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Presented By
Upma Joshi
Rajib Lochan
TOC - History

 1970s and 1980s

• Increase in Computer Power
• Tremendous effort in line balancing
• More balanced => more problems
• Dr. Eli Goldratt showed:
 How to perfectly balance line
 That a perfectly balanced line led to bankruptcy

• Led to development of Theory of Constraints


 A bottleneck is any resource with a capacity equal to or less

than the demand placed upon it

 A constraint is anything that limits a system’s performance,

relative to the system goal
Core of TOC
 There is a constraint in the system

If you don’t impact

the constraint, you
have no effect
 The rest is commentary
Theory of constraints

Theory of Constraints (TOC) is an overall management

philosophy introduced by Dr. Eliyahu M. Goldratt in his 1984
book titled The Goal, that is geared to help organizations
continually achieve their goal.

The title helps in achieving more of its goal by a very small

number of constraints, and that there is always at least one
Assumptions of Toc

 The underlying assumption of Theory of Constraints is that

organizations can be measured and controlled by variations on
three measures:

 Throughput
 Operating expense
 inventory
Theory of Constraints - FIVE FOCUSING STEPS
(Which will Strengthen the Chain)

The TOC process seeks to identify the constraint and restructure

the rest of the organization around it, through the use of the Five
Focusing Steps:

1. Identify the Constraint

2. Exploit the Constraint

3. Subordinate everything
to the Constraint

4. Elevate the Constraint

5. Repeat for the new


 A constraint is anything that prevents the system from

achieving more of its goal. There are many ways that
constraints can show up, but a core principle within TOC is that
there are not tens or hundreds of constraints. There is at least
one and at most a few in any given system. Constraints can be
internal or external to the system.
Types of Constraints:
 Physical Constraints
• Internal (Resource)
• External (Market, Supply Chain)

 Logical Constraints
• Core problems
• Policies that limit system performance
e.g. "solutions" to past problems, "Best
Fundamental Principles
of the Theory Of Constraints…

As a numerical example, consider the operation

producing product A in Figure.
Improving the Process using TOC
1.Identify the constraint.

 This implies the need to examine the entire process to

determine which process limits the throughput.

For example, in the example on Slide 10, suppose the sales

department was only selling the product output at the rate of 3
per hour.
1.Identify the constraint. …

 In that case, the sales department would be considered the

constraint and not process 3.

 it must be kept in mind that a constraint limits throughput with

respect to overall business sales, not merely inventory
Improving the Process using TOC
2. Exploit the constraint.

 Find methods to maximize the utilization of the constraint

toward productive throughput.

 For example, in many operations all processes are shut down

during lunchtime or during breaks.

 If a process is a constraint, the operation should consider

rotating lunch periods so that the constraint is never allowed to
be idle.
2. Exploit the constraint. …

 Suppose, for example, an operation has a certain process that

represents a clear and large constraint.

 Suppose also that they currently have 7 productive hours for an

8-hour shift (30 minutes for lunch and two 15-minute breaks).

 Assuming they have multiple workers that can operate the

process (or can train more), they could stagger lunch times and
break times for just that one process, allowing it to operate the
full 8 hours.
Improving the Process using TOC

3. Subordinate everything to the constraint.

Effective utilization of the constraint is the most important issue.
Everything else is secondary.

4.Elevate the constraint.

Essentially this means to find ways to increase the available
hours of the constraint, including adding more of it.
Improving the Process using TOC
5. Once the constraint is a constraint no longer, find
the new one and repeat the steps.

 As the constraint effective utilization increases, it may cease to

be a constraint as another process becomes one.

 In that case the emphasis shifts to the new process constraint.

 It is also possible that a sales-related change in the product mix

will cause a different process to become the constraint.
Understanding and Managing
The Constraints…
A system optimal performance is NOT the
sum of local optima.

Any system that is performing as well as possible usually

implies that not more than one part of the system is performing
at an optimal level.

 Buffers are used throughout Theory of Constraints. They

appear as part of the EXPLOIT and SUBORDINATE steps of
the five focusing steps. Buffers are placed before the key
constraint, thus ensuring that the constraint is never starved.
Buffers used in this way protect the constraint and should allow
for normal variation of processing time and the occasional
upset before the constraint.
Multiple-time Buffers
 Time buffers are used to make sure the constraint is not
"starved," but other time buffers are also necessary. An
example may help to illustrate:

 Suppose you have a product made from three components.

 Component 1 is processed from raw material and then

assembled with component 2 after it is processed from raw
Multiple-time Buffers…
Multiple-time Buffers…

 The subassembly is then assembled with component 3 after it

is processed from raw material.

 The final product is then shipped to the customer.

 The constraint in the system is located in the middle of the

processing for component 1.
Multiple-time Buffers…
Once component 1 has been processed on the constraint, its
value to the system has risen significantly because constraint time
has been invested.

 Nothing should, therefore, impede the progress of component 1.

The problem could arise, however, that component 1 will arrive at

the Assembly 1 area before component 2 because of some
problem with component 2.
Multiple-time Buffers…
 Since we would never want constraint-invested material to wait
for non-constrained material, we should stage a time buffer of
material for component 2 before the Assembly 1 area.

 This is done by releasing it earlier-the amount earlier depending

on the time buffer based on the time estimate needed to
overcome any unanticipated shock in the system.

 In this case the time buffer is called an assembly time buffer, as

opposed to the time buffer before the constraint, which is
usually called a constraint time buffer.
Multiple-time Buffers…
 The same argument applies to the Assembly 2 area.

 The subassembly from components 1 and 2 have constraint

time invested, so we would not want them waiting for
component 3.

 This calls for another assembly time buffer to be generated at

the Assembly 2 area.

 Unfortunately, the need for buffers has not been fulfilled.

Multiple-time Buffers…

It is possible that the final product with its constraint-invested

material could be held up at shipping, since the processes that
take place between assembly and shipping have not been part
of the protection.

This implies an additional time buffer before the shipping area,

referred to as a shipping time buffer.
Multiple-time Buffers…
TOC terms of productivity
 Throughput: The rate at which the organization accumulates
units of the goal. For a profit-making company, Throughput (T)
is revenue minus totally variable cost.

 Inventory: All of the money the company has invested in things

it intends to sell. It includes all of the company facilities and

 Operating expense: All the money the company spends to turn

inventory into throughput.

 There are four primary types of plants in the TOC :



Applications of Theory of

There are various applications of toc:

 Operations

 Supply chain logistic

 Finance and accounting

 Project management

 Marketing and sales

Real business example
The Constraint is the key:
The Lessons plant of Baxter International makes medical products such
as sterile bags. Management of the plant is actually aware of the
necessity to actively manage its constraints. For example, when
materials are a constraint, management may go to a secondary vendor
and purchase material at a higher cost than normal. When a machine is
the constraint, a weekend shift is often added on the machine. If a
particular machine is chronically the constraint and management has
exhausted the possibilities of using it more effectively, then additional
capacity is purchased. For example when the constraint was the plastic
extruding machines, a new extruding machine was ordered. However
even before the machine arrived, management had determined that the
constraint would shift to the blenders once the new extruding capacity
was added. Therefore a new blender was already planned. By thinking
ahead and focusing on the constraints, management is able to increase
the plant's real capacity at the lowest possible cost.

 What is the Theory of Constraints and How Should it be

Implemented?","Beyond The Goal". That is acknowledges the
sources of information and inspiration for the Thinking
Processes and Critical Chain methodologies. Theory of
Constraints referenced foundational materials. "Standing on
the Shoulders of Giants" .