This article is part of a series on Lean and the Theory of Constraints. Here is the 3 part series:
- Lean and Theory of Constraints: An Either/Or Proposition?
- The Theory of Constraints – The Fundamentals
- Reconciling Lean and The Theory of Constraints
This is the last part of the series on Lean and The Theory of Constraints, where I originally asked how Lean and the Theory of Constraints can work together. In this article I propose several ways one can Reconcile Lean and the Theory of Constraints.
I then proceeded to describe the fundamentals of the Theory of Constraints, followed by an explanation of the fundamentals of Lean Management.
This post is my attempt at showing where Lean Manufacturing and The Theory of Constraints agree and can work harmoniously together and also on the areas where they disagree.
But, my overall argument is this: there is no Either/Or – Lean Thinking and The Theory of Constraints can and do work just fine together.
Where Lean and Theory of Constraints Agree
- Value: both Lean and the Theory of Constraints agree that value is critical and is defined by the customer. In the Theory of Constraints, Value is a determining factor on whether the organization will increase throughput, or the rate at which money enters the company’s coffers. In Lean, Value plays a different role: to maximize Value, we must identify and eliminate waste (muda).
- Flow: both Lean and the Theory of Constraints agree that flow is important.
- Pull: both Lean and the Theory of Constraints agree that Pull is how a good, product, or service should be produced. In the Theory of Constraints, Pull is the force behind the Drum-Buffer-Rope method while, in Lean, Kanban is the tool used to implement Pull. Both Lean and Theory of Constraints view work-in-process (WIP) as counter to the goals of the organization and counter to the financial health of the firm.
In Sum, the main point is this:
Rather than looking at a value stream, identify the system constraint first. Then, eliminate waste at the system constraint.
That is a simplistic statement, but it also demonstrates the main point I’m trying to make and how to reconcile Lean Thinking with the principles of The Theory of Constraints.
Where Lean and Theory of Constraints Disagree
In Lean, the idea of Profit is explained in the following simple equation:
In Lean: Profit = Price – Cost
Knowing this equation puts Lean squarely on the path toward attacking what is controllable by the organization; in this case, Costs are controllable. This mindset leads, then, to the identification of wastes, and systematically attacking waste, etc.
In the Theory of Constraints, the definition of Profit is confusing and a bit conflated:
Throughput (T) = the rate at which the organization generates money through sales
and Operating Expense:
Operating Expense (OE) = all of the money the organization spends in order to turn inventory into throughput
Given the above, Profit is calculated thus:
Profit = T – OE
So, in the Theory of Constraints, Profit is equivalent to Throughput minus Operating Expense. It is confusing because the definitions of Throughput and Operating Expense are not standard. In itself, that’s not a big deal, but it becomes an issue when trying to adopt the Theory of Constraints as a management method in an organization.
Lean and The The Theory of Constraints differ here, but this is not a big deal. I see it as a minor disagreement and does not impede from these two management methods from working well together.
Another area where Lean and Theory of Constraints differ is in the role of people. Lean places a high value on people and elevates this principle as a Pillar – Respect for People. In the Theory of Constraints, I have not read or seen or experienced a prioritization of people over profit or process. In fact, people aren’t discussed much, from my experience of the Theory of Constraints.
Lean Management and The Theory of Constraints can and do work just fine together. There is no either/or, but instead an “and”. To blend both, one must identify the system constraint, and then systematically eliminate waste from the constraint.