Theory of Constraints: Term Definition

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Table of Contents

Constraints
Operations
Supply chain / logistics
Critical Chain Project Management
References

Theory of constraints is an approach to continuous improvement, increasing throughput, reducing operating expenses and inventory which is characterized by a five-step procedure:

identifying constraints,
employing the binding constraints,
overwhelming everything else to the decisions made in the second step,
raising capacity of the binding constraints, and
repeating the scenario when new binding constraints are identified.

Thus the management can identify the limitations of the work force and restrictions to maximize the throughput as well as minimizing the inventories and operating costs. Dr. Eliyahu M. Goldratt (1984) mentions the theory as a management philosophy in his book titled ‘The Goal’. The Author terms that the theory’s construction is in such a way to achieve the targets of profits by the organization.

The title of the theory itself reflects the features of a manageable system that achieves more profits with fewer constraints. The above aspect holds good as there will be at least one constraint in any organization or a system. The essence of theory of constraints is to spot the constraint to reform the organization. However, it can be done in the five focusing steps (Cox, Jeff; Goldratt, Eliyahu M. 1986).

Constraints

Coming to the definition of a constraint, it is any aspect that foils the system in its process of achieving its goal. As the theory is itself about constraints, it is important to devise a principle that show up constraints. However, the theory mentions that there will not be tens or hundreds of constraints and if so, it is not a system or organization. Hence, though not explicitly stated, minimizing the constraints is necessary to make an organization a system.

Considering the most important aspect, equipment of an organization, the way it is used can be termed as a constraint regarding equipment. When there are no alternatives, the way the company uses the equipment limits the capability of the organization in production activities. While we consider the equipment, the aspect of work force comes to the fore. The lack of skilled personnel in the work force restricts the system and the company can avoid the constraint by recruiting the people of required skills.

Operations

Considering the operations of a company, according to theory of constraints, the management of operations is filled with solutions that pursue to pull materials through the system. The solution lies in the fact that the materials need to be pushed through the system instead of into system. The above aspect means that there should be an output for every material that passes into the system.

Hence, the material that is not giving an output is a constraint and identifying the operation that involves it can minimize it. Goldratt, Eliyahu, Fox, Robert (1986) quotes Drum-Buffer-Rope methodology, which is a manufacturing accomplishment. In the above methodology the drum is referred to the constraint of the plant. It can be either work center or a machine that restricts the ability of the organization and confines it to a particular way of working. As the remaining system moves in resonance of the beat of the drum, it can be termed as a constraint that controls the other activities in a system.

The buffer assures that the drum always has work flowing to it. Buffers in Drum-Buffer-Rope have time as their unit of measure, rather than amplitude of material. Hence, the system has strictly followed the order and time according to the drum. The system offers buffers at different points like constraints as well as synchronization points at shipping facilities. The methodology can be simplified if the defense is present at the shipping and thus manages to flow of production from system to the customer base. In between the rope is the one that releases execution operations for the plant and thus eases the operations.

Thus a buffer time before an operation will be liberal to go into the plant. However, it is the theory of constraints considers the work into the system earlier as the one that slows down the operations due to work-in-process (Eli Schragenheim and H. William Dettmer, 2000).

Supply chain / logistics

The writer discus logistics from a broad aspect to include all scenarios throughout the system life-cycle associated to supply chain management, the physical supply, distribution of products and the enduring maintenance and support of systems throughout their planned life-cycles. Writer also elaborates logistics and the maintenance support framework as a chief element of the system from a total life-cycle aspect rather than as an independent and separate task. The writer accentuates the importance of dealing with logistics early in the system design and development process and throughout the implementation of the system engineering process which also includes establishing performance-based logistics measures early in the system design processes (Blanchard Benjamin S, 2008).

The above processes need finance and the solution for this constraint is to apply holistic thought to the application of finance. The above aspect is mentioned as throughput accounting in theory of constraints and its application to the system. In theory of constraints, accounting is not only the one that examines the impact of investments and operational changes; it can estimate the throughput of the business if used as a substitute of cost accounting. Theory of Constraints considers throughput, operating expenses and investment as primary measures from the point of view of finance and accounting. The calculation of throughput is from sales, which can be at variable cost. This includes the cost of raw materials used in making the finished product (Corbett, Thomas (1998).

Critical Chain Project Management

In the management of finished products, the idea that looks all projects as A-plants and all activities converging to product the company wants to make as output. In the above contest, the internal buffers are necessary to protect the synchronization points in the project (Goldratt, Eliyahu M, 1997).

The above aspects of theory of constraints are result of expansion of the theory into sales management and marketing. Initially the theory used to concentrate on only manufacturing and logistics and hence not comprehensive. When it is expanded to management and marketing, the role of the theory categorically acknowledged the sales process engineering necessary for the system (Paul H. Selden (1997).

Hence, after the completion of the above mentioned processes, it is important to apply Drum Buffer Rope methodology to sales process in a manner similar to its application in case of other activities of the system.

References

Cox, Jeff; Goldratt, Eliyahu M. (1986). The goal: a process of ongoing improvement. [Croton-on-Hudson, NY]: North River Press.

Goldratt, Eliyahu; Fox, Robert (1986). The Race. [Croton-on-Hudson, NY]: North River Press.

Eli Schragenheim and H. William Dettmer (2000). Simplified Drum-Buffer-Rope: A Whole System Approach to High Velocity Manufacturing.

Blanchard Benjamin S. (2008) Logistics Engineering And Management, 6th Ed.

Corbett, Thomas (1998). Throughput Accounting. North River Press.

Goldratt, Eliyahu M. (1997). Critical Chain. Great Barrington, MA: North River Press.

Paul H. Selden (1997). Sales Process Engineering: A Personal Workshop. Milwaukee, WI: ASQ Quality Press.

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Theory of Constraints: Term Definition

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