Based off a system developed by Goldratt. His book, The Goal, describes a process of ongoing continuous improvement.
3 Basic Measures are more indicative of they systems than Machine efficiency, equipment utilization, downtime or balanced plants.
- Operational Expenses
Theory of Constraints
The underlying premise of theory of constraints is that organizations can be measured and controlled by variations on three measures: throughput, operational expense, and inventory. According to the Theory of Constraints, the goal of a company is to make money.
Most constraints are NOT physical. They are the result of policies.
Thus, you should focus your energy on decreasing operating expense, inventory, and investment while increasing through put. This mindset should be applied to the complete enterprise, so the critical constraint can be identified and exploited.
Define goals of the company along with metrics for critical measures.
Some Key Pieces
- Bottlenecks: watch these, try to eliminate. Beware of additional lost productivity due to NIGO or poor quality.
- Balanced Plants: Not always a good thing. Don’t balance capacity with demand, balance the flow of the product with demand. Make the flow through the bottleneck equal to market demand.
- Operating Expenses
- Cash flow
- Lead times
- Reduction of batch sizes
- Cost accounting
- Fear of Change
- Net Profit
Lean and Theory of Constraints
Theory of Constraints views all processes as a chain of events that executes sequentially. Remember a chain is only as strong as its weakest link? Well a 5 step process is only as productive as its slowest step.
It does not matter if steps A and B can output 15,000 products a day because step C can only output 10,000. In addition even if steps D and E can handle more than 10,000 a day that’s still all they get handed off from C. So step C is a constraint on the chain/system.
Theory of Constraints views the extra 5,000 products a day produced by steps A&B as waste, the cost of both producing and storing the extra parts is waste. Any extra machinery/people in A&B or D&E are waste. A common problem with Lean Six Sigma is project selection, often improving the efficiency of step A or D because they find “low hanging fruit”. These improvements are pointless because the system can still only function as well as step C so the cost of those projects is also waste.
Theory of Constraints helps you find the constraints, Lean (and ToC) helps you improve them, Six Sigma helps you eliminate any errors. Additionally ToC introduces buffers to protect your constraint, so even if a machine in step B goes down you still have a little buffer of parts for step C to work on until it’s back up (remember the whole process can only work as fast as step C so if you don’t keep it busy then steps D&E will run out of things to do and stop). Buffers and ToC have a ton of other advantages so I highly recommend you look it up further.
Theory of Constraints Videos2>
Theory of Constraints Reading List
Six Sigma Black Belt Certification Theory of Constraints Questions:
Question: Which of the following statements is true about the theory of constraints? Taken from (ASQ sample Black Belt exam.)
(A) It views a system in terms of discrete processes.
(B) Most constraints are physical.
(C) Most constraints are the result of policies.
(D) It focuses on continuous improvement.
Answer: (C) Most constrains are not physical (eliminating b) and are a result of policies (c). A is false and D is too generic.