The Theory of Constraints (TOC), as originally developed by Eliyahu Goldratt and introduced to the world in the business novel “The Goal“, has produced some remarkable successes in big companies, showing huge improvements in the three main measurements:
- More Throughput (T) – this is effectively increasing sales less the direct cost of sales without any questionable apportionment of shared costs.
- Lower Operating Expenses (OE) – reducing the other costs of the business.
- Lower Inventory and Investments (I) – reducing the money tied up in the business whilst also improving due date performance and cutting lead times.
This has been achieved by focusing improvement efforts on the main constraint or the weakest link in the chain. Quite simply, this is where you can get the biggest bang for your buck.
Just to be clear, a constraint is something that stops you from reaching your goal. For example, consistent customer service problems may stop a business from reaching its goal to increase profit. [continue reading…]