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Theory of Constraints (TOC)

The Theory of Constraints is a management philosophy that drives continuous improvement by identifying the weakest link in a production process.

Its core belief is that there is always a single point of failure, or constraint, that holds back a plant from achieving optimal production.

Key Takeaways

  • Identifies the “weakest link in the chain” of production

  • 4 plant types: V, A, T, I

  • Constraints can be internal or external, further divided into cost, time, & scope

The Theory of Constraints was created by Dr. Eliyahu Goldratt in his bestselling 1984 book, “The Goal”. It has become seminal to leaders in manufacturing since due to its focus on continuous improvement, a lean management approach.

Benefits of TOC Use

The benefits of using the Theory of Constraints go beyond a simple pros and cons list, because when implemented properly, its benefits stretch to improving every aspect of the plant as it operates as a whole.

There are only at most a few constraints present in a system; dealing with one constraint at a time is ideal. By fixing a constraint – also known as a bottleneck – the workflow of a plant is free to flow smoothly, rather than being held up by the issue in question.

So, what’s the benefit of fixing system constraints? Well, everything!

2 Types of Constraints: Internal & External

There are two types of constraints, internal and external.

Internal constraints are ones where the market demands a higher volume of goods than the plant can currently provide.

External constraints are ones where the plant is overproducing relative to demand.

3 Subtypes of Constraints: Cost, Scope, & Time

Going further, there are three subtypes of constraints beyond internal and external: cost, scope, and time constraints.

Cost constraints are when the price of labor, materials, and other resources limit the rate of production.

Scope constraints are ones where the problem stretches beyond its original boundaries. Scope creep is another term used to describe when the requirements of a task go far beyond the original mandate.

The 5 Focusing Steps

So now that we understand the Theory of Constraints, how do we apply it?

There are five basic steps to follow (although implementing them may take a bit more work):

  1. Identify the constraint
  2. Exploit the system's constraint
  3. Subordinate everything else in the system
  4. Elevate the constraint
  5. Repeat until the constraint is no longer the limiting factor

Something to be wary of in the final step is inertia. When fixing a constraint from the system, don’t assume that things are now fine and you can ignore any other constraints.

This ties in with the lean principle of kaizen, or continuous improvement: there is always another constraint or issue to be fixed or optimized. Don’t get complacent!

The 4 Plant Types (aka VATI Analysis)

There are 4 main types of factories, or plants, in TOC analysis. They represent the flow of materials as they proceed through a production process. For reference, each type is identified by a letter. Draw a letter and imagine the flow of materials progressing from the bottom of the letter to the top: this is symbolic of the workflow of the factory in question.

  • V-plant: this is a plant that makes separate products out of the same materials, and the main issue it faces is the balance of which products to pursue with limited resources
  • A-plant: this plant is one with many sub-assemblies, and many parts come together at the end of production for a final product
  • T-plant: this plant is one with similar, unified production lines where products are spread around many sub-assemblies as final output
  • I-plant: this straight line flow is representative of a simple assembly line, and it is the slowest type of plant

Sometimes these types may combine, but they are helpful for symbolizing the basic workflow of a manufacturing system.

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