Radically increase your process and project throughput with the theory of constraints

May 14, 20161 like159 views

In a dynamic environment where the product mix and customer requirements are continuously changing, it is critical to quickly identify what is constraining the enterprise from being responsive and from delivering ever increasing value at a reasonable cost to customers.

Radically
increase
your
process
and
project

throughput
with
the
Theory
of
Constraints

In
a
dynamic
environment
where
the
product
mix
and
customer
requirements
are

continuously
changing,
it
is
critical
to
quickly
identify
what
is
constraining
the

enterprise
from
being
responsive
and
from
delivering
ever
increasing
value
at
a

reasonable
cost
to
customers.

The
Theory
of
Constraints
(TOC)
is
a
commonsense
way
to
understand
a
system

(in
this
case,
a
business
process
or
a
project).
TOC
maintains
that
the
throughput
of

every
system
is
limited
by
at
least
one
constraint.
A
constraint
is
anything
that

prevents
the
system
from
achieving
more
of
its
goal.
Only
by
increasing
flow

through
the
constraint
can
overall
throughput
be
increased.
These
constraints
are

the
leverage
points
in
the
system.

The
primary
goal
of
the
Theory
of
Constraints
is
to
guide
management

toward
where
and
how
they
should
focus
their
resources
to
leverage
the
best

return
on
investment.

The
primary
principle
of
TOC
is
to
focus
on
the
weakest
point
of
the
process,

the
constraint
limiting
throughput,
and
leverage
all
improvement
efforts
on

the
constraint.

In
typical
business
processes
and
projects,
the
weakest
link
is
a
constrained

resource
that
limits
the
throughput
of
an
organization.

Finding
and
strengthening
the

constrained
resource
gives
the

greatest
opportunity
for

measurable
improvement,

both
within
individual

processes
and
projects
and

across
the
entire
collection
of

an
organization’s
processes

and
projects.

Focusing on the constraint

TOC
identifies
the
few
things
that
make
a
difference
in
the
system.
It’s
much
easier

to
manage
a
system
when
you
only
need
to
pay
close
attention
to
those
few
things.

Decisions
become
easier
because
the
health
of
the
constraint
indicates
how
well
the

system
is
performing.
If
the
constraint
is
limping,
the
system
is
limping.
If
it’s
well,

all
is
well.

A
constraint
is
a
positive,
not
a
negative.
It
is
an
opportunity
for

management
to
focus
on
what
matters,
instead
of
wasting
their
time

focusing
on
everything.

This
releases
management
from
the
natural
tendency
to
try
and
address
everything

(in
effect,
focus
on
nothing)
resulting
in
a
failure
to
improve.

Focusing steps
TOC’s
five
focusing
steps
to
analyze
and
improve
any
organization
holistically

include:

1. Identify
the
system
constraint

2. Decide
how
to
exploit
(not
waste)
the
system
constraint

3. Subordinate
everything
to
the
above
decision

4. Elevate
the
system
constraint

5. If
in
a
previous
step
a
constraint
was
broken,
don't
let
inertia
become
the

system
constraint,
return
to
step
1.

Identify the constraint
There
are
a
number
of
ways
to
identify
the
constraint
(other
than
by
manager

intuition):

• Where
is
there
a
work
backlog?

• Where
do
most
problems
occur?

• Which
resources
or
tasks
require
the
most
management
attention?

• Which
resources
are
heavily
utilized?

• Which
resource
is
strategic
and
whose
capacity
cannot
easily
be
augmented,

is
expensive,
difficult
to
get,
or
cannot
be
easily
outsourced?

• Which
resources
are
used
by
the
majority
of
the
projects?

Maximize the constraint
To
maximize
the
constraint:

1. Make
certain
it
is
doing
what
it
should
be
doing.

2. Make
certain
it
stops
doing
what
it
should
not
be
doing.

3. Make
certain
it
has
the
right
amount
of
work
to
be
effective.

4. Make
certain
it
has
what
is
needed
to
do
the
job
(may
include

skills/information/data/knowledge,
or
reliability
of
partners/vendors).

5. Make
certain
it
is
protected
from
delays
in
other
parts
of
the
system.

6. Make
certain
there
aren’t
rules
or
business
practices
that
inhibit
the

maximization
of
the
constraint.

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The Theory of Constraints is a methodology created by Eli Goldratt that identifies the most limiting factor, or constraint, that prevents a system from achieving higher performance. The theory states that all systems have at least one constraint. It focuses on improving profitability by first identifying the constraint, then exploiting it to maximize throughput while subordinating other processes. The five steps are: 1) identify the constraint, 2) exploit the constraint, 3) subordinate everything else to the constraint, 4) elevate the performance of the constraint, and 5) repeat the process as new constraints emerge. The goal is to continually strengthen the weakest link in the system.

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A p r i l 2 0 0 5 I S T R AT E G I C F I N A N C E 5 1 A re you familiar with the Theory of Constraints (TOC)? Physicist Eliyahu M. Goldratt introduced this management technique in 1986 in the best- selling novel The Goal. TOC is another operation improvement technique centered on an innov- ative decision-making process. Just like ABM, BPR, CI, and TQM (Activity-Based Management, Business Process Reengineering, Continuous Improvement, and Total Quality Management), TOC is founded on its own philosophy and has its own buzzwords. And like the other operation improvement programs, TOC considers speed, waste reduction, capacity, direct labor use, and the like according to its own unique perspective. But its foremost appeal is its simplicity. TOC is based on three logical, straightforward premises: 1. The only reason that companies do anything is to make money. 2. Anything that a company does to speed up the processes that generate money is appropriate. 3. Each business operation is one big process with many subprocesses. According to TOC, companies that keep these three things in mind will prosper. T O C TA L K TOC’s basic vocabulary emphasizes its philosophy and its three performance measures. Throughput equals sales revenue minus direct materials cost—it measures the speed at which the company makes money. Inventory is the raw materials value tied up in work in process and finished goods. Large amounts of inventory are undesirable because it means that the company has spent money for production that hasn’t generated revenue yet. Operating expenses are all of the costs of operations other than direct materials costs. Under the Theory of Constraints, operating expenses are fixed and therefore irrelevant to any TOC decision. Of the three terms, throughput is the most important. It tells the company that it is achieving its goal of making money. Moreover, increases in Business Management TOCFOR YOU?IS IF YOUR COMPANY IS CONSIDERING THE THEORY OF CONSTRAINTS, HERE ARE FIVE QUICK THINGS TO REMEMBER. B Y L I N D A E . H O L M E S , C M A , A N D A N N B . H E N D R I C K S , C M A , C P A throughput mean that the rate at which the company is making money is increasing. P R O C E S S I M P R O V E M E N T P R O C E D U R E According to Goldratt, there are five basic steps to operations improvement: 1. Identify the system’s constraint(s), and prioritize them according to importance. 2. Exploit the system’s most critical constraint. 3. Subordinate everything else to the action taken in Step 2. 4. Elevate the system’s constraint(s). 5. Repeat Steps 1-4, focusing on the new constraint. (These are paraphrased from The Goal, p. 307.) What these steps accomplish are incremental improvements in the operation as a whole. In Step 1, an assess- ment of the entire process identifies the slowest subprocess. This subprocess is called the constraint or the bottleneck. Identifying the const.

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The document defines SWOT analysis and outlines the 6 steps involved in conducting a SWOT analysis. It begins by defining SWOT analysis as a tool that identifies an organization's strengths, weaknesses, opportunities, and threats. It then lists the 6 steps as: 1) identifying the strategic goal, 2) identifying strengths, 3) identifying weaknesses and threats, 4) analyzing problems, 5) identifying opportunities, and 6) brainstorming strategies to realize opportunities. The document also defines critical success factors as elements necessary for an organization or project to achieve its mission. It lists the major sources of critical success factors as: industry CSFs, CSFs resulting from competitive strategy, environmental CSFs, and temporal CSFs resulting from internal

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Radically increase your process and project throughput with the theory of constraints

1. Radically increase your process and project throughput with the Theory of Constraints In a dynamic environment where the product mix and customer requirements are continuously changing, it is critical to quickly identify what is constraining the enterprise from being responsive and from delivering ever increasing value at a reasonable cost to customers. The Theory of Constraints (TOC) is a commonsense way to understand a system (in this case, a business process or a project). TOC maintains that the throughput of every system is limited by at least one constraint. A constraint is anything that prevents the system from achieving more of its goal. Only by increasing flow through the constraint can overall throughput be increased. These constraints are the leverage points in the system. The primary goal of the Theory of Constraints is to guide management toward where and how they should focus their resources to leverage the best return on investment. The primary principle of TOC is to focus on the weakest point of the process, the constraint limiting throughput, and leverage all improvement efforts on the constraint. In typical business processes and projects, the weakest link is a constrained resource that limits the throughput of an organization.

2. Finding and strengthening the constrained resource gives the greatest opportunity for measurable improvement, both within individual processes and projects and across the entire collection of an organization’s processes and projects. Focusing on the constraint TOC identifies the few things that make a difference in the system. It’s much easier to manage a system when you only need to pay close attention to those few things. Decisions become easier because the health of the constraint indicates how well the system is performing. If the constraint is limping, the system is limping. If it’s well, all is well. A constraint is a positive, not a negative. It is an opportunity for management to focus on what matters, instead of wasting their time focusing on everything.

3. This releases management from the natural tendency to try and address everything (in effect, focus on nothing) resulting in a failure to improve. Focusing steps TOC’s five focusing steps to analyze and improve any organization holistically include: 1. Identify the system constraint 2. Decide how to exploit (not waste) the system constraint 3. Subordinate everything to the above decision 4. Elevate the system constraint 5. If in a previous step a constraint was broken, don't let inertia become the system constraint, return to step 1. Identify the constraint There are a number of ways to identify the constraint (other than by manager intuition): • Where is there a work backlog? • Where do most problems occur? • Which resources or tasks require the most management attention? • Which resources are heavily utilized? • Which resource is strategic and whose capacity cannot easily be augmented, is expensive, difficult to get, or cannot be easily outsourced? • Which resources are used by the majority of the projects? Maximize the constraint To maximize the constraint: 1. Make certain it is doing what it should be doing. 2. Make certain it stops doing what it should not be doing. 3. Make certain it has the right amount of work to be effective. 4. Make certain it has what is needed to do the job (may include skills/information/data/knowledge, or reliability of partners/vendors). 5. Make certain it is protected from delays in other parts of the system. 6. Make certain there aren’t rules or business practices that inhibit the maximization of the constraint.

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