Theory of Constraints: Basic Principles

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Introduction

The goal of any commercial organization is to make profits both in the short and long term. However, in almost any company, there is a bottleneck, or constraint, which does not allow achieving the desired results. All efforts and funds directed to any other areas of the organization do not influence financial outcomes significantly. However, if this bottleneck is found and managed correctly, improvements may be achieved without big investments. In order to describe how gaps are addressed, the theory of constraints can be proposed as a conceptual framework that may be considered as a set of tools, rules, and methods of solving problems. This model was first proposed by Goldratt (1984) as a way to identify constraints that do not allow the full use of companies’ potential. In his book, Goldratt (1984) describes situations in which basic measurements are given, which relate to the theory in question. The main feature of this methodology is that by making efforts to control a small number of system elements, an effect is achieved that is greater than the outcome of affecting all or most of the problem areas of a business system.

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Goldratt’s Three Measurements

In order to explain the theory of constraints, specific parameters, or measurements, are to be utilized. Goldratt (1984) describes a scenario in which Jonah describes Alex these criteria and gives definitions of each of them. Later, McMullen (1998) summarizes these measurements and provides a detailed dialogue. The author conveys the words of Jonah, who, in turn, states that the new criteria are “measurements which express the goal of making money perfectly well, but which also permit you to develop operational rules for running your plant” and lists them – “throughput, inventory, and operating expense” (McMullen, 1998, p. 34). These parameters make it possible to apply the theory of constraints and describe corresponding gaps in a particular business.

To describe the three proposed measurements, one should analyze the functions that they perform. Operational expense can be defined as all the money an organization spends to turn inventory into throughput. This measure includes all costs that are fixed and are considered variables, for instance, funds for labor remuneration. As Gupta and Andersen (2018) note, in order for a company to be profitable, its throughput should be sufficiently high in relation to the payment of all operational expenses.

Throughput may be thought of as the cost at which an organization generates money through sales. The manufacturing process adds value when customers want to pay a manufacturer more money for products than the manufacturer pays suppliers for materials and services, which, in turn, are components of these products. According to Gupta and Andersen (2018), in the context of the theory of constraints, this added value is called throughput. This parameter largely determines how profit is generated and converted.

Finally, inventory may be defined as the money the system spends on resources to turn them into throughput. The return on invested capital is thus equal to net profit divided by passive inventory, for instance, a plant and equipment. However, according to Gupta and Andersen (2018), in improving production operations, the main efforts are aimed at reducing active inventory – raw materials, work in progress, and finished products. All these components are necessary to ensure stable and profitable system operation.

Principles and Examples of Drum-Buffer-Rope

One of the mechanisms that were originally proposed by Goldratt (1984) and began to be applied in widespread practice is called Drum-Buffer-Rope, or DBR. According to McMullen (1998), this method of production control was developed to solve the problems of an industrial company described in Goldratt’s (1984) book. However, later, it penetrated into real life and became a full-fledged technology in the framework of the theory of constraints. Thürer and Stevenson (2018) argue that all three elements of the model have specific functions and unique characteristics. A drum implies the development of a detailed work schedule for the effective use of constraints. A buffer means creating a protective mechanism that prevents a constraint from being idle. A rope, in turn, means organizing a timely release of work in production. In different manufacturing processes, the DBR technology may be simplified and modified, but its basic principles are retained.

As an example of the use of this mechanism, different industries may be applied, for instance, a car factory. The presence of a detailed schedule simplifies the process of working with constraints but, at the same time, reduces the flexibility of the enterprise. If the volume of orders increases or new requirements for the assortment appear, the organization is not ready to quickly respond to the changed situation since, for this purpose, it has to redo the schedule. Accordingly, as Thürer and Stevenson (2018) state, the larger the scale of production is, the more variables are to be considered. In other industries, for instance, food enterprises, it may be necessary to reorganize the schedule due to seasonal declines or, conversely, high demand. Nevertheless, in any mode, the DBR mechanism can be a useful tool for ensuring smooth operation.

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Identifying Bottlenecks

In the book by Goldratt (1984), the team identifies and eliminates those bottlenecks that hinder a productive workflow. The stakeholders use the measurements of the theory of constraints for this purpose and analyze those processes that require optimizing. In particular, Goldratt (1984) describes a situation in which Alex compares a production line with a scout troop that is on a hike. He seeks to identify the weak link in the team, which slows down the production line, and this limitation is the cause of delays in performing assigned tasks. Alex reorganizes the work process by reducing inventory and, at the same time, increasing throughput. As a result of these changes, it turns out that Herbie is the slowest one, who demonstrates the lowest capacity result, which, however, affects the performance of the entire production line. According to Rahman (1998), “bottlenecks govern both throughput and inventories” (p. 339). Therefore, the approach applied by Alex allows identifying a specific link that restrains the performance of the entire chain, thereby determining and eliminating a specific bottleneck.

The comparison with the scout troop clearly demonstrates how the bottleneck described holds back the production line. In conditions of delay, the distance between the slowest and fastest participant in the work process is constantly increasing, and despite the success of leaders, the low productivity of an outsider slows down performance outcomes. As McMullen (1998) remarks, such constraint fits into Goldratt’s general theory and can be judged as a factor to use wisely to identify and eliminate the bottleneck.

Steps in Ongoing Improvement

The steps in ongoing improvement are the stages that are to be taken in order to achieve sustainability and stable workflow productivity without any delays or limitations. This mechanism meets the standard principles described by Goldratt (1984) and is aimed not so much at eliminating corresponding defects as at their rational application within the framework of the general system. In other words, there is no need to spend all the available resources to achieve ideal performance. Conversely, it is enough to utilize few opportunities to identify a specific constraint and apply specific measurements and mechanisms and for its phased elimination in the conditions of continuous operation.

The team of specialists in Goldratt’s (1984) book defines the process of ongoing improvement, which is implemented in five steps. For starters, a specific constraint of the system is identified, for instance, low productivity on the production line. Further, the assessment of the situation is carried out on the basis of how the detected deterrent can be addressed without interrupting operations. At the next stage, the whole system undergoes a change due to submission to this constraint, and the operation algorithm is transformed in order to address the identified gap. After that, the restriction is expanded by increasing its capacity, for instance, by stimulating an even greater impact on the work process and making efforts to increase the role of this deterrent. Then, at the final step, it becomes possible to overcome the constraint by transforming it from weakness to strength. Such a circle may remain open, and the name of the mechanism of ongoing improvement proves this. Regular production analysis is an important factor that stimulates productivity and allows interested parties to identify constraints timely and quickly.

Focus of the Theory on the Management System and Supply Chain Management

The theory of constraints is not only a convenient mechanism for assessing potentially positive changes within individual production processes but also a valuable managerial tool in general. According to Puche et al. (2016), this concept offers algorithms for resolving conflicts and controlling shifts in organizational objectives. The theory provides managers with convenient options to analyze potential omissions and contributes to a quick and effective decision-making process. In conditions of dynamic production activities, the timely development of plans and tactics makes it possible to synchronize the group’s efforts to achieve their goals, thereby acting as an auxiliary strategy. Such a concept makes it possible to not only detect a specific gap but also modify the entire system of work in such a way that rational changes are rooted stably. These benefits distinguish the theory of constraints from a wide list of managerial approaches and are logical advantages.

With regard to supply chain management, the concept under consideration broadens competitive prospects and makes it possible to establish an uninterrupted logistics system. As Pérez (1997) argues, in any business, companies need to adapt to active work to gain customer loyalty, which may be hard to achieve due to the activities of other participants in the same segment. The author states that applying the theory of constraints allows maintaining uninterrupted operation at each part of the delivery chain, thereby controlling the entire process of deliveries reliably (Pérez, 1997). In addition, this concept, in particular, its analytical tools, improves the quality of logistics. According to Puche et al. (2016), the DBR method is a valuable practice that helps managers to identify any bottlenecks in the entire delivery system and eliminate them individually, without interrupting the work of the entire organization. These bonuses make the theory of constraints a convenient mechanism for establishing a sustainable supply chain management program.

Applying the Theory of Constraints in Practice

The use of the theory of constraints in my practice could be relevant in my previous organization, for which high staff turnover and low leadership involvement were characteristic. The managers of the team did not seek to stimulate colleagues to high productivity, and employees made minimal efforts to achieve their goals. In case the concept under consideration had been used at that enterprise as a managerial methodology, this could have increased production outcomes and enhanced the team’s interest in professional growth.

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All the employees had clearly regulated immediate responsibilities, and the role of each of the links in the production chain was significant. Since the workers did not have sufficient motivation due to the managers’ neglect of communication with subordinates, many processes were carried out mediocre. As a result, specialists were either fired due to insufficient labor productivity or they left on their own. Utilizing the theory of constraints in that organization could have made it possible to establish an operating regime and change the attitude of employees to assigned duties. For instance, those in charge could identify which of the departments worked least successfully and notify management of the existing shortcomings. The leaders, in turn, would have an opportunity to determine how strong the specific constraints were to strengthen them and adapt the entire work process. These measures would have allowed maintaining ongoing improvement at the enterprise and helped overcome the attendant problems, in particular, high staff turnover, since specialists would hone the necessary skills, and their professional growth would be stable.

Implementing the principles of the theory of constraints at that enterprise could also take place through appropriate tools, for instance, the DBR method. Arranging a schedule of staff work inspections, adapting the work environment to the current challenges, and using available resources to change working conditions could be effective measures if applied correctly. My desire to leave that company was voluntary, and, when evaluating its prospects, one can assume that in case its operating mode does not change, the management will continue to struggle with high turnover and low productivity. Thus, the use of the theory of restrictions in a particular company may be one of the decisive factors for improving work results, and the aforementioned example is a confirmation.

Conclusion

The value of the considered theory of constraints lies in the ability to influence individual stages of work and address difficulties more effectively than through the use of total change programs. The presented examples from academic sources prove the relevance of specific tools of this concept, in particular, the DBR method with respect to enhancing production results. Addressing bottlenecks through competent interventions and evaluating the work environment is successful if the principle of ongoing improvement is maintained, which is part of a strategy to eliminate constraints. The theory is useful not only as a means to overcome local challenges but also as a full-fledged management methodology that may be applied in various operating environments, including control over supply chains. The given example of the organization in which this concept could be utilized proves that the timely identification and addressing of defects is possible to modernize production and eliminate related problems, for instance, low performance and high turnover.

References

  1. Goldratt, E. M. (1984). The goal. North River Press.
  2. Gupta, M., & Andersen, S. (2018). Throughput/inventory dollar-days: TOC-based measures for supply chain collaboration. International Journal of Production Research, 56(13), 4659-4675. Web.
  3. McMullen, T. B. (1998). Introduction to the theory of constraints (TOC) management system. CRC Press.
  4. Pérez, J. (1997). TOC for world class global supply chain management. Computers & Industrial Engineering, 33(1-2), 289-293. Web.
  5. Puche, J., Ponte, B., Costas, J., Pino, R., & de la Fuente, D. (2016). Systemic approach to supply chain management through the viable system model and the theory of constraints. Production Planning & Control, 27(5), 421-430. Web.
  6. Rahman, S. U. (1998). Theory of constraints: A review of the philosophy and its applications. International Journal of Operations & Production Management, 18(4), 336-355. Web.
  7. Thürer, M., & Stevenson, M. (2018). On the beat of the drum: Improving the flow shop performance of the Drum-Buffer-Rope scheduling mechanism. International Journal of Production Research, 56(9), 3294-3305. Web.

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BusinessEssay. 2022. "Theory of Constraints: Basic Principles." January 19, 2022. https://business-essay.com/theory-of-constraints-basic-principles/.

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BusinessEssay. "Theory of Constraints: Basic Principles." January 19, 2022. https://business-essay.com/theory-of-constraints-basic-principles/.