What is Theory of Constraints (TOC) ?

The theory of constraints is a method of determining the factor that limits a certain process. This limiting factor is referred to as constraint. In manufacturing, constraints are also known as bottlenecks.

In every goal, there are components that accelerate a progress. However, it becomes useless for having many parts contributing to the process, if some parts are slowing it down, then these parts are weak links.

Identifying the constraint means identifying the weakest link. The aim is not to eliminate it, but to improve it. The theory of constraints involves analyzing a complex process and correcting the system to achieve a goal.

In other words, the theory of constraints is a scientific tool used in improving a complex process made up of multiple activities that are linked together. Improving the process does not necessarily mean improving all parts of the system.

In the theory of constrains, there is no need to correct what is already working properly. This is why it is important to identify the constraint. Once identified, the constraint becomes the priority.

The theory of constraints was first introduced by Dr. Eliyahu Goldratt, and it became known to many when a 1984 best selling novel "The Goal" was published. As time went by, the theory of constraints continued to evolve. Today, it is commonly used in management science, especially in production management.

The Theory of Constraints in the Manufacturing Process

The goal of every manufacturing company is to make profits. They manufacture items in bulk and in a constant process. Because of this, their profit must also be constant. However, when their profit doesn't come as expected, there is something in the process that limits it, and this is where the theory of constraints comes in.

The theory of constraints (TOC) offers relevant tools that can be useful for manufacturing companies to achieve their goals. Using TOC, they can maximize a certain part in the production process that reduces the productivity and profit.

There are three TOC tools that are used by manufacturing companies. These include:

  • The Five Focusing Steps
  • The Thinking Process
  • Throughput Accounting

The Five Focusing Steps

The Five Focusing Steps is a specific method that can be used to identify and eliminate constraints in the process. These steps are:

Theory of Constraints (TOC) Five Focusing Steps

1. Identify

There is always a single part in every whole process that limits the entire output. If addressed, this will greatly increase productivity and profit. The only challenge is to identify such as constraint. By identifying it, companies can devise some relevant measures that can directly address the problems.

2. Exploit

Once the constraint is identified, companies can act upon it properly. The action does not involve eliminating the constraint, although, it must be improved. The principle behind it is to use all available resources to increase activity and output.

Constraints are also resources and to improve them, as currently there is nothing to replace them nor add any resources to fix them. Exploiting this is what is available as it is the ultimate aim of the theory of constraints.

3. Subordinate

Since the theory of constraints suggests prioritization of constraints, all activities must be reviewed to determine if they are all aligned with or support the constraint.

Typically, it is not the constraint itself that limits the whole process, but the compatibility of all parts with the constraint. The bigger picture must be leading toward the constraint.

4. Elevate

To elevate means to increase the support in order to improve the weakest link in the process. This entails capital investment or infusion, and this step will only be needed in case the constraint is not fixed or still exists. If all available resources have already been used to improve it to no avail, external resources is highly needed to finally address the constraint.

However, additional investments must be justified. This means that the projected output once the constraint is fixed should compensate the investment. This is why it is important to identify the real constraint.

5. Repeat

The last step is to repeat all these steps. Fixing the immediate constraint means going on to fix the next constraint. In every process, there is a hierarchy of constraints.

When the weakest link has already been improved, the next weakest link must be the next in line. The five focusing steps should continue for as long as the process continues to exist.

The Thinking Processes

In science, knowledge is achieved through scientific method. In the theory of constraints or TOC, this can be achieved through the use of similar methods called "The Thinking Processes." This method is designed to solve complex problems in a complex system, and it works by identifying the root cause and its undesirable effect or UDE.

In line with TOC, The Thinking Processes should answer the following questions:

  • What should be changed?
  • It should be a change to what?
  • What is to be done to change it?

In the theory of constraints, change does not necessarily mean replacement or elimination of constraint. This means there has to be adjusted or updated using the resources that already exist. It is not the constraint that needs to be changed.

However, there is something in the constraint that needs to be changed. It can be an object, position, relation to other components, manner of using it, and its capacity.

The reason why it needs changing is to make it function harmoniously with the rest of the process. This means each part is expected to function at a certain degree or rate, and this measurement is not something new in the process. When a certain part becomes a constraint, it should be changed to nothing else than to its original degree or rate of function.

To do so, it is important to determine what caused the constraint. If the action that caused it is identified, the reverse action must be implemented to correct it. Nevertheless, The Thinking Processes should properly identify all alternatives that can be done to change the problem.

Tools to Use in The Thinking Process

There tools that companies can use in The Thinking Processes. These tools are also methods presented in the form of a diagram. Each of these tools can be selected by companies to simplify the process, or to educate all the people involved in the process and in the use of this method.

Here are the tools:

1. Current Reality Tree

The Theory of Constrains is not all about identifying the limiting factor. There is so much more TOC can do to identify a constraint. This tool in The Thinking Processes is a good starting point. The purpose of this method is to document the current situation or state.

The Current Reality Tree shows which parts are working better and which ones need improvement. In this way, it is easy to segregate the problem and to focus on it, and this is the essence of the theory of constraints.

2. Evaporating Cloud Tree

Evaporating Cloud Tree shows a process of determining specific changes. This tool is important in evaluating potential improvements. It is also very useful in identifying, and solving the conflict among various parts of the process.

3. Future Reality Tree

The Future Reality Tree shows some forecast, and future expectations in relation to the changes made in improving the problem. In the theory of constraints, future plans or goals should connect to the current state. If the current state does not correspond to the plan or goal of companies, the constraint is what disrupts such relation.

Since TOC is designed to help achieve goals, the Future Reality Tree shows important guidelines to align all changes, and the corrections made in improving the constraint.

4. Strategy and Tactics Tree

TOC emphasizes improvement. Goals are future state that companies should document in order to fit in which action plans must be done to achieve them. The Strategy and Tactics Tree shows all possible action plans and alternatives for all types of constraints.

Throughput Accounting

Throughput Accounting is a different type of accounting method that can be used to adjust or fix some distortions that arise out of the use of traditional accounting method.

The reason for using throughput accounting is when the principle of a certain accounting method followed by finance department is in conflict with the theory of constraints being implemented by the production department.

In traditional accounting, inventory can be considered an asset as it can be considered cash or a liquid asset. This principle may well be applied in retail businesses; however, that may not be the same on the supplier side. What goes out from inventory from suppliers goes is into supply for retailers. In production that follows TOC, throughput accounting will help correct this issue.

In using throughput accounting, management should answer the following questions:

  • Will it increase throughput?
  • Will it reduce investment?
  • Will it reduce the operating expenses?

The theory of constraints is always in favor of reducing investments and expenses. This is why TOC focuses more on improving several parts rather than replacing them. What the theory of constraints is actually addressing is to increase throughput by improving the constraints. If the accounting method does not fit this method, the alternative is throughput accounting.

What Are Constraints?

In the theory of constraints, constraints are what limit a company from realizing its goal. It is a factor that prevents companies from completing and executing their plans. In production, constraint is a part that reduces productivity and output.

Types of Constraints

1. Physical

The most common constraint in the theory of constraints is physical in nature. It could be equipment, products, facility, materials, space, people, and the like. Sometimes, it is the existence of any of them is what limits a process. Most of the time, it is the lack of any of them.

There are also times that the combination of them becomes a constraint even if all of them are working fine. Therefore, optimizing physical constraints is what the theory of constraints promotes.

2. Policy

A corporation may believe it has everything under control; however, it does not guarantee profit for the future. Investing more is not always the solution as some startup business can grow big even without additional investments. It only shows that physical changes are not the only factors that prevent companies from achieving their goals. Another common constraint is policy.

A small company with better policies can grow much more quickly than a bigger company with poor policies. This means that poor policies can be considered major constraints despite deep resources.

3. Paradigm

The theory of constraints is another form of paradigm. The reason for using the theory of constraints is to change the paradigm that determines a company.

For instance, a belief that the equipment which currently operates should work until it doesn't, may be useful for those who make the most of what they have, but not realizing such equipment is a constraint that needs improving. Paradigm is almost similar with this policy constraint.

4. Market

In the theory of constraints, throughput is measured in relation to output. If throughput slows down, there is a constraint. On the other hand, constraints are not always internal.

Constraints can also be external such as a market. If the market slows down, there is also a need to slow down the throughput to decrease the output. In this case, it is the market that becomes a constraint for throughput.

Integrating Theory of Constraints with Lean Manufacturing

Theory of Constraints and Lean

The lean method is all about eliminating waste and simplifying a process. If there is a component that limits a process, the component must be replaced or eliminated. On the other hand, TOC does not replace nor eliminate a component. It only improves it.

However, not all companies can afford to use only one method. Some companies don't many resources to utilize and improve while others cannot afford to waste or dispose their precious old resources. In this case, the combination of both is ideal. A company can eliminate only the parts that are no longer working and improve others that can still be fixed.

Key Takeaways

We've seen that with the theory of constraints has an identifying effect on every aspect of business today as it's all about improvement. It takes every complex system, including that of manufacturing and updates it to that of the resources that already exist.

However, in order to identify the processes that need to be updated in the theory of constraints you have to go through the focusing steps along with The Thinking Processes to find the solution to the constraint.

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