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What is "TOC - Theory of Constraints"?

Jürgen Kanz
(updated May 22nd, 2019)

Dr. Eli Goldratt developed the TOC - Theory of Constraints by applying the principles and processes of the “Hard Sciences” to the science of analyzing, managing, continuously improving and predicting the performance of organizations in a holistic way. The most important of these are the fundamental beliefs in science that “all complex systems are governed by inherent simplicity” and that "all conflicts (inconsistencies) with systems can be resolved...if we can find the erroneous assumption(s)". The essence of these two beliefs in science is summarized with the truism that “the strength of any chain is governed by the strength of its weakest link”. If you want to strengthen the chain, and improve the performance of the system as a whole, you need to find and strengthen its weakest link. The application of this simple "governing law" can enable us to differentiate between the MANY parts, processes and relationships within a system that can be improved, from those few that must be improved to get more goal units.

Organizations are a complex web of people, equipment, methods, materials and measures. This detail complexity is bad enough, and if you add to it the dynamic complexity of changing customers, suppliers, workforce, regulations, etc., you have a picture of the challenge faced by todays management team.

Traditionally, management has divided the organization into smaller, more manageable pieces. The objective is to maximize the performance of each part. After all, global improvement is the sum of the local improvements. Right?

NO! TOC claims that a change to most of the variables in an organization will have only a small impact on the global performance on the bottom line. There are very few variables, perhaps only one, where a significant improvement in local performance causes a significant improvement in global performance. Such a variable is the constraint. You can compare it to the weakest link in a chain.
The “Theory of Constraints” consists of five distinct, but interrelated parts

  • The Five Focusing Steps
  • The Thinking Processes
  • Throughput Accounting
  • Application specific TOC Solutions, and
  • Six Necessary & Sufficient Questions related to new Technology

1. TOC Five Focusing Steps. A process of ongoing improvement that can be applied to any organization to continuously improve the achievement of more “goal units”. The five focusing steps are:

Step 0: Define (or make explicit) the Goal and Goal units of the System
Step 1: IDENTIFY the System Constraint (or Weakest Link)
Step 2: Decide how to EXPLOIT the System Constraint
Step 3: SUBORDINATE everything to the above decision
Step 4: ELEVATE the System Constraint
Step 5: If in a previous step, the constraint was broken, GO BACK to STEP 1.
WARNING! Do not let INERTIA become the system constraint.

2. TOC Thinking Processes (TP). A set of logic tools that can be used independently or in combination to address the questions in the change question sequence for managing ongoing improvement. The original thinking processes are the current reality tree (branch, twig), evaporating cloud, future reality tree (branch, twig), negative branch reservation, prerequisite tree, intermediate objectives map, transition tree, and strategy and tactics tree.

Usage: The thinking processes can be used to analyze both simple and complex systems, identify and solve system problems, and overcome the layers of resistance and achieve buy-in from individuals and various stakeholders groups as required. In addition, they can be used to construct an organization strategy. [1]

Over the year’s additional tree concepts have been developed, so that the current list of tools looks as follows:

  • Goal Tree,
  • Conflict Cloud,
  • Current Reality Tree,
  • Future Reality Tree,
  • Negative Branch Reservations,
  • Pre-requisite Tree,
  • Transformation Tree,
  • Strategy & Tactic Tree, and
  • Mystery Analysis.


Why Processes? Each tool can be applied by itself as a mean to solve problems. For a full analysis almost all tools are used in a certain sequence.

3. TOC Throughput Accounting (TA) is a set of processes for measuring the status and causes of the overall system’s financial performance and for judging the impact of local actions/decisions on the performance of the system as a whole. This is achieved by combining insights on the impact of any decision on the system constraint, now as well as in the future, with the quantitative impact on System Throughput (Sales – Total Variable Cost), Operating Expenses (all non-variable costs) and Investment.

4. TOC application of specific generic solutions, that provide the necessary and sufficient constraint focused rules for improving and managing functional areas, such as

  • Managing supply-chain logistics (drum-buffer-rope, replenishment, dynamic buffer management),
  • Project management (Critical Chain Project Management)
  • Finance and Measurements (Throughput Accounting),
  • Sales & Marketing (Building Unrefusable Offers),
  • Business Strategy, and
  • Meantime many more.

5. TOC's Six Necessary & Sufficient Questions related to new Technology. The objective of these questions is to identify the power of a new technology, to address the limitation, to define new rules in comparison with existing technologies, and to identify all needed additional features for a successful implementation.
The six questions:
    1. What is the power of the new technology?
    2. What current limitation or barrier does the new technology eliminate or vastly reduce?
    3. What are the current usage rules, patterns and behaviors that bypass the limitation?
    4. What rules, patterns and behaviors need to be changed to get the benefits of the new technology?
    5. What is the application of the new technology that will enable the above change without causing resistance?
    6. How to build, capitalize and sustain the business?

The post "The big slogan and the potential real value of Industry 4.0" is an application example of the six questions.

On my page "Recommended Books" you can find a selection of useful books related to the "Theory of Constraints".

Sources:
[1] Adapted from “The TOCICO Dictionary, 2nd Edition, 2012, definition of thinking processes (TP)”



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