What is Theory of Constraints?
Theory of Constraints (TOC) was developed by Dr. Eli Goldratt by applying the principles and processes of the “Hard Sciences” to the science of analyzing, managing, continuously improving and predicting the performance of organizations in a holistic way. The most important of these are the fundamental beliefs in science that “all complex systems are governed by inherent simplicity” and that "all conflicts (inconsistencies) with systems can be resolved...if we can find the erroneous assumption(s)". The essence of these two beliefs in science is summarized with the truism that “the strength of any chain is governed by the strength of its weakest link”. If you want to strengthen the chain, and improve the performance of the system as a whole, you need to find and strengthen its weakest link. The application of this simple "governing law" can enable us to differentiate between the MANY parts, processes and relationships within a system that can be improved, from those few that must be improved to get more goal units.
TOC, as a body of knowledge, has seen tremendous development and expansion over the last 30 years. Over this period, TOC has evolved into a holistic management philosophy and set of focusing and critical thinking processes that enable us to determine what really is limiting or blocking further improvement in your chosen subject matter or system and also how to identify and implement the necessary and sufficient win: win solution to overcome these limitations in a way that will achieve the buy-in and active contribution of all the key stakeholders.
Today, Dr. Goldratt's Theory of Constraints is used by thousands of corporations, and is taught in over 200 colleges, universities and business schools. His books have sold over 4 million copies and have been translated into 23 languages.
The “Theory of Constraints” consists of five distinct, but interrelated parts – “The Five Focusing Steps”, “The Thinking Processes”, “Throughput Accounting”, “Application specific TOC Solutions”, and “The Six Necessary & Sufficient Questions relating to Technology”. Before you embark on your analysis, we believe it is important to clarify the purpose and relationship between the different parts of TOC.
1. The first is TOC’s Five Focusing Steps (5FS), a process of ongoing improvement that can be applied to any organization to continuously improve the achievement of more “goal units”. The five focusing steps are:
Step 0: Define (or make explicit) the Goal and Goal units of the System
2. The second is the TOC’s Thinking Processes (TP), a set of necessity- and sufficiency-based logical thinking and communication processes for identifying the few erroneous or limiting assumptions and associated local or short term optima rules (called core problems) that limit an organization or individual from better protecting, exploiting or elevating the system constraint and for developing, validating and communicating the new holistic rules that will enable better protection, exploitation and or elevation of the system constraint. These thinking processes include the Conflict Cloud, the Current Reality Tree, Future Reality Tree, Negative Branch Reservations, Pre-requisite Tree and the latest addition, the Strategy & Tactic Tree.
3. The third is TOC’s Throughput Accounting (TA), a set of processes for measuring the status and causes of the overall system’s financial performance and for judging the impact of local actions/decisions on the performance of the system as a whole. This is achieved by combining insights on the impact of any decision on the system constraint, now as well as in the future, with the quantitative impact on System Throughput (Sales – Totally Variable Cost), Operating Expenses (all non-variable costs) and Investment.
4. The fourth is TOC’s application specific generic solutions, that provide the necessary and sufficient constraint focused rules for improving and managing functional areas, such as
5. The fifth is TOC’s Six Necessary & Sufficient Questions relating to Technology (N&S) to identify the power of a new technology, the limitation it addresses, the rules created to cope with the previous limitation that must be changed, the new rules needed to exploit the power of the technology, the resulting required changes in technology itself and finally how the technology provider, integrator and user can work together to enable the implementation of the required changes on a win/win basis.