Theory of Constraints
The Theory of Constraints (TOC) emerged from Goldratt's book, The Goal. TOC argues that it makes no sense to run everything in your business flat out if there is a bottleneck or constraint that governs production.
Liebig's Law of the Minimum states that growth is controlled not by the total of resources available, but by the scarcest resource--the constraint.
What is the Goal? Maximize throughput while minimizing inventory and operating expense.
Theory of Contraints Process
The theory of constraints consists of five steps:
- Identify the constraint. All businesses are chains of systems. The constraint is the poorest performing link in the chain.
- Exploit the constraint. (Optimize its performance.) Break "dummy" and "policy" constraints.
- Pace every other process to the speed of the constraint. (Reduce overproduction, work in process, inventory, etc.)
- Invest in the constraint. If production is still too low, invest in reducing the constraint (e.g., double the number of people or machines performing the constraint process).
- Repeat until you get the desired performance. (There may be a new constraint.)
There are four types of constraints:
- Resource constraint (people, machines, materials). In a manufacturing company, one machine may only be able to produce 10 widgets per hour while the other machines can do 100. In a hospital, the number of beds might be a constraint or the number of physicians in the emergency department or the turnaround time of lab results.
- Market constraints: demand is greater than production capacity (e.g., recession).
- Policy constraints ("We've always done it this way, but no one know why.") Some HR departments have a policy that every job opening must be opened to existing employees for a period of time (e.g., 5 days). The majority of job openings are for entry level positions that no existing employee wants. Eliminating this policy for entry level jobs accelerates hiring of entry level personnel like bank tellers or call center representatives.
- Dummy constraints: constraints caused by low cost, easily expandable resources (e.g., phone lines, faxes, printers, etc.)
Exploiting the Constraint
There are simple ways of exploiting and breaking the constraint:
- Resource Constraints are rarely used at 100% of capacity. How can you increase utilization to 100%? How can you reduce the non-value added (i.e., wait time) for the resource. Toyota reduced changeover time from an hour to three minutes or less increasing the use of all machinery. In a hospital, preventing operating room cancellations by ensuring every patient has everything needed to begin surgery leads to greater throughput.
What bottleneck in your business could be optimized to run at full capacity?
- Market Constraints: it's hard to change the market, but it is possible to discover new applications for existing products that will create new markets.
- Policy Constraints: Changing call center measures from length of call (minutes) to first call yield (one call does it all; no repeat calls) can increase customer satisfaction and reduce the total call volume.
What archaic policies could be eliminated or rewritten to optimize throughput and customer satisfaction?
- Dummy Constraints: In a hospital ICU, adding a cleaning person (low cost relative to RNs) can accelerate the availability of ICU beds. Moving an order printer closer to the CT scans can speed up exams. Giving office workers their own multifunction printer/fax/scanner can eliminate unnecessary commuting to a centralized printer and eliminate rework caused by people taking more than their own printout.
Get the Idea?
A little analysis will quickly reveal the constraints in any system. Then, there are some pretty simple and inexpensive solutions to constraints: eliminate silly, outdated policies; spend a little to eliminate dummy constraints which will free up more expensive constraints; optimize the use of key resources; stop overusing non-key resources (overproduction).
If most companies operate at a fraction of their capability, what could you accomplish by eliminating constraints?
QI Macros contains a Theory of Constraints template to help with your documentation along the way.
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