The Theory of Constraints is a methodology for identifying the most important limiting factor

(i.e. constraint) that stands in the way of achieving a goal and then systematically improving that
constraint until it is no longer the limiting factor. In manufacturing, the constraint is often
referred to as a bottleneck. Here is an excerpt of “Theory of Constraints” as spelt out by renowned
author Dr. Eliyahu Goldratt in his book, “The Goal”.

What is a constraint?

A constraint is anything that prevents the system from achieving its goal. Constraint is nothing
but a bottleneck that restricts the output of the entire system and at the same time represents
the primary leverage point for improving it. Constraints can be internal or external to the system.
Constraints restrict output whether we acknowledge them or not. When properly identified and
managed, constraints provide the fastest route to significant improvement and form the
bedrock for continuous growth. When ignored, the constraint may lie idle, squandering large
amounts of capacity. An out-of-control constraint may also wreak havoc on delivery schedules
and cause unpredictable delays. It is therefore crucial for any manager to make the most of their
constraint and manage it well.

Types of (internal) constraints:

 Equipment: The way equipment is currently used limits the ability of the system to
produce more salable goods/services.
 People: Lack of skilled people limits the system. Mental models held by people can
cause behavior that becomes a constraint.
 Policy: A written or unwritten policy prevents the system from making more.

If a constraint's throughput capacity is elevated to the point where it is no longer the system's
limiting factor, this is said to "break" the constraint. The limiting factor is now some other part
of the system, or may be external to the system (an external constraint). This is not to be confused
with a breakdown.

Theory of Constraints (TOC)

The Theory of Constraints (TOC) is a suite of management concepts developed by Dr. Eliyahu
Goldratt as introduced in the landmark book "The Goal." It helps managers to decide:

 What to change?
 What to change it to?
 How to cause the change?

Simply put, TOC means identifying constraints and managing them, resulting in:

 On-Time In-Full (OTIF) delivery to customers

The Five Focusing Steps (POOGI)

Dr Goldratt, the founder of “Theory of Constraints” suggests Five Focusing Steps, also known
as the Process of On-Going Improvement (POOGI) which serve as guideposts for driving on-
going improvement.

Step 1 – IDENTIFY the system’s Constraint

Focusing on any link of a chain, apart from the weakest link, would be waste of time and efforts.
Hence, it is of paramount importance, to identify constraint or bottleneck to concentrate upon
for improvement. Be aware that it is impossible to manage a constraint until you find out what
it is.

Step 2 – EXPLOIT the Constraint

The output of the constraint governs or restricts the output of the organization as a whole. Try
maximizing the utilization and productivity of the constraint. Rather than immediately
purchasing more of the constraint (by buying machines, hiring workers, increasing the
advertising budget, etc.) we should first learn to use the resources that we already have more
efficiently. Gather the underlying data and analyze it using certain quality tools & techniques.
Once the primary causes are identified, use analytical tools to drill down to the root cause for
under-performance.

Step 3 – SUBORDINATE everything else to the Constraint

By definition, any non-constraint has more capacity to produce than the constraint itself. Left
unchecked, this results in bloated WIP (work in progress) inventory, elongated lead times, and
frequent expediting/firefighting. Hence, it is crucial to avoid flogging the constraint more than
what it can handle.
Equally important is ensuring that the rest of the system supports the work of the constraint at
all times. It must never ever be starved for inputs or fed poor quality materials. This can be
achieved by adopting a suitable and appropriate strategy. Similarly, other established policies
and habits can hamper productivity at the constraint and must be systematically aligned to
achieve maximum performance.

Step 4 – ELEVATE the Constraint

Once the capacity of the system is exhausted, it must be expanded by investing in additional
equipment/land, hiring people, or the like. Normally, organizations tend to jump to
“ELEVATION” with going through step 2 & 3, i.e. “EXPLOITATION” and “SUBORDINATION”. By
doing so, the hidden unutilized capacity of the “Constraint” goes untapped which is available free
of cost. Investing too soon raises risk unnecessarily. Only elevate once exploitation &
subordination.

Step 5 – PREVENT INERTIA from becoming the Constraint

Once elevated, the weak link may not remain weakest. Consider elevating other resources to
retain the old constraint, depending on where you wish to have the constraint in the long-term.
A new constraint demands a whole new way of managing the system. We therefore return to
Step 1, and thus begins our journey of continuous improvement

Results

Implementing the Theory of Constraints has yielded remarkable results for companies around
the world. An independent study discovered that companies achieved the following impact (on
average):

These results were observed across various geographies and industries. In many cases, they
represent a partial implementation of TOC tools, leaving us to wonder what sort of impact might
have been possible using the full set of applications.

Please visit the following URL to get information on TOC books for reading. Wishing you all happy reading.

https://www.tocinstitute.org/recommended-books.html