Chapter 2A

THEORY OF CONSTRAINT
 TOPIC
2.1 Theory of Constraint, TOC
1 Optimal Production Technology and
Theory of Constraints
2 Drum-Buffer-Rope Approach
3 Bottleneck Management
TOPIC OUTCOME
 Apply basic models to help
understand the project process.
 Determine the inputs, constraints,
outputs and mechanisms for a
project.
 Categorize the phases of a project
and the different activities carried out
in each phase.
 Eliyahu M. Goldratt

March 31, 1947(1947-03-31)

Born
Israel

June 11, 2011(2011-06-11)

Died
Israel
Nationality Israeli

Theory of Constraints
Operations Research
Fields Organizational Psychology
Management Science
Education

Theory of Constraints
Known for Cause and Effect thinking
Slayer of Paradigms
Definition of Constraint
A constraint is anything that limits the
system from achieving higher
performance verses its goal !!!

Eli Goldratt on TOC:

A thinking process that enables people to
invent simple solutions to seemingly
complex problems.
 Basic principles/ Process of
Change - Eli Goldratt (1984)
Where is the constraint?
(what to change)
What should we do with the constraint?
(what to change to)
How do we implement the change?
(how to cause the change)
Type of Constraints
Internal Constraints:
 Equipment: The way equipment is currently used limits the ability
of the system to produce more salable goods / services.
 People: Lack of skilled people limits the system.
 Policy: A written or unwritten policy prevents the system from
making more.

External Constraint:
 Exists when the system can produce more than the market will
bear. The organization should focus on mechanisms to create more
demand for its products or services.
How does TOC help Companies?
Focuses improvement efforts where they
will have greatest immediate impact on
the bottom line
Provide reliable process that insists on
follow through
The Goal of Enterprise
To make money Now and in the Future

OR
To satisfy customers
To provide satisfying jobs for employees
What Measurement?
Conventional
Net Profit?
Efficiency?
Utilization?
ROI (return on investment)?\
Cash Flow?
What Measurement?
By TOC
Throughput – the rate of the system
generate money
Inventory / Investment – Liability, Not
Asset (Money tied-up in physical things)
Operating Expenses - Money spent to
create throughput, other than truly variable costs
(e.g. payroll, utilities, taxes, etc.). The cost of
maintaining a given level of capacity.
Drum-Buffer-Rope (DBR)
Drum-Buffer-Rope (DBR) is a method
of synchronizing production to the
constraint while minimizing inventory
and work-in-process.
The “Drum” is the constraint
The “Buffer” is the level of inventory
needed to maintain consistent production
THE FIVE (5) FOCUSING
STEPS
The Goal of the Organization is to "Make Money Now and in the Future"

The steps are:

1. Identify the constraint (the resource or policy that prevents the
organization from obtaining more of the goal)
2. Decide how to exploit the constraint (make sure the constraint's
time is not wasted doing things that it should not do)
3. Subordinate all other processes to above decision (align the whole
system or organization to support the decision made above)
4. Elevate the constraint (if required or possible, permanently increase
capacity of the constraint; "buy more")
5. If, as a result of these steps, the constraint has moved, return to Step
1. Don't let inertia become the constraint.