Dr. Eliyahu Goldratt is an educator, writer, scientist, philosopher, and business leader. But he is, above all else, a thinker. Dr. Goldratt encourages his audience to examine and reimpose their business practices with fresh and new vision.
theory-of-constraints-toc-foundations-and-applicationsEliyahu Moshe Goldratt became interested in business in the early 1970s, when a relative asked him to help improve the production of his small chicken company.
Goldratt, together with his brother, developed a revolutionary production scheduling algorithm that enabled a production increase of over 40% without the need for new resources. Collection became slower than material purchases and the company went bankrupt. From that fact, Dr. Goldratt returned to work at the university.
At the end of the '70s, the Goldratt brothers founded Creative Output, a company that developed software for programming and production control based on the aforementioned algorithm. The growth of this company was spectacular, its main clients being Grumman, Sikorsky and General Motors. Since that time, General Motors uses the TOC.
Experience proved to Dr. Goldratt that his revolutionary method required much more than just implementing new software. It required changing most of the policies and decision criteria that still exist in companies.
Eli Goldratt is the creator of TOC (Theory Of Constraints), the Theory of Constraints. Since 1975 he has continuously worked on the rules, concepts and tools for a true continuous improvement process.
He is the author of "THE GOAL" (1984), a best seller that uses a non-traditional approach to carry important business information; it is a commercial textbook written in the form of a novel, masked with a love story. This book is used as a "marketing tool to promote your solution for production management."
The success of "La Meta" led Dr. Goldratt to leave Creative Output in 1987 and found a new organization, the Avraham Y. Goldratt Institute (AGI), whose mission is to generate and disseminate knowledge. At that time began the research that allowed to generalize the TOC to all areas and levels of a company (Operations, Distribution, Supply, Sales, Marketing, Strategy, Decision Making, Engineering, Project Management and Human Resources) ceasing to be a simple tool for Production. Every year this field of knowledge is broadened and improved so that TOC can be considered as a whole "management philosophy". New developments in theory are presented each year at TOCICO (TOC International Certification Organization) conferences
The Goal has been translated into 23 languages and management schools include it in their curricula. Goldratt's books are welcomed not only in developed countries but in India, China, South America and Central Europe, not to mention Israel, her country of origin.
On the production issue, Dr. Goldratt wrote "PRODUCTION THE TOC WAY", a self-study material for manufacturers interested in applying TOC techniques and developing it within their companies.
The greatest merit of Dr. Goldratt and his team of expert researchers in OCD from different parts of the world, is having found a logical and very efficient way to break paradigms through the use of novel thought processes and logical diagrams that allow us optimize and adapt different technical and management tools to be used by any of us in our companies, with a high probability of achieving excellent results.
«Critical Chain» (Critical Chain, 1997) and «Necessary but not sufficient» (Neccesary but not sufficient, 2002) have received the praise of specialized critics, and even researchers from all over the world continue with the deepening, extension and specialization of the principles of this powerful management philosophy: THE THEORY OF RESTRICTIONS. The last book that Dr. Goldratt published is The Choice (The Choice, 2008).
WHAT IS OCD?
The Theory of TOC Constraints is a comprehensive administrative philosophy that uses the methods used by the pure sciences to understand and manage human-based systems (people, organizations, etc.), it seeks to continuously generate more than the goal of a system.
The TOC allows focusing solutions to critical problems of companies (regardless of their size or business), so that they get closer to their goal through a process of continuous improvement. For its development the Socratic method was taken as a basis.
The TOC comprises a set of knowledge, principles, tools and applications that simplify the management of systems, using pure logic or common sense.
The TOC is the practical result of Eli Goldratt's work on the “how to think” way of thinking. Results of the THINKING PROCESSES "the Thinking Processes" and their applications.
TOC is a philosophy that says that:
“By knowing how to think, we can better understand the world around us; by better understanding we can improve. "
“By knowing how to think, we can better understand the world around us; and through this understanding we can improve ”.
RESULTS OF TOC IMPLEMENTATIONS
An independent academic study of 80 cases of TOC implementations worldwide yielded the following results:
- Delivery Time: a 69% reduction Delivery fulfillment: 60% improvement Inventory levels: 50% reduction Revenue: 68% increase
Source: The World of Theory of Constraints, Vicky Mabin & Steven Balderstone, St. Lucie Press, 2000.
The obvious question when looking at these amazing results is: How is it possible to achieve them?
The TOC Starting Point: Look at the two systems and answer: Which of the two systems is more complex? System A or System B?
| SYSTEM A | SYSTEM B |
It should come as no surprise that to most people System B seems more complex, has more information, interdependencies that one should consider.
COMPLEX SYSTEMS
The more data that has to be provided to describe the system, the more complex the system will be. If one can fully describe the system in a few sentences it is a simple system but if it takes a thousand pages to describe it then it is a complex system.
How complex is your organization? How many pages does it take to describe each process? And the interrelationships between them? as well as the interrelationships with each client? etc. It is not a revelation that most companies are complex, so how do we manage our complex systems? The traditional way of dealing with complex systems is to divide the system into subsystems, each subsystem is by definition less complex than the whole, but dividing the system into subsystems has its price.
CONSEQUENCES OF DIVIDING THE SYSTEM INTO SUBSYSTEMS
One of the consequences is the lack of synchronization. The lack of synchronization occurs when a subsystem or more than one, trying to improve its own efficiency, acts in a way that endangers the efficiency of the entire system.
As Dr. Edward Deming had already stated in his book “The New Economy”, “if the various components of an organization are optimized, the organization is not optimized”, and he has numerous examples of this situation, for example: a department of purchases that when trying to reduce the costs of the acquisition, buy raw materials that endanger production and its quality.
Dr. Deming states that the obligation of any component is to contribute the best to the entire system, not to maximize its own efficiency.
Another major drawback is the risk of creating inherent conflicts between policies of different functions trying to achieve the same higher objectives of the system, let's see an example:
There are elements that contribute to more than one higher goal, but the problem is presented below:
In conclusion, dividing the system can manifest conflicts caused by conflicting rules. Any solution to focus will result in compromises of strategic objectives. So any decision will lead to significant undesirable effects.
In the example, if we had decided to buy from the most reliable supplier, surely at a higher cost, we would have as a result lower margins, therefore, we would be less competitive and in the long term, reduced sales. On the other hand, if we had chosen to buy from the cheapest supplier, we may have shortages in inventory, more defects and waste in production, which would cause high reprocessing costs or the need to maintain high inventories.
Summary of consequences of dividing the system into subsystems:
- The more subsystems involved in the production of the product, the greater the inconvenience of managing the parts in isolation. o Today, product / service providers suffer more and more from the inconvenience of dividing their organizations into subsystems.
Peter Drucker, in an article for Forbes magazine, tells us about the problems of modern administration and states that:
- “… The basic assumptions, which are the basis of what is taught and practiced on behalf of management, are terribly out of date” “… most assumptions about business, technology and organization are at least 50 years old. As a result, we are preaching, teaching and practicing policies, which are increasingly at odds with reality and which are therefore counterproductive. ”
Considering the number of processes and elements that are subject to variability, it is clear that without a targeting mechanism to guide improvement efforts, there is no way to achieve significant results in a short period of time.
INHERENT SIMPLICITY
Most of the advances in delivery methods in the last 20 years have focused on how to deal with these issues.
o Reduce the variability of the subsystems o Improve the connection processes between subsystems
Organizations that have successfully achieved significant results in a short period of time show us that such a mechanism exists. These companies achieve the required focus, capitalizing on the INHERENT SIMPLICITY that governs any complex system. In fact, theory of restrictions is based on the fact that every complex system is based on an inherent simplicity. And so what is inherent simplicity?
Let's look again at system B:
This system seems a bit complex, it has many interdependencies, functions and resources that one must consider. Interdependence means that a change at any point has significant implications at other points.
Look again at the two systems:
| SYSTEM A | SYSTEM B |
And ask yourself: What is the minimum number of points we have to touch to have an impact on the entire system? For system A, the minimum number of points is four, but for system B a single point, that is, it has fewer degrees of freedom and therefore is less complex. This is where the inherent simplicity is based.
Examining the interdependencies of the system reveals that there are few points that one has to impact to impact the entire system. TOC recognizes the above as the Inherent Simplicity of the system.
In conclusion, the inherent simplicity establishes that very few factors govern the performance of the system. The more complex the system, the deeper its inherent simplicity.
The more complex the system, the more interdependencies it will have, and the greater the possibility that impacting one point in the system will impact other parts of the system.
How do we measure the performance of the system? According to the theory of restrictions, there are three local indicators that allow measuring the performance of the system. First the Thruput, which is the speed at which the system generates units of the goal; For a for-profit organization, throughput is the speed at which the system generates money through sales. It can be seen as the money that comes into the organization through sales minus the money we pay our suppliers.
The second indicator is operating expenses and it is all the money that the organization spends to generate units of the goal. And finally the investment, which is the money tied to the organization. TOC's main indicator is throughput, being the one with the highest hierarchy for decision-making.
Now, as very few factors govern the performance of the system and the Thruput is the speed at which the system generates units of the goal, we can conclude that the Thruput of the system is governed by very few elements. What are these elements?
The inherent simplicity resides in two aspects of any system, in the physical aspect of the system there is a governing element that limits the flow of Trúput and in the logical aspect of the system where there is also a governing element that also limits the performance of the system. Therefore very few factors govern the performance of the physical and logical aspects of the system.
The element that governs the performance of the physical aspect of the system is known as the weak link or bottleneck.
BOTTLE NECK: “The bottleneck is a resource that cannot satisfy market demand. In other words, a resource whose capacity, in a period of time, is equal to or less than the demand for it ”.
On the other hand, the element that governs the logical aspect of the system is known as root conflict.
An appropriate name for the elements that govern (dictate) the Throughput of the system is System Constraint (s), hence the name of this whole approach is Theory of Constraints. Constraint is the element that limits the system in relation to its goal.
To increase the Throughput of the system, we must deal with the things that currently limit it. The Restrictions are the leverage points, that is, the restrictions should not have a negative connotation, on the contrary they allow us to identify the elements of improvement of the system.
To summarize, the element that governs the performance of the system is the constraint and this is the leverage point of the system, that is, our area of focus.
What is the process that allows us to convert the few constraints into quantum improvements for the system as a whole?
THE FIVE STEPS OF TARGETING
- IDENTIFY
The System Restriction.
Identifying a constraint means that we already have some appreciation of the magnitude of its impact on overall performance. Otherwise, we would also have some trivia on the restriction list.
Within the company there are several candidates for restriction and, fortunately, more possibilities of intervention: from a machine that breaks down or is used very frequently or the demand for the parts that the machine manufactures is greater than its capacity, a person with excessive workload, a sales department that does not get enough orders for the potential capacity of the company, or a production department that cannot shorten deadlines or increase the quality level or a data processing department that offers the results too late to make decisions, etc. To identify the internal resources as a constraint, all we have to do is calculate a resource profile, in a given horizon, and choose the resource that has the highest load.
- EXPLOIT
The System Restriction.
Exploding simply means getting the most juice out of them.
Once a restriction or bottleneck has been identified and without the need to invest money in modifying its capacity, unless the substitution of the restriction resource is very economical, we can exploit it by making improvements such as ensuring its use 100% of the available time, now that, because it is a restriction, determines the rhythm of production of the plant, or changes the combination of products or jobs that go through the restriction, in such a way that their time in the restriction is reduced, or by doing preventive quality inspection immediately before the restriction, so that it does not waste time with defective products that will later be rejected, or reducing the size of the batch to be processed. This to put some examples in production.
If the non-restrictions do not supply what the restrictions need to consume, the previous decision will remain on paper, a dead letter that will never be put into practice.
- SUBORDINATE
Everything else to the previous decision.
We are now in a state where we are handling the current situation. Non-restrictions are not fortuitous cases, we can do something about them. The non-constraints should supply what the constraints need.
From this perspective, it is of little use to the overall performance of the system if the rest of the resources obviate the restriction and begin to achieve high local performance. Inventory and operating expenses will likely increase, but profits are not likely to increase.
- RAISE
The System Constraints.
Raise means, "Lift the limitation." This is the fourth step, not the second. So many times we have witnessed situations in which everyone complained of a huge restriction but, when taking the second step, of exploitation, of not wasting what we did have, it turned out that there was plenty. So let's not rush to authorize subcontracts, or launch into a fancy ad campaign, etc. When we have finished steps two and three, and we still have a restriction, it will be time to move on to step four.
Once the operation of the system is synchronized, it is convenient to begin to overcome the conditions imposed by the restriction, for example, by acquiring information systems that allow us to have objective data on what is really happening in the company, transfer resources to other parts of the system, modify the product portfolio, or even making changes in the organizational and cultural model of the company.
- If, in a previous step, the constraint was broken, go back to step 1 and do not let INERTIA become the System Constraint.
But this is not the entire fifth step. We must add a big caveat to it. The restriction has an impact on the behavior of all other resources in the company. Everything must be subordinated to the maximum level of performance of the constraint. Thus, from the existence of the restriction, in the company we derive many rules, sometimes formally, sometimes intuitively. Now a restriction has been broken. But normally, we don't bother to revisit those rules. They stay there, and therefore we now have policy restrictions.
The above is the process to focus, five steps, an intuitively obvious procedure, which at the same time is the process of continuous improvement.
The continuous improvement process never ends. The rate of improvement will vary over time. The important thing is that the entire company is interested and committed to the process so that the important thing is not the improvements itself, but the process itself. Here is the main obstacle, resistance to cultural change, from "it has always been done this way by Why? What limits us? Is there another way? For this reason, inertia must be prevented from becoming the main constraint of the system. To solve this we have the “Thought Processes” tool.
The 5 steps are used to achieve quantum improvements, through leverage on the inherent simplicity of the physical aspect of the system. It is a Continuous Improvement Process.
The 5 steps have served to develop known solutions with proven OPERATIONAL LOGIC in:
- Production: within industrial operations and management operation, the solution seeks to pull materials through the system, instead of pushing them into the system with a system known as DBR (explained in more detail in La Meta).
The DBR (Drum-Damper-Rope) is an industrial execution methodology, named for its three components. The drum is the physical constraint of the plant: the work center or machine or operation that limits the ability of the entire system to produce more. The rest of the floor follows the beat of the drum. They make sure the drum has work to do and what it has processed doesn't go to waste.
The damper protects the drum, so you always have work flowing into it. Dampers in DBR have time as their unit of measurement, rather than the amount of material. This makes the priority of the system to operate strictly based on the time an order or production order is expected to be in the buffer. The DBR typically requires buffers at various points in the system: at the restriction, at the assembly site, and at the delivery site. S-DBR requires a single buffer on delivery.
The rope is the work output mechanism for the plant. Only a buffer of time in front of an order makes the due release to the plant. Pulling work in the system earlier than a time buffer only guarantees a job in the process equivalent to a product in process buffer.
- Distribution: using a system known as Pull TOC, which is explained in Not Luck and Necessary but not Enough.
The solution for the supply chain is to change the model from pushing inventory to pulling inventory.
- The TOCTOC-VMI (Vendor Managed Inventory) Distribution Sales Process: This is one of the latest developments in Theory of Constraints and is discussed in "No Luck."
While originally focused on manufacturing and logistics, TOC has lately been extended in the direction of sales. First, the data shows that the sales system is massively restricted and the TOC offers a significant opportunity to increase the company's throughput = sales results.
- Project Management: with a system known as Critical Chain analyzed in the book of the same name.
Based on the realization that all projects look like “A” plants: all operations must converge to a deliverable final exam. As such, activity synchronization is a common problem that CCPM seeks to address.
- Finance and Accounting: use the accounting of the Trúput with Trúput, Inventory and Operating Expenses and in this way make decisions.
o Other applications for services.
THOUGHT PROCESSES
Many times something in the structure of the system blocks the optimal performance of one of the 5 steps.
TOC Thought Processes are used to overcome such blocks, through leverage in the inherent simplicity of the LOGICAL ASPECT of the system.
They are a set of tools that allow you to answer three questions:
- What to change? - Identify the core conflict or what to change? - Build a complete solution o How to cause change? - Develop an Implementation and Action plan
What to change? What is the wrong assumption about the reality that dictates the current level of performance of the company.
What to change? What are the simple and powerful solutions that will allow you to achieve a higher level of performance.
How to cause the change? What are the strategies and tactics necessary to allow a successful implementation of the solution with the least resistance to change possible
The logical TOC tools that allow you to answer these three questions are:
- Current Reality Tree (CRT)
This tree is similar to the current state map used by many organizations. The CRT (Current Reality Tree) evaluates the network of effect-cause-effect relationships between undesirable effects; This technique consists of detecting the Root Problems (Core Problems), via the certification of causality in each step. These root problems are few (they represent policy constraints) and are responsible for the undesirable effects (EIDES) that we observe in our organizations.
- Cloud or Conflict Diagram (CRD)
The CRD (Conflict Resolution Diagram) is a technique used to resolve conflicts that normally perpetuate the causes of an undesirable situation. What this technique seeks is to present a problem as a conflict between two necessary conditions.
- Future Reality Tree (FRT)
It is a technique similar to a future state map. When some actions (injections) are chosen to resolve the root cause discovered in the CRT and thus resolve the conflict in the CRD and the FRT (Future Reality Tree), it shows the future states of the system and helps to identify possible negative results of the changes (the Negative Branches) and trim them before making the changes.
- Prerequisite Tree (PRT)
This technique is used to identify and relate to the implementation obstacles of the new solution. For each solution a new reality is created. The main strength of the PRT (Prerequisite Tree) is to ground the injections obtained from the strategy, since some (those that represent paradigm shifts) may seem difficult or impossible at first glance.
- Transition Tree (TrT)
The TrT (Transition Tree) is the technique that materializes in the tactic that will allow the solution obtained to be implemented successfully; additionally, it is in this step where economic needs (if any) and expected benefits are quantified. This step serves as a follow-up and verification map, as it contains the sequence of quantitative and qualitative effects expected from the solution; these types of trees can easily be converted to Gantt charts for traditional monitoring and as an Implementation Plan.
- Strategy and Tactics Tree
The S&T (Strategy & Tactics) is the overall project plan and metric that will lead to successful implementation through continuous improvement.
THE SIX LAYERS OF RESISTANCE TO CHANGE
Sequentially answering the three questions of change generates broad acceptance or persuasion in people, which is why in the Theory of Constraints there is a persuasion model known as the six layers of resistance to change, so called because people tend to raise objections when new ideas are presented. These layers have to be followed sequentially because it is very difficult to identify first hand the layer in which the person we want to persuade is truly stuck. So when the persuasion process is applied in sales we must always start at layer one.
- What to change?
- Layer One: Disagree on the problem Layer Two: I have a different direction on the solution.
- Layer Three: The solution does not address the whole problem Layer Four: Yes, but the solution has negative results
- Layer Five: Yes, but there are obstacles to implementing the solution Layer Six: Non-verbalized fear.
BIBLIOGRAPHY.
- DEMING, Edwards. The New Economics. Second Edition. 2000 DRUCKER, Peter. Management's New Paradigms, Forbes Magazine. 1998. GOLDRATT, Eliyahu M. The Haystack Syndrome. Ediciones Castillo, Third Edition, Monterrey-Nuevo León-Mexico. 1997. GOLDRATT, Eliyahu M., Alan BARNARD. GORDRATT, Rami. Introduction to the Theory of Constraints.GOLDRATT, Eliyahu M. No Fué La Suerte. Ediciones Castillo, First Edition, Monterrey-Nuevo León-Mexico. 2001.GOLDRATT, Eliyahu M. Production the TOC Way.GOLDRATT, Eliyahu M., Jeff COX. The goal. Ediciones Castillo, Second Edition, Monterrey-Nuevo León-Mexico. 1992. GOLDRATT, Eliyahu M. The Strategy & Tactic Tree. Reliable Rapid Response. Detailed to level 4. 2006GOLDRATT, Eliyahu M., Robert E. FOX. The race. Ediciones Castillo, Eighth Edition, Monterrey-Nuevo León-Mexico. 2002.
Go to www.estrategiafocalizada.com and you will find the most up-to-date information on TOC, its applications and its advances.
In the TOC Zone of Focused Strategy, you will find detailed information on TOC solutions applied to:
- Production (DBR and SDBR) Distribution (PULL TOC) Project Management (CCPM) Marketing and Sales (Irresistible Offer)
Our Experts are certified by the International Organization for Certification in TOC (TOCICO) ww.tocico.org
Download the original file
