Theory of constraints: Difference between revisions

Content deleted Content added

Inline

Revision as of 06:16, 4 February 2006

Theory of constraints (TOC) is a body of knowledge on the effective management of (mainly business) organizations, as systems. The author is Eliyahu M. Goldratt, with many others contributing to the body of knowledge. The most recent development in TOC is the Viable Vision offer.

Basic concepts

All real-world systems have at least one constraint, otherwise they would be capable of infinite throughput, which is clearly impossible. This idea is similar to Liebig's Law of the Minimum.

TOC claims that a real-world system with more than three constraints is extremely unlikely. This claim is based on linear programming models, which are capable of solving optimization problems for systems with many hundreds of constraints. Researchers found that all but a few such solutions were so unstable that they would be completely impractical amid the noise of a real-world system. The stability had a strong correlation to the number of constraints in the problem; the more constraints, the less stability. TOC practitioners claim that in practice three constraints is the realistic maximum.

A major implication of this is that managing a complex system or organization can be made both simpler and more effective by providing managers with a few specific areas on which to focus -- maximizing performance in the areas of key constraints, or "elevating" the constraint (making it less constraining).

Another key concept of the Theory of Constraints is that variation (in production and material transfer times) prevents the operation of a balanced factory at 100 percent capacity. This concept is illustrated in Goldratt and Cox's The Goal by a matchsticks-and-dice simulation in which the players represent production stations. During each turn, each player passes the lesser of his dice roll (his station's capacity for that turn) and the number of matchsticks he has (work waiting at his station) to the next person. Although each station has a theoretical average capacity of 3.5 units per turn, the simulated factory's overall production is somewhat less because high die rolls, which are wasted when no work is available, do not make up for the low ones.

Five Focusing Steps (5FS)

These are the original Goldratt "process of ongoing improvement" (POOGI) steps for identifying, exploiting and managing the system's constraints, whether the system is manufacturing, distribution, sales, or project management.

Identify the system's constraint(s).
Decide how to exploit the constraint(s).
Subordinate everything else to the above decision.
Elevate the constraint.
If, in any of the above steps, the constraint has been broken, go back to Step 1.

The 0th step is to agree on the goal of the system and choose global measures of progress towards it.

The thinking process (TP)

The thinking processes are generic tools to help people walk through a buy-in process. They are also useful tools for any kind of human interactions. The buy-in process has the following steps (see resistance to change)

Gain agreement on the problem
Gain agreement on the direction for a solution
Gain agreement that the solution solves the problem
Agree to overcome any potential negative ramifications
Agree to overcome any obstacles to implementation

The thinking process, as codified by Goldratt and others:

Current Reality Tree (CRT, similar to the current state map used by many organizations) - evaluates the network of cause-effect relations between the undesirable effects (UDE's, also known as gap elements) and helps to pinpoint the root cause(s) of most of the undesirable effects.
Evaporating Cloud (conflict resolution diagram or CRD) - solves conflicts that usually perpetuate the causes for an undesirable situation.
Core Conflict Cloud (CCC) - A combination of conflict clouds based several UDE's. Looking for deeper conflicts that create the undesirable effects.
Future Reality Tree (FRT, similar to a future state map) - Once some actions (injections) are chosen (not necessarily detailed) to solve the root cause(s) uncovered in the CRT and to resolve the conflict in the CRD the FRT shows the future states of the system and helps to identify possible negative outcomes of the changes (Negative Branches) and to prune them before implementing the changes.
Negative Branch Reservations (NBR) - Identify potential negative ramifications of any action (such as an injection, or a half-baked idea). The goal of the NBR is to understand the causal path between the action and negative ramifications so that they negative effect can be "trimmed."
Prerequisite Tree (PRT) - states that all of the intermediate objectives necessary to carry out an action chosen and the obstacles that will be overcome in the process.
Transition Tree (TT) - describes in detail the action that will lead to the fulfilment of a plan to implement chances (outlined on a PRT or not).
Strategy & Tactics (S&T) - the overall project plan and metrics that will lead to a successful implementation and the ongoing loop through POOGI.

Some observers note that these processes are not fundamentally very different from some other management change models such as "Plan-Do-Check-Adjust" or "Survey-Assess-Decide-Implement-Evaluate", but the way they can be used is clearer and more straightforward, more on this can be seen on Goldratt's Theory of Constraints - A Systems Approach to Continuous Improvement by William Dettmer ISBN 0-87389-370-0.

Throughput Accounting

Throughput accounting is Goldratt's alternative to cost based accounting. It is here that the terms Throughput, Investment and Operating Expense (T, I and OE) are redefined to make better decisions in the company.

Application-specific TOC solutions

Operations

Within manufacturing operations and operations management, the solution seeks to pull materials through the system, rather than push them into the system.

Drum-Buffer-Rope

A fundamental principle of "Synchronous Manufacturing" can be illustrated by the example of an auditorium with one exit. If the people are instructed to leave the auditorium, the rate at which people can walk through the door is the same, regardless of the number of people in the auditorium. The particulars of the doorway set the rate (#/time) at which people can exit. The capacity of a factory to produce a certain number of products in a certain period of time is likened to the number of people who can walk through the doorway in a given period of time. The inventory of materials in process is like the number of people in the auditorium.

The realization that the inventory on hand is not simply related to the factory output is one of the most basic and important underpinnings of SM.

Supply Chain / Logistics

The solution for supply chain is to move to a replenishment model, rather than a forecast model.

TOC-Distribution
TOC-VMI

Finance and Accounting

Use throughput accounting with Th, OE, and I to make decisions. 2

Project Management

Critical Chain Project Management

Marketing and Sales

While originally focused on manufacturing and logistics, TOC has expanded lately into sales management. First data shows that the sales system is massively constrained and TOC offers significant opportunity to increase enterprise throughput = sales results

Solution for Sales

The Six Necessary and Sufficient Questions relating to Technology

What is the real power of the technology?
What limitation does it diminish?
What old rules helped accommodate the limitation?
What are the new rules that should be used now?
In light of the change in rules, what changes are required to the technology?
How to cause the change (the new win/win business model)?

Development and practice

TOC has been initiated by Eliyahu M. Goldratt and is being actively developed by a loosely coupled community of practitioners around the world. TOC is sometimes referred to as "Constraint Management".

References

Novels

Eliyahu M. Goldratt and Jeff Cox. The Goal: A Process of Ongoing Improvement. ISBN 0884270610
Eliyahu M. Goldratt. It's Not Luck. ISBN 0884271153
Eliyahu M. Goldratt. Critical Chain. ISBN 0884271536
Eliyahu M. Goldratt, Eli Schragenheim and Carol A. Ptak. Necessary But Not Sufficient. ISBN 0884271706
Richard Klapholz and Alex Klarman The Cash Machine - Using The Theory of Constraints for Sales Management ISBN 0884271773
Ray Immelman. Great Boss-Dead Boss. ISBN 0974036919