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On Theory Of Constraints

18 January, 2022 - 5 min read


The theory of constraints answers a fundamental question of what is not working within a system.

It helps answer the question of what to change. You cannot change something if you don't know what to change. The theory of constraints amplifies the idea of "a chain is no stronger than its weakest link." Great organizations understand their own vulnerability in order to fix the weakest link.

Definition

The theory of constraints (TOC) is an organizational management paradigm that views any manageable system as being limited in achieving more of its goal by a very small number of constraints. There is always at least one constraint, and TOC helps identify the constraint to restructure the organization so it can achieve its goals. The core principle is that there are not many but a few constraints within a system.

Deep analysis

The theory says that all elements within an organization are interconnected to achieve a common goal. It focuses on one leverage point instead of solving for many or all. Constraints can be internal or external.

History

The theory of Constraints (TOC) is a body of knowledge and a manufacturing and management methodology that was developed from the late 1970s by Israeli physicist Dr. Eliyahu Goldratt. He describes in his book, The Goal, is that the performance of any system is fundamentally limited by the output of the bottleneck. Thus, no change to the system will result in overall improvement unless that change addresses the bottleneck.

Any improvements made anywhere besides the bottleneck are an illusion. — Dr. Eliyahu Goldratt

A Thinking Process that enables people to invent simple solutions to complex problems. — Dr. Eliyahu Goldratt

An expert is not someone who gives you an answer, an expert is someone who asks you the right question. — Dr. Eliyahu Goldratt

Constraint & bottleneck are not the same

A constraint and bottleneck are not the same. It is critical to differentiate the two.

Finding a constraint is a strategic initiative. It is a leverage point for a leadership team to identify. This is where value is created for customers, stakeholders and employees. A constraint is the bottleneck with the least capacity in the entire system, and it can be reasoned about as the “constraint” only once you decide to manage it.

Whereas a bottleneck prevents a company to operate at its maximum capacity due to many reasons. A bottleneck is simply a resource that has more demand placed on it than capacity to delivery.

Five focusing steps

Theory of constraints is based on the premise that the rate of goal achievement by a goal-oriented system (i.e., the system's throughput) is limited by at least one constraint. The argument is if there was nothing preventing a system from achieving higher throughput (i.e., more goal units in a unit of time), its throughput would be infinite—which is impossible in a real-life system. Only by increasing flow through the constraint can overall throughput be increased.

Goldratt proposed five Theory of Constraints steps, known as the five focusing steps. Assuming the goal of a system has been articulated and its measurements defined, the steps are:

  1. Identify the system's constraint(s).
  2. Decide how to exploit the system's constraint(s).
  3. Subordinate everything else to the above decision.
  4. Elevate the system's constraint(s).
  5. Warning! If in the previous steps a constraint has been broken, go back to step 1, but do not allow inertia to cause a system's constraint.

In business

The Theory of Constraints is especially important in business.

  • It creates a real connection between the economic and financial aspects of the business.
  • It allows leadership to focus on the critical aspects that determine business outcomes.
  • It introduces scientific thinking within an organization. The entire system needs to be considered in order to identify a constraint.
  • It systematizes entrepreneurial spirit within an organization.

It is important to note that we don’t need more effort, just effort applied more effectively. This is how TOC can help businesses grow over time. Therefore, to continuously increase a system’s output, iteratively identify and address the current constraint.

Outside business

Keep in mind, constraints can appear beyond business. It can appear in your own personal life? For example, what is the bottleneck that is stopping you from exercising? Asking this question you are addressing a constraint in your life.

TOC can also apply within traffic congestion, both physical and network traffic. Popular sites are always solving for constraints to provide better user experience.

Peter Bevelin, in his book Seeking Wisdom:

Optimization of one variable may cause the whole system to work less efficiently. Why? The performance of most systems is constrained by the performance of its weakest link. A variable that limits the system from achieving its goal or optimum performance. An increase in production may for example be physically constrained by the production capacity on one of the machines. If one machine in a production line of two machines can produce 100 items and the second 90, the output is physically constrained by the second machine. When trying to improve the performance of a system, first find out the system’s key constraint(s)- which may be physical (capacity, material, the market) or non- physical (policies, rules, measurements) – and its cause and effect relationship with the system. Maybe the constraint is based on faulty assumptions that can be corrected. Then try to “strengthen” or change the weakest link. Watch out for other effects – wanted or unwanted – that pop up as a consequence. Always consider the effects on the whole system.