Introduction to Theory of Constraints
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
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 https://harmonyapps.com/apps/harmony-change-maker