| In today's economic climate, many organizations | | | | bottlenecks. In fact, the scope of tools and breadth of |
| struggle with declining sales and increasing costs. | | | | application of Theory of Constraints is substantial. |
| Some choose to hunker down and weather the storm, | | | | Theory of Constraints (ToC) Applications |
| hoping for better results in the future. However, layoffs | | | | After more than 25 years of development, the Theory |
| and workforce reductions jeopardize future | | | | of Constraints has several distinct applications or tools: |
| competitiveness. However, organizations that have | | | | The Five Focusing Steps of Ongoing Improvement |
| implemented the Theory of Constraints (ToC) continue | | | | |
| to thrive and grow in difficult times, continuing to | | | | 1. Identify the system's constraint |
| achieve real bottom line growth, whether by improving | | | | 2. Decide how to exploit the system's constraint |
| productivity or increased revenues. | | | | 3. Subordinate everything else to the prior decisions |
| Since 1985, the Theory of Constraints (ToC) has been | | | | 4. Elevate the system's constraint |
| producing startling bottom line results to companies | | | | 5. If, in the prior steps, the constraint has been broken, |
| worldwide. An independent study of Theory of | | | | go back to step one. |
| Constraints Implementations around the world found | | | | Theory of Constraints Jonah Thinking Processes |
| that huge results were consistently achieved: | | | | - Evaporating Cloud or conflict diagram |
| - Lead Times - Reduced 69% | | | | - Current Reality Tree (CRT) |
| - Cycle Times - Reduced 66% | | | | - Future Reality Tree (FRT) |
| - Due Date Performance - Improved 60% | | | | - Negative Branch Reservation (NBR) or branch |
| - Inventory Levels - Reduced 50% | | | | - Prerequisite Tree (PrT) |
| - Revenue / Throughput - Increased 68% | | | | - Transition Tree (TrT) |
| Many organizations that implement Theory of | | | | - Strategy and Tactics Tree (S&T) |
| Constraints (ToC) realize profit improvements over | | | | Throughput Accounting |
| 100% the first year. The Theory of Constraints (ToC) | | | | - Throughput (T): The rate at which the system |
| is a set of holistic processes and insights, all based on | | | | generates money (through sales). |
| a systems approach that simplifies the improving and | | | | - Inventory (I): All of money the system invests in items |
| managing of complex organizations by focusing on the | | | | it intends to resell |
| few physical and logical constraining "leverage" points. It | | | | - Operating Expense (OE): all the money the system |
| provides a set of tools to build and implement the | | | | spends to turn inventory into throughput |
| levers (holistic rules) that synchronize the parts to | | | | - Net Profit (NP) = T- OE |
| achieve an order of magnitude improvement in the | | | | - Return on Investment (ROI) = NP / I |
| performance of the system as a whole. | | | | Generic Solutions |
| The crucial insight of the Theory of Constraints is that | | | | - Operations -- Drum Buffer Rope (DBR) and |
| only a few elements (constraints) in a business control | | | | Simplified Drum Buffer Rope (SDBR) |
| the results of the entire organization. Theory of | | | | - Finance -- Throughput Accounting |
| Constraints tools identify these constraints, and focus | | | | - Project Management -- Critical Chain Project |
| the entire organization on simple, effective solutions to | | | | Management (CCPM) |
| problems that seemed insurmountably complex and | | | | - Distribution -- Synchronized pull replenishment |
| unsolvable. | | | | - Marketing -- Un-refusable or "Mafia" Offers |
| The theory of constraints has three underlying | | | | - Sales -- Buy in Process |
| assumptions: | | | | - People / Leadership -- Using the Thinking Processes |
| Convergence - Inherent Simplicity; The more complex | | | | for day to day management |
| a system is to describe, the simpler it is to manage. | | | | - Strategy -- Viable Vision Templates |
| Consistency - There are no conflicts in nature; if two | | | | Six Necessary and Sufficient Questions on Information |
| interpretations of a natural phenomenon are in conflict, | | | | Technology |
| one or possibly both must be wrong | | | | |
| Respect - People are not stupid; even when people do | | | | 1. What is the power of the technology? |
| things that seem stupid they have a reason for that | | | | 2. What limitation does it diminish? |
| behavior | | | | 3. What are the old rules that accommodated the old |
| Eliyahu Goldratt originated the idea in his book The | | | | limitation? |
| Goal as a way of managing organizations to increase | | | | 4. What are the new rules that should be used now? |
| profits. The Theory of Constraints is a proven method | | | | 5. In light of the new rules, what changes are required |
| that can be used by existing personnel to increase | | | | in the technology? |
| throughput (sales), reliability, and quality while decreasing | | | | 6. How to cause the change to take advantage of the |
| inventory, WIP, late deliveries, and overtime. Successful | | | | new technology (the new win/win business model)? |
| organizations also adopt the Theory of Constraints | | | | Many believe that the Theory of Constraints is the |
| (ToC) to help make tactical & strategic decisions | | | | most powerful improvement methodology in use today |
| for continuous improvement. | | | | because of its simplicity and fast results. |
| The Theory of Constraints is not just a tool to manage | | | | |