Theory
of Constraints - TOC
“ Elementary! Dear Watson!” ...is
a famous quote of the legendary detective, Sherlock Holmes. This saying is very apt for
the “Theory of Constraints.” Dr. Eliyahu. M. Goldratt, an Israelite, is the
father and propounder of this very basic, down to earth philosophy that breaks all
conventional practices of business because of its simplicity. “The more complicated
the problem, the simpler the solution”, is the natural law.
At home, the weakest child gets the maximum
attention. All in the family support to make the weakest stronger and they subordinate
their work to the demands of the weakest. - then why not in Business? This is the basis of
the whole Theory of Constraints.
So the five simple steps of the Theory of
Constraints are:
- Identify the weakest link (Constraint/Bottleneck) in the
Family (System).
- Do all that can be done to strengthen the Constraint.
- All others 'Subordinate' to the Constraint.
- Upgrade the Constraint.
- Identify the weakest Link. (try and not let the System
Constraint shift.)
These 5 steps are applied across the
organisation. The weakest link could be anywhere across the system.
The next MOST critical factor is- “One
MUST have a Systems Approach”, and not look at a System as composed of discrete,
local functions. What is good for the system? For generations, business has been measuring
local optima and ASSUMING that the sum of local optima is the sum of the system benefit.
This is totally WRONG! Till today, we measured local optima based on the “Cost
world”, and as people do what they are measured against, this leads to major
conflicts between linked parts of the whole System.
Dr. Goldratt defines new
‘measures’ for the local functions so that they are ‘ADDITIVE’. A
concept of ‘Throughput’ is generated, and this is simply put as :
Profit =Throughput - Operating Expenses for the
System.
Throughput is in Rupees. It is the money
received in hand. Operating Expenses is all money paid out.
Conventional world concepts of cost and
measurements like transfer price, unit cost, product cost, tons/hour, PI of non-bottleneck
machines etc are all frowned upon. New measures like ‘Throughput Rupees-day’ and
‘Inventory-Rupees-day’ are the only measurements across the entire System.
Another myth of the business world of today
that is shattered is: “A resource standing Idle is a Loss”.
A resource standing idle is not a crime, as
long as it is not a Constraint. An hour lost on the Constraint, is an hour lost of the
whole System, but an hour lost on the non-bottleneck MAY NOT be a loss at all.
Simple work rule across the entire System-
before the bottleneck, at the bottleneck and after the bottleneck is:
“ When there is work, Work fast. When there is no work
- stop”
To ensure that the Bottleneck never runs
out of work, a method of buffer creation and buffer management is designed and controlled.
All in the organisation are driven by these simple “Buffer” and “Buffer
Management” concepts. There is total clarity and visibility to all in the
organization. The Buffer management is done on a sound DRUM-BUFFER-ROPE concept. The
drummer in the march-past, sets the ‘Timing of left-right’. He is also the
shortest man, and has the shortest stride, and that decides the rate of throughput of the
entire contingent in the march past. In Business, the Drum is the bottleneck and kept
before the bottleneck, and the Rope is the time when work must be released for the
bottleneck from preceding operations. Thus the rope keeps the Buffer within control.
The beauty of this simple TOC, is that it
does not collide with any of the Improvement initiatives like suggestions, TPM, QC, Six
Sigma, Problem Solving Techniques, Kaizens, Knowledge Management etc...In fact, it gives
focus to these techniques in identifying the bottlenecks of the System. These techniques
are then used on CONSTRAINT areas only.
Our Managing Director, Mr B. Muthuraman,
has taken a major initiative in attempting to implement TOC across Tata Steel.
Wire Division, is one of the chosen areas
for the first wave.
In conjunction with the Goldratt team, TSWD
has chosen Tyre Bead business, LRPC business, Cable Armour business and GI(Bakeart line)
business in its attempt to roll out TOC.
Different Sales Offers are being worked on
for each business. We hope to roll TOC out to the market sometime in early 2006.
During this time a lot of homework and
understanding has to be generated in-house. We shall try and involve the entire work-force
of TSWD in this great movement! Keep yourselves updated |
Dr. Eliyahu
M.Goldratt is an internationally recognized leader in the development of new business
management concepts and systems, and acts as an educator to many of the world’s
corporations. He is the originator of the Theory of Constraints (TOC) and his ideas are
beginning to revolutionize the way companies work.