Theory of Constraints

• The Goal (Movie)

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Learning Outcomes
• Understand the importance of managing different types of constraints
and bottlenecks.

• Discuss how the Theory of Constraints (TOC) can improve operational

performance

• Identify the different steps in the TOC Process of Ongoing

Improvement

• Understand how to use the Drum-Buffer-Rope (DBR) Scheduling

Methodology

• Appreciate the key advantages and disadvantages of the Theory of

Constraints
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Introduction
• Goldratt (1988), a physicist, developed the Theory of Constraints
(TOC) as “an overall theory for running an organisation”.

• TOC relates to “Systems Thinking”: a philosophy that recognises

that the whole is much more than the sum of its parts, and that a
complex web of interrelationships exist within any system.

•TOC promotes “Systems Thinking”: i.e. global optimization rather

than local optimization.

• The TOC “systems perspective” recognises that there are limitations

to the performance of a system that are caused by a very small
number of elements in the system [ i.e. the “constraint(s)” ]

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Bottlenecks
• A bottleneck (or constraint) is any resource whose capacity limits the
organization’s ability to meet volume, mix, or fluctuating demand
requirements

• Bottlenecks can both be internal or external to the firm and are

typically the process with the lowest capacity

• A bottleneck can be identified in several different ways:

1. If it has the highest total time per unit processed
2. If it has the highest average utilization and total workload
3. If a reduction of processing time would reduce the average
throughput time for the entire process
4. Bottlenecks can be identified by using average utilization
5. Variability creates floating bottlenecks and increased complexity

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 TOC Examples
• The Theory of Constraints (TOC) approach has been applied by many
leading companies and industries, including:

Private Sector: Public Sector:

3M USA Department of Defence
Amazon (Air Force, Marine Corps, & Navy)
Boeing NASA
Delta Airlines Israeli Air Force
Ford Motor Company Pretoria Academic Hospital
General Electric National Health Service (NHS)
General Motors United Nations (UN)
Lucent Technologies Habitat for Humanity

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Impact of TOC
on Operational Performance
• Research suggests that TOC can improve operational performance
across a range of dimensions, including:

- Greater levels of output

- Reduced Work in Process (WIP) inventory
- Reduced inventory levels
- Shorter manufacturing lead times,
- Reduced standard deviation of cycle time.
- Improved delivery performance
(Reimer, 1991; Wahlers and Cox, 1994; Darlington, 1995).

• Example 1: Proctor and Gamble reduced their inventory by

US$600 million.

• Example 2: Ford Motor Company Electronics Division reduced their

inventory by US$100 million (Gardiner et al., 1994).
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 The TOC Concept
The central concept of the TOC approach can be summarised as:
Eliyahu Goldratt
theory of constraints
(i). Every system must have at least one constraint.
& bottleneck analysis
• A constraint is defined as “...anything that limits a system from achieving higher
performance versus its goal” (Goldratt, 1988, p. 453).

• Importantly: ‘‘constraints determine the performance of a system.’’

• Constraints are processes that limit performance

(ii). The existence of constraints represents opportunities for improvement.

• Contrary to conventional thinking, TOC views constraints as positive, not

negative.

• Because constraints determine the performance of a system, a gradual

elevation of the system’s constraints will improve the systems performance.
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The Linked Process Pipe Analogy

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 Theory of Constraints (TOC)
• According to the APICS Dictionary, a constraint (or bottleneck) is ‘‘any
element or factor that prevents a system from achieving a higher level of
performance with respect to its goal’’ (Blackstone and Cox, 2004).

• Within any system at least one constraint (bottleneck) exists that limits
the ability of the system to achieve higher levels of performance, relative
to its goal.

• Maximum utilization of the constraint therefore should lead to maximum

output from the system.

• However, when non-constraint processes operate at 100% of their

capacity this does not increase output. Instead, it creates excess
inventory.
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Types Of Constraint
Within any company, there can be three different types of constraint:

(i). Physical constraint: can include a machine, robot, or process with

limited capacity or a raw material.

(ii). Policy constraints: often arise when the external environment

changes while the policies of the company remain unchanged.

• Policy constraints are usually within the control of the management of

the organisation (e.g. different operational measures)

(iii). Behavioural constraints occur when performance measures or

policies lead to behaviours that constrain a system’s performance

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Constraint typology

INTERNAL EXTERNAL

Process Constraints Material Constraint

(e.g. Machine time) (e.g. Insufficient materials)

Policy Constraints Market Constraint

(e.g. No overtime) (e.g. Insufficient demand)

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 The Nine Optimized Production
Technology (OPT) rules
1. Balance flow, not capacity.

2. Level of utilization of a non-bottleneck is determined not by its own potential but by

some other constraint in the system.

3. Utilization and activation of a resource are not synonymous.

4. An hour lost at a bottleneck is an hour lost for the total system.

5. An hour saved at a non-bottleneck is just a mirage.

6. Bottlenecks govern both throughput and inventory in the system.

7. A transfer batch may not, and many times should not, be equal to the process
batch.

8. The process batch should be variable, not fixed.

9. Schedules should be established by looking at all of the constraints

simultaneously. Lead times are a result of a schedule and cannot be predetermined.
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 The Goal
• The Goal of a business is to make more money, … in the present and
in the future.

• The Goal describes a number of heuristics and techniques that have

become the foundation for TOC practice.

• The Goal outlines the Five Focusing Steps (5FS), the process by which
TOC concepts are implemented

• This is often called the Process of Ongoing Improvement.

Reading:
Goldratt, E. M. & Cox, J. (2004)
The Goal, A Process of Ongoing Improvement,
third revised edition, Gower Publishing Ltd, Aldershot.
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 TOC Process of Ongoing Improvement

TOC emphasises a five step process of ongoing improvement.

STEP (1): Identify the system’s constraint(s).

STEP (2): Decide how to exploit the system’s constraint(s)

STEP (3): Subordinate everything else to the above decision.

STEP (4): Elevate the system’s constraint(s).

STEP (5): If in any of the previous steps a constraint is broken, go

back to Step (1). Do not let inertia become the next constraint.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
TOC Process of Ongoing Improvement

1. Identify
Constraint

5.
2. Exploit
Overcome
constraint
inertia

3.
4. Evaluate Subordinate
all resources
constraint
to global
decision

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
STEP (1): Identify the system’s constraint(s)
• Constraints may be physical (e.g. materials, machines, people,
demand level) or managerial.

• Generally, organisations have very few physical constraints but

many managerial constraints in the form of policies, procedures and
rules and methods.

• It is important to identify these constraints and prioritise them

according to their impact on the goal(s) of the organisation.

• Since there are few constraints in any system, management of

these few key points allows for effective control of the entire system.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 STEP (2): Decide how to
exploit the system’s constraint(s)

• Exploitation of the constraint seeks to achieve the highest rate of

throughput possible within the confines of the system’s resources.

• If the constraint is physical, the objective is to make the constraint as

effective as possible.

• However, a managerial constraint should not be exploited but be

eliminated and replaced with a policy which will support increased
throughput.

• Strategic buffers should be included at the constraint and at other

system control points to protect the ability of the system to produce the
schedule.
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Video Example
Herby

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 STEP (3): Subordinate everything else
to the above decision
• Because constraints dictate a firm’s throughput, resource
synchronisation with the constraint improves resource utilisation.

• Every other process in the system (i.e. nonconstraints) must be

adjusted to support the maximum effectiveness of the constraint.

• Nonconstraint resources contain “productive capacity” (i.e. capacity

to support the constraint throughput) and “idle capacity” (i.e. capacity to
protect against disruptions and capacity not needed)

• If nonconstraint resources are used beyond their productive capacity

to support the constraint, they do not improve throughput but increase
unnecessary inventory.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Video Example

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STEP (4): Elevate the system’s constraint(s)
• If existing constraints are still the most critical in the system, rigorous
improvement efforts on these constraints will improve their performance.

• As the performance of the constraints improve, the potential of

nonconstraint resources can be better realised, leading to improvements
in overall system performance.

• Eventually the system will encounter a new constraint!

• Should additional output be necessary, the fourth step elevates

throughput by adding capacity to the system at the constraint location.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Video Example

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STEP (5): If in any of the previous steps a constraint is broken, go
back to Step (1). Do not let inertia become the next constraint.

• As the constraint effective utilization increases, it may cease to be a

constraint as another process becomes one.

• In that case the emphasis shifts to the new process constraint.

• This makes the TOC a continuous process.

• It is critical for the organisation to recognise that as the business

environment changes, business policy has to be refined to take
account of those changes.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Three reasons for a loss of throughput
1. The constraint is "broken."

• Since no excess capacity exists on a constraint, the loss of capacity

will directly result in a loss of throughput for the entire business.

• One major solution to this potential problem is to conduct preventive

maintenance.

2. The constraint is starved.

• In this condition, there is no inventory from the preceding processes

available for work by the constraint.

• The solution to this problem is using a buffer in front of the

constraint. The buffer is inventory released early into the system.
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Three reasons for a loss of throughput

3. The constraint is blocked.

• In this condition, the constraint is available and there is material

available on which to work, but there is no physical space in which
to place the completed units.

• The solution to this potential problem is to have a Space Buffer

available after the constraint in the process in which to place
production completed by the constraint operation.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 How can we improve
Physical Constraints?
• Techniques for optimizing capacity constraints:

– Eliminate periods of idle time

– Reduce setup time and run time per unit (e.g. SMED)
– Improve quality control
– Reduce the workload
– Purchase additional capacity
– Stagger lunch times and breaks so the constraint is always processing.
– Have multi-skilled employees that can operate the constraint
– Operate the constraint 24hrs a day, and over weekends

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Drum-Buffer-Rope (DBR) Scheduling
• The name of the DBR Scheduling is based on metaphors developed in The
Goal (Goldratt and Cox, 1984).

• The DBR scheduling methodology synchronises resources and material

utilisation in an organisation.

• Resources and materials are used only at a level that contributes to the
organisation’s ability to achieve throughput.

• DBR is intended to address market constraints (i.e. when demand is less

than resource capacity) or physical constraints (i.e. when resource capacity is
less than demand),

• But NOT policy constraints (i.e. formal or informal rules that limit productive
capacity).

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 The Drum

• The constraint, or Drum, determines the pace of production.

• The Drum is the system schedule or the pace at which the constraint
works (i.e. the drumbeat).

• It represents the “Master Schedule” for the operation, which is

focused around the pace of throughput as defined by the constraint.

• All non-constraint processes need to understand this "drumbeat"

schedule.
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 The Rope
• The Rope is the material release mechanism; it releases material to
the first operation at a pace determined by the constraint.

• The Rope subordinates non-constraint processes to the constraint,

releasing inventory to the production system based on the rate of
consumption at the constraint.

• Rope provides communications between critical control points to

ensure their synchronisation.

• The analogy is that the rope "pulls" production to the constraint for
necessary processing.

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 The Buffer
• Time Buffer is strategically placed inventory to protect the system’s output
from the variations that occur in the system.

• Material release is offset from the constraint schedule by a fixed amount of

time, the Buffer.

• Buffers are strategically placed to protect shipping dates and to prevent

constraint processes from starvation due to a lack of materials.

• Since it is so important that the constraint never be "starved" for needed

inventory, a "time" buffer is often established in front of the constraint.

• The idea is to protect the system from normal variations and thereby protect
the constraint from disruptions or material starvation.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Buffers
• TOC makes use of three distinct buffer types: time, shipping, and capacity.

• Time buffers offset the release of raw materials by the protection or buffer
time allowed.

• The amount of work-in-process inventory in the system is the physical

representation of the amount of protection allotted to a critical resource as
measured by time.

• Shipping buffers maintain a small amount of finished good inventory used

to protect delivery performance.

• Further, shipping buffers increase responsiveness to market demand by

allowing the system to deliver an item in less than the manufacturing lead time.

• Capacity buffers exist in a TOC system to the extent that non-constrained

resources have extra capacity.

• Capacity buffers help to maintain the time and shipping buffers during
periods in which the processes experience fluctuations in output.
Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Buffer Management
• Because random disruptions are inevitable in any organisation, the DBR
scheduling methodology provides a mechanism for protecting total
throughput of the system by the use of Time Buffers (TBs).

• Time-buffers contain inventory and protect the constraint schedule from

the effects of disruptions at non-constraint resources.

• The use of Time Buffers as an information system to effectively manage

and improve throughput is referred to as Buffer Management.

• It provides information based on planned and actual performance and is

used for monitoring the inventory in front of a protected resource to compare
its actual and planned performance (Schragenheim and Ronen, 1990).

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Types of Time Buffers
• Three types of Time Buffers (TBs) are used in buffer management
(Lockamy and Cox, 1991):

(1). Constraint buffers: contain parts which are expected to wait a certain
amount of time in front of the Constraint.

• Constraint buffers protect the constraint’s planned schedule.

(2). Assembly buffers: contain parts/subassemblies which are not processed

by a constraint, but need to be assembled with constraint parts.

(3). Shipping buffers: contain products which are expected to be finished and
ready to ship at a certain time before the due date, thus protecting delivery
performance.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Typical Drum-Buffer-Rope (DBR) configurations

(a). Product line with market constraint

Rope (information flow)

shipping
buffer
material shipping
release schedule

(b). Product line with capacity constraint

Rope (information flow)

constraint

shipping
buffer
space
buffer

buffer
material shipping
release schedule

Non-Constraint Constraint
Operation Operation
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 TOC Performance Measures
• TOC Operational Performance measures:

(1) Throughput (T): the rate at which the system generates money
through sales (output which is not sold is not throughput but inventory).

• Throughput is represented as sales minus “totally variable” cost.

(2) Inventory (I): all the money invested in things the system intends to
sell.

• Inventory includes any physical inventories such as raw material, Work

In Process (WIP), unsold finished products, and includes tools, building,
capital equipment and furnishings.

(3) Operating expense (OE): all the money the system spends in turning
inventory into throughput.

• Operating expense includes expenditures such as direct and indirect

labour, supplies, outside contractors and interest payments.
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 TOC Performance Measures
• World class companies are increasingly competing on competitive edges that
are nonfinancial in nature: throughput time, inventory turnover, process
flexibility, product introduction responsiveness.

• Consequently, there is a mismatch between the goal of the company and the
measures used by traditional accounting practices.

• Management traditionally emphasises reducing Operating Expenses (OE)

first, followed by increasing Throughput (T) and, finally, reducing Inventory (I).

• Goldratt suggests that the biggest gains can be achieved by first increasing
Throughput (T), then by reducing Inventory (I). The reduction of Operating
Expenses (OE) should be the last priority.

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 TOC Advantages

– Improves capacity decisions in the short-run

– Avoids build up of inventory

– Aids in process understanding

– Avoids local optimization

– Improves communication between departments

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 TOC Disadvantages
• A common criticism is that TOC produces results that are feasible but not
always optimal (i.e. process optimisation).

• While TOC heuristics are available, they are sometimes ill defined or lack
rigorous testing.

• TOC ignores long-run considerations and can lead firms away from their
strategy

• Places less emphasis on continuous improvement in non-constrained

processes (i.e. Lean Production)

• TOC is not a substitute for other accounting methods

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Conclusions
• Constraint (i.e. Bottlenecks) typology:
- Physical Constraints
- Policy Constraints
- Behavioural Constraints

• The TOC Process of Ongoing Improvement:

STEP (1): Identify the system’s constraint(s).
STEP (2): Decide how to exploit the system’s constraint(s)
STEP (3): Subordinate everything else to the above decision.
STEP (4): Elevate the system’s constraint(s).
STEP (5): If in any of the previous steps a constraint is broken,
go back to Step (1). Do not let inertia become the next constraint.

• The Drum-Buffer-Rope (DBR) Scheduling Methodology

• TOC Operational Performance Measures:

- Throughput
- Inventory
- Operating Expense

Slack, Chambers and Johnston, Operations Management 5 th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007