The Theory of Constraints (TOC) is a body of applied knowledge that treats a corporation as an interlinked, interdependent system rather than just a collection of independent processes or functions. Dr. Eli Goldratt, the creator of TOC, observed that just as the strength of a chain is dictated by its weakest link, so the overall performance of any company is dictated by its constraint.
Every company has at least one constraint preventing it from achieving infinite profits. This constraint might be production capacity, or ability to generate new orders, or capability to procure raw material, or even the market size itself! We must find a way to manage the constraint or it will manage us!
Traditionally, organizations tried to improve performance by utilizing ALL resources as much as possible. This led to a “local optima” mentality and to poor synchronization across functions, with frequent conflicts of interest.
Dr. Goldratt’s “5 Steps” of Process of Ongoing Improvement describes a more focused, systems-oriented method:
1. Identify the constraint
2. Exploit the constraint to the fullest
3. Subordinate and synchronize everything else to the constraint
4. Elevate the constraint.
- If the constraint has shifted, go back to Step 1. Do not allow inertia to become the constraint!
This systematic approach is the key to increasing the goal units of any system. It also serves as the underlying diagnostic framework supporting various TOC solutions, including Production, Distribution, Sales, Marketing, Procurement, People Management, Decision-Making and Project Management.
The overwhelming popularity of Dr. Goldratt’s bestselling book “The Goal” has led some to believe that TOC applies primarily to the manufacturing environment. Time has proven, however, that the fundamental TOC principles apply generically to all industries. TOC has been successfully applied in universities, high-tech, FMCG, hospitals, logistics, government, and retail, to name a few.