Theory of Constraints- Constraint Management

Theory of constraints, developed by Goldratt, is an approach to solve problems

from any business area. It focuses on the basic objective of business i.e. to make
money & emphasizes that any system generally has only one constraint which can
be used to drive the production of the system. A constraint is any factor that limits
the organization from getting more of whatever it strives for, which is usually profit.

Goldratt defines a five-step process that a supervisor can use to strengthen the
weakest link, or links. In The Goal, Goldratt proves that most organizations have
very few true constraints. Since the focus only needs to be on the constraints,
implementing TOC can result in substantial improvement without tying up a great
deal of resources.

The Five Steps of the Theory of Constraints:

1.
2.

3.

4.

5.

Identify the System Constraint

The part of a system that constitutes its weakest link can be either
physical or a policy.
Decide How to Exploit the Constraint
Goldratt instructs the change agent to obtain as much capability as
possible from a constraining component, without undergoing expensive
changes or upgrades.
Subordinate Everything Else
The non-constraint components of the system must be adjusted to a
"setting" that will enable the constraint to operate at maximum
effectiveness. Once this has been done, the overall system is
evaluated to determine if the constraint has shifted to another
component. If the constraint has been eliminated, the change agent
jumps to step five.
Elevate the Constraint
"Elevating" the constraint refers to taking whatever action is necessary
to eliminate the constraint. This step is only considered if steps two
and three have not been successful. Major changes to the existing
system are considered at this step.
Return to Step One, But dont let Inertia become the constraint

Goldratt also provides a foundation for achieving change through TOC by defining a
set of three essential measurements that drive the change process. He correctly
realized that conventional accounting systems do not support TOC, or lean-based
efforts. The following measures are the only way to increase profit through TOC:
1. Throughput

The rate at which the entire organization generates money through sales for
a product or service. Throughput represents all the money coming into an
organization.
2. Inventory
All the money the organization invests in things it intends to sell. Inventory
represents all the money tied-up inside an organization.
3. Operating Expense
Operating Expense is all the money an organization spends turning Inventory
into Throughput. It represents the money going-out of the organization.
All three of these measures are interdependent. This means that a change in one
will result in a change in one or more of the other two. Therefore, to improve your
organization using TOC, you as the change agent would adhere to the following
formula:
Maximize Throughput while Minimizing Inventory and Operating Expense
Unlike conventional methods of reducing costs first & then trying to maximize
profits , TOC says that we must do the changes in the following sequence:
1. Maximize throughput- Exploit the constraint first
2. Reduce Inventory
3. Reduce operating expenses
This approach is logical as well because if we have reduced inventory & operating
expenses then there is no driver for increasing profits as these are essential to make
money. So the scope to increase throughput is reduced in the first step itself.

Productivity:
Typically productivity is measured in terms of output per labour hour. But the goal of
the organization is to make money which is not ensured by this definition of
measurement. Higher productivity of one department might increase costs by piling
up inventory in front of the next department & hence deviating from the goal of
organization. So TOC suggests that anything that brings you closer to the overall
objective can be a measurement for productivity.

Drum-Buffer-Rope
Drum-buffer-rope is a manufacturing execution methodology, named for its three
components.
1. Drum

The drum is the bottleneck, defining the overall speed of the system. The
system cannot go faster than the drum.
2. Buffer
The buffer is the material upstream of the bottleneck and has to make sure
that the drum is never starved.
3. Rope
The rope is a signal or information from the buffer to the beginning of the
line.
If the drum processes parts, the buffer moves forward. The rope is a signal when
material is taken out, and gives an information to replenish another part at the
beginning of the line.
Simplified Drum-Buffer-Rope
Simplified Drum-Buffer-Rope is very similar to Drum-Buffer-Rope. The key to
simplifying the approach is the assumption that the market or the customer is the
largest bottleneck. I.e. in average your system always has enough capacity to
satisfy demand. The rope then spans the entire length of the system.
Advantages of DBR approach as follows:
1. Prevents overloading of the system
2. Measures workload in the system as time
Disadvantages of DBR approach as follows:
1. No consideration for shifting bottlenecks
2. Drum-buffer-rope considers only starving of the bottlenecks but doesnt
considering blocking
Critical Chain Project Management
Another valuable asset in the constraint management toolbox is called critical
chain. The critical chain concept provides an effective way to schedule project
activities by effectively accommodating uncertainty and resolving simultaneous
needs for the same resource.
The result of applying Critical Chain scheduling and resource allocation is a higher
probability of completing projects on time, and, in some cases, actually shortening
total project duration.
The key elements of Critical Chain Project Management include:
1. The Critical Chain: Critical chain is the set of tasks that determines project
duration, considering both task precedence and resource dependencies. The
critical chain constitutes the constraint that determines the earliest date that

a project can finish, its crucial to monitor progress along the critical chain,
because it reflects the progress of the entire project.
2. The Project Buffer: A project buffer is established at the end of the final
activity on the critical chain, and before the required delivery date. Its
designed to protect against extreme variability and uncertainty that may
impact the critical chain.

3. The Feeding Buffer: Each activity that feeds the critical chain is buffered
with some reasonable amount of time to protect against variability in that
particular task, or sequence of tasks.

4. Buffer Management: A means of control that, at any time in the project life,
affords project managers the opportunity to determine how much of various
buffers have been used and to take action as soon as the project appears to
be in danger of exceeding its scheduled time.

5. Drum: The drum concept requires choosing one of the most heavily loaded
resources as the drum and staggering multiple projects according to the
availability of that resource.

Essentially Goldratt says that the companies need to operate as a single

synchronized system to make money otherwise individual departments would show
good results but the company as a whole might suffer. TOC believes that it is not
necessary that if everyone works well the overall goal will be achieved, it believes
that everyone must work based on the demand , then the company will make
money.