The Theory of Constraints

Theory of Constraints (TOC) is an overall management philosophy introduced by Dr. Eliyahu M. Goldratt in his 1984 book titled The Goal, that is geared to help organizations continually achieve their goal. The title comes from the contention that any manageable system is limited in achieving more of its goal by a very small number of constraints, and that there is always at least one constraint. The TOC process seeks to identify the constraint and restructure the rest of the organization around it, through the use of the Five Focusing Steps.

The underlying premise of Theory of Constraints is that organizations can be measured and controlled by variations on three measures: throughput, operating expense, and investment. Throughput is money (or goal units) generated through sales. Investment is money the system invests in order to sell its goods and services. Operating expense is all the money the system spends in order to turn the investment into throughput.

Theory of Constraints is based on the premise that the rate of goal achievement is limited by at least one constraining process. Only by increasing flow through the constraint can overall throughput be increased. Assuming the goal of the organization has been articulated (e.g., “Make money now and in the future”) the steps are:

1) Identify the constraint (the resource or policy that prevents the organization from obtaining more of the goal)
2) Decide how to exploit the constraint (get the most capacity out of the constrained process)
3) Subordinate all other processes to above decision (align the whole system or organization to support the decision made above)
4) Elevate the constraint (make other major changes needed to break the constraint)
5) If, as a result of these steps, the constraint has moved, return to Step 1. Don’t let inertia become the constraint.

The articles below show through example and practice the concept of the Theory of Constraints.