Michiana APICS Fall Seminar

Executive Summary:

Every organization has at least one constraint that is limiting its profits. Constraints may be physical, such as production bottlenecks, or they may be non-physical, such as pricing policies. Constraints are not good or bad – they simply exist and they must be identified and managed. The Theory of Constraints (TOC) was formulated by Dr. Eliyahu M Goldratt and is a view of running an organization by identifying its constraint and then exploiting it while synchronizing all other process to the throughput capacity of the constraint so as not to build excess inventory. Simultaneously, continuous improvement efforts are focused on the identified constraint. As each constraint is elevated, the cycle then repeats on the new constraint. Even though this sounds like common sense, the common practice is to strive for local optima, such as departmental or product-specific "profits" rather than to strive for increasing the profit of the organization as a whole. Throughput Accounting offers appropriate alternative production and financial performance measurements to direct an organization to a global optimum: a shift in thinking from a "cost world" to a "throughput world".

As TOC has evolved, the Thinking Process (TP) was developed as a suite of cause-and-effect logic tools that aid experts to articulate their intuition about a system and to partition the system’s problems into symptoms and root causes. Among the root causes, a "core problem" will surface. This constraint (often non-physical) can then be targeted for change, due in part to the introduction of TP, TOC is no longer just for production environments.

Application of TOC and the TP tools to various areas of an enterprise, such as distribution or marketing, has surfaced some flawed assumptions in the traditional paradigms. The results have been many breakthrough solutions, all aimed at helping an organization achieve its goal: more profit while providing a satisfying environment for its employees and value to the market – now and in the future.

Does TOC really work?

Consider the following testimonial

"Theory of Constraints provides us with a method of running manufacturing plants that is undeniably logical, but it represents great change from the way we’ve always run them. The tools and business practices we’ve developed from our use of TOC have resulted in dramatic improvement in: Manufacturing Cycle Time, Inventory, and in the revenue generating a density of our plants."

Steve Delaney, Manager, Material Processes,
Ford Production System, Ford Motor Company