In the Eliyahu Goldratt theory of constraints, management systems are viewed as being limited in their ability to achieve their goals. This limitation is due to the fact that there is always at least one constraint placed on that system. Some may have multiple small constraints in place. By using a focusing process to identify those constraints, it becomes possible to restructure the organization around it to remove it so more goals can be achieved.
The basis of this theory is the idea of the weak link. A chain is only as strong as its weakest link, so when this idea is placed within a management system, it says that any process or organization is vulnerable because its weakest component could damage it.
The 3 Key Measures of the Theory of Constraints
The Eliyahu Goldratt theory of constraints suggests that any organization can be measured and controlled by implementing some variation of three key measures. This is the one assumption that this theory makes.
- Throughput. This is the rate at which an operational system is able to generate revenues through the practice of sales.
- Operational Expense. This is all of the money that an organization or system spends in order to turn their inventory into throughput.
- Inventory. This is defined by the theory as all of the money within the system which has been invested into purchasing things in order to sell them.
By evaluating these three key measures, there will be necessary conditions discovered that must be met by an organization so that each can be implemented successfully. Every organization faces a unique set of necessary conditions. It may include legal obligations, safety standards, quality concerns, or something as simple as creating an item that can be profitable.
By understanding how financial decisions are made through these measurements, it becomes possible to meet either a goal or a necessary condition. When those are met, the constraints are neutralized.
The 5 Focusing Steps of the Theory of Constraints
Goldratt based the theory of constraints on the idea that any goal achievement will be limited by at least a single constraint. This is because if there were no constraints, then throughput could be infinite. Infinite throughput is not considered to be possible in a system that is based in reality. Therefore, throughput can only be increased when the flow through an identified constraint can be increased.
This requires the management system to be able to identify the constraint or constraints that are limiting them. Goldratt proposed a 5 focusing steps to look at and then counter the constraint that is in place.
1. Identify all of the constraints that may be placed on the system.
2. Decide how to exploit the constraints that are within the system.
3. Subordinate everything to the decisions that were made in steps 1 and 2.
4. Elevate the constraints within the system.
5. Start over if a constraint has been broken by the actions, making sure that inertia does not cause a constraint within the system.
Identifying the Constraints Placed on a Management Paradigm
So how do you identify the constraints that are within a system? Goldratt proposes that there are three basic types of constraints which can be worked around.
- Equipment Constraints. The way equipment is used by a management system can limit the abilities of that system to produce more inventory.
- People. If there is a lack of skill for the workers within a system, then it becomes difficult to meet quality standards. People can also refuse to do produce through their own choices, which creates a constraint as well.
- Policies and Procedures. Written or unwritten policies and procedures can prevent a system from a greater output.
Once the constraint has been identified, the idea Goldratt proposes is to increase the amount of flow that goes through it. If the throughput capacity is elevated too high, then it “breaks” because it’s no longer a limiting factor. This requires the organization to identify the new constraint, which may be external in nature.
When it becomes difficult to find a constraint or identify ways to increase the flow through it, the theory of constraints allows for a bugger to be used. Buffers can be anything that reduces the influence of the constraint, but does not actually increase throughput. By managing buffers effectively, a management system can buy enough time to continue creating throughput while seeking to maximize their throughput.
The Eliyahu Goldratt theory of constraints offers a way to understand why opportunities always seem to be limited in some way. Although throughput will never be infinite, this system allows us to scale up to a level of business that each system is comfortable in providing.