The described Theory of Constraints TOC Implementation can have very large organizational benefits when integrated within an Integrated Enterprise Excellence (IEE) business management system.
Theory of Constraints TOC Implementation
The Integrated Enterprise Excellence (IEE) provides a system for integrating Theory of Constraints within an overall business management system that consists of predictive scorecards, analytically determined strategies (using TOC), and improvement efforts that positively impact the enterprise as a whole.
The outputs of a system are a function of the whole system, not just of individual processes. When we view our system as a whole, we realize that the output is a function of the weakest link. The weakest link of the system is the constraint. If care is not exercised, we can be focusing on a subsystem that, even though improved, does not impact the overall system output.
We need to focus on the orchestration of efforts so that we optimize the overall system, not individual pieces. Unfortunately, organization charts lead to workflow by function, which can result in competing forces within the organization. With TOC, systems are viewed as a whole, and work activities are directed so that the whole system performance measures are improved. To illustrate this, consider the system that is shown in Figure 1. Similar to water flow through a garden hose, the squeezing of one portion of the hose reduces water flow volume; i.e., step 5 in the figure.
Figure 1
Identifying the overall system constraint.
Theory of Constraints: Three Dimensions
The Theory of Constraints presented by Dr. Eliyahu M. Goldratt focuses on reducing system bottlenecks as a means to continually improve the performance of the entire system. Rather than viewing the system in terms of discrete processes, TOC addresses the larger systematic picture as a chain or grid of interlinked chains. The performance of the weakest link determines the performance of the whole chain.
TOC considers three dimensions of system performance in the following order:
- Throughput (total sales revenues minus the total variable costs for producing a product or service)
- Inventory (all the money a company invests in items it sells)
- Operating expense (money a company spends transforming inventory into throughput).
Focus on these dimensions can lead a company to abandon traditional management cost accounting while at the same time causing an improvement in competitive price advantage.
Theory of Constraints: Five Focusing Steps
The five focusing steps of TOC for addressing constraints are:
- Step 1 – Identify: Identify the system’s constraint.
- Step 2 – Exploit: Decide how to exploit the system’s constraint, where exploit means to get the most from the constraining element without additional investment.
- Step 3 – Subordinate: After making a decision on how to exploit the system, subordinate everything else to that decision.
- Step 4 – Elevate: If the system constraint is broken by subordination, go back to step 1. If the system constraint is not broken, determine other ways to elevate the constraint, where elevate means to increase capacity.
- Step 5 – Go back to step 1 but beware of inertia: Even when subordination does not break the constraint, elevation will likely break it, unless there is a conscious effort to stop short of breaking it. After the subordinate or elevate steps are competed, step 1 needs to be repeated to determine the location of the new constraint.
The above Theory of Constraints description was excerpted from Integrated Enterprise Excellence, Volume II – Business Deployment: A Leaders’ Guide for Going Betyond Lean Six Sigma and the Balanced Scorecard, Forrest W. Breyfogle III.
IEE addresses the business scorecard and improvement issues described in a 1-minute video:
Additional information about Theory of Constraints TOC Implementation using the IEE System
For additional information about TOC implementation in IEE see:
- Integrating predictive dashboards in an enhanced theory of constraints TOC implementation
- In Theory of Constraints TOC implementation integrate business process management with enterprise process management
Contact Us to set up a time to discuss with Forrest Breyfogle how your organization might gain much from an Integrated Enterprise Excellence (IEE) Business Process Management System and Theory of Constraints implementation.