The Theory of Constraints is a process improvement methodology that emphasizes the importance of identifying the "system constraint" or bottleneck. By leveraging this constraint, organizations can achieve their financial goals while delivering on-time-in-full (OTIF) to customers, avoiding stock-outs in the supply chain, reducing lead time, etc.
Other common benefits of implementing the Theory of Constraints include better control over operations, less inventory, reduced conflicts between team member and drastically reduced firefighting. Often, additional capacity gets exposed without further capital investment or hiring additional workers.
The Core Idea – Every system has a limiting factor or constraint. Focusing improvement efforts to better utilize this constraint is normally the fastest and most effective way to improve profitability.
No chain can ever be stronger than it's weakest link. Similarly, every system must have a constraint that limits it's output. We know this because no system has infinite output... for example, you will never find any company with infinite sales or profit!
Note that every chain will have ONE (and only one) weakest link. Strengthening the other links can never increase the overall strength of the chain, because they are not the weakest. In fact, strengthening a non-weakest link will probably DECREASE the overall strength of the chain due to the added weight:
Similarly, attempts to optimize each individual process and function tend to ignore the impact on the constraint, thereby causing a variety of unforeseen problems that reduce the overall performance and effectiveness of the organization. For example, if sales orders are the constraint, optimizing production output can result in overproduction. Such large quantities of excess finished goods inventory will in turn incur hefty carrying charges and cost of capital. A resulting cash crunch might also delay payments to vendors, thereby triggering supply problems which delay orders, tarnish the reputation with customers and reduce future sales.
What if we made efforts to utilize the weakest link more fully? We could exploit it more by minimizing idle time of the chain, or subordinate everything else to it by avoiding sudden jerks that add additional stress when it is fully loaded. Once we have mastered how to utilize the chain well, we might begin searching for ways of strengthening the weakest link itself. Even a small increase in the strength of the weakest link could have a rather large impact on the overall strength of the chain:
A constraint limits the output of every system, whether we acknowledge it or not. When properly identified and managed, constraints provide the fastest route to significant improvement and form the bedrock for continuous growth. When ignored, the constraint may lie idle, squandering system capacity. An out-of-control constraint may also wreck havoc on delivery schedules and cause unpredictable delays. It is therefore crucial for any manager to make the most of their constraint and learn to manage it well. TOC shifts the focus of management from optimizing separate assets, functions and resources to increasing the flow of throughput generated by the entire system. TOC's key processes are focused on removing barriers that prevent each part from working together as an integrated whole.
Many people overestimate their grasp of the Theory of Constraints. Take a moment to check your understanding so far.
Imagine you are responsible for managing the below process flow. Each letter represents a different sub-process such as sales, design, operations stage 1, operations stage 2, customer invoicing, payment collection, etc. Take a moment to visualize a simple sequential process that you are familiar with, perhaps in manufacturing or services, or even a government process such as issuing driver's licenses.
You are given the above report detailing the overall efficiency of each sub-process.