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Theory of Constraints - 5 Focusing Steps

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Theory of Constraints (TOC) is the most powerful methodology available for improving the output of a given set of resources. Given the industry wide limited availability of suitably skilled labour, the rapid and effective adoption of a TOC approach is critical for companies to maximise their profitability and growth. The Theory of Constraints takes a holistic view of the business and applies some simple, common sense principles. For any given manufacturing system, the net output of the system will be governed by the process with the lowest capacity (the constraint or bottleneck process). All efforts to improve the systems productivity are focused on improving the output of this one process. In order to generate the greatest return, for the least effort and expense the improvement efforts are undertaken in the following sequence, after each step is completed checks are made to see if the process in question is still the constraint (ie ask "have the improvements now elevated the targeted constraints capacity so that it is no longer the weakest link?"). Once the targeted resource is no longer the constraint, the focus shifts to the new constraint and the process restarts.
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Content Preview
Technology Roadmap for the Recreational Boat Building Sector
Theory of Constraints
Business Type
Applicability
Design & Con / Jobbing
Powerful
Configure to Order
Powerful
Make to Order/Stock
Powerful
Continuous Batch
Powerful

Theory of Constraints (TOC) is the most powerful methodology available for
improving the output of a given set of resources. Given the industry wide limited
availability of suitably skilled labour, the rapid and effective adoption of a TOC
approach is critical for companies to maximise their profitability and growth.
The Theory of Constraints takes a holistic view of the business and applies some
simple, common sense principles. For any given manufacturing system, the net
output of the system will be governed by the process with the lowest capacity (the
constraint or bottleneck process). All efforts to improve the systems productivity are
focused on improving the output of this one process. In order to generate the greatest
return, for the least effort and expense the improvement efforts are undertaken in the
following sequence, after each step is completed checks are made to see if the process
in question is still the constraint (ie ask “have the improvements now elevated the
targeted constraints capacity so that it is no longer the weakest link?”). Once the
targeted resource is no longer the constraint, the focus shifts to the new constraint and
the process restarts.



Theory of Constraints - 5 Focusing Steps

STEP 1: IDENTIFY the constraint:


“Finding the weakest link in the chain of processes”

STEP 2: EXPLOIT the constraint

“Running the constraint in the most effective way”


STEP 3: SUBORDINATE non-constraints

“Compromising other processes to assist the
constraint”


STEP 4: ELEVATE the constraint
“Additional resources for the constraint”


STEP 5: REPEAT the process with the new constraint




Step one: Identify the system’s constraint.
The first step is to identify which resource represents the constraint (limiting process).
This may be internal (the resource with the least capacity) or external (if the market is
not consuming your potential output). Whether it is internal or external to the
business, the constraint becomes the focus of all improvement activities.


Page 1

Technology Roadmap for the Recreational Boat Building Sector
Step two: Exploit the system’s constraint.
Determine how to work with the system’s constraint so as to maximise throughput. If
the constraint is the market consumption, it means deciding how to capture more
sales. If the constraint is an internal resource, it means ensuring that it is productive at
its highest rate, for the greatest proportion of the available time, with the lowest reject
or rework rates possible. This may involve setup time reduction, improving cell
layout, optimising operating methods, pre-inspection of work entering the constraint
etc.

Step three: Subordinate everything else to the constraint.
This is a major shift for many companies. It involves changing the focus away from
running non-constraints in their most efficient manner, to a holistic view of running
resources in a way that benefits the system as a whole. While this may seem counter
intuitive, a change that inconveniences a non-constraint to the benefit of the constraint
process will increase the entire output of the system. The most common examples of
this are:
• Changing the sequence of work which necessitates extra setups for non-constraint
processes, but reduces or simplifies the setups at the constraint.
• Shifting staff away from non-constraints to assist at the constraint whenever they
are needed (eg during setups)
• Reallocating some of the constraints tasks such as materials handling, quality
assurance and parts counting to staff working at processes before and after the
constraint.
• Giving the constraint priority access to shared resources such as cranes or
forklifts.
This can be very frustrating for non-constraint process operators, and education and
understanding of the reasons for the changes are vital to its success. It is critical that
workplace measures and rewards are changed to reflect the new desired approach.
Subordinating non-constraints can be an extremely cost effective means of
maximising throughput of the system.

Step four: Elevate the system’s constraint.
In previous steps, you ensure that the organisation is optimised via nothing more than
policy and method changes. These are essentially zero cost improvements, which
should always be exhausted before making significant expenditure on additional
resources. However, if these steps are insufficient to “break the constraint” (ie
increase its capacity above the capacity of the next lowest process), then it is desirable
to invest in additional resources at the constraint. For example:
• Upgrading equipment or purchasing additional equipment
• Running overtime
• Hiring more staff etc

Step five: Repeat the process.
Once you have "broken" a constraint, go back to step one. This is a reminder that all
of the policies you have established in the organisation based on one constraint will
likely not apply once the constraint lies elsewhere!


Page 2

Technology Roadmap for the Recreational Boat Building Sector
In addition to providing tremendous productivity improvements for minimal
investment, TOC simplifies the management and operational planning. The constraint
(or constraints if you have two processes with very similar low capacity, and a
changing demand on the system), become the sole focus for capacity planning.
Strategic inventory buffers are placed before the constraint process/es to protect the
constraint against variability in the supply, and then work may be released at the rate
of consumption at the constraint. This minimises the amount of work in progress,
frees up floor space, and improves overall effectiveness. The scheduler knows that as
long as the constraint is managed, the rest of the system has the capacity to cope.
When this is no longer the case, you know that there is a new constraint, and the focus
shifts to the new constraint.

Throughput Accounting
Another key strength of Theory of Constraints is that it offers a simple powerful
means of measuring and evaluating financial benefit. Traditional accounting practices
can show the company is making a profit when it is making huge amounts of stock it
can’t sell. Such “paper profits” lead to poor decision making and even worse
financial performance. Theory of Constraints offers a simple effective way of
measuring and evaluating financial performance/benefits. There are three key
measures:
Throughput (T)
Sales revenue less the true variable cost of sales (eg
materials, delivery costs, commissions)
Operating Expense (O)
The fixed costs of running the business (eg labour, rent,
insurance)
Investment/Inventory (I) The amount of money tied up in the business (eg building
assets, furniture, stock, materials etc)
Note labour (excluding casual labour) is a fixed cost, permanent employees cost you
the same whether they have work to do, or are idle.
In theory of constraints the challenge is to:
1. Increase Throughput
2. Decrease Operating Expense
3. Decrease Investment
In other words maximise the productivity of a limited set of resources. By using this
method, it is not possible to mislead yourself with false savings such as counting
unsold goods as “cash” and calculating the value of labour savings when tasks are
shortened (even though staff levels remain unchanged).

This combination of a powerful optimisation methodology and accurate means of
evaluating returns make the Theory of Constraints an incredibly valuable approach
applicable in any business.

Advantages:
• Potential for tremendous increases in productivity with minimal changes to
operations.
• Most powerful and cost effective tool for increasing production capacity.
• Very simple to communicate and apply, making it ideal for shop floor teams.
• Great for fostering teamwork as different areas become aware of the constraint
and the need to work together to assist the constraint process.
• Great process for kick starting improvement efforts as it provides immediate
and very tangible benefits.

Page 3

Technology Roadmap for the Recreational Boat Building Sector
• Allows growth of turnover/productivity without the need for additional space
or staff.
• Provides a means to evaluate the true value of changes (using T, O, I), and
utilise this to select the best options, and drive the right behaviour/decisions.

Disadvantages:
• Can be difficult to apply if the constraint process is constantly moving (for
example if the nature of the work sees dramatically different and difficult to
predict demands on various production resources).
• Can be difficult to apply in a jobbing environment (however it is still very
applicable).

References:
“The Goal: A Process of Ongoing Improvement”
By Eliyahu M. Goldratt, Jeff Cox
“Theory of Constraints”
by Eliyahu M. Goldratt
“It’s Not Luck”
by Eliyahu M. Goldratt



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