Theory of Constraints is a very popular management theory being followed by several industries throughout the world. This was originally introduced by Dr Eliyahu Goldratt and it has been used ever since giving every industry their desired results and sometimes even more.
TOC has led many industries reach their ultimate goal which is of course earning profits. Theory of Constraint consulting helps in providing the important mechanisms in order to control their initiatives on a better way.
Performance Measurement Process by Theory of Constraints
According to Dr Goldratt there are essentially three key indicators that help in calculating the performance – throughput, operating expenses and inventory.
Most firms have a typical objective of increasing the throughput by a reduction in the inventory and the operating cost. This therefore results in the increase of profit, cash flow and a return-on-investment.
Logical Thinking Process
Theory of Constraint gives us the logical thinking processes which are a series of steps combining cause-effect, intuition and experience in order to gain knowledge. This is referred to as the ‘five focusing steps’.
1. Identifying the system’s constraint is the very first step and the most important one
2. Deciding on how to exploit the system’s constraint
3. Subordinating everything else to the agreement that has been made on step 2
4. Elevating the constraint of the system
5. If somehow a constraint gets broken on step 4, then go back to step 1 but keeping in mind not to let a new constraint seep in.
This five-step process allows one to understand the largest constraints that obscure all of the others. When a constraint gets taken care of, the next priority is always to work on the next weakest link that is present in the chain. Therefore it is very well a continuous process of improvement. Theory of Constraints therefore helps in eliminating the constraints that are present in the manufacturing plant thereby boosting up the production by a great ton.
TOC has led many industries reach their ultimate goal which is of course earning profits. Theory of Constraint consulting helps in providing the important mechanisms in order to control their initiatives on a better way.
Performance Measurement Process by Theory of Constraints
According to Dr Goldratt there are essentially three key indicators that help in calculating the performance – throughput, operating expenses and inventory.
- Throughput refers the rate at which the system can generate money through the sale of products and not through production. Here goods are not considered as an asset until and unless they are being in sold in the market.
- Inventory refers to the money that is invested in the goods which the firm intend on selling or intend on converting it to marketable items.
- Operating expense is the amount of money that the firm spends to convert the inventory into throughput.
Most firms have a typical objective of increasing the throughput by a reduction in the inventory and the operating cost. This therefore results in the increase of profit, cash flow and a return-on-investment.
Logical Thinking Process
Theory of Constraint gives us the logical thinking processes which are a series of steps combining cause-effect, intuition and experience in order to gain knowledge. This is referred to as the ‘five focusing steps’.
1. Identifying the system’s constraint is the very first step and the most important one
2. Deciding on how to exploit the system’s constraint
3. Subordinating everything else to the agreement that has been made on step 2
4. Elevating the constraint of the system
5. If somehow a constraint gets broken on step 4, then go back to step 1 but keeping in mind not to let a new constraint seep in.
This five-step process allows one to understand the largest constraints that obscure all of the others. When a constraint gets taken care of, the next priority is always to work on the next weakest link that is present in the chain. Therefore it is very well a continuous process of improvement. Theory of Constraints therefore helps in eliminating the constraints that are present in the manufacturing plant thereby boosting up the production by a great ton.