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Throughput, which is the most important measure according to Goldratt, measures the rate at which an organization generates money through sales. Investment is the money tied up in physical things like inventory, equipment, real estate etc.) Whereas operating expense is money spent to create output other than variable costs (capacity cost, taxes, utilities etc.) | Throughput, which is the most important measure according to Goldratt, measures the rate at which an organization generates money through sales. Investment is the money tied up in physical things like inventory, equipment, real estate etc.) Whereas operating expense is money spent to create output other than variable costs (capacity cost, taxes, utilities etc.) | ||
Another assumption in TOC states that every business has at least one constraint. A constraint (in manufacture often called a bottleneck) is anything that prevents an organization from making progress towards its goal of earning money. See list of constraints in below table 1 | Another assumption in TOC states that every business has at least one constraint. A constraint (in manufacture often called a bottleneck) is anything that prevents an organization from making progress towards its goal of earning money. See list of constraints in below table 1 | ||
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Revision as of 23:05, 21 September 2015
Abstract
The underlying assumption of Theory of Constraint (TOC) is that the performance of a system constraint will determine the performance of the organization. A constraint is anything that limits or prevents higher system performance relative to the goal. The constraint is the weakest link in the chain. A Five Focusing Steps methodology is used to identify an eliminate constraints of an organization as well as being a tool for continuously improvement in the organization. Primarily we would find TOC and Constraint Management applied in manufacturing and scheduling where the speed of a constraint sets the pace of a process in a production line. However TOC was extended to apply an execution of a project as well.
1. General overview
The methodology Theory of Constraint (TOC) was introduced by E. Goldratt in the book “The Goal” in 1984 (REF5), but the roots of TOC can be traced back to the development of the software Optimized Production Technology OPT in the late 1970s (REF6, page 648).
1.1 Assumptions
A main assumption in TOC is that the primary goal of a business is to “make more money now and in the future without violating certain necessary conditions”. (REF, p 649) To obtain this goal according to TOC an organization can be measured and controlled by three measures: Throughput, operational expense and investment (originally called inventory). Throughput, which is the most important measure according to Goldratt, measures the rate at which an organization generates money through sales. Investment is the money tied up in physical things like inventory, equipment, real estate etc.) Whereas operating expense is money spent to create output other than variable costs (capacity cost, taxes, utilities etc.) Another assumption in TOC states that every business has at least one constraint. A constraint (in manufacture often called a bottleneck) is anything that prevents an organization from making progress towards its goal of earning money. See list of constraints in below table 1
