Theory of Constraints

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Theory of Constraints

• By
• Melissa Perez
• Megan Scurlock
• Robert Reese
• Mark Petlack

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What is the Theory of Constraints?

• The Theory of Constraints (TOC) is an overall
  philosophy developed by Dr. Eliyahu M. Goldratt.
  TOC is a systems approach based on the assumption
  that every organization has at least one factor
  that inhibits the organizations ability to meet
  its objectives. This theory is usually applied to
  running and improving an organization

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What is a constraint?

• A constraint is anything in an organization that
  limits it from moving toward or achieving its
  goal.
• There are two basic types of constraints
  physical constraints and non-physical
  constraints.
• A physical constraint is something like the
  physical capacity of a machine.
• A non-physical constraint might be something like
  demand for a product, a corporate procedure, or
  an individual's paradigm for looking at the world.

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Objective

• The objective under TOC is to maximize throughput
  while maintaining operating expenses for labor,
  sales, and administration and simultaneously
  minimizing investment outlays for inventory,
  plant, and equipment.

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TOC as a Management Philosophy

• Is a dynamic process
• Recognizes that organizations exists to achieve a
  goal
• Enables the managers of a system to achieve more
  of the goal that the system is designed to
  produce.

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Continued

• Once the constraining factor has been identified,
  management should examine whether the
  constraining factors can be increase.
• Management must also continue to monitor
  operating expenses for labor and administration
  while at the same time minimizing investments in
  inventory and productive assests.

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What TOC Consists of

• Problem Solving
• Management/ Decision Making Tools called Thinking
  Processes

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TOC

• TOC is applied to logically and systematically
  answer these three questions essential to any
  process of ongoing improvement
• What to change?
• To what to change?
• How to cause the change?

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Usage of TOC

• TOC has been used at three different levels
• Production Management - TOC was initially applied
  here to solve problems of bottlenecks,
  scheduling, and inventory reduction.
• Throughput Analysis - Application of TOC has
  caused a shift from cost-based decision making to
  decision making based on continuous improvement
  of processes in which system throughput, system
  constraints, and statistically determined
  protective capacities at critical points are key
  elements.

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Usage of TOC (cont.)

• Theory of Constraints Logical Processes - This
  third level is the general application of TOC
  reasoning to attack a variety of process problems
  within the organization. TOC logic is applied to
  identify what factors are limiting an
  organization from achieving its goals, developing
  a solution to the problem, and getting the
  individuals in the process to invent the
  requisite changes for themselves.

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Steps in applying TOC

• Identify the system's constraints.
• Decide how to exploit the system's constraints.
  Manage them so that they just provide what is
  needed to match the output of the constrained
  resources. NEVER let them supply more output than
  is needed because doing so moves you farther away
  from the goal.

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Steps (cont.)

• Subordinate everything else to the above decision
  in Step 2. Since the constraints are keeping you
  from moving toward the goal, apply all of the
  resources you can to assist in breaking them. In
  virtually all cases their limiting impact can be
  reduced or eliminated.
• Elevate the system's constraints. If you continue
  to work toward breaking a constraint at some
  point there will no longer be a constraint.
• If the constraint is broken, return to Step 1.
  When that happens, there will be another
  constraint, somewhere else in the system that is
  limiting progress to the goal.

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Critical Chain

• Set of interdependent tasks
• Time is important for completion
• Identify tasks that delay completion

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Critical Chain Example
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Buffered Schedule
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Daufel Enterprises

• Daufel Enterprises illustrates how applying the
  Theory of Constraints can lead to decisions that
  improve company profitability.
• Daufel Enterprises is a small business that
  produces hand-tied fishing flies. A fishing fly
  consists of feathers, furs, and synthetics placed
  on a hook and seamed with thread. The fly tier
  constructs these flies to represent aquatic
  organisms upon which fish feed.

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Daufel Enterprises Contd

• Quality and speed are two issues that conflict in
  the fly-tying industry.
• The faster a tier can construct a fly, the more
  profitable. However, if speed is the only focus,
  quality will suffer.
• Doug and Dan Daufel have tied flies commercially
  for the past five years.
• The Daufel brothers must personally tie the flies
  or quality will suffer. In their business,
  therefore, the brothers' time is the constraint
  factor.

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Daufel Enterprises Contd
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Daufel Enterprises Contd
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Resources

• http//www.resumemarketing.com/industrial-engineer
  ing/theory-of-constraints.htm
• http//www.ciras.iastate.edu/toc/ChainAnalogy.htm
• http//www.eas.asu.edu/cse566/toc1.htm
• http//www.ciras.iastate.edu/toc/ProcessOfOngoingI
  mprovement.htm
• http//www.rogo.com/cac/whatisTOC.html