use constraints to make improvements

if you want different results, you must change the system.

by ed mendlowitz
77 ways to wow!

something is blocking the business from achieving its goal of making more money.

that something is what dr. eli m. goldratt, one of the world’s most sought-after business leaders and authors, calls a constraint.

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a constraint is any element or factor that prevents a system from achieving a higher level of performance with respect to its goals. goldratt developed the theory of constraints (toc) to manage business systems better. it is a management philosophy of focusing on the system constraint.

toc can, in fact, be applied to any type of organization – for-profit, not-for-profit, small, large, service, manufacturing and government. it can also be applied to an individual team. accordingly, there are different types of constraints: physical, policy and paradigm. examples of these constraints include capacity, capability, rules, measures, assumptions and beliefs. to succeed, an institution must be able to overcome this wide array of constraints.

also note that existing systems are designed to give you the results you are currently getting. if you want different results, you must change the system.

to overcome organizational constraints, they must first be identified. an examination of what is preventing the organization from improving performance relative to its goal must occur. in other words, the organization must detect its weak link and strengthen it. the business must investigate its policies and procedures to make sure they are not negatively impacting the organization. if they infringe on the final product of the business, they need to be re-evaluated and changed. consideration must also be given to the company’s resources. if a lack of resources is the cause of the constraint, the business must explore other options to obtaining this resource.

to manage different types of constraints, toc has tools in three different areas. the toc thinking processes, performance measurements, and planning and control systems (logistics) are the concentrations.

• the thinking processes provides the tools necessary to identify the core problem or core conflict and the tools needed to deal with it effectively.
• performance measurements allows you to better manage the constraints by determining the level of efficiency within your system.
• lastly, planning and control systems (logistics) deals with the completion of each technique at the right time to coincide with the organization’s schedule.

when the constraint is identified as a policy or procedure, there are certain questions the organization must ask itself. what needs to be changed? what should it be changed to? how to cause the change? by asking these questions, the organization is identifying the root of the problems, identifying and expanding win-win solutions, and developing implementation plans.

within performance measurement there is common dilemma: cost world versus throughput world. toc recognizes that many constraints are caused by traditional cost accounting. in other words, do you make decisions for your business based on your cost accounting systems or on your throughput (the rate at which the system generates money through sales)?

businesses usually use cost accounting to make decisions including product mix (which products should be made), product introduction (feasibility), product discontinuance (delete products), make versus buy, product pricing, bidding on an order, transfer pricing, and profit- and cost-center results.

throughput, inventory and operating expense relationships to conventional financial measures

• throughput = selling price – total variable costs
• net profit = throughput – operating expenses
• return on investment = net profit/inventory

the organizational improvement occurs when throughput increases, while inventory and operating expenses decrease.

the “five focusing steps” for ongoing improvement

given that toc measures are used, the process of ongoing improvement includes the five focusing steps. these five steps are taken from dr. goldratt’s book, “the goal,” which was first published in 1992 and is still being sold. in the book he gives an in-depth explanation of the five focusing steps in relation to ongoing improvement.

they are as follows:

1. identify the system’s constraints.
2. decide how to exploit the system’s constraints.
3. subordinate everything else to the above decision.
4. elevate the system’s constraints.
5. if, in the previous steps, a constraint has been broken, go back to step 1: but don’t allow inertia to cause a system’s constraint.

posted on july 17, 2023