What is Theory of Constraints(TOC)?
TOC (Theory of Constraints) is a Management Philosophy developed by an Israeli Physicist, Dr. Eliyahu M. Goldratt. TOC assumes that the principles underlying the development of hard sciences such as physics, can be applied to management as well. Thus, TOC can simply be stated as the application of scientific thinking to management. Here, scientific thinking implies Cause and Effect thinking.
Dr. Eli Goldratt introduced the TOC philosophy through his first business novel “The Goal”. In the book, the TOC principles were applied to the production environment. Since then, TOC principles have been applied to solving business problems in sales and distribution, project management, finance and accounting, retail, warehouse management, healthcare, and service sector. Apart from solving business problems, TOC philosophy has been successfully applied to education, prison reform, and personal improvement initiatives.
The core principle of TOC is that every system has a single or at most a few constraints, and that the total system throughput (output) can only be improved when the output through the constraint is improved. A constraint is anything that prevents the system from achieving its goal. It can be a machine, policy, people or market.
Example: A system “S” consisting of 4 operations: Raw material goes to Machine A and output comes from Machine D
The goal of the system is to manufacture maximum items/hr.
The output/hr from the system would be 12/hr (Minimum of 4 operations). Thus, Machine C is the constraint for this system. The only way to improve the output from the system is to improve the output from Machine C.
Once the goal of the system has been verbalized, TOC’s five focusing steps provide a clear-cut and sustained focus on improving the current constraint until it no longer limits the throughput of the system. At this point, the focus shifts to the next constraint of the system which is preventing it from achieving its goal.
The underlying power of TOC comes from its proficiency to generate a remarkably strong focus towards a single ‘goal’. In fact, Dr. Goldratt considered focus to be the crux of TOC. According to him, ‘FOCUS’ is the single word, which summarizes the entire TOC philosophy.
‘FOCUS’ has two parts: first- ‘what should be done’; and the second and the most important part ‘what should not be done’. Continuing the above example:
‘What should be done’ for system “S”: All improvement initiatives to be taken for machine C.
‘What should not be done’- do not work on improvement initiatives on any other machine (Until machine C is the constraint). As any improvement on them will not improve the output of the system
Thus, whenever TOC is applied to any environment — distribution, project management, production, service etc. — it gives a clear direction by listing out ‘what should be done’ and ‘what should not be done’ for achieving a significant jump in the performance.
