Theory of Constraints (TOC)

Theory of constraints (TOC) is a body of knowledge on the effective management of (mainly business) organizations, as systems. The author is Eliyahu M. Goldratt, with many others contributing to the body of knowledge. All real-world systems have at least one constraint, otherwise they would be capable of infinite throughput, which is clearly impossible.

TOC claims that a real-world system with more than three constraints is extremely unlikely. This claim is based on linear programming models, which are capable of solving optimization problems for systems with many hundreds of constraints. Researchers found that all but a few such solutions were so unstable that they would be completely impractical amid the noise of a real-world system. The stability had a strong correlation to the number of constraints in the problem; the more constraints, the less stability. TOC practitioners claim that in practice three constraints is the realistic maximum. A major implication of this is that managing a complex system or organization can be made both simpler and more effective by providing managers with a few specific areas on which to focus -- maximizing performance in the areas of key constraints, or "elevating" the constraint (making it less constraining). This also leads to a strategic view of the company where the constraint guides all strategic decisions. Another key concept of the Theory of Constraints is that variation (in production and material transfer times) prevents the operation of a balanced factory at 100 percent capacity. This concept is illustrated in Goldratt and Cox's The Goal by a matchsticks-and-dice simulation in

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which the players represent production stations. During each turn, each player passes the lesser of his dice roll (his station's capacity for that turn) and the number of matchsticks he has (work waiting at his station) to the next person. Although each station has a theoretical average capacity of 3.5 units per turn, the simulated factory's overall production is somewhat less because high die rolls, which are wasted when no work is available, do not make up for the low ones.

These are the original Goldratt "process of ongoing improvement" (POOGI) steps for identifying, exploiting and managing the system's constraints, whether the system is manufacturing, distribution, sales, or project management.

1. Identify the system's constraint(s).
2. Decide how to exploit the constraint(s).
3. Subordinate everything else to the above decision.
4. Elevate the constraint.
5. If, in any of the above steps, the constraint has been broken, go back to Step 1.