of an organization, regardless of the nature of that goal. (See the Business Case section).

Theory of Constraints is best known for its application to manufacturing organizations where improvements include average lead time reductions of 70%, inventory reductions of 50% plus, and productivity improvements of 20% to 40% while on-time delivery improves an average 40% (typically into the high 90% level).

In project management, companies record that project durations for all types of projects shrink by 25% to 50%, on time delivery moves into the 90% and higher level, and in many environments productivity is boosted such that double or triple the number of projects are completed by the same resources in the same time — accompanied by an improvement in the quality of life of the project resources.

The new Viable Vision assesses a company's potential growth with TOC implemented and offers a comprehensive, customized plan for growth such that Net Profits in 4 years will match or exceed sales revenues today; and Theory of Constraints specialists are willing to bet 90% of their fees on the results.

In MRO situations, turn-around improvement can be dramatic; results published by various arms of the US military confirm spectacular time reductions in vehicle turnaround, for example. Commercial airlines show similar results.

Banks, schools, churches, Correctional facilities, restaurants, non-profits, hospitals ... published case studies confirm the scale of improvements in any environment.

Comparisons with other bodies of knowledge

There is a strong "either/or" mentality in organizations. "We are Lean" or "we are a Six-Sigma company" or "we are going ERP," for example, all stated in terms that also mean "so we are not open to TOC."

Theory of Constraints is powerful as a stand-alone improvement technique. But a major element of its power is as a focusing tool, and often the maximum impact of that focus can be achieved when other technologies — such as Lean or Six Sigma — are pulled-in to provide tactical help. In a twist to this, a major company that is committed to Six Sigma recently introduced some Theory of Constraints Thinking Processes to its trained employees; within the year, they voted the TOC techniques the most valuable Six Sigma tools!

Nevertheless, comparisons can be used to further education (versus an either/or perception).

Of course, the one thing they all have in common is a goal of improvement. But the philosophies are different, the mechanisms are different, and consequently the behaviors that people exhibit in line with them are different, and the results are inevitably different.

Scope: The Theory of Constraints is far broader in its scope than either Lean or Six Sigma. The TOC application to production has a lot in common with Lean manufacturing (and some significant differences). The production application is a comprehensive approach to scheduling and managing every application with the manufacturing environment. But in addition it provides finance, accounting and measurements applications that Lean is still seeking (the Lean Accounting approach is seriously flawed, a claim that can be proved relatively quickly). It provides an equally comprehensive solution to scheduling and managing projects; there is no Lean equivalent. TOC provides an equally comprehensive approach to managing Distribution and Supply Chains. There is some parallel in Lean ... but not the equivalent. Theory of Constraints provides a marketing approach for which there is no equivalent in Lean. Similarly the sales solution. Strategically, the TOC solution has some common areas with Lean ... but via the combination of so many solutions a company has many more strategic options from the TOC. As for people skills ... both TOC and Lean have useful tools for people, not equivalent to each other so I suspect each is neither better or worse than the other in most regards.

Philosophically: Lean aims to eliminate waste. Six Sigma aims to eliminate defects. Theory of Constraints aims to move a company closer to it's goal, whatever that is, by the most direct route; for example, "to make more money now and in the future."

The difference is that Lean assumes that eliminating waste is indeed the best way to make more money. Six Sigma assumes that reducing or eliminating defects is indeed the best way to make more money. Theory of Constraints assumes nothing; its principles call for 1) the boundaries of the system to be defined, 2) the goal of the system to be clearly identified, 3) the constraint within the system (relative to that goal) to be identified, 4) decisions to be made as to how to "Exploit" that constraint to the maximum level possible, and 5) non-constraint elements of the organization to be synchronized to help ensure the Constraint is Exploited as planned.

Certainly, eliminating waste might be addressing the organization's major constraint to improvement; similarly, eliminating defects might be. But in reality, we find that the top 10 priorities in helping a company make more money now and in the future are almost never the top 10 priorities in following the Lean checklist or applying Six Sigma "by the book." A single change in a sales-related policy or a production policy or an engineering or purchasing policy might have more profit impact than eliminating waste according to Lean, or eliminating defects. TOC doesn't assume up front that the key to improvement is one thing or the other; it starts by pin-pointing what the problem is, then provides tools to construct the precise solution to address the precise problem.

By doing that, it pin-points those changes that will generate the largest and fastest impact towards the goal. Sometimes those changes are indeed changes best addressed by Lean tools or the Six Sigma methodology. But very, very often they are not. And in those cases, the TOC would point elsewhere for the solution.

Mechanically: Six Sigma offers a methodology and tool-kit to attack problems, primarily (but not exclusively) quality-related problems. Naturally, there is a great focus on attacking variability, as there is within Lean. The Theory of Constraints Thinking processes also provide a methodology and tool-kit to attack problems, including quality problems, but the tools are very different. An employee at any level would benefit from understanding both.

Lean has a lot in common with Theory of Constraints in the philosophy/mechanical overlap for a manufacturing business; both aim to satisfy customers, both aim for short cycle time, fast-flow through resources, both aim for low inventories throughout the system. However, TOC achieves Lean-level performance or better without much of the Lean-driven effort; no value stream mapping, no line balancing, no kanban cards (though these can be used in a TOC environment and used effectively), often no need for plant reorganization, no need for cells (although they can be useful), and so on. I know one TOC consultant who, when he encounters a company implementing Lean, asks them to phone when they're plateau-ing in terms of results ... at which time he'll offer to help them increase Throughput by as much as an additional 40% while reducing lead times even further and reducing inventories even further, with no threat (and usually an improvement) to on-time deliveries.

Implementing Theory of Constraints

Some companies see major benefits from a superficial implementation achieved simply out of reading Eli Goldratt's book The Goal and acting in line with it. Generally speaking, it just makes sense to use a consultant because what you are doing is close to a DNA transplant, rather than a band-aid fix, and hiring know-how translates into bigger benefits faster with less pain.

There are two potential starting points, no matter which application; for a consultant to conduct an assessment, or for a company to receive education. One almost always leads to the other; as assessment points to massive potential so the next step is education; or education (a workshop) enables managers to understand exactly how benefits are generated from a Theory of Constraints approach, and the next step is an assessment to answer all the standard pre-implementation questions:

1. Which applications will be of benefit?

2. How will they work here, in this environment?

3. What are the benefits for us, in quantifiable terms?

4. What are the obstacles, and how can we get over/around/through them?

5. How will we go about implementing?

6. What will it take to implement - timelines, effort, costs?