TOC Constraints Theory
1. Introduction
The theory of restrictions (TOC) exposed and supported by Dr. Eliyahu Goldratt, was born as a way of managing industrial environments, with the aim of increasing the profits of organizations in the short and long term. This objective is achieved by increasing money income through sales while reducing inventories and operating expenses. Thus, companies are adopting the philosophy and technology of the theory of constraints as a tool for making strategic decisions and as a model for continuous improvement.
The key to the Theory of Constraints is that the operation of any complex system (company) actually consists of a large chain of interdependent resources (machines, equipment, work centers, facilities, materials) but only a few of them (necks bottle) restrict or condition the output of all production.
Recognizing this interdependence and the key role of bottlenecks is the starting point for companies that adopt TOC as a philosophy, and from there to subordinate the entire system to create simple and understandable solutions for their complex problems.
2. Toc: from the complex to the simple
In this analysis, the question should be asked that every person who owns, directs, manages or works for a company, regardless of their activity, should ask themselves: "What is the main objective or goal of this company?" The answers can be very varied, they can range from: make a product or provide an optimal quality service, compete and stay in the market, provide excellent customer service, offer good prices to our buyers, in short, how can these be get to get many more answers; and they are valid, but they are not the main goal of the company, they are important objectives that serve to achieve the main one; But the only true solution to this question is that the goal of every company is to make money.
The way in which the company must operate so that it can generate this money seems to be something very complex, but if we stop to observe what the philosophy of the Theory of Constraints tells us, it may not really be that much, it is just a question that administrators learn to protect their plants against the daily alterations they face, without having so many inventory levels, being efficient and managing the plant as a unified and synchronized system. With the conviction that it is about making money, not about saving it and accumulating it in inventory, or spending it on new technologies or robots that are not really necessary.
It is so uncomplicated that its first support is given almost as a general reading by Eliyahu Goldratt in his book La Meta, where through a pleasant story he tells us how a manufacturing director (Alex Rogo) listens to the advice of an old man expert (Jonah) and from there he solves a problem in his plant, which is almost nearing closure, and a whole theory is developed around it.
For Goldratt, the problem of decision-making and management of companies today, an argument with which I agree, lies in the management of classical financial indicators: some companies have been stagnant in the past and still continue to use their figures and prioritizing their decisions on these indicators. The financial indicators are anchored in a classic accounting model that is already several centuries old and were designed for companies that valued productivity in physical assets and individual returns from each work center, without taking into account that the company is a system of dependent and fluctuating events, where everything must be interrelated and based on the same objective. Equally,The companies have generated walls that only serve to divide the plants into small forts that weaken the total system.
After the sole objective of generating money, Goldratt indicates that everything that contributes to achieving it will be "productive" for the company. In this way, if the individual performance of a certain work center is increased to achieve an increase in production that is not salable at the moment, this would not be productive for the company, contrary to what would traditionally be thought.
For Goldratt, what determines if a company is close to its goal is the analysis of three financial variables that he calls management parameters. These are Net Income, Return (ROI), and Liquidity. For no one and much less for an Industrial Engineer or production student it is a secret that any increase in net profit, accompanied by an increase in profitability and liquidity, helps considerably to achieve the final objective, since finally by these three parameters if our function within organizations is measured.
Otherwise, these indicators are general to help decision-making at the operational levels of the company. Therefore, the author proposes three other parameters called exploitation, these are:
• Troughput: or net income, money that is obtained through sales, and enters the system.
• Inventory: money that is invested in acquiring goods that is later intended to generate net income, that is, it is the set of money that is retained in the system.
• Operating expenses: money that the system invests to convert inventory into net income, that is, all the money that leaves the system.
The Theory of Constraints finds its starting point in identifying two fundamental characteristics of companies. First, its hierarchical pyramidal structure and second, the organizational arrangement as a succession of chain activities. Part of the belief that the performance of any chain is always determined by the strength of its weakest link. These are the so-called system limitations or restrictions, which are the elements that prevent the system from reaching the goal of earning more money, these restrictions can be market, capacity, material, logistical, administrative and behavioral.
From the above, we can conclude or observe that any company that wants to achieve a continuous improvement process based on the pursuit of its global goal must systematically identify and eliminate restrictions. For which the following business management process and improvement efforts approach are proposed:
Step 1. Identify the constraints of the company.
Step 2. Decide how to exploit the company's constraints to the fullest.
Step 3. Subordinate everything else to the previous decision.
Step 4. Elevate the restrictions of the company.
Step 5. Go back to step 1.
To understand the passage from the traditional conception of the company to which the current systemic thinking through TOC defines, a small example can be cited that allows deducing the difference between both concepts. Let us suppose that the production of a certain company is based on a production process in which only two resources A and B are involved (See figure 1), and a single product is produced there. In addition, the demand is such that everything that the company is able to produce is purchased by customers.
Figure 1. Example of a production process.
As can be seen in the previous figure, the raw material that can be delivered by our suppliers instantaneously, is processed by resource "A" at a speed of 40 units / hour, then the production process is finished in resource " B »at a production rate of 20 units / hour. Once the product is finished it is sent directly to the customer. The key question then arises: At what speed should each of the resources work to obtain optimal performance from this company? The answer is very simple, for this plant to obtain the maximum performance it must operate at a rate of 20 units / hour,since it would make no sense for work center "A" to function at its maximum capacity (40 units / hour) since it would generate a problem of accumulation of inventories between centers because "B" cannot process everything that A produces in one hour. The above is what in TOC is proposed as not balancing capacities but synchronizing the flow, and in turn presents as a competitive advantage a synchronized flow that handles small transfer batches, since this improves the quality of the products because the Problems on time, lead times are reduced, partial deliveries are increased by reducing inventory levels and billing times, and all this in turn lowers product costs.The above is what in TOC is proposed as not balancing capacities but synchronizing the flow, and in turn presents as a competitive advantage a synchronized flow that handles small transfer batches, since this improves the quality of the products because the Problems on time, lead times are reduced, partial deliveries are increased by reducing inventory levels and billing times, and all this in turn lowers product costs.The above is what in TOC is proposed as not balancing capacities but synchronizing the flow, and in turn presents as a competitive advantage a synchronized flow that handles small transfer batches, since this improves the quality of the products because the Problems on time, lead times are reduced, partial deliveries are increased by reducing inventory levels and billing times, and all this in turn lowers product costs.Part deliveries are increased by reducing inventory levels and billing times, all of which in turn lowers product costs.Part deliveries are increased by reducing inventory levels and billing times, all of which in turn lowers product costs.
Continuing with the explanation, it has already been identified that the limitation or restriction of the company was work center B, the next step is to obtain the maximum performance from this center and this implies eliminating any cause of unproductive time in process B. A Once defined as exploiting this resource to the maximum, the next step is to subordinate all decisions to keep the limited resource running and supply it with all the components that it needs. Subsequently, the capacity restrictions of work center B must be overcome; Once these steps have been carried out, it is possible that, by dint of improving the level of utilization and increase in capacity of resource B, this limitation has disappeared, which again forces us to carry out a review process and search for restrictions,Using the previous four steps again, this is what is called not letting the company or system fall into inertia.
This is where the tendency to measure each resource based on its ability to produce and not based on what is best for the company as a system comes into conflict. It is usually based on the assumption that the maximum performance of a center is determined by the maximum use of its resources, and that the sum of these returns is the result of the performance of the company as such, that is, if all the resources they are producing to the maximum, the company increases its performance, this is what many authors have called Cartesian thinking; But TOC teaches us that this is not the case, that the company is to be taken under the conception of systems thinking, where the performance of the company is given by the maximum performance of only a few resources, and from there the expected total return is obtained. of the company.Another fundamental aspect that TOC teaches us is shown here and that is that activating a resource is not the same as using it. With all this, the Theory of Constraints is teaching us a new thought process that facilitates the analysis and search for systemic solutions for problematic situations. And the task to implement these solutions to our companies is long and constant, because what must be changed is the way of thinking of our managers and employees.And the task to implement these solutions to our companies is long and constant, because what must be changed is the way of thinking of our managers and employees.And the task to implement these solutions to our companies is long and constant, because what must be changed is the way of thinking of our managers and employees.
Returning to the example of the process shown in figure 1, it is clear that the company's restriction was in the process of work center «B», since its capacity was less than demand, with which it can be said that this it is the bottleneck resource, and here we can mention some aspects that TOC clarifies regarding the use of these resources. For example, an hour lost in a bottleneck resource is an hour lost in the whole system, on the contrary, an hour gained in a non-bottleneck resource is a mirage, and here it collides again with the classic address form, that seeks the greatest use of the resources of all work centers, regardless of whether or not these are bottlenecks.This traditional management concept does not take into account that truly the bottleneck resources are what determine the inventory and the company's turnover, since it can only be sold at the speed of this resource.
For all of the above, it is important to protect both the bottleneck resources and the operations carried out there, since the bottleneck is not used, if the parts or products manufactured in the bottleneck are defective, or if they are Products are deteriorated in subsequent operations, all this is contributing to reduce real sales, thereby decreasing net profit and the goal to which it is intended to reach would be farther and farther away.
In TOC terminology, the bottleneck resources or that determine the output of production are also called Drums, since they are what determine the production capacity of a company. Based on this analogy, the method called Drum - Damper - String (TAC) emerged, which is the form or technology of application of the Theory of Constraints to industrial companies and that arose from an analogy that Goldratt makes in his book The goal, about the flow of an industrial process and a row of Boy Scauts in which the member with the least ability to walk determines the speed at which the path will be traveled. Given that in many cases, it would not be possible to rearrange the machines and operations in the plant, in accordance with the idea discussed, another solution is necessary, which may be the following:To keep the length of the line constant, without slowing down the pace of the march, everyone could walk at a constant rhythm marked by the beats of a drum, which would be assimilated to the manufacturing capacity of the bottleneck element. In addition, along the line, “screaming sergeants” (supervisors) would be stationed to prevent anyone from walking faster than the drummer (CB). The drum develops the planning and scheduling that indicates when the material should enter and be processed, and the drum beat indicates when and how the material should be processed for each productive resource.that would be assimilated to the manufacturing capacity of the bottleneck element. In addition, along the line, “screaming sergeants” (supervisors) would be stationed to prevent anyone from walking faster than the drummer (CB). The drum develops the planning and scheduling that indicates when the material should enter and be processed, and the drum beat indicates when and how the material should be processed for each productive resource.that would be assimilated to the manufacturing capacity of the bottleneck element. In addition, along the line, “screaming sergeants” (supervisors) would be stationed to prevent anyone from walking faster than the drummer (CB). The drum develops the planning and scheduling that indicates when the material should enter and be processed, and the drum beat indicates when and how the material should be processed for each productive resource.
Goldratt proposes "tying with a rope" the bottleneck element and the first element in the row: in short, and transferred to production terms, matching the input of raw material into the production process to the needs of the CB element, thereby We will ensure that no job has the option of manufacturing more parts than are needed at all times. The last element that completes the system is also proposed: the shock absorber or, to put it more precisely, the time shock absorber, understood as the time interval in which the launch date of a work is advanced with respect to the date in which the limitation is programmed to consume it.
TAC is a planning, programming and execution methodology that appears as a result of applying TOC to the programming of a factory. TAC perfectly applies the TOC programming mechanics and makes it easy to understand and implement in the plant. This simplicity is what makes the TAC so powerful. As already explained in the analogy, the drum refers to the bottleneck resources that indicate the passage of the entire plant. The buffer stops time-based shocks that protects throughput from day-to-day downtime and ensures that the bottleneck resource and those that were processed there and used for assembly are out of stock. Instead of the traditional “material quantity based” Safety Inventories, TOC recommended buffers are “process time based”.That is, instead of having an additional amount of material, the material is delivered to critical points with some anticipation. TOC places time buffers only at strategic points that relate to specific constraints within the system. The setup and run time required for all pre-drum operations, plus the damper time, is called chord. The release of raw materials and materials to the plant is then "tied" to the drum programming, no material can enter the process before the rope and its length allow, in this way each product is "pulled by the rope. rope 'through the plant. This synchronizes the flow of all operations to the beat of the drum,obtaining a fast and uniform flow of materials through the complex network of processes of a factory. The TAC scheduling method leads to considerable benefits in the logistics supply chain, ensuring that the plant is operating at maximum speed with low inventories and meeting fluctuating demands.
Until now, it has been seen that the Theory of Constraints is a new way of thinking about organizational management, which contradicts and collides with the traditional principles and tendencies of management of companies managed for many years with the measurement parameters that mark it. classical cost accounting. Perhaps, this has happened because until today the managers of large companies have been financial or company administrators who have had the vision and measurement of the company by work centers as they were taught. This trend begins to take a substantial turn and originates "fortunately" in that the management of companies has changed and the concepts that engineers can contribute are taken into account for decision making,As a personal comment and without detracting from the other professions, I consider that we have a global vision of all the aspects that arise in a company and in its environment, with which it is less difficult for us to understand new ways of thinking. One of them is the thinking of the company as a whole, as a system, experts have called it systemic thinking and in recent years it began to be strengthened with new business management philosophies such as Total Quality, Just-in-Time Production Systems, Reengineering, Smart Organizations and of course TOC. All these have in common the statement that the company is a system and are based on the General Theory of Systems. The aforementioned business philosophies seek to make our companies work according to these new concepts,Each of them provides tools to facilitate this change in direction, tools that generally complement each other or have aspects in common if, for example, TOC and Synchronous Manufacturing, Assembly Lines and Just-in-Time, have aspects in common. such as: they do not focus on balancing capacities but on synchronizing the process flow, so that resources are not just put into operation, they are used. In them also, the degree of use of a resource that is not a bottleneck is controlled by the other restrictions of the system, the one with the least capacity. Finally all these production systems aim to earn money quickly and efficiently,Therefore, they seek to sell their products quickly and manage low inventory levels working with low process and transfer batches.
The use of these production systems and especially TOC can be an illusion in our environment, but why not try to change the way of thinking and apply them, if successful companies such as 3M corporation, AT&T, Nortel, Delta Airlines, Ford Electronic, General Motors Corporation, Intel International, Wester Textile Products, among others, use TOC as a production system and claim to obtain results such as reducing their Lead Time, improving compliance with customer delivery dates, reducing their inventories, increasing in sales, increased net profits and reduced manufacturing overhead, and of course, they have managed to get to the goal quickly, they have made money.
The question remains, then, do our companies want to get money, do they want to reach the goal? The solution is not complex, it turns out to be too simple, it is only to change traditional thinking and think about the company as a whole.
3. Conclusions
- The Theory of Constraints (TOC) is a systemic methodology for managing and improving a company, which considers it as a system, and which makes it synchronize its flow to its capacity.
- The goal of any for-profit company is to make money, meeting the needs of customers, employees and shareholders. If you do not earn a certain amount, it is because something is preventing you: your restrictions, which are generally wrong decision criteria.
- Knowing the company financially is very useful, but it does not make sense unless you understand where these results come from, if you do not know why the results were obtained, or what is worse, because they are not achieved. Continuing to manage a company paying attention only to financial indicators today is suicide, since they only report what has already happened, they do not report the company's work environment, or customer satisfaction, or the quality of their preparation. products and services. And in the case of TOC, they do not indicate where the restrictions that prevent reaching the goal are being generated.
- To implement an improvement model with TOC, you need the support of managers working as a team with all their staff, if they do not get involved and change their thinking and that of their employees, the strategy and the goal will hardly be achieved.
- The only true way to really improve the operation of a company according to the concepts of TOC, is to identify and eliminate its restrictions, whatever type they may be or if they are externally or internally.
- Successful companies in the global arena, which have opted for the change from traditional thinking to systems thinking, and have adopted TOC as their production system, have easily reached the goal, and today enjoy great international recognition.
- TOC is a philosophy that is based on Systemic Thought, for this reason when trying to make Colombian companies act under this thought, it must start with an organizational and cultural change, with learning this new thought, and breaking with the paradigm traditional management.
4. Bibliography
Duty, Hector. The pending issue in Organizations. www.geocities.com/jgozio/PROD/ Art_TOC_meta_de_las_org.doc.
Goldratt, Eliyahu. The goal. Third edition. Castillo Editions. Mexico. 1994.
Sarache, William. Productive Systems Management module guide. Ibagué University Corporation. Central University of Las Villas. Ibagué. 2003.
Umble, Michael. Synchronous Manufacturing. First edition. Editorial CECSA. Mexico. nineteen ninety five.
Summary
It is presented as an essay, an exploration and interpretation of the different concepts developed and handled in the Books "The goal and Synchronous Manufacturing", about the philosophy of production known as Theory of Restrictions or Limitations (TOC), explained already ago some decades by Dr. Eliyahu Goldratt, and whose technology is widely analyzed and studied today in all courses on Modern Production Systems, since it has become a management and direction tool in many successful companies.
Download the original file
