Theory of Constraints is system based philosophy which states that the constraint determines the performance of the systems. In other words, It is a methodology for identifying the most important limiting factor (i.e. constraint) that stands in the way of achieving a goal. Then the teams will work systematically until it is no longer the limiting factor.
Examples of constrains in an organization: Machines, people, policies, information, material etc.
Theory of Constraints is based off a system developed by Goldratt in the year 1984. 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
Overview of the Theory of Constraint
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
Focusing areas of Theory of Constraints
- Identify the System Constraint: This is the first step. Team to identify the part of a structure that creates its weakest link.
- Exploit the Constraint: Goldratt in his book instructed that get as much out of the identified constraint component, without experiencing affluent changes.
- Subordinate everything else: In this step, adjust the non-constraint components to a setting that will allow the constraint to function at extreme possible efficiency.
- Elevate the Constraint: Elevating the constraint refers to taking whatever action is necessary to eliminate the constraint. In other words this can be achieved by investing more resources such as material, machines, operators etc.
- Finally, prevent to return to initial step, and continue to evaluate the new constraints.
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.
Thinking Processes in Theory of Constraints
In service and operation industry it is difficult to visualize the constrains in the work flow. Six sigma teams to explore methodologies to achieve organization goals.
Thinking Processes help to identify the root cause of a problem by reviewing the symptoms systematically is called undesirable effects (UDEs). Organization get the picture of the situation by arranging these responses in a tree diagram.
The Thinking Processes following three questions of Theory of Constraints:
What needs to be changed?
- Current Reality Tree: The current reality tree shows the current state. In other words, things need to be improved. First you collect the UDEs of the problem, and then arrange them tracked back to find the root cause of the problem.
What should it be changed to?
- Future Reality Tree: A future reality tree documents shows the future sate. It shows current reality tree along with new ideas, called injections. These injections create desirable effects.
- Negative Branch Reservations: When you work on your future reality tree, often few may have concern about consequence of the injections.
- Evaporating Cloud Tree: This is one of the important tree, it discovers all the conditions that need to be in place for the success of injection. This is the preliminary step while creating the future reality tree. This help to overcome issues to implement injections.
How to change it?
- Strategy Tree and Tactics Tree: Strategy Tree and Tactics Tree shows the implementation plan for future state. In other words, it help to diagram outcome of an improvement. Six Sigma team identify the problems and explore the options to overcome obstacles.
Drum Buffer Rope
Drum buffer rope is a theory of constraint solution for scheduling and managing operations that have constraints in the process. In other words, it is the method of coordinating production to the constraint while focusing on minimizing inventory and WIP.
- Drum: Pace of the process or sets the production pace
- Buffer: It is the level of inventory needed to maintain consistent production
- Rope: Method to limit upstream production. In other words, a signal is generated from the buffer to release the material.
The drum buffer rope method works very well, especially in manufacturing with various product models, process times, and process flow. It provides the highest organization efficiency because it controls the production and maintains the inventory and WIP at a very low level.
Example: Let’s assume we have four processes in a manufacturing shop. Mixing, machining, assembly, and shipment to the end customer. Each of the processes has different capacities, as indicated below.
The above diagram shows that the assembly process is the bottleneck; it had only 90 pieces/hour. We can ship 90 pieces to the shipment area, with ten pieces inventory. Since the assembly is the constraint, it is the drum.
The buffer is the ten extra pieces that have completed the machining process, and we need to maintain a certain level of inventory before the assembly process. Suppose if the mixing or machining process produces fewer pieces than their capacity, the inventory may go down before the assembly stage. As soon as the inventory decreases, the rope mechanism triggers the front to release more pieces.
Benefits of Theory of Constraints
- The primary goal of many companies is to improved profits. It provides a powerful set of tools for achieving the organization goals
- Optimizing the constraints enables more products to be delivered
- It enables faster product flow, thus reduces the lead times
- Optimizing the constraints will lead to less WIP or inventory
- It improves the communication process within the organization
Theory of Constraints Videos
Theory of Constraints Reading List
Great introduction to the Theory of Constraints.
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.