Industrial Decision Making Analysis The Implementation of The Theory of Constraints

I NDUSTRI AL DECI SI ON MAKI NG & ANALYSI S:
THE I MPLEMENTATI ON OF THE THEORY OF

CONSTRAI NTS

WRITTEN BY:
Dr. MILTIADIS BOBOULOS

R&D SECTION, ALMA LTD, INDUSTRIAL CONSTRUCTIONS

What to change?
To what to change?
How to cause the change?
Don't people already have the capacity to answer all these questions?
Does this mean that through TOCwe'll be able to generate an infinite
amount of output?
You make it sound almost too easy. Is it?

THE THEORY OF CONSTRAINTS MILTIADIS BOBOULOS
TABLE OF CONTENTS

Introduction to the Theory of Constraints __________1

Fundamental Analysis of the Theory of Constraints _2
About Chain Analogy______________________________ 4
About the Process of On Going Improvement _________ 7
About Thinking Processes (TP) _____________________ 10
The Fundamentals of the Thinking Processes________________ 11
Thinking Process Tools __________________________________ 12
Current Reality Tree (CRT)_____________________________ 12
Evaporating Cloud (EC) _______________________________ 13
Future Reality Tree (FRT) ______________________________ 14
Negative Branch (NBR) _______________________________ 15
Prerequisite Tree (PRT) _______________________________ 16
Transition Tree (TrT)__________________________________ 18
Epilogue ________________________________________ 19

TOC Resources _______________________________21
Books, Writings by Goldratt ________________________ 21
TOC Books, Writings by Other Authors _______________ 28
Other ___________________________________________ 37
Published Articles in Magazines & Newspapers ________ 38
Conferences and Symposiums______________________ 42
Videos __________________________________________ 43

TOC Case Studies _____________________________44
Brief Overview of Some Case Studies ________________ 44
Conceptual Analysis of Selected Case Studies ________ 46

Itemised Conclusions __________________________58

Introduction to the Theory of Constraints
1

The Theory of Constraints (TOC) is a portfolio of management philosophies,
management disciplines, and industry-specific "best practices" developed and
popularised over the past 20 years by physicist Dr. Eliyahu M. Goldratt and his
associates. Most people are first exposed to the concepts through his book The
Goal, (North River Press, 1984).
Dr. Goldratt has been described by Fortune Magazine as a guru to industry and by
Business Week as a genius. His books The Goal, It's Not Luck, and Critical Chain,
gripping fast paced business novels, are transforming management thinking
throughout the world.
Goldratt's Theory of Constraints is being used by thousands of corporations, and is
taught in over 200 colleges, universities and business schools. His books have
sold over 3 million copies and have been translated into 23 languages.
The Theory of Constraints is an overall philosophy, usually applied to running and
improving an organisation. TOC consists of Problem Solving and
Management/Decision-Making Tools called the Thinking Processes (TP). TOC is
applied to logically and systematically answer these three questions essential to
any process of ongoing improvement: "What to change?" "To what to change?"
"How to cause the change?"
More specific uses of the Thinking Processes can be used to significantly enhance
vital management skills, such as: win-win conflict resolution effective
communication team building skills delegation empowerment
Famous for spectacular results, the use of TOC has resulted in Proven Solutions
created by applying the Thinking Processes (TP) in specific functional areas such
as Sales, Marketing, Logistics, Finance, Accounting, Engineering and Project
Management. Many of these solutions are discussed in detail in the books: The
Goal, The Race, It's Not Luck and Critical Chain.
TOC recognises that the output of any system that consists of multiple steps
where the output of one step depends on the output of one or more previous steps
will be limited (or constrained) by the least productive steps. In other words, as
2
paraphrased in The Goal, the strength of any chain is dependant upon its weakest
link.
Where manufacturing is concerned, TOC postulates that the goal is to make
(more) money. It describes three avenues to this goal:
Increase Throughput, Reduce Inventory, Reduce Operating Expense
As Dr. Goldratt notes, the opportunities to make more money through reductions in
inventory and operating expense are limited by zero. The opportunities to make
more money by increasing Throughput, on the other hand, are not limited.
More than that, though, TOC challenges us to define a goal and re-examine all of
our actions and measurements based on how well or how poorly they serve it.
This is done through a set of tools that help us identify and resolve bottlenecks.

Fundamental Analysis of the Theory of Constraints

The Theory of Constraints, as it is commonly called, recognises that organisations
exist to achieve a goal. A factor that limits a companys ability to achieve more of
its goal is referred to as a "constraint." In The Goal, the demand for parts produced
by a computer-controlled piece of equipment known as the NCX10 exceeded the
machines capacity. Since the factory could only assemble and sell as many
products as they had parts from the machine, the capacity of the factory to make
money was tied directly to the output of the NCX10. The NCX10, therefore, was
the constraint.
It is imperative for businesses to identify and manage constraints. "Because a
constraint is a factor that limits the system from getting more of whatever it strives
for, then a business manager who wants more profits must manage the
constraints. There really is no choice in the matter. Either you manage constraints
or they manage you." Noreen, Smith, and Mackey in The Theory of Constraints
and its Implications for Management Accounting (North River Press, 1995).
3
4
The Theory of Constraints, then, is a management philosophy that focuses the
organisations scarce resources on improving the performance of the true
constraint, and therefore the bottom line of the organisation. Goldratt uses a Chain
Analogy
1
to help illustrate why this is the most effective way to get immediate
results.
It may be relatively easy intellectually to recognise that an organisation must
have a constraint, but it may be quite another thing to positively identify it. In
situations when the constraint can be easily identified (which is usually because it
is a physical constraint such as the machine known as the "NCX10" in the book
The Goal), the five step Process Of On Going Improvement
2
will provide the
steps necessary to deal with the constraint. In situations when the constraint is not
as easily sited (which is often because it has to do with the inter-relationships
between the various "links" in the organisational "chain"), the Thinking
Processes
3
will provide the tools necessary to identify the core problem or core
conflict and the tools needed to deal with it effectively.
About Chain Analogy

A manufacturing company can
be thought of as a chain of
dependent events that are linked
together like a chain. The
activities that go on in one "link"
are dependent upon the activities
that occur in the preceding "link."
The manufacturer in the example
above fabricates products to order. First they market their services. If the
marketing is successful they will get some requests for proposals, and create

1
More information in the section About Chain Analogy
2
More information in the section About Process Of On Going Improvement
3
More information in the section About Thinking Processes
some bids. If some bids are successful they will procure the necessary materials.
Once the materials are on hand they will manufacture the product. Once
manufacturing is complete packaging prepares the product to be sent to the
customer. Finally, once packaged, the product can be shipped to the customer.
We notice that each step is dependent on the preceding step. That is, the product
cannot be shipped until after it is packaged; the product can not be packaged until
it is manufactured; the product cannot be manufactured until the necessary
materials are procured; etc. It is this dependency that explains why the Theory of
Constraints is so powerful when compared with "conventional wisdom."
The chain pictured above is for a very simple company. Even so, it doesnt really
picture all the operations in the company. For example, billing and collection are
not included. The typical company has a much more complex chain than is
pictured here. To handle this complexity, management typically splits the chain up
into links and endeavors to manage each link so as to "maximize" its performance.
As a result, conventional wisdom is as follows:
An improvement to any link in the chain is considered to be an improvement
to the chain.
System wide or "global" improvement is believed to be the sum of all the
"local" improvement made within each link.
This is analogous to saying the primary measurement of success in
managing the chain is the weight of the chain, i.e. if one manager beefs up
her/his link that makes the chain heavier and better.

As a result, all managers compete for scarce resources all the time. They all want
5
to reach their goal of maximising the weight of their link, because they believe that
is the way to maximise the effectiveness of the organisation.
By considering the following true story from a printing company, well see another
view. A team from a press operation in the middle of their system came to
management with a proposal for continuous improvement. (We should think of
them as being located in the manufacturing link above.) They had discovered an
improvement that could be made to their press that would increase productivity
25%! It would cost the company only $20,000. Conventional analysis showed the
payback period on this was relatively short. Would you authorise the investment?
Senior managers were about to sign the check when someone asked, "Where
does the output of this press go? And, what is the status of work-in-process at that
next operation?" It turned out that work was already queued up at the next
operation. In other words, the company almost spent $20,000 so that the output of
the press in question could wait 25% longer at the next operation! Had they made
the expenditure they may have had a false sense of success when viewing the
25% increase in the "productivity" figures of the press, but the actual bottom line
impact would have been a negative $20,000 because that money was spent
without actually bringing any more money into the plant!
TOC Wisdom

TOC says that management needs to find the weak link in the chain. In the
6
7
example above it turned out that manufacturing was the weak link. That is to say
that marketing was attracting sufficient requests for proposals, and bidding was
winning a sufficient number of bids to keep the plant busy, and procurement was
able to get the necessary parts on time, and packaging could handle everything
that was manufactured, and shipping could keep up with packaging, BUT
chain is only as strong as its weakest link.
"global" improvement, then is NOT the sum of the local
not link weight) by
line impact can be gotten by channelling those resources to the
constraint.
ses a
Of On Going Improvement. The steps in this process are:
manufacturing could not keep up with the schedule.
In this case, what would be the bottom line impact of "beefing up" or improving the
packaging link? Some cost savings may be produced, but the long term impact on
the bottom line will probably not be great because it did not enable the company to
fill any more orders than they are currently. (We remember that it is manufacturing
that is limiting the rate at which orders are fulfilled.) The same holds true for
shipping, procurement, marketing, and bidding. The one place where a significant
impact can be made on the bottom line is at the constraint in manufacturing in
this example. The old saying applies: a
As a result, TOC wisdom is as follows:
Most improvements to most links do NOT improve the chain.
System wide, or
improvements.
Thus a company should focus on "chain strength" (
working to strengthen the weakest link the constraint!
The result is that when using the Theory Of Constraints, managers do not fight
over scarce resources. They all understand that once the constraint is known, the
most bottom

About the Process Of On Going Improvement
To manage constraints (rather than be managed by them), Goldratt propo
five-step Process
1. Identify
8
2. Exploit
3. Subordinate
4. Elevate, and
ut if that material ends up waiting longer somewhere else, there will be
no global benefit. To increase throughput, flow through the constraint must be
d.

e could be producing during times it previously sat idle. This added
significantly to the output of the NCX10, and therefore to the output of the entire

vent this from
happening. This usually involves significant changes to current (and generally long
5. Go back to Step 1
Identify
In order to manage a constraint, it is first necessary to identify it. In Eli Goldratt's
book The Goal (North River Press, 1984), a machine known as the NCX10 was
identified as the constraint. This knowledge helped the company determine where
an increase in "productivity" would lead to increased profits. Concentrating on a
non-constraint resource would not increase the throughput (the rate at which
money comes into the system through sales) because there would not be an
increase in the number of orders fulfilled. There might be local gains, such as a
reduction or elimination of the queue of work-in-process waiting in front of the
resource, b
increase
Exploit
Once the constraint is identified, the next step is to focus on how to get more
production within the existing capacity limitations. Goldratt refers to this as
exploiting the constraint. One example from The Goal was when the company and
the labour union agreed to stagger lunches, breaks, and shift changes so the
machin
plant.
Subordinate
Exploiting the constraint does not insure that the materials needed next by the
constraint will always show up on time. This is often because these materials are
waiting in queue at a non-constraint resource that is running a job that the
constraint doesnt need yet. Subordination is necessary to pre
9
established) ways of doing things at the non-constraint resources.
ctivate the resource that was the constraint and produce
greatest
more money-now and in the future.
constraint because there always is one. The five step process is
rocess a kind of tool to assist in more perfectly balancing
production system.
Elevate
After the constraint is identified, the available capacity is exploited, and the non-
constraint resources have been subordinated, the next step is to determine if the
output of the constraint is enough to supply market demand. If so, there is no need
at this time to "elevate" because this process is no longer the constraint of the
system. In that case the market would be the constraint, and the TOC Thinking
Process should be used to develop a marketing solution. However, we should be
careful not to over a
unneeded inventory.
If, on the other hand, after fully Exploiting this process it still cannot produce
enough product to meet market demand, it is necessary to find more capacity by
"elevating" the constraint. In The Goal, schedulers were able to remove some of
the load from the constraint by rerouting it across two other machines. They also
outsourced some work and brought in an older machine that could process some
of the parts made by the NCX10. These were all ways of adding capacity, or
elevating the constraint. It is important to note that to "elevate" comes after
"exploit" and "subordinate." Following this sequence ensures the
movement toward the goal of making

Go back to step 1
Once the output of the constraint is no longer the factor that limits the rate of
fulfilling orders, it is no longer the constraint. Step 5 is to go back to Step 1 and
identify the new
then repeated.
It may appear that implementing TOC involves a never-ending series of trips
through the five-step p
a

This is not the case. A fundamental principle of the Theory Of Constraints is that
10
the combination of dependent events (such as the steps in a production system)
and normal variation (which is always present) makes it literally impossible to ever
fully balance a line. There will always be a constraint in the system. What creates
chaos is allowing the constraint to move around and a so-called "balanced"
system will always experience a moving constraint due to normal variation. For
that reason, companies that get the greatest financial benefit from TOC are those
that make a strategic choice of where they want the constraint to be. They then
manage their entire operation (product design, marketing, capital investment,
hiring, etc.) accordingly. This allows the company to manage the constraint to their
advantage rather than allowing the constraint to manage them.
s that exist regarding how we manage
k the constraint fairly quickly. Therefore, it is mastery of the Thinking
rther, we will have to examine the
ndamentals.

Processes involve the rigorous application of effect-
cause-effect logic to answer the following three questions:
1. What to Change?

About Thinking Processes (TP)
The Thinking Processes can be used when the constraint of the system is not
obvious. This is generally the case when the constraint is not a physical resource,
but instead is in the market or in the policie
our organisation. (The Thinking Processes stand alone and as such can be used
individually in appropriate circumstances.)
Goldratt believes that most organisations do not have a true physical constraint, or
if they do, correct application of the 5 step Process Of On Going Improvement will
usually brea
Processes that is necessary for most organisations to break through their
constraint.
To explore the Thinking Process fu
fu
The Fundamentals of the Thinking Processes
Simply stated, the Thinking
11
2. What to Change to?
3. How to Cause the Change?
The first question is the equivalent to the first step of the five step Process Of On
Going Improvement: "Identify the Constraint?" Since these processes are
generally used when the constraint is not a physical resource, there is usually no
physical evidence (such as work-in-process inventory) to point you to the
constraint. Instead you have to "map out" what is currently going on in your
system. The logical mapping structure that is used at this point, is the "Current
Reality Tree." This is not a simple task, but when it is completed successfully, we
ile this question is
ure the cure will not be worse than the
d when answering question 3: the
will know what to change.
That will bring us to the question, "What to change to?" Wh
intuitively obvious, there are two distinct steps to answering it.
1. Identify the breakthrough idea that will overcome the current constraint
2. Ensure that the "cure" that is derived will not be worse than the "disease."
The "Evaporating Cloud" is used to break through the core conflict that is currently
constraining the organization. Then the "Future Reality Tree" is used to ensure
that the undesirable effects we now are experiencing will, indeed, be changed to
desirable effects by this breakthrough idea. The unintended negative
consequences of the proposed solution are usually identified at this point using
what are called Negative Branches. If these bad things that result from a good
action can be prevented, then we can be s
disease. Now we know what to change to.
That brings us to question 3, "How to cause the change?" The simple answer is:
get the people who are going to have to live with the change to create the action
plan that is needed for implementation. The Thinking Process pro-actively involves
those who are most effected by the change. These people are solicited for their
vision of what obstacles might prevent the organisation from moving forward on
this breakthrough solution. The workers are used to generate all the additional
ideas that are necessary to implement the original injection. Once these are
known, a plan is mapped out. The tools use
12
"Prerequisite Tree," and the "Transition Tree."
hinking Process Tools:
rocesses, the first of 3 questions we should ask is:
s of negative effects would be things such as
;
Tree." Once properly constructed, we are
the position to know what to change.

T

Current Reality Tree (CRT)
When using the Thinking P
"What to change?"
It is the equivalent of the first step of the five step Process Of On Going
Improvement: "Identify the Constraint?" However, since the Thinking Processes
are usually used when the constraint is not a physical resource, we can rarely use
physical evidence like work in process (WIP) to identify the constraint.
Instead, we start with the evidence that is available: the negative effects that are
apparent within the system. Example
- frequently shipping orders late;
- excessive amounts of inventory
- lead times that are increasing;
- poor human relations within the organisation.
Goldratt calls these "Undesirable Effects" or UDEs. The key is to realise that the
UDEs are not the "real" problem -- they are only the visible effects of the real or
"core" problem. The challenge is to map out the interrelated web of cause-and-
effect that links the undesirable effects together. Once completed, one is generally
able to identify the "core problem" near the bottom of the logical map.
This map is known as a "Current Reality
in

Evaporating Cloud (EC)
13
When using the Thinking Processes, the second of 3 questions we should ask
our system. That is,
would implementing the injection change the undesirable effects (UDEs) we are
able effects (DEs)?
oblem using the mapping tool called the Evaporating
ourselves is:
"What to change to?"
The first step in determining the answer to this question is to understand why the
core problem exists. (We should remember that the core problem was found at the
base of the logical structure -- known as the Current Reality Tree -- that was
formed to find the constraint of the system.) It is assumed that managers are not
stupid. If there was an easy solution to this core problem, it would have been
solved long ago. No, there must be some conflict that underlies the core problem.
Once this core conflict is identified, it is necessary to develop a breakthrough idea
(referred to as an "injection") that will resolve the conflict. This is accomplished
using a tool known as the "Evaporating Cloud."
The second step in determining "what to change to" is to test our breakthrough
idea, our injection, to see if it will have the desired impact on y
now experiencing into desir

Future Reality Tree (FRT)
When using the Thinking Processes, the second of 3 questions we should ask is:
"What to change to?"
The first step in determining the answer to this question is to determine the conflict
that underlies the core pr
Cloud. The main output of the Evaporating Cloud is a breakthrough idea, called an
injection.
Once the injection is determined, we will have one necessary part of the solution.
However, the injection is not sufficient to resolve the core problem. In fact, to be
sure the proposed injection is indeed a "good" idea, it is important to check what
the effect of implementing that idea would be.
Thus the second step in determining "what to change to" is to test your
14
breakthrough injection, to see if it will have the desired impact on our system. That
is, would implementing the injection change the undesirable effects (UDEs) we are
now experiencing into desirable effects (DEs)? This is done by returning to the
original map of undesirable effects (the Current Reality Tree) and inserting the
xt to impossible to implement -- that it will happen only when "pigs can fly."
g Injections." If this is the case for us,
we should not be in despair. There are effective techniques for grounding a flying
deed change the
r some time, and that
there is a significant conflict underlying the current behaviour. Thus, the proposed
injection at the appropriate place. Then, redraw the logical connections and see
whether implementing this idea would, indeed, reverse the undesirable effects into
desirable effects. If it works, we now know to what to change.
This mapping tool used in this step is the "Future Reality Tree" because it gives us
a good picture of what the future can look like if we can figure out how to
implement the injection. Notice that at this point, it is not necessary to know how
we can implement our injection. In fact, sometimes it will appear that the injection
is ne
Such injections are referred to as "Flying Pi
pig.

Negative Branch (NBR)
After we have used the Current Reality Tree to map a clear picture of the core
problem that is causing your current pain. After we have from the Evaporating
Cloud, a breakthrough idea that can significantly improve our situation; we have
from the Future Reality Tree, some assurance that this idea will in
undesirable effects. We are currently experiencing into desirable effects in the
future, we will need the input of the people who will be most affected by the
proposed changes in order to ensure successful implementation.
The Thinking Processes are used in a very open and participatory fashion. Well
work closely with the people who are going to be asked to change. Their
involvement is absolutely vital to the long-term success of the implementation. As
they view the proposed change that come with the "injection" and rosy "future
reality" that accompanies it, they will tend to be resistant. We should always
remember, that the core problem has probably existed fo
15
injection will usually be counter to the culture of the organisation (or the sub-
culture of a department or sub-group of the organisation).
People will usually look at the idea and say, "Yes, I see where your solution might
result of the change. For example:
are involved in the affected process(es) will best
the concern forward in figuring out how to prevent that
negative consequence from actually occurring. Goldratt calls this "trimming the
ince
work, but...." They complete the sentence with any number of unintended negative
consequences that they fear will happen as a
"If we make that much improvement in output, our department won't need
as many people."
"If we take the master schedule away from all the departments, we won't
know what is coming down the pipe."
The Thinking Process intentionally seeks out these 'Yes, but there is a negative
consequence' statements! They are important to preventing a failed
implementation. The people who
know what these unintended negative consequences (Goldratt calls them
"Negative Branches") will be.
So the Thinking process seeks proactively to identify them and then assists the
person who brought
Negative Branches."

Prerequisite Tree (PRT)
When using the Thinking Processes, the third of 3 questions we should ask is:
The wording here is very important! We should note here, that it does not ask 'how
to change things?' The emphasis is on causing the change to happen. S
people tend to be less resistant to changes that they helped design, the key is to
involve the people who will have to execute the changes in a meaningful way.
This portion of the Thinking Process is perhaps its greatest strength -- that which
sets it apart from many other processes of continuous improvement. Once a
group/team/manager determines what to change to, the implementation "team" too
16
often goes into full operation: set dates, take names, and don't let anything get in
the way. Not so with the Thinking Process. At this point all we have is a clear
picture of the core problem that is causing our current pain (from the Current
Reality Tree), the breakthrough idea that can significantly improve our condition
(from the Evaporating Cloud) and assurance that this idea will indeed change the
undesirable effects we are currently experiencing into desirable effects in the
current behaviour. Thus, the proposed injection will usually be
y these people complete this sentence is by
, but it requires that marketing and engineering
ay work, but before we could implement it we would have
at.
future (from the Future Reality Tree). We have not considered at all how to get
from our undesirable current reality to our desired future reality.
The next step is to work closely with the people who are going to be asked to
change. Their involvement is absolutely vital to the long term success of the
implementation. As they view the proposed change, the "injection" and rosy "future
reality" that accompanies it, they will tend to be resistant. Remember that the core
problem has probably existed for some time, and that there is a significant conflict
underlying the
counter to the culture of the organisation (or the department or sub-group of the
organisation).
People will usually look at the proposed solution and say, "Yes, I see where your
idea might work, but...." One wa
identifying obstacles that seem to make the chances of successfully implementing
the idea very small. For example:
Yes, your solution is good
must communicate closely with each other, and in our company they aren't
even on speaking terms.
Yes, your idea m
to train everybody in the organisation and we don't have any money in the
budget for th
Great, but the manager will have to give her approval first, and you can
forget that!
These obstacles are pro-actively sought, and the person who originally pointed out
the obstacle is asked to identify the conditions that would be necessary to
17
overcome it. By helping the originator to solve the problem, not only do we develop
effective solutions, but buy-in from the participants is very high. The mapping tool
at people can complete the sentence, "Yes, but...." It is by
identifying unintended negative consequences; these are discussed in the section
on Negative Branches.

Transition Tree (TrT)
When using the Thinking Processes, the third of 3 questions we should ask is:
ince people
vaporating cloud. All three of these mapping tools produce ideas, called
will:
that has the organisation constrained
es that might have been the result
plementation and shows the interrelationships so that the
is clear. The tool used to accomplish this is called
that is used to logically show what is necessary to overcome these obstacles is
called the "Prerequisite Tree."
There is another way th
The wording here is very important! We note here, that it does not ask 'how to
change things?' The emphasis is on causing the change to happen. S
tend to be less resistant to changes that they helped design, the key is to involve
the people who will have to execute the changes in a meaningful way.
Negative branches and the prerequisite tree are discussed on other pages, as was
the e
injections, about what conditions need to exist in order to produce a solution that
1. Resolve the core conflict
2. Prevent unintended negative consequenc
of the proposed change
3. Overcome obstacles to implementation
Once all the additional injections that are necessary to implement the original
injection are known, a plan is mapped out. It shows all the actions necessary to
achieve successful im
proper sequence of the actions
the "Transition Tree."
18

Epilogue

The Theory of Constraints is an overall management philosophy that enables
ke money now and in the
future, TOC will enable the managers of the company to do so.
anagement philosophy will enable our company to make
uce defective inputs, our
the managers of a system to get more of the goal that the system is designed to
produce. If, for example, the goal of a business is to ma
How does it accomplish this? By enabling management to make better decisions,
by considering the decision making process map below.
Let us think about the really important decisions, the "strategic" decisions.
Decisions makers will, consciously and/or subconsciously, consider some or all of
the inputs above. They then process this inputs and produce their decisions. So
the question is, "How does TOC impact this process map?" That is, if adopting
TOC as an overall m
better decisions, it must somehow change the inputs to the process (because if we
don't change the inputs we will get the same outputs), or change the Decision
Making process itself.
The answer is that adopting TOC as overall management philosophy will do both:
it changes the fundamental decision making process and makes significant
changes to the inputs to that process. And it is absolutely necessary to change
both. If we change the process but continue to introd
Circumstances
Data
Outputs...
Decisions
that Drive
the Company
Inputs...
Intuition
Past Experience
Policies
Theory
19
outputs may improve, but they still won't be the best. Likewise, we can improve the
e process.
ple, set-ups in Drill Room are increasing, but
performance to customer due dates is increasing too.);
easurements;
others.
You must always question your assumptions -- and the assumptions of
Past Experience: TOC examines the cause-and-effect relationships;
Policies: TOC identifies and challenges the current validity of existing
policies.
Theory: TOC sharpens the focus of how to get more of the system's goal.
quality of the inputs and get in improvement in the outputs; but if the process itself
is of low quality, then the outputs still won't be the best.
The following points identify how TOC changes the inputs to th
Circumstances: TOC always puts the current circumstances into a global
perspective. (For exam
Data: TOC dramatically reduces the data considered and redefines the
critical m
Intuition: TOC forces us to make our intuition explicit and visible to
others;
TOC Resources
Books, Writings by Goldratt:
Eliyahu M. Goldratt: Eli Goldratt is an educator, scientist, philosopher and
business leader. But first and foremost he is a thinker who provokes others to
think. Often characterised as being unconventional and stimulating, Dr. Goldratt
exhorts his readers to examine and reassess their business practices.

The Goal
by Eliyahu M. Goldratt (North River Press, 1984)
Over 3 million copies sold! Used by thousands of
companies and taught in hundreds of business schools!
This book, which introduces the Theory of Constraints,
has changed business thinking. The Goal is a gripping,
fast-paced business novel about overcoming the barriers
to making money. We learn the fundamentals of
identifying and solving the problems created by
constraints.
The book helps to start successfully addressing chronic productivity and quality
problems.
"Like Mrs. Fields and her cookies, The Goal was too tasty to remain obscure.
Companies began buying big batches and management schools included it in their
curriculums. It was eventually translated into 13 languages and sold over 1.2
million copies." Fortune Magazine
"A survey of the reading habits of managers found that though they buy books by
the likes of Tom Peters for display purposes, the one management book they have
actually read from cover to cover is The Goal." The Economist
" Goal readers are now doing the best work of their lives." Success Magazine
20
"A factory may be an unlikely setting for a novel, but the book has been wildly
effective." Tom Peters

It's Not Luck
by Eliyahu M. Goldratt (North River Press, 1994)
THE SEQUEL TO THE GOAL
We learn more about the powerful techniques first
presented in the best-selling business novel, The Goal. In
this book, Dr. Goldratt, through examples in a variety of
industries, shows how to apply TOC to sales and marketing,
inventory control, and production distribution. In addition,
techniques in conflict resolution are introduced on both a
business and personal level.
The Book
Alex Rogo has had a great year. He was promoted to Executive vice-president of
UniCo with the responsibility for three recently acquired companies. His team of
former and new associates is in place and the future looks secure and exciting.
But there has been a shift of policy at the board level. Cash is needed and Alex's
companies are to be put on the auction block. Alex faces a cruel dilemma. If he
successfully completes the turnaround of his companies they can be sold for
maximum return. If he fails, the companies will be closed down. Either way, Alex
and his team will be out of work. It looks like a lose-lose situation. And as if he
doesn't have enough to deal with, his two children have
become teenagers!

Critical Chain
by Eliyahu M. Goldratt (North River Press, 1997).
Powerful yet simple techniques to solve project
21
management's toughest problems.
This book teaches companies how to drastically cut project development times
resulting in early completion within budget and without compromising quality or
specifications.
Project Managers and their teams will benefit from Goldratt's techniques of how to
remain focused on the few critical areas and how to prevent your attention from
being divided among all of the projects tasks and resources.
Especially useful for dealing with one of the most difficult and pressing
management challenges: developing highly innovative new products.
"Anyone who doesn't snap up a copy is missing a wonderful opportunity for
professional and personal development." Assembly
"This book is valuable to two main audiences: project managers and senior
managersuseful for dealing with one of the most difficult and pressing
management challenges: developing highly innovated new
products."<PALIGN=LEFT
"Eli Goldratt's first novel, The Goal, shook up the factory floor Goldratt
essentially adds a discipline for understanding what drives project performance
and therefore what the focus of a project manager's attention should be."
Harvard Business Review
"Critical Chain will revolutionise project management." World Aero-Engine
Review

The Race
by Goldratt and Fox (North River Press, 1986)
The graphics and accompanying text reveal the implications
that stem from the shop floor to our standard of living.
The Race allows us to derive a superior system, Drum-
Buffer-Rope, for generating logistical improvements. It also
22
23
shows us how to focus these improvements so they are optimal and not just local.
The epilogue and appendix quizzes will give the thoughtful reader insight in how to
initiate and extend a process of ongoing improvement into other areas-like
marketing and financial control.

Necessary but not Sufficient: A Theory of Constraints Business
Novel
by Eliyahu M. Goldratt with Eli Shragenheim and Carol A.
Ptak
After reading the newspapers and following the oscillations
of the stock market, it becomes apparent that hi-tech
companies are of a different breed. Never before have the
chances of making a fortune been so realistic and never
before have large companies been so fragile. What is really
going on inside these hi-tech companies? What types of
pressures and challenges are they facing? And how do they
cope?
Computer software providers, especially the ones that specialise in handling the
data needs of organisations, are prime examples of these volatile companies. In
the nineties we witnessed their growth from small business into multi-billion dollar
re impo
traints
giants. No wonder investors were attracted.
In 1998 it was easy for such companies to raise as much money as they wanted.
But now, investment funds have dried up. Why? And mo rtantly, is there a
way to reverse the trend? This book gives the answers.

The Theory of Cons
by Eliyahu M. Goldratt
The Theory of Constraints walks us through the crucial stages
24
of a continuous program: the five steps of focusing; the process of change; how to
prove effect-cause effect; and how to invent simple solutions to complex problems.
Equally important, the author reveals the devastating impact that an organisations
psychology can have on the process of improvements. Theory of Constraints is a
crucial document for understanding what it takes to achieve manufacturing
reakthroughs.
rome
ct to have
sly improve
e-buffer concept, directing
tem and the manager, resolving
ll conflicts, considering capacity and protection.
ry of Constraints
ally published in The
ment The Inherent Conflict
b

The Haystack Synd
This maddening dilemma of our technological age is a factor
in every important decision, and an issue we expe
addressed by modern-day information systems.
Part One: Formalising the Decision Process - Defining the
goal, the measurements, and how to continuou
the whole system - The Theory of Constraints.
Part Two: The Architecture of an Information System - Dealing with information as
it relates to the real world; quantifying Murphy, the tim
process improvements, measuring local performance.
Part Three: Scheduling - How to implement a real process of ongoing
improvement requiring interplay between the sys
a

Essays on the Theo
This collection of essays was origin
Journal on the Theory of Constraints.
Chapter 1 Hierarchical Manage
Modine The McHenry Plant
25
Chapter 2 Laying the Foundation APOLOGIA or In The Move Toward The Third
The Fundamental Measurements When Quoted Lead Times Are The
nts Looking Beyond The First
How Complex Are Our Systems Looking Beyond The First Stage; Just
ions
appeared
tribution channels, a discussion on
olution into a disaster, a discussion
rom one ditch into another, a discussion on
results expected and who has
ct devastating and long term lead times a discussion on project
Stage
Chapter 3
Problem
Chapter 4 The Importance of a Systems Constrai
Stage; Just In Time (Fictional Visit Real Plants)
Chapter 5
In Time
Chapter 6 The Paradigm Shift Looking Beyond The First Stage; Just In Time

Late Night Discuss
This collection of Late Night Discussions originally
as a monthly column in Industry Week magazine.
How to block our own dis
the automotive industry.
How to turn an excellent s
on single source vendor.
How to go f
automation.
How to throw out the baby with the bath water a discussion on automation.
How to run from one excuse to another a discussion on Japanese success.
A discussion on why TQM is not producing the
devastating inertia, the "troops" or the inventors?
How to perfe
engineering.
The paradigm shift in material management.
26
How companies behave in a market downturn a discussion on market
rements can kill a friendship a discussion on
here did product cost and profit come from a discussion on cost accounting.
TOC Books, Writings by Other Authors:
ing
event organisations from achieving better
refined for nearly three
gement, it is now accepted as a mainstream
and
hroughput dollars, not cost-plus accounting." Accounting Today
ial accounting and shows an
segmentation, part 1.
How the notion of product price kills companies market segmentation, part 2.
How erroneous policies and measu
human behaviour in organisations.
W

Throughput Account
Author: Thomas Corbett
We learn how to apply the theory of constraints to
management accounting. The Theory of Constraints, a
management philosophy derived from physics, assumes that
constraints pr
performance.
The Theory of Constraints (TOC) is based on a scientific
method that has been developed and
decades by Dr. Eliyahu M. Goldratt.
As a tool for business mana
alternative to cost accounting.
"TOC is radically different from traditional accounting methods taught in
universities, the focus is on finding the highest price that the market will bear
maximising t
This book:
Reveals a new management tool for manager
alternative path for other management practices.
Enables managers to quickly see if their decisions increase profitability.
27
Demonstrates some of cost accounting's flaws, and shows how these errors will
demonstrates a
t.
ductivitys public enemy number one."
ahu M. Goldratt
e Theory of Constraints and the System
have devoted their
nd
t
process brings the work of these two great
ecisions.
lead to bad decision making.
Compares the paradigm of TOC-based throughput accounting with more
conventional cost accounting methodologies and in the process,
new way to solve the complex problems of modern managemen
"Cost Accounting is pro
Eliy

Deming and Goldratt Th
of Profound Knowledge
by Domenico Lepore and Oded Cohen
Domenico Lepore and Oded Cohen: These authors'
professional lives to understanding and implementing the
processes presented in their book, Deming and Goldratt:
The Theory of Constraints and the System of Profound
Knowledge - Domenico Lepore as a Deming Scholar a
Oded Cohen as Eli Goldratt's collaborator and partner.
A step by step guide to implementing the managemen
systems of w. Edwards Deming and Eliyahu M. Goldratt
Dr.'s Deming and Goldratt are recognised as two of the
foremost geniuses of modern management. The
integration of the Theory of Constraints and the System of
Profound Knowledge into one cohesive
thinkers to a new level of accessibility.
The ten steps of the decalogue reflect the basic concept that in order to manage
effectively we must be able to predict the outcome of our management d
This seemingly simple statement is the core of successful management.
the tools presented in this book will enable any organisation to: > manage
28
effectively > develop focused business strategies > create an atmosphere of
tion and focus you
as a
ldratts collaborator and partner.
book
rifying the implications on one of
nt aspects-the measurements.
, and other methods, including
M techniques.

continuous improvement
You will not find a quick fix in these pages, but with determina
will be able to control and radically improve your organisation.
The authors have devoted their professional lives to understanding and
implementing the processes presented in this book; Domenico Lepore
Deming scholar and Oded Cohen as Eli Go

The Constraints Management Hand
by James F. Cox and Michael S. Spencer
A new approach to improving the production of goods and
services, Constraints Management (CM), recognises the
powerful role of the constraint (the limiting resource) in
determining the output of the entire production system. By
learning about and mastering CM concepts, managers can
improve their companies' present output and plan for future
growth as well. This book is an excellent attempt to unify the
pieces in production: sorting through the fog of classification,
the overlap between MRP, JIT and TOC, and cla
the most importa
Key Features:
Explains the five-step process to continuous improvement. Covers VAT analysis,
drum-buffer-rope scheduling, buffer management
methods that can be used with existing systems.
Includes in-depth case studies demonstrating successful C
Defines important terms and explains CM thinking tools.
The Theory of Constraints and Its Implications for Management
Accounting
by Noreen, Smith and Mackey
Sponsored by: The Institute Of Management Accountants
(Usa), and Price Waterhouse (France)
This book demonstrates how throughput accounting rather
than traditional cost accounting is the measurement tool
required for business decisions.
This information is presented as an in-depth and impartial
evaluation of the implementation of the Theory of Constraints
at over 20 companies. Seven of the case studies are described in detail, including
the original thinking process with diagrams as constructed by the companies'
managers. Fascinating and enlightening reading.

Goldratt's Theory of Constraints
by H. William Dettmer
Dettmer describes the action steps that follow this theory and
shows, step-by- step, how to effectively manage change in an
organisational system, at any level.
Much of the content in this book focuses on the author's
understanding and interpretation of Goldratt's logical Thinking
Process. He clarifies the five focusing steps of the theory and
teaches the mechanics of all the thinking tools. Using this book, you can determine
what to change, what to change to, and how to make change happen.
Benefits:
Understand how to use the great power and versatility of the thinking tools.
Construct logic trees with ease, guided by illustrations that show virtually every
aspect of the tools' use. Use as a text for training or graduate management
courses.
29
Securing the Future
by Gerald I. Kendal
Today's managers encounter tremendous resistance in
getting others to buy into change. The ongoing rounds of
downsizing and upheaval have taken their toll, leaving a
legacy of scepticism. Therefore, managers must not only
have ideas, but must be experts at "selling" the correct
answers, information, and measurements to address issues
of change.
Securing the Future uses the Theory of Constraints to
provide solutions to today's management problems. This book documents the
step-by-step approach to achieving a strategic vision of long-term competitive
advantage, employment security, and customer satisfaction. Using a combination
of parable, methodology, and case studies. This book presents an in-depth
management road map to exponential improvement in any organisation
Key Features:
Shows how to align all parts of an organisation to drastically improve performance.
Illustrates through examples and methodology how to win the kind of employee
collaboration and commitment that drives bottom line results. Provides
measurements to be used as an executive tool to navigate the organisation to
long-term safety and success for employees, shareholders, and customers.
Teaches how to use five integrated Thinking Processes to build a competitive,
customer oriented, and value-driven organisation. Includes seven case studies
that illustrate winning strategies and a full set of TOC trees.

The Constraints Management Handbook
by James F. Cox and Michael S. Spencer
A new approach to improving the production of goods and
services, Constraints Management (CM), recognizes the
30
powerful role of the constraint (the limiting resource) in determining the output of
the entire production system. By learning about and mastering CM concepts,
managers can improve their companies' present output and plan for future growth
as well. This book is an excellent attempt to unify the pieces in production: sorting
through the fog of classification, the overlap between MRP, JIT and TOC, and
clarifying the implications on one of the most important aspects-the
measurements.
Key Features:
Explains the five-step process to continuous improvement. Covers VAT analysis,
drum-buffer-rope scheduling, buffer management, and other methods, including
methods that can be used with existing systems.
Includes in-depth case studies demonstrating successful CM techniques.
Defines important terms and explains CM thinking tools.

Introduction to the TOC Management System
by Thomas B. McMullen, JR.
This book helps busy executives and professionals quickly
learn and implement TOC principles.
Introduction to the Theory of Constraints (TOC) Management
System organises several proven TOC principles, processes,
and solutions into a TOC management system that has been
successfully applied to everything from manufacturing
industries to health care.
Introduction to the Theory of Constraints (TOC) Management System tells what
TOC is, where it came from, who uses it, and how to get started with it.
Key Features:
Provides a compact source of information and "how to" instructions for those who
are beginning their study and initial use of TOC.
31
Enables directors and executives of corporations, not-for profits, and other
institutions to initiate and guide applications of TOC and its management system.
Organises proven TOC principles, processes, and solutions ("TOC Best
Practices") into a TOC Management System.
Highlights the TOC Management System's suitability for generating superior
degrees of short-and long-term profitability, employment stability, and stakeholder
loyalty.
Describes the TOC "Throughput" Value Added (TVA) financial management
system, including its important new operational definition.

Project Management in the Fast Lane
by Robert C. Newbold
This "how to" manual details proven methods for turning
around chronically late, over budget, and under performing
projects.
Project Management in the Fast Lane explains how Theory of
Constraints tools can be applied to achieve effective,
breakthrough solutions in virtually any environment. It includes
a complete discussion of the Critical Chain scheduling
approach pioneered by Eli Goldratt - the most significant new
development in project scheduling in the last 40 years. The project management
tools described in Project Management in the Fast Lane are clearly outlined and
will help project managers in manufacturing construction, and new product
development in any field find efficient, practical, and sound solutions to
management issues. Common problems related to deadlines, budgets, project
performance, and more are thoroughly treated, providing a solid basis for applying
tools to familiar problems.
Key Features
Clear guidance on making practical, powerful changes to the way you manage
projects. Description of basic approaches to analysing and fixing common
32
33
management problems.
A discussion of Critical Chain scheduling. Practical ways to dramatically improve
on-time completion of projects and simultaneously decrease the time it takes to
complete them, while not significantly increasing expenses.
Common sense solutions to real significant problems. Coverage of how an
organisation can work together to improve production.

Thinking For A Change: Putting the TOC Processes to Use
by Lisa J. Scheinkopf
After an overview of the Theory of Constraints (TOC) and the
types of constraints that exist in any organisation, the reader is
led through the step-by-step process of the two foundational
thinking methods on which the Thinking Processes are based.
The reader can then use the book as a field guide, learning the
five processes as needed, based on his or her own particular
issues.
"Explaining the Thinking Processes accurately in writing is a
very challenging task. To choose examples that make this technical subject alive
to a broad spectrum of people is even more difficult. In this book Lisa succeeds in
these two daunting tasks. She actually succeeds in doing it in a particularly
enticing style. My hats off to her. Im recommending this book to anyone who
wants to learn more about the Thinking Processes. I even recommend it to veteran
t for anyone facing change and new frontiers. You will refer to
Jonahs."
--Eliyahu M. Goldratt
"Thinking for a Change is a book that provides the detailed tutoring required to
learn TOC tools and can be simultaneously used as a reference by the experts. A
well-written, easy-to-understand book with real-life examples to which everyone
can relate! A mus
this book often."
34
--Carol A. Ptak President Eagle Enterprises
"If you are in need of state-of-the-art problem solving tools, this is the book to
Peter Sacreas Operations Manager Sycron, The Netherlands
aints to World-Class Performance by Dettmer (ASQ
ints (TOC) Management System
tification and Solutions by Schragenheim (The St. Lucie
pplying the Theory of
Using the
ronous Manufacturing by Srikanth and Umble (Spectrum Pub.,
ment
OC Thinking Processes to Use by
Sheinkopf (The St. Lucie Press, 1999)

have. Ill buy it and give it a very special place on my desk."
--

Other:
Breaking the Constr
Quality Press, 1998)
Introduction to the Theory of Constra
by McMullen (The St. Lucie Press, 1998)
Management Dilemmas, The Theory of Constraints Approach to
Problem Iden
Press, 1999)
Re-Engineering the Manufacturing System, A
Constraints by Stein (Marcel Dekker, Inc., 1996)
Securing the Future, Strategies for Exponential Growth
Theory of Constraints by Kendall (The St. Lucie Press, 1998)
Synch
1995)
The Theory of Constraints and Its Implications for Manage
Accounting by Noreen, Smith, and Mackey (North River Press, 1995)
Thinking for a Change, Putting the T


Published Articles in Magazines & Newspapers:

" You Can't Spot Serious Shareholder Value? Check Your Paradigms!"
This article was written by Rudolf G. Burkhard, and won the 1999 Pricewaterhouse
Coopers European Shareholder Value Award.
This article won the 1999 PricewaterhouseCoopers European Shareholder Value
Award.
Executives are under too much pressure to spend time looking for and
developing new and better solutions to running their business. They are aware of
the need to manage their business as a system but on the whole do not do so,
because they are lacking the tools to do so. Goldratt's five focusing steps are a
way to solve this missing capability by focusing on the very few constraints any
(business) system can have. Policies (the way things are done) are key
constraints to better profits and improved SVA and many need to be changed.
Some examples show how policies from the past are blocking businesses from
earning much better SVAs

"Program Management - Turning Many Projects into Few Priorities with TOC"
This article was written by AGI Certified Associate Frank Patrick of Focused
Performance and was presented at the Project Management Institute Symposium
in October 1999 magazine.
In PMI's A Guide to the Project Management Body of Knowledge, a program is
defined as ". . . a group of projects managed in a coordinated way to obtain
benefits not available from managing them individually." Most organisations that
depend on the accomplishment of projects as a source of products, profits, or
process improvements do so with shared resources that must be "managed in a
coordinated way." In such a system, proficiency at managing single projects
individually without proactively dealing with the interactions between them is not
35
sufficient to assure the attainment of the goals of the organisation. The system that
really needs to be managed in most cases is greater than the sum of the single
projects. It is a larger, complex system of projects, priorities, policies, and
practices that guide the behaviours of managers and resources and requires
consistent and coherent coordination for maximum effectiveness.
By applying the TOC prescription for multi-project/program management, an
organisation honours its priorities by scheduling its program through the
strategically defined precedence of the synchronisation schedule.
Project managers avoid unnecessary changes in priority by relying on buffers to
absorb most of the normal, expected variability in the execution of tasks and
projects.
Resource managers find clear direction and priority for assignment of tasks in the
status of the buffers, which indicate the best use for available resources to support
the promises made by the organisation.
And resources have a single priority -- the current task to which they are assigned.
Without the distraction of pressures to multitask or to meet false priorities of task
due dates, they can concentrate on the task at and "just do it," do just it, and do it
justice to assure a quality handoff, successful projects, and maximum throughput
for the organisation

"Critical Chain Scheduling and Buffer Management - Getting Out From Between
Parkinson's Rock and Murphy's Hard Place"
This article was written by AGI Certified Associate Frank Patrick of Focused
Performance and appeared in the April 1999 issue of the Project Management
Institute's PM Network magazine
"Work expands to fill (and often exceed) the time allowed." -- Parkinson's Law
"Whatever can go wrong, will." -- Murphy's Law
Uncertainty is why we need project management. How we manage for
uncertainty is at the core of improvement of project performance--getting projects
done both faster and with better reliability of the promised deliverable dates.
36
The approach to project management known as "Critical Chain Scheduling and
Buffer Management" provides mechanisms to allow a "whole system" view of
projects. It identifies and protects what's critical from inevitable uncertainty, and as
a result, avoids major impact of Parkinson's Law at the task level while accounting
for Murphy's Law at the project level.
Project managers and teams need to shift their attention from assuring the
achievement of task estimates and intermediate milestones to assuring the only
date that matters--the final promised due date. Safety that is typically built into
tasks to cover Murphy's Law is inefficient, leading to longer than necessary (or
acceptable) schedules, and apparently ineffective, given the impact of Parkinson's
Law from which many projects suffer...

Learning from Experience
by Eli Schragenheim and Avner Passal
This paper touches upon some of the main points of the methodology. Teaching
the basics of the methodology takes two full days of workshop. Then, there is still
a considerable benefit to assist the first learning teams by having a consultant join
the team and supervise the process. <O:P</O:P
The actual experience we have in implementing the process for structured learning
from experience shows huge benefits to the organisations. The learning teams
testify that they have revealed thinking paradigms that badly need updating. In no
case the regular unstructured way some individuals learn would have produced
such a clear identification of the source of the problem. We have seen in all the
actual inquiries led by us that by encouraging people to challenge current
paradigms new insights emerge and much better understanding of the surrounding
reality is achieved.<O:P</O:P
Another matter is the maturity of the organisation to implement organisational
learning in general and the learning from experience in particular. In a culture
where people have to pay for their mistakes no true learning has any chance.
<O:P</O:P
37
Learning from experience seems to us as relatively easier to implement as other
form of organisational learning. At times where the organisation is going through a
substantial change, there is a special benefit for implementing a formal procedure
for learning from experience. Noting the cases where a gap is observed and going
through the structured learning can reveal a number of old paradigms that fit the
reality before the change and didnt change with the organisational change. Such a
quick identification of wrong paradigms should be of great impact in the success of
the implementation of the organisational change

The Theory Of Constraints
By Tony Rizzo
The Theory of Constraints and the Thinking Process tools are already being
used to great effect in many companies throughout the world. These companies
manage change, rather than letting change manage them. Many of them already
have reported astounding results. For example, Avery Dennison reported a 20%
increase in market share only 18 months after adopting the Theory of Constraints.
One Vice President of Texas Instruments recently reported that that company
improved operations to the extent that it could defer a $600 million investment in
new plants. Results such as these suggest that the Theory of Constraints will soon
sweep not the nation but the world. Last year, Toyota expressed an interest in the
subject

Other TOC Articles
Atwater, Brian and Margaret L. Gagne, "The Theory of Constraints Versus
Contribution Margin Analysis for Product Mix Decisions", Journal of Cost
Management, January/February 1997, Vol 11 No. 1
Campbell, Robert, Peter Brewer, and Tina Mills, "Designing an Information
System Using Activity-Based Costing and the Theory of Constraints",
Journal of Cost Management, Journal of Cost Management, January/February
1997, Vol 11 No. 1
38
Gupta, Mahesh, Sid Baxendale, and Kathy McNamara, "Integrating TOC and
ABCM in a Health Care Company", Journal of Cost Management,
July/August 1997, Vol 11 No. 4
Hall, Robert, Nicholas P. Galambos, and Margaret Karlsson, "Constraint-
Based Profitability Analysis: Stepping Beyond the Theory of Constraints",
Journal of Cost Management, July/August 1997, Vol 11 No.4
Ruhl, Jack M., " An Introduction to the Theory of Constraints" , Journal of
Cost Management, Summer 1996, Vol 10 No. 2, p. 43.
Salifatinos, Chris, " Integrating the Theory of Constraints and Activity-
Based Costing" , Journal of Cost Management, Fall 1995, Vol 9 No.3, p.58.

Conferences and Symposiums:
September 1995: Philadelphia, PA
March 1996: Washington, DC
October 1996: Colorado Springs
March 1997: San Antonio, Texas
November 1997: Ft. Lauderdale, FL
May 1998: London, England
November 1998: Memphis, Tennessee
July 1999: Chicago, Illinois
July 2000: Saint Paul, Minnesota

Videos:
The Goal: The How-To Version (American Media, West Des Moines, IA,
39
TOC For Industry (Goldratt Institute, 1995)
Introduction to TOC - Featuring AGI General Partner Dale Houle at the
May 1998 JUW/TOC Symposium in London.
Persuading the Customer to Buy - Part One - Featuring AGI General
Partner Dale Houle at the May 1998 JUW/TOC Symposium in London.
Persuading the Customer to Buy - Part Two - Featuring AGI General
Partner Dale Houle at the May 1998 JUW/TOC Symposium in London.

40
41
TOC Case Studies
Brief Overview of Some Case Studies:
The Clowes Group
4

Using TOC, this UK printing company addressed its sales constraint, won back
lost clients and is exceeding revenue expectations.
United States Air Force Healthcare System
5

The USAF is using the TOC Thinking Processes to deal with downsizing & cost-
cutting without compromising on quality of service and meeting patients' needs.
Alphamet (UK) Ltd.
6

This success story describes how Alphamet, a UK trading company, moved from a
position of barely keeping its head above water to generating a pre-tax profit
improvement in excess of 3500% using the TOC Thinking Processes and tools
and presenting Unrefusable Offers to its vendors and customers.
Antarctic Support Associates
7

ASA has used Critical Chain for several projects with excellent results. This
write-up discusses a project that was already underway - and already behind
schedule - when the project team switched to Critical Chain scheduling.
Brickman Group
8

This landscaping company applied TOC for Production to its operations and
made its already successful organisation even more so. Schedules are now
being met, customer satisfaction is up dramatically, and the bottom line has
increased by more than 50%.
Lucent Technologies
Using Critical Chain, Lucent's Outside Plant Fiber Optic Cable Business Unit
reduced its product introduction interval by 50%, improved on-time delivery,

4,5,6,7,8
These are Characteristic Case Studies, which are discussed analytically below.
and increased the organisations capacity to develop products.
Lord Corporation
After applying TOC/Critical Chain in their multi-project environment,
capacity has increased, cycle time improved, and operating expense
remained the same.
Cartiva, Inc./Rydell Group
Using TOC to identify and address constraints, this group of car dealerships
has realised results which include net profit up by more than 300% in a year
and annual inventory turns up from 4 to 12.
Cryovac
Implementing the TOC Replenishment/Distribution Solution on its entire supply
chain has yielded very promising early results for Cryovac and its distributors.
Synergis Technologies Group
Synergis has successfully implemented Critical Chain to manage more than 200
concurrent projects in nine locations, making on-time delivery their top priority.
Kreisler Manufacturing Corporation
In 1996, Kreisler was in its fifth straight year of losses. The company turned itself
around after implementing TOC for Production.
Media Automotive
This South African auto parts distributor achieved success using the TOC Thinking
Processes to make an Unrefusable Offer to a parts manufacturer and meet the
needs of its market.
Bal Seal Engineering
Shortly after implementing Drum-Buffer-Rope, net profit doubled, inventory
decreased by 50%, OE was down, lead times shortened, customer satisfaction
increased, and employee quality of life was enhanced considerably.
Habitat For Humanity
42
Using Critical Chain scheduling, a project team for Habitat For Humanity in New
Zealand built a 4 bedroom home in just 3 hours, 44 minutes, and 59 seconds --
setting a new world record.

Conceptual Analysis of Selected Case Studies:

The Clowes Group
Addressing a Sales Constraint
The Clowes Group is a 200-year-old printing company in Northeast England. From
the start its owners were entrepreneurial and successful. In the 1800s the
company was 600 employees strong, had international clients, and boasted that
there wasn't a written language they couldn't produce. The company was the
original printer of the entire Charles Dickens portfolio.
By the 1980s they had been acquired several times over. In the mid 1990s they
suffered what current Chief Executive Alex Evans calls the "Big Crisis." Clowes
was owned ("swallowed") by a company that had diverse ("unfocused") holdings.
This parent company decided that the labour costs at Clowes were much too high.
Morale took a nosedive as the printers' union saw this as a direct attack.
In 1993 and 1994 Clowes saw its net profit plummet. The company brought in Mr.
Evans, then a consultant, as its managing director. The first obvious problem he
saw was low morale. The next was very high inventory. He immediately made a
plan to change the way things were being managed at Clowes. Within three
months, the company was out of the red.
In 1996, Mr. Evans was named Chief Executive and decided the company would
focus on addressing its constraints in production and strategy. Shortly there after
he led a management buyout of Clowes.
In 1998, Mr. Evans read The Goal, and felt it made sense and reflected what he
had been trying to accomplish. He and others from Clowes attended an AGI-
sponsored TOC Symposium in London to learn more about dealing with the sales
43
constraint that had presented itself.
They felt they had been dealing with their production problems, but now were not
generating enough revenue. Their conversion of leads to sales was very low
(almost one in fifteen). And they were experiencing idle time in the workforce and
on their web printer - the printer they identified as their constraint and the printer
which generated the most income.
This created an environment where the workforce blamed the sales people for the
lack of work. The sale people were frustrated by this, as well as the pressure from
what they perceived to be unrealistic targets. This left management frustrated that
the company could not achieve the desired level of performance.
After meeting at the TOC Symposium, Mr. Evans brought in AGI's UK partner,
Oded Cohen, to help address the sales constraint and construct the direction of
the solution. They started by doing a standard TOC recommendation.
It was decided to get away from simple order taking and move to value selling -
selling not just a printing service, but a solution to the customers' problems. This
meant they had to develop a better understanding of their customers, which
started with listening and developing their TOC analytical tools.

The process used
A combined group of the company's directors and sales team got together to work
on this new direction. When the sales team was asked for the problems
(undesirable effects - UDEs) of the customers, what they gave instead was a list of
their complaints about Clowes and its customers.
What surfaced was an internal chronic conflict, caused by the fact that the sales
people had not yet bought into the change process that was being forced on them.
They were quite bitter.
Mr. Cohen met with the sales force collectively and individually to achieve the buy-
in necessary to move forward with the solution.
The sales people were then asked to give case studies of their current customer
44
problems as well as the corresponding Clowes offering. A communication system
was established so each sales person was able to see the UDEs of each client,
the solutions used/proposed, and comments about how they were working.
This created an enthusiastic team environment - members of the sales force
began working with each other, making suggestions on issues based on their own
experience.

Results
Many of the problem accounts that Clowes had lost during this time period came
back. Some even brought affiliate business as well.
The coveted web printers were fully booked three months in advance - during the
quarter which historically had been the worst.
At the end of the first quarter of 1999, Clowes' revenue was 150% ahead of where
they wanted it to be by the end of the second quarter.
Clowes is working to evolve its market offer into full project management -
handling the details of the client's job from data collection and manipulation
through to worldwide distribution.

United States Air Force
TOC Thinking Processes
The thinking processes can be applied in many environment and situations as
illustrated in previous case studies; people have applied this methodology to
resolve family problems, personal conflicts, and other non-business needs. This
case looks at the application of the thinking processes to a much larger and more
complex situation.
The U.S. Air Force healthcare system, with 120 medical facilities and a patient
base of around 3 million people (active military, retirees, dependents) is continually
being squeezed to do more with less. (Sound familiar?) But when it comes to
healthcare, there is an overriding need to insure that the services provided remain
45
at the highest quality and continue to serve the needs of the patients. The basic
problems involve a mismatch between changing demand and the availability of
specific resources, conflict between the need for flexibility and the desire for
standardisation (to insure quality), and the push-pull between local control and
centralisation. When you think about it, it's not that different from what most
manufacturers face - only on a larger scale.
When forced to downsize and cut costs, where do you begin?
For the Air Force, the first step was to assemble a team of about 15 people, under
the direction of a TOC "Jonah", to identify the goals, conflicts, and impacts of a
redesign of the healthcare delivery system. The team members represented Air
Force headquarters, the command level and individual hospitals. None of the
participants were top-level officers - the team members really understood the
details and the challenges from a working level.
The primary objective during the redesign was to preserve the surgeons and the
operating rooms, the highest-cost and highest-value portions of the system. All
other considerations were subordinated to those key resources.
The most surprising thing about this workshop, perhaps, is that the attendees were
able to come together with a plan (current reality tree, prerequisites, future reality
tree) in just 14 days of effort. And each group within the team (sub-teams worked
on different aspect of the problem, then the individual plans were brought together)
was able to clearly outline the current situation, the conflicting objectives and the
resolution of those conflicts for its assigned portion of the healthcare delivery
system. More surprisingly, the separately developed segments of the plan fit
together into an overall plan with very little adjustment needed.
This is obviously a very large, long-term project which will roll out over an
extended period of time. It is remarkable, however, to note that the thinking
processes are extremely scaleable (as the systems people would say), applying to
husband-wife and family problems, to typical plant and enterprise situations, to
something as large as a 120-facility comprehensive (and bureaucratic) medical
care system.

46
Alphamet (UK) Ltd.
TOC Thinking Processes and Unrefusable Offers
From Bust (Nearly) to Boom
Alphamet (UK) Ltd. began trading in 1988 as a multi-metal broker. Its industry
went through changes due to the recession of the late 80s and early 90s. Many of
the poor performers in the industry went under and excellent service became a
prerequisite to staying in business. Alphamet had to change to make a profit.
The company's TOC journey began in 1995 when Managing Director Alf Wheeler
attended an "Overview of TOC for Industry" facilitated by Eli Goldratt. During the
program, the way Alf thought about doing business changed. A month later he
went through a Management Skills Workshop, followed by the Jonah Program
during which he realised that he himself was Alphamet's core problem.
Alf realised that he struggled between an autocratic and democratic leadership
style and the result was chaos. He saw that a deep conflict with his co-director
needed to be resolved. And he begrudgingly accepted that possible negative
outcomes of actions and ideas must be acknowledged and addressed - a lesson
he learned only after the company had suffered losses.
In order to address internal conflicts and constraints, the entire Alphamet staff
went through the Management Skills Workshop in September 1996. At the time
they were a group of bitter, unhappy and unmotivated people. Some then used the
tools they had learned to challenge Alf's authority and position. About one third of
the Alphamet staff left - unfortunate, but necessary if Alphamet was going to move
forward.
Alphamet now prepared to use the TOC Thinking Processes to construct and
present Unrefusable Offers to its vendors and customers. The company did a
survey via fax of current and potential customers to determine their problems and
needs. The majority of those surveyed responded within 48 hours - an indication
that Alphamet had something that the market wanted.
In order to meet the needs of its customers, Alphamet would need the support of
its vendors. The company made Unrefusable Offers to its three vendors - two
47
refused and one accepted. That one is now the only major player left in the
market.
Alphamet then began making Unrefusable Offers to potential customers. The
offers addressed the issues identified in the customer survey. Some issues raised
were considered "trivial" - such as packaging, others were policy constraints. All
were "so simple" to deal with, thus giving the customers what they wanted.
Other actions taken during this time included:
Alphamet prepared to upgrade the plant in order to offer a complete product
range to the market
Slow moving inventory was reduced at a loss in order to generate
necessary resources (cash and warehouse space)
Declining markets were dropped in order to free resources to focus on the
new targeted markets
The company tried very, very hard to stay on course and not be distracted
by other obstacles
The results two years into Alphamet's TOC Journey:
Alphamet now supplies 80% of the UK market (up from just 15%)
Pretax profits have increased from 2,700 to 146,000 and are still growing
Gross margin is up from 29% to 41%
Projected 1998-1999 pretax profit is upwards of 250,000
A much happier team earning better wages, receiving larger profit sharing,
empowered, with a higher level of self-respect than two years ago.
To deal with current growth - and prepare for future growth as well -
Alphamet is moving to larger, more comfortable premises
The company is investing in additional capacity as well (systems, people,
equipment, etc.).
Alphamet's computer systems are being overhauled for Y2K compliance.
48
The company will now return its attention to formerly profitable areas of
business it had neglected during this tremendous boom.
Alphamet is not becoming complacent, though. The company recognizes that its
competitors will be breathing down its neck and is preparing additional strategy -
and Unrefusable Offers - to stay ahead. Internal conflicts and constraints are
addressed on an ongoing basis, and Alf Wheeler is still struggling with his own
"sales versus managing" conflict. The TOC tools will be used to guide Alphamet as
it continues to lead the UK market and forges into the global arena.

Antarctic Support Associates
TOC for Project Management/Critical Chain
"The NSF is most impressed with ASA's continued management training for
existing project teams. ASA is apparently committed to the success of these teams
and the projects that they are working on by providing added tools to enhance
their output. The use of Theory of Constraints project management methodology
appears to have been successful with several projects." - quote from one of the
National Science Foundation's performance evaluations of ASA
Antarctic Support Associates (ASA) is a $100 million government service provider.
Its purpose is to support work sponsored by the National Science Foundation
(NSF) to expand the horizons of science in one of the most extreme environments
on earth.
The research conducted in and on Antarctica is done under a 42-nation treaty
signed to allow research to be performed in a peaceful way. There are three types
of research done on this icy continent:
On the continent of Antarctica itself
What effect systems in Antarctica have on the global process of the world
Astronomy and space
ASA supports three research stations in Antarctica (including one at the South
49
Pole) and two floating stations - the Research Vessel (R/V) Laurence W. Gould
and the R/V Nathaniel B. Palmer - which circumnavigate the continent.
In 1997 ASA was introduced to Theory of Constraints. Core employees took the
Management Skills Workshop and Project Management program. Upon returning
from the Project Management program in October 1997, the challenge of bringing
in on-time a project that was at that stage four months behind schedule was
undertaken.
The R/V Laurence M. Gould was scheduled to begin its maiden science support
voyage no later than January 15, 1998. In October 1997 the project was already
several months behind schedule. ASA was going to put TOC Project
Management/Critical Chain to work.
The initial challenge was to assemble several key staff members to create a
network and schedule for getting the science support equipment on-board the
Gould and operational in time for its first mission.
It took six people four days to develop the network. Initially, more than 400 tasks
were identified. Those tasks were reduced to less than 200 for the schedule. The
Critical Chain was less than 100 tasks. It was determined that the equivalent of 20
full-time people would be necessary for this project. The project buffer was 15
days, the feeding buffers 12 days. The tools used to schedule and manage the
project were MS Project and ProChain. A due date for this phase of the project
was set for December 15, 1997.
On October 20, 1997 new challenges were identified. The team had to create and
fill five additional temporary job openings in less than a week. Procurements,
which numbered more than 100, had to be centralised and assigned to the task
leader for monitoring and tracking. ASA's logistics and purchasing divisions were
each required to assign one full-time person to support procurements from the
ASA offices in Denver. An on-site task leader and team were appointed and
deployed to Louisiana and had to operate within an extremely narrow time horizon
for this job.
The next set of challenges (November 2 - December 12, 1997) included
unplanned disruptions in ASA's schedule caused by contentions for space and
50
shipyard personnel to support science equipment and installation (e.g. the
shipyard installed flooring or cabinets when ASA scheduled installation of
instruments).

The Results
By using Critical Chain scheduling, the ASA project team enabled the R/V
Laurence M. Gould to pass the sea-trial tests and be ready to embark on its
voyage to Antarctica on December 11, 1997 - in time to arrive and prepare to take
its maiden science voyage in January 1998 - on schedule, rather than four months
late as had been anticipated in October.

The Benefits
The ASA team met its customer's requirements. Finishing on-time meant enabling
science throughput - the science cruise could sail - and several hundred thousand
dollars in profit were retained for ASA.

The Brickman Group
TOC for Production applied to a service industry
The Brickman Group is one of the largest landscaping companies in the United
States. Sixty percent of Brickman's business is landscape maintenance; the other
40 is landscape installation. It was a well-managed company whose management
knew could do better. In February 1996 the Brickman Group began its "refinement
process" using TOC.
The TOC journey started with about 90 middle- and upper-management personnel
reading The Goal. Most agreed that the TOC concepts made sense, but they didn't
know how to translate them from the production environment to their landscaping
business.
In March 1996 Brickman managers went through a Production Application
program, where they learned how to apply TOC for Production to landscaping.
51
They began to understand that the constraint was not necessarily something
negative that should be avoided, but that it may be the most profitable part of the
business - and if they could control the constraint they could then control
profitability. It was realised that work was being done in batches and that local
optimum was the focus.
Mowing was identified as the constraint. That task was then pulled out of the batch
of work, which included the detail-work of fertilising, weeding, watering, and
trimming. Making mowing a stand-alone task revealed excess capacity, improved
efficiency, and enabled Brickman to make and meet schedules - something it had
trouble with in the past. Customer satisfaction increased.
The next step in the TOC journey involved 12 members of upper management
going through the Jonah Program. This pointed out the need to outline the
processes that occur within Brickman in order to establish consistency and
standardisation throughout the company, to identify and address the conflicts
which occur, and to work on scheduling and the misalignment of resources.
The ongoing TOC journey at Brickman has taught them some valuable lessons:
Don't change too many processes too quickly - people need to adjust
Everyone doesn't learn and accept change at the same speed
Document the existing processes and share the planned changes with the
staff - involving them in the creation of the Current Reality Trees and Future
Reality Trees provides everyone with a sense of involvement,
understanding and ownership
For Brickman, TOC was a "refinement process" - this made it easier for
personnel to accept the change as something more than a fad, especially
as a company which was doing well prior to TOC
Measure and share results with other departments and divisions - all can
learn from each other's experience
Appeal to all the senses - different people respond to learning and changing
in different ways, provide the information in different formats - video, books,
52
simulators, etc.
The results at Brickman since implementing TOC:
Dramatic increase in customer satisfaction due to factors which include
being able to make and meet scheduling commitments.
20% increase in client base with only a 12-13% increase in staff.
Minimum 50% increase in the bottom line.

53
Itemised Conclusions
Thus, what is the Goal?
Many for-profit companies believe their goal is related to money.
Some would argue that the Goal is related to customers.
And others would argue that the Goal is related to jobs and the workforce.
The Theory of Constraints does not disagree with any of these three groups of
people. In fact, Goldratt contends that the owners of an organisation are the only
ones who define the goal. Once the choice is made, however, the other two
become necessary conditions.

54
For example, those companies who believe their goal is to make money now and
in the future find that it is not possible to do so unless they also satisfy customers
and employees now and in the future. If they seek money while abusing
employees, they will experience high employee defection that almost always leads
to high customer defection.

The company that chooses satisfying customers now and in the future for their
goal will find it necessary to make money and to satisfy employees now and in the
future.

And the company that regards satisfying employees as their goal will likewise find
it necessary to make money and to satisfy customers now and in the future.
Whenever TOC refers to the "goal" of a company, unless otherwise stated, that
goal will be to " make money now and in the future." If an organisation has a
different goal, they should remember that because making money now and in the
future is a necessary condition of reaching their goal, the information about
"making money" on these pages is still pertinent to their organisation.
55
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