For Beginners

Theory of Constraints (TOC) is a managerial approach developed by Dr. Eli Goldratt to allow businesses and organizations to achieve breakthrough improvements in their performance.

TOC provides a set of holistic processes and rules, all based on a systems approach, that exploits the inherent simplicity within complex systems through focusing on the few “leverage points” – constraints – as a way to synchronize the parts to achieve ongoing improvement in the performance of the system as a whole.

TOC is driven from the concept of inherent simplicity and states that everything within a system is connected by cause and effect relationships – there are no complex systems in reality.

Some videos to give you a brief overview of TOC

Constraint, Thinking Processes and 5 Focusing Steps – Jelena Fedurko-Cohen, Humberto Baptista & Oded Cohen

TOC after Dr. Eli Goldratt – Oded Cohen

Practical Advice for implementing SDBR for Production – Oded Cohen

Working with Clouds – Jelena Fedurko

Evaporating cash constraint – Ravi Gilani

Financial mapping using T, I, OE – John Darlington

Throughput Thinking and Performance Management – Philip Viljoen

TOC, Lean and Six Sigma – Dr. Roy Stratton

Retail the TOC way – Humberto Baptista

Applying TOC for Services – Hans Steenpoorte

Basic Glossary

TOC Solutions

TOC has two sets of solutions:

LOGISTICAL SOLUTIONS for managing the flow (of material, products, work in progress, orders, tasks in the project environment, patients in a hospital, etc.)
- Make to Order – MTO
- Make to Availability – MTA
- Purchasing to Order – PTO
- Purchasing to Availability – PTA
- Distribution to Availability – DTA
- Critical Chain Project Management – CCPM
LOGICAL TOOLS – TOC THINKING PROCESSES to
- analyze the Current Reality (Clouds, UnDesirable Effects – UDEs, Core Cloud, Current Reality Tree – CRT)
- understand and solve dilemmas and conflicts (Clouds, Assumptions, Injections)
- develop solutions (direction of the solution, Injection)
- check the solution for potential negative outcomes (Negative Branch Reservation – NBR)
- check the solution for bringing about benefits (Future Reality Tree – FRT)
- structure and record logic and the result of analysis and solution development (U-Shape)
- identify obstacles on the way of implementing the solution and to build an implementation plan (Intermediate Objectives (IOs) Map, Prerequisite Tree – PRT)
- record the logic of a process (Transition Tree – TrT)
- develop strategy and tactic (Strategy and Tactic Tree – S&T)
- work with people, achieve personal development, collaboration and buy-in, implement changes (all tools listed above, Six layers of resistance)

Constraints

The factors or elements that determine how much the system can accomplish.

Terms_ENG_constraint

Types of Constraints:

Capacity Constraint – a resource which cannot provide timely capacity the systems demands for it.

Market Constraint – the amount of customers’ orders is not sufficient to sustain the required growth of the system.

Time Constraint – The response time of the system to the requirement of the market is too long to the extent that it jeopardizes the system’s ability to meet its current commitment to its customers as well as the ability of winning new business.

Five Focusing Steps

1. Identify (choose) the system’s constraint.
2. Decide how to exploit the system’s constraint.
3. Subordinate everything else to the above decision.
4. Elevate the system’s constraint.
5. If the constraint is broken go back to step one but do not allow Inertia to cause the system’s constraint.

Throughput (T)

For commercial organizations Throughput is defined as:

The rate at which the system generates money through sales. Throughput is the difference between the selling price (P) and the Totally Variable Cost (TVC).

T = P – TVC

For non for profit organizations Throughput is defined as:

The rate at which the organization generates goal units.

TVC – Totally/Truly Variable Cost

TVC conceptually is a new term and differs in its content from the content of the conventional term “variable cost”.

TVC is the cost of raw materials, components and direct paid services for production of products to be sold or the cost of products bought for reselling.

TVC is the cost that grows directly proportionally to the sales of every additional unit of the product:
• the cost of buying additional raw material/components/product
• subcontracting
• such costs as, for example, commissions paid to an agent that are calculated according to the amount of units sold, etc.

Costs that the company would incur irrespective of the number of units – like the pay for the direct labor that is on regular salaries (not piece incentive), salaries for directors/managers/secretaries, telephone bills, electricity bills, premises rent, etc. – are treated as Operating Expense (OE) and are not deducted from the revenue for the calculation of Throughput for a certain period.

Injection

In system change – the Injection is a new feature or a new managerial procedure that replaces an existing procedure or an existing feature that according to our analysis are responsible for the gaps in performance (UDEs – Undesirable Effects).

The Injection has a special role in the design of the TOC solution. Solutions of Managing the TOC Way stem from the Pivot and brings new elements to reality – Injections and Desired Effects.

In solving day-to-day dilemmas and conflicts – the Injection is an action, or set of actions that represent another mode of behaviour as compared to the one that has caused the conflict or dilemma

Assumptions

Assumptions are facts, observations, beliefs, expectations, convictions, presuppositions, experiences, interpretations, concepts, principles, data, general knowledge and other elements of thinking
with which we support our reasoning behind a logical connection.

Cloud, also Evaporating Cloud

The central tool of TOC Thinking Processes for understanding a problem and developing a solution.

The Cloud is a logical diagram presenting a problem as a conflict between two mutually exclusive actions (D and D’), with two needs (B and C) causing the conflicting actions, and the common objective A, that can be achieved through satisfying the needs В and С.

UDE – UnDesirable Effect

An UDE is a fact or an entity from reality that explains why it is so difficult to achieve the higher level of performance measurements.

When there is a gap in performance it is a signal to search for UDEs.

The UDE is an ‘effect’ and its existence is indisputable. It is ’undesirable’ because
it endangers/reduces/prohibits achieving a valid need, objective or the goal of a system.

TOC Thinking Processes (TP)

A set of logical tools to

- analyze the Current Reality (Clouds, UnDesirable Effects – UDEs, Core Cloud, Current Reality Tree – CRT)
- understand and solve dilemmas and conflicts (Clouds, Assumptions, Injections)
- develop solutions (direction of the solution, Injection)
- check the solution for potential negative outcomes (Negative Branch Reservation – NBR)
- check the solution for bringing about benefits (Future Reality Tree – FRT)
- structure and record logic and the result of analysis and solution development (U-Shape)
- identify obstacles on the way of implementing the solution and to build an implementation plan (Intermediate Objectives (IOs) Map, Prerequisite Tree – PRT)
- record the logic of a process (Transition Tree – TrT)
- develop strategy and tactic (Strategy and Tactic Tree – S&T)
- work with people, achieve personal development, collaboration and buy-in, implement changes (all tools listed above, Six layers of resistance)

U-Shape

A concept of organizing the TOC knowledge in a comprehensive logical diagram of TOC entities that participate in the analysis of the current reality and the construction or usage of the solution to create an improved future reality.

The U-shape was established to organize, store and easily retrieve the TOC knowledge. The U-shape is used for the generic TOC solutions such as: MTO, MTA, CCPM, and Distribution. It is also used for developing marketing offers. The U-shape concept is valid for developing and understanding of any solution.

The U-shape can be used to demonstrate the questions of improvement:

why change,
what to change,
what to change to,
how to cause the change, and
how to sustain the change.

Terms_ENG_U-Shape picture

For Beginners

For Beginners

Some videos to give you a brief overview of TOC

Basic Glossary

Latest