Theory of Constraint

Revision as of 23:18, 21 September 2015

Abstract (no WIKI functionalities has been used in this version)

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

Constraint table 1.

1.2 Two perspectives of TOC

TOC can be seen from two perspectives: the perspective of a business system and the perspective of an ongoing improvement process itself (REF6, p 649).

1.2.1 TOC as a Business System

Seen from a business system viewpoint TOC emphasizes change process implemented in three levels: the mindset of the organization, the measures that drives it and the methods employed within the organization (REF6, p. 649). From previous sections we know that according to TOC in very process there is a constraint and that the total throughput can only be improved when the constraint is improved / eliminated. Accordingly, Goldratt introduced a “Five Focusing Steps” methodology to identify and eliminate constraints as well as being a tool for continuously improvement in the organization. See figure 1

Figure 1 The Five Focusing Steps methodology

Table 2 Description of the steps in the Five Focusing Steps methodology.

Goldratt introduced different tools to describe / analyse the process and to develop a constraint schedule to manage buffer inventory in an organization. One of the most known is “Drum-Buffer-Rope” (DBR), which is a method of synchronizing a production to the constraint while minimizing inventory and work-in-process. Figure 2 illustrates an example of DBR.

Figure 2 Example of DBR tool for CT tubes

To protect a constraint (bottleneck) which in this example is the chroming process of a special tube (called CT) in a production line a certain buffer (level of inventory) is maintained ahead of this bottleneck. All other operations are subordinate to secure that the buffer is never idle. The drum is the constraint and the speed at which the constraint runs. It sets the beat (pace) of the process which - in the end - determines the throughput. The rope is a signal generated by the constraint indicating that some CTs have been consumed which triggers the start for new CTs to be processed in the flow.

Theory of Constraint

Revision as of 23:18, 21 September 2015

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-This article is about the Theory of Constraint (TOC) in project management (PM).
+'''Abstract (no WIKI functionalities has been used in this version)'''
-The underlying assumption of TOC is that the performance of a system constraint will determine the performance of the entire system. The weakest link in the chain is called the constraint. At constraint is anything that limits or prevent higher system performance relative to the goal. There are five steps to follow in this theory: 1) Identify constraint, 2) Decide how to exploit it, 3) Subordinate everything else in the system to step two, 4) Elevate the system’s constraint and 5) Go back to step one to continuously identify and break constrains.
+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.
-Normally we would find Constraint Management applied in manufacturing and scheduling where TOC can be used to create a buffer around an identified bottleneck activity in a production and then all other operations in the work flow would be subordinated around this bottleneck.
+'''1. General overview'''
-This article will focus on TOC in relation to project management and try to answer the following questions:
+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).
-)	How does TOC work in a production
-)	When and how could it be relevant to apply TOC in project management?
+'''1.1 Assumptions'''
-)	What are the pros and cons of using TOC principles in the different phases of a project?
-)	In which types of projects could TOC be relevant?
+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)
-)	Conclusion
+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
+Constraint table 1.
+'''1.2 Two perspectives of TOC'''
+TOC can be seen from two perspectives: the perspective of a business system and the perspective of an ongoing improvement process itself (REF6, p 649).
+'''1.2.1 TOC as a Business System'''
+Seen from a business system viewpoint TOC emphasizes change process implemented in three levels: the mindset of the organization, the measures that drives it and the methods employed within the organization (REF6, p. 649).
+From previous sections we know that according to TOC in very process there is a constraint and that the total throughput can only be improved when the constraint is improved / eliminated. Accordingly, Goldratt introduced a “Five Focusing Steps” methodology to identify and eliminate constraints as well as being a tool for continuously improvement in the organization. See figure 1
+Figure 1 The Five Focusing Steps methodology
+Table 2 Description of the steps in the Five Focusing Steps methodology.
+Goldratt introduced different tools to describe / analyse the process and to develop a constraint schedule to manage buffer inventory in an organization.  One of the most known is “Drum-Buffer-Rope” (DBR), which is a method of synchronizing a production to the constraint while minimizing inventory and work-in-process. Figure 2 illustrates an example of DBR.
+Figure 2 Example of DBR tool for CT tubes
+To protect a constraint (bottleneck) which in this example is the chroming process of a special tube (called CT) in a production line a certain buffer (level of inventory) is maintained ahead of this bottleneck. All other operations are subordinate to secure that the buffer is never idle. The drum is the constraint and the speed at which the constraint runs. It sets the beat (pace) of the process which - in the end - determines the throughput. The rope is a signal generated by the constraint indicating that some CTs have been consumed which triggers the start for new CTs to be processed in the flow.