Theory of Constraints

A brief overview of the Theory of Constraints

Eli Goldratt created the Theory of Constraints specifically to help improve the flow in production systems. Goldratt had earned a PhD in Nuclear Physics and was asked by a friend, who was having trouble meeting his production rate, to help a small manufacturing business. Goldratt realized that many of the concepts of flow he had studied academically applied to the flow of a factory, including the impact of features like bottlenecks. He started a production planning software company and wrote a book to market the software, knowing that his approach was counter-intuitive and not taught in business schools. His book, The Goal, was Goldratt’s way to have potential customers conclude that the method would work for them. It is also how most people first encounter TOC.

The account describes repeated publisher rejections of its “business novel” format. Since its first printing in 1984, the book has appeared in multiple editions and languages.

Goldratt proposed that every system with a goal has a bottleneck, or constraint, that determines its output of “goal units.” Therefore, improvements in the productivity of the constraint benefit the system. In contrast, “improvements” at non-constraint areas can be harmful for the system if they result in more work than the constraint can handle. Another frequent response to a bottleneck is to hire more people or buy more equipment at the bottleneck, but that can be expensive and time consuming and may not work.

Goldratt recommended a more effective approach to improve systems performance in the Five Focusing Steps. These provide a natural progression of improvements.

As written in the TOCICO Dictionary, V2 the Five Focusing Steps are:

1. IDENTIFY the system’s constraint(s).
2. Decide how to EXPLOIT the system’s constraint(s).
3. SUBORDINATE everything else to the above decision.
4. ELEVATE the system’s constraint(s).
5. WARNING! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system’s constraint.

While a common non-TOC first step is to get more of the constraint, in the Five Focusing Steps this is the fourth step. Once you’ve identified the constraint, steps 2 and 3 typically yield significant improvements at far less cost and effort. The Five Focusing Steps can seem almost simplistic, but can be remarkably insightful.

Many businesses suffer from executives trying to optimize each part of a process, fueled by a fixation on cost-cutting. In traditional cost accounting both Work in Process and Finished Goods Inventory are counted as assets even though they may not be sales. That encourages managers to overproduce to make the numbers look good. Goldratt developed ‘Throughput Accounting’ to focus on revenue from sales as the key metric, not goods produced. TOC includes a generic solution for production planning (Drum-Buffer Rope) and finance and measures (Throughput Accounting). Over time, additional generic solutions have been added for analysis and problem solving (the Logical Thinking Process), project management (Critical Chain), supply chain (the Distribution Solution), and strategy (Ever Flourishing Company strategy).

Throughout this development, Goldratt followed an approach that he highlighted in one of his first books, What is This Thing Called Theory of Constraints? and in one of his last, The Choice. Goldratt’s approach was highly dependent on what he saw as the Scientific Method. It depended on using observation and intuition to be the source of hypotheses and then to derive experiments to test for predicted effects. These experiments either confirmed or disconfirmed the predicted effects, which determined whether the assumed cause existed and applied. Over time this creates not a sense of what is true but what is valid within a specific context. Goldratt made the point that truth is something you search for within a religion, while science searches for valid and useful things, even if they are not true.

Looking through a Cynefin lens, we would say that Goldratt used intuition and abductive reasoning to come up with coherent ideas to then test them with safe-to-fail probes. He started with observable negative effects – the UnDesirable Effects (UDEs) – and developed a hypothesis for what might cause them. When he felt confident in predicting what would happen, and why, the Logical Thinking Process logic trees would be used to describe the problem and the solution in terms of inductive and deductive logic. He hypothesized that the cause would also create other effects (inductive reasoning), and that starting with the cause and elements of reality, he could derive the effects (deductive reasoning). This led some to believe that the generic TOC solutions were developed from the logic trees. It’s more likely, however, that the logic trees were created after the fact to document the approach and the assumptions behind why they worked.

Nevertheless, this has set up a lingering misperception among people who see the logic trees and assume that TOC is a means of defining the world in terms of linear, deterministic logic. When you read Goldratt’s description of how he worked, it is clear that he followed a very Cynefin-like process; he started in the Confusion or Complex domains and ran a series of probes until he had a solid understanding of what was happening. He mostly started in Complex and moved into Complicated, at which point he shared what he had discovered in the form of Complicated domain artifacts.