Introduction to Theory of Constraints (TOC)
WHAT IS THEORY OF CONSTRAINTS?
In the early 1980’s, an Israeli physicist, Dr. Eli Goldratt, started applying the mindsets and methods of the hard sciences to the “soft” science of analyzing, improving and managing organizations. Scientist searches for inherent simplicity – simple mechanisms or governing laws that explains complex phenomena. Goldratt realized there was also “inherent simplicity” within complex organizations. In the same way that the weakest link in a chain limits the strength of the whole chain, the performance of any organization is limited by its “system constraint” or bottleneck. He called his discovery and the related body of knowledge “Theory of Constraints” or TOC.
But why call it a “theory”?
Dr. Kurt Lewin (1890-1947), one of the pioneers in Psychology, famously said that “There is nothing so practical as a good theory”. In Science, a “theory”, like in “Theory of Relativity” or “Theory of Evolution”, is simply a “good and useful explanation” about why a certain phenomenon exists and/or why it is important and/or useful to know this. Theory of Constraints, as a management “theory”, is simply a good and useful explanation of why it is very useful to know what the constraint for any system is, especially to managers within organizations who have to make reliable commitments and/or take decisions within an environment with high levels of Volatility, Uncertainty, Complexity, Constraints and Ambiguity (VUCCA).
Knowing that the constraint limits the performance of the whole organization can help us set ambitious but achievable targets, judge the impact of local changes on the system as a whole, decide where to focus management attention, decide what rules to use to achieve global- rather than local optima and when to change the rules. Dr. Goldratt turned these into a practical focusing mechanism for management to achieve a process of ongoing improvement. He called it the Five Focusing Steps (5FS) and it consists of 5 steps.
THEORY OF CONSTRAINTS’ 5 FOCUSING STEPS
- Step 1: IDENTIFY the System Constraint (to achieving more of the Goal units for the organizations)
- Step 2: Decide how to EXPLOIT (and not waste) the system constraint (to close the gap between the theoretical maximum and average level of constraint exploitation)
- Step 3: SUBORDINATE everything to the above decision (changing only those rules and metrics that is in conflict with the decision in step 2)
- Step 4: ELEVATE the System Constraint
- Step 5: If in a previous step a constraint was broken, don’t let inertia become the system constraint, GO BACK TO STEP 1
Dr. Eli Goldratt, the creator of Theory of Constraints, together with a group of TOC practitioners, have created a vast body of knowledge of how to apply the five focusing steps to different types of organizations and to different parts of the organization (operations, finance, supply chain, projects, sales, marketing and managing people). He also developed a holistic decision support framework (Throughput Accounting) and a set of logical Thinking Processes that can be applied when organizations get stuck on one or more of the above 5 steps.
To achieve step 3, a number of TOC solutions have been developed that offers managers simple rules for planning, execution and achieving continuous improvement for applications such as managing Operations ( “Drum-Buffer-Rope), Distribution (Demand Driven Replenishment) and Projects (Critical Chain Project Management).
A large part of this body of knowledge was captured in the 5 generic Strategy & Tactic Trees that can be found in the Goldratt S&T Library of HARMONY at www.harmonytoc.com
The ProConCloud Method
Below a listing of some of the key Research Insights gained by GRL
In this chapter of the Theory of Constraints Handbook, author, Dr. Alan Barnard shares his research insights on why so many of the changes initiated by management fail to deliver the desired improvement (typically 70% of all changes fail) and how Theory of Constraints can be used to significantly reduce this failure rate. To answer these two important questions, this chapter provides a framework for designing and implementing a continuous improvement and auditing process within organizations from a Theory of Constraints (TOC) perspective and shares some of the important new TOC developments in this field as well as make recommendations on practical ways to integrate this approach with organizational strategy and as a focusing method for LEAN, 6 Sigma and other improvement techniques.
The chapter starts with the definition of key concepts and a brief historical perspective on this subject and then provides an overview of the current gap and its and consequences related to typical errors of omission, commission, detection (to answer Why Change). It then examines the underlying conflicts and assumptions that need to be challenged (to answer What To Change), the solution criteria, direction and details of a solution to break these conflicts and prevent new undesirable effects (to answer What To Change To), and finally sharing insights on how to practically overcome typical implementation obstacles (to answer How To Cause The Change and Achieve a Process of Ongoing Improvement).
In this chapter of the Theory of Constraints Handbook, authors, Dr. Alan Barnard and Ray Immelman shares their experience and research insights on how to put a whole organization (not just Operations, or Distribution or Engineering or Sales) on a Holistic Process of Ongoing Improvement (POOGI) where all changes are focused and synchronized to achieve both ongoing growth, harmony and stability.
This chapter provides a historical perspective on the need for a holistic approach to implementing Theory of Constraints (TOC), an overview of the past attempts to develop such an approach and why most of these attempts have failed. Then two of the leading TOC experts in the world (Dr. Alan Barnard and Ray Immelman), each with many TOC implementations behind them, share their unique experiences and insights gained on how to achieve and sustain a holistic TOC implementation that will deliver both ongoing performance growth and improved stability and harmony through two large and complex TOC case studies – one from the Private Sector (First Solar Inc.) and one from the Public Sector (Solid Waste Management in African Cities).
Articles by Dr. Alan Barnard
- “What is Theory of Constraints (TOC)?”- by Dr. Alan Barnard
- Why the awareness and adoption of Theory of Constraints is still so low? – by Dr. Alan Barnard and Eli Schragenheim
- Challenging one of the basic laws of economics – by Dr. Alan Barnard
- Exponential Population and Economic Growth Versus Finite Scarce Resources = Boom or Bust? – by Dr. Alan Barnard
- The challenge of balancing supply and demand – by Dr. Alan Barnard
- Theory of Constraints Throughput Accounting – by Dr. Alan Barnard
Articles about Dr. Alan Barnard
- The relentless pursuit of the weakest link (African Explosives) – by Tony Rattey
- In Any Business Crisis, These Two Magic Words Change Everything – by Michael Levin
- How To Make Better, Faster Decisions When It Really Matters – by Michael Levin
TOC Implementation Golden Nuggets
from Dr. Eli Goldratt and Efrat Tal
- How to deal with Stock Buffer Increase orders in MTA
- When to ignore exceptions in Setting Inventory Target Levels in MTA
- Immunizing Distributor from Competitors reducing prices in MTA
- Setting Inventory Targets in MTA
- Preparing for Rapid Response in RRR
- Prioritization of MTO using Buffer Status & Due Date
- Process vs Transfer Batch
- What does % red mean in Managing Buffers?
- Color psychology
- MTA+MTO Mixed environment
- Light blue 1 a way to exploit the protective capacity
- Using Light blue in BM to exploit excess capacity
- Reaching the plateau
ABB Case Study
Achieving Fast And Reliable Deliveries With A Robust TOC Solution Simple Enough To Be Supported By Standard ERP Systems – by Dr. Alan Barnard, Dr. Katja Rajaniemi and Fredrik Nordstrom
Daiwa House Case Studies
- Improving Performance on SAP Implementation Project (SAP and Daiwa House) – by Daiwa House
- Six lessons from a lightning ERP rollout (SAP and Daiwa House) – by Bob Lewis
- System development and implementation using “The Goal” way. Increasing the entire capacity and speed by eliminating wastes that stem from local optimum
InWent Case Study
Using a simplified version of Theory of Constraints to achieve more with less time within the Public Sector: A Case Study from Africa – by Dr. Alan Barnard
Random House Case Study
Selling more books by reducing shortages and surpluses – by Dr. Alan Barnard
Tata Steel Case Study
Applying Theory of Constraints to achieve Viable Vision for Tata Steel – by Bimlendra Jha
Dr. Alan Barnard PhD Thesis
How to identify and unlock inherent potential within organizational and individuals using a systems approach
Research papers by other authors
- “A Review of Goldratt’s Theory of Constraints (TOC) – lessons from the international literature” – Steven J. Balderstone and Victoria J. Mabin
- “Archetypes of sustainability: Hopeful strategies for organization growth and renewal” – by David Sibbet
- “Change or Die” – by Alan Deutschman
- “Evolution and Revolution as Organizations Grow” – by Larry E. Greiner
- “Learning through System Dynamics in preparation for the 21st century” – by Jay. W. Forrester
- “Strategy and Tactics” – by Eli Goldratt, Rami Goldratt and Eli Abramov
- “Transforming the systems movement” – by Russell L. Ackhoff
- “Why few organizations adopt Systems Thinking” – by Russell L. Ackhoff
- Assessing the effectiveness of business consulting in operations development projects
- TLS: TOC+LEAN+6Sigma – The Continuous Improvement Trio
- US Marine Corps TOC Implementation
- Buffer chart
- TOC Game
- Goldratt Research Labs Multi-Tasking Simulation Game
The TOCICO Dictionary
- Goldratt Lectures: Why Thinking Globally (not locally) is so important – Storyline Animation
- Goldratt Lectures: Building an Ever-Flourishing Company Part 1
- Goldratt Lectures: Building an Ever-Flourishing Company Part 2
- Goldratt Lecture: How to overcome resistance to change?
- New Research – Why so many of our change initiatives fail and how to prevent it?