Theory of Constraints Applications

The 8 Formal Theory of Constraints Applications

A TOC expert can apply Theory of Constraints to any environment and come up with a powerful, outside-the box solution to address performance problems and boost performance relative to the Goal of the system. That solution might be unique to that environment, at that time.

But there are 8 “formal” Theory of Constraints Applications – applications where the detailed body of knowledge is rock-solid and has been applied to hundreds or even thousands of different companies.

For example, the TOC production solution, which includes the scheduling and shop floor control technique known as “Drum-Buffer-Rope,” can be applied to almost ANY manufacturing business and it will generate the same outcomes. It can also be applied to sub-systems – for example, to schedule a testing laboratory.  And in a very strange way, aspects of the DBR system have been applied to the “Accident & Emergency” departments of hospitals,

So we call the Production solution “an Application.”

In company after company for more than 20 years, this application has generated increased output from the same resources, reduced lead time, reduced inventories, improved on-time delivery, reduced or eliminated overtime, stable and clear priorities, and a valid shop schedule. This is what Rod and I do in Synchronix, over and over, with different manufacturers. Results are predictable.

But Synchronous Manufacturing is only one of 8 Theory of Constraints applications. Some can be used independently; others work best in combination.

Click on any link to be taken to a more detailed explanation. (Before you point it out … yes, there are 9 headings below and I said there were 8 Theory of Constraints applications. Well, formally there are 8, but this includes “Distribution and Supply Chain.” I just prefer to separate the two sub-topics. )

  • Synchronous Manufacturing –synchronizing the plant using the DBR technique. This gives manufacturers the fastest and most direct path to large-scale, bottom-line improvements. Typical results include reduced inventories, reduced manufacturing lead times, increased service levels/superb on-time delivery, and increased productivity. Experiments indicated that the TOC solution out-performed “Just In Time” (kanban) in pretty much any circumstances. We’ve included a business case calculation, if you’re interested.
  • Throughput Accounting Even the accounting profession has conceded that traditional fully-allocated Cost Accounting causes managers to make wrong decisions. And not just marginally bad; REALLY, REALLY bad decisions. Throughput Accounting is the alternative, a basis for sensible decision making for manufacturers. Throughput Accounting, now formally included in the curriculum of the Management Accounting qualification, is a natural partner of a Synchronous Manufacturing implementation. In fact we take it much further than most; it has applications to pricing and continuous profit growth that even most TOC users don’t recognize.
  • Critical Chain Project Management This is an extraordinarily powerful approach to Project Management that offers results that continue to astonish project-experienced managers. Critical Chain enables organizations to generate schedules that are 25% shorter than traditionally planned schedules, AND to meet the promised completion date 85% or more of the time. Better still, organizations are finding up to 100% more productivity from the same project resources when they follow the Critical Chain approach.
  • Distribution The TOC offers an approach to having the right parts in the right location in the right quantity at the right time, with a minimum of effort … while contradicting most of the rules of conventional Distribution thinking. Common outcomes include close-to-100% availability of product with inventories in the system reduced by 50% or more.
  • Supply Chain Actually, this and the Distribution application are treated as one, in the formal body of knowledge. The TOC approach to Supply Chain management is so much more powerful than, and so far beyond the conventionally popular and superficial view of Supply Chain, that it really deserves a different name. When a retailer, garment manufacturer, cloth manufacturer and yarn manufacturer set-up their TOC supply chain they caused sales to increase throughout the system by 30% or more, and each unit in the supply chain realized a substantial increase in ROI. This is on a different plane to conventional “Supply Chain Management.”
  • Marketing There is a special way of applying Theory of Constraints in MOST (not all) manufacturers that creates a major competitive edge – large enough to win a LOT of business even in the most competitive markets, and sometimes large enough to be able to charge more even in the most cost-driven markets. This is the infamous Mafia Offer. When Eli Goldratt was focusing his efforts on the “Viable Vision” initiative, aiming to enable a company to achieve it’s current Top Line as its Bottom Line in 4 years, the marketing had to set-up the Sales force to achieve  extraordinarily high “close rates.” The Mafia Offer or Unrefusable Offer was the key.
  • Sales The TOC sales approach is necessary for three reasons. One is that the Unrefusable Offer developed as part of the marketing solution has to be sold unconventionally. Another is that the conventional selling model is quite simply very ineffective … it does not generate sales growth at the rate that is possible. And the third is that the sales management set-up in most manufacturing businesses is not capable of generating sales growth at the rate that is possible (except in those rare instances where a company has a hot product and a hot market that allow the product to almost sell itself).
  • Strategic Planning Eli Goldratt turned the world of Strategic Planning on its head with an approach called “Strategy & Tactics Trees.” Understanding the S&T approach immediately exposes the flaws in conventional Strategic Planning – and they are huge. Initially the challenges of this approach made it challenging for anyone other than experts to take advantage. However, some inexpensive but powerful software has made the technique broadly available.
  • It’s arguable whether these constitute an Application or fall under the heading of “Thinking Processes.” But some specific Management Skills can be extracted from the TOC Thinking Processes and taught to managers as a tool for daily use. These simple skills have a major impact – how to construct win/win solutions when there’s a conflict, how to make sure that a course of action will indeed generate the outcomes you want and will not generate the outcomes you don’t want, and how to plan the transition from how things are today (whatever the issue) to how they need to be.

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