Guide: Theory of Constraints (TOC)
The Theory of Constraints is a revolutionary management philosophy introduced by Dr. Eliyahu M. Goldratt in his 1984 seminal work, “The Goal.” Central to this theory is the concept that in any complex system, a few key constraints or bottlenecks primarily hinder achieving optimal performance.
TOC has since become an essential tool in operations management and business strategy, focusing on systematically managing these constraints to enhance process performance. This theory operates on the principle that effectively identifying and managing these bottlenecks can lead to substantial gains in efficiency and profitability, applicable across diverse organizational structures and industries.
Table of Contents
What is the Theory of Constraints?
The Theory of Constraints (TOC) is a management philosophy that suggests that a complex system, such as production processes or business operations, is limited in achieving its goals by a small number of constraints.
The theory was developed and introduced in 1984 by Dr. Eliyaho M. Goldratt in his book “The Goal.” Since then, it has become a core tool used in operations management and strategic business planning.
Core Idea of TOC
The core idea of TOC is the identification that in any complex process, there are one or more constraints or bottlenecks that will impede the process’s overall performance. The bottleneck can be anything that makes it difficult for the process to reach its goal. The goal in terms of business is usually to make a profit but this could vary depending on the organization and its overall objectives. The goal of TOC is to systematically manage these constraints and improve process performance.
The Five Steps of the Theory of Constraints
The theory of constraints is applied using a series of steps that are known as the five focusing steps. These steps are designed to identify and manage bottlenecks or constraints effectively:
Identify the Constraint: The first step involves identifying the most significant limiting factor (the bottleneck) in the system. This could be a machine with the lowest capacity, a policy that hinders productivity, or any other factor that is the primary impediment to achieving the system’s goal.
Exploit the Constraint: Once the constraint is identified, the next step is to exploit it. This means finding ways to make the best possible use of the constrained resource without significant additional investment. For example, if a machine is the constraint, exploiting it could involve ensuring it runs as efficiently as possible, with minimal downtime.
Subordinate Everything Else: This step involves aligning the entire system to support the exploited constraint. It means making sure that other elements of the system do not overwhelm or underutilize the constraint. This could involve adjusting the workload or processes so that they are in sync with the capability of the constraint.
Elevate the Constraint: If, after exploitation and subordination, the constraint still exists, the next step is to elevate it. This typically means increasing the capacity of the constraint, which could involve investing in new resources or changing policies.
Return to Step 1: After breaking a constraint, the system’s performance will improve, but soon another constraint will emerge as the new bottleneck. Hence, the process returns to step 1, identifying this new constraint, and the cycle continues.
Types of Constraints
In the Theory of Constraints, constraints are usually categorized as either internal or external:
- Internal Constraints: These are within the control of the organization and can be directly managed or improved. Examples include machinery capacity, employee skill levels, or internal policies.
- External Constraints: These are factors outside the organization’s direct control. Market demand, industry regulations, and supply chain issues fall into this category.
Understanding whether a constraint is internal or external is critical in determining the appropriate strategies to manage it.
Five Steps to Implementing TOC
Implementing the Theory of Constraints (TOC) can transform your operations and lead to substantial gains in efficiency and profitability.
But how do you go about it? Here are the five core steps to implementing TOC, each explained in detail:
Step 1: Identify the Constraint
The first step of the process is to identify the weakest link in the system. This constraint, also known as the bottleneck, is the factor that is most significantly limiting the system from achieving high performance or throughput.
Identifying this constraint involves a careful analysis of the entire process to locate the limiting factor. This can some of the following for example:
- A machine or process step that has the longest processing time.
- A policy that causes delays or inefficiencies.
- Limited market demand for the product.
- A key skill or expertise that is in short supply.
A good method that can be used to identify constraints in processes is a Value stream map (VSM) that maps out all the key process steps and cycle times to understand which process step takes the longest to complete and could be the bottleneck in the process is a lot of work in progress (WIP) is stacking up before that step.
Step 2: Exploit the Constraint
Once the constraint has been identified, the next goal is to exploit it, which means making the most efficient use of this resource. This does not necessarily involve investing in new resources, but could involve optimizing the use of what is currently available.
This could involve ensuring the constrained resource is used only for tasks that exploit its full potential. Or, reducing inefficiencies or idle time for this resource. You could also consider improving the quality of inputs to the constraint to reduce rework or errors.
The focus here is to achieve the most capacity possible from the constraint without any significant expense.
Step 3: Subordinate Other Processes
Subordinating involves aligning the entire process to support the efficient working of the identified constraint. This mean that other elements of the process should be adjusted to ensure that they are in sync with the constraint’s capacity.
The approach for this step could include:
- Adjusting the pace of work in other parts of the system to match the constraint’s pace.
- Changing schedules, processes, or priorities to ensure the constraint is not starved or overwhelmed by work.
- Aligning procurement, production, and distribution strategies to the rhythm of the constraint.
This step is crucial in ensuring that the system works in a synchronized manner, respecting the limits of the bottleneck.
Step 4: Elevate the Constraint
If the constraint still exists after trhe exploiting and subordinating steps, the next step is to elevate its performance. This can involve:
- Investing in additional resources or equipment to increase the capacity of the bottleneck.
- Implementing training programs to enhance skills or hiring additional staff.
- Changing or modifying policies that may be causing the constraint.
Elevation is about finding ways to fundamentally increase the capability of the constrained resource.
Step 5: Go Back to Step 1: The Continuous Nature of TOC
After successfully addressing a constraint, the system’s overall performance will improve, but this often leads to the creation of a new constraint. The process is cyclical, and thus it’s essential to go back to step 1, identifying the new bottleneck, to continue the improvement journey.
The Theory of Constraints offers a pragmatic approach to operational and strategic management, directing focus towards the most impactful elements of a system – the constraints. Through its Five Focusing Steps, TOC provides a structured pathway for identifying and managing these bottlenecks, whether internal or external.
Implementing TOC entails a continuous cycle of identifying constraints, exploiting them to their fullest, aligning the entire system to support these constraints, and, if necessary, elevating their performance. This cyclical process ensures ongoing improvement and adaptation, making TOC a dynamic and enduring tool for organizations striving for operational excellence and strategic growth.
- Cox, J.F. and Schleier, J.G. eds., 2010. Theory of constraints handbook (p. 146). New York: McGraw-Hill.
- Watson, K.J., Blackstone, J.H. and Gardiner, S.C., 2007. The evolution of a management philosophy: The theory of constraints. Journal of operations Management, 25(2), pp.387-402.
- Rahman, S.U., 1998. Theory of constraints: a review of the philosophy and its applications. International journal of operations & production management, 18(4), pp.336-355.
- Goldratt, E.M., 1990. Theory of constraints (pp. 1-159). Croton-on-Hudson: North River.
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