Theory of Constraints (TOC)
Theory of Constraints (TOC) views every business as having limits imposed upon them by things like time, resources, market conditions, etc., which constrain their ability to achieve more than they already have achieved. TOC uses a focused process to identify the limitation and reorganize.
A chain is no stronger than the weakest link. Organizations need to identify the weakest link and work on that for overall improvement.
TOC stands for Theory Of Constraints, which was first proposed by Eliyahu M. Goldratt back in 1984 in his book titled "The Goal." He further elaborated his ideas in books such as "Critical Chain" and "What Is This Thing Called the Theory of Constraints - and how should it be implemented?".
In summary, the Theory of Constraints (TOC) requires identifying the constraint (a factor that limits throughput or stands in the way of goal) and systematically improving that—repeating this process to improve the next constraint.
It helps in identifying what to improve. The current constraint should always be the top priority to make improvements. Improving a non-constraint process will not improve the overall throughput.
Types and Examples of Constraints
Examples of constraints include Physical, Policy, Paradigm, Marketplace.
Physical constraints limit the availability of materials, equipment, space, labour, etc. Examples:
• Availability of raw material
• Capacity of the production line
• Space available for storage
Policy constraints restrict access to information, people, processes, policies, etc. Examples: Information security policy, Human resource policy, Processes, etc.
Paradigm constraints are those that limit our perception of reality. Examples:
• Perception of how much money we can earn
• Perception of how fast we can grow
Marketplace constraints are those that limit access to customers. Examples:
• Customer demand
• Market competition
• Price sensitivity
5 Steps to Identify and Eliminate Constraint
1. Identify: Identify the current constraint
Constraints are everywhere, but most organizations do not know where they exist. They also fail to recognize when they are being constrained. Organizations must learn to identify the constraints and eliminate them before they become obstacles to achieving their goals.
2. Exploit: Make improvements using existing resources
Use whatever means available to improve the throughput of the constraint. This includes reallocating resources, changing processes, eliminating bottlenecks, etc. In other words, use the constraint at its fullest potential.
3. Subordinate: Ensure all activities support constraint
Ensure that everything you're doing aligns with and helps support the constraint. Don't starve the constraint of any input.
4. Elevate: If constraint still exists, take further actions
If the constraint has not been eliminated and persists, elevate it to the highest possible level. To increase the capacity at the constraint, you need to invest in either buying new equipment or hiring additional people.
5. Repeat: Move to the next constraint
As soon as one constraint is eliminated, another constraint will emerge in the system. To further increase the throughput of our system, we need to identify the new constraint and then repeat the previous steps. Repeating these five steps will lead to ongoing improvement in the throughput.