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Tuesday, August 6, 2019
Theory of Constraints Essay Example for Free
Theory of Constraints Essay Executive summary            Customers nowadays demand better services and products in terms of delivery and production. Therefore to satisfy these customer needs and expectations companies must enact changes in their processes. Competition is so intense that if a company does not improve its processes through change, then competitors will drive you out of business. Customers, employees, shareholders and other stakeholders in a company continually demand improved products, services and profitability. All these demands calls for lower cost of production and hence the management is at pains to achieve this.            It is critical that a company initiates a process of on-going improvement, which focuses on internal process changes instead of the company undergoing reactionary changes precipitated by external changes. To achieve this change through a process of on-going improvement, the company should question its processes and this involves starting by asking the right questions to identify critical areas that need improvement. According to the Goldratt Institute some of the pertinent questions than needs to be asked include the following: What to change To what to change How to cause the change These questions must be answered effectively and in a shorter duration of time in order to achieve the process of on-going improvement (Goldratt and Cox: 1994) The purpose of this research is to explore the TOC concept and how it can be used in various functions and day to day operations in organizations. Definition            Theory of constraints is a management philosophy developed in the 1984 and popularized by Dr. Eliyahu Goldratt. It involves the focus on resources and the identification of the constraints. The resources are then channeled to the constraints that affect the company’s bottom line. TOC starts by identifying the root causes of a constraint or problem, developing understandable chart and formulating steps that solve the root causes of the problem and constraints (Goldratt et al: 2000) It is basically identifying a goal and formulating ways of achieving that goal on a consistent basis.            TOC is divided into two: Five focusing steps Special thinking processes How it works Special thinking processes            The pertinent questions asked what to change, to what to change, how to cause change provides a framework and thinking process, which is an integral part of TOC process as a whole.            Solutions to problems are formulated through the adoption of strategies developed on logic of cause-and-affect. The whole concept of cause-and-effect analyzes a problem from the signs to coming up with an action plan (Scheinkopf: 1999) TOC is applied in organizations to solve problems. It is aptly described using the following questions. What to change            Core conflict is a problem that is unavoidable, unresolved problem that hinders the organization from achieving its desired goals. This conflict can be identified through observed signs and cause-and-effect methods. Due to the nature of the core conflict; causing undesired and damaging effects, organizations are forced to formulate policies that will remedy these undesired and damaging effects caused by the core conflict. The first process is the identification of the core conflict using the three-cloud process. The core conflict to be identified is determined whether it is one that is causing all the undesirable effects. The second process of TOC in answering the ‘what to change’ question is the developing of the current reality tree which justifies the core conflict identified in process 1 above. Current reality tree explaining the cause and effects patterns and also recognizes the factors that aid the existence of undesirable effects. To what to change            In answering this question, solution to the core conflict is developed. Questioning all the logical assumptions underlying the existence of the core conflicts does this. It is paramount that the solution developed should ‘treat’ completely all the causes and a whole range of other aspects of the undesirable effects. The solution developed is basically a strategy that will include improvements. These improvements ensure that the core conflict does not recur again.            The solution developed take into consideration the anticipated undesirable effects and therefore deters their occurrence. The third step of the TOC process under ‘to what to change’ question is the identification of the assumptions behind the core conflict and trying to eliminate them. This is done by the critical evaluation and questioning of these assumptions. The fourth step is the construction of a future reality tree that is able to formulate and develop a solution (strategy) to the core conflict and the undesirable effects.            The undesirable effects should be desirable effects after the adoption of the strategy which should be in line with the overall strategic objectives of the system. The solution must also prevent any further occurrence of undesirable effects and suggest the improvements in terms of policies, procedures or benchmarks. It is also necessary that the strategy support the current TOC applications used to ensure the effectiveness of the new strategy in solving the core conflict (Schragenheim: 1999) How to cause change            Since the whole concept of TOC is about on-going improvements which as seen earlier, is basically change, then the organization should develop ways of implementing the changes bearing in mind the various organization cultures.  The idea of planning for the changes is to avoid resistance because without the full cooperation of stakeholders in an organization, even the best of the strategies is doomed to fail. ‘How to cause change’ question leads to the fifth and sixth steps of a TOC process.            The fifth step involves the development of a tactical objectives map. This is usually a road map that identifies the various steps that the organization undergoes from the current state to the future state. In the future state, the strategy formulated to cope with the core conflict and undesirable effects, is fully actualized and therefore the organization is on course to achieve its goals. The process of developing the tactical objectives map should clearly explain the functions of each sub system within a certain specified duration. A prerequisite tree is used to achieve the objective (Schragenheim: 1999) The sixth and final step of the TOC process is the formulation of ways in which all the proposed actions will work together in order to reach the future state. The proposed actions relationship will be explained using transition trees.            The Five Focusing steps of TOC            In any extensive system in an organization, there are factors that negate the attainment of the set goals. These factors are usually problematic and prevent the system from achieving the set goals. These factors are what are called constraints.            TOC establishes that in any system, there exist constrains that affect the attainment of the objectives in a system.            Effective, earlier identification and solving of these constraints leads to better formulation of solutions which will improve the system in terms of future strategic improvements.            TOC works on the premise that in an organization or system, there are strong and weak points. It further explains that focusing on the strong points of system or organization is an act in futility because the whole system will still be negated by the one weak point.            Therefore it is important that organizations concentrate in strengthening or eliminating that weak point in order to improve the whole system.            The five focusing steps of TOC explain the achievement of on-going improvement through the analysis of the constraints in a continuous process. The five steps are; Constraints identification Decide how to exploit the constraint in the best way Subordinate everything else to above decisions Elevate the system constraints Avoiding inertia being a constraint and if constrain is broken in step 4 go back to step 1 Constraint identification A problem cannot be fixed if it has not been identified. The same case applies to a constraint. The organization needs to identify the constraints that hinder the achievement of the set goals. The undesired effects are then assessed to establish whether they are from one constraint. All the above identification and analysis of the constraint helps the organization to formulate strategies that are used to mitigate the undesirable effects consulting from the constraint. Exploitation of the constraint Constraints are the cause of lack of the achievement of the system goals. Therefore it is necessary that an organization uses the identified constraints and turning them to desirable effects which then aids in the achievement of the system or organizational goals. The organization should ensure that it makes most of the opportunities resulting from the identified constraint. Subordinating everything else to decisions above  Any policies or requirements of a non-constraint that are outside the control of the constraint should be subordinated thus avoid limiting the constraint.            The system should also not expect the constraint to produce more than its capability because it might lead to more branches of constraints like increased lead times, inventory pile up and clash of decisions that may confuse the whole system.            The constraint subordination leads to the identification of the opportunities that be utilized in the achievement of system and organizational goals. Elevate the system constraint            Excess and unutilized opportunities can only be realized after the isolation and analysis of the constraint through management.            Isolation of the constraint may also indicate that extra opportunities in terms of e.g. capacity may be needed. Hence the acquisition or transfer of workload to other resources may be initiated (McMullen: 1998)            It is important that before an acquisition of excess resource capacity is undertaken; all possible options that lead to goal achievement are explored and thus save on the creation of unnecessary extra capacity which can itself become a constraint hence creating branches of constraints. If in previous steps constraints are broken go back to step 1 During the exploitation subordination or elevation of the constraint, it might be eliminated. The elimination of constraint does not mean that there will be no further constraint. Other constraints will be appear and therefore the need to revisit the whole process by going back to step 1            An example of how solving one constraint lends to another is when the constraint is lack of capacity. Acquiring more capacity thereby lending more rooms for production may eliminate lack of capacity. However, this may lead to overproduction so that the new constraint is the lack of market (McMullen: 1998)            Therefore TOC involves the analysis of systems and processes in a continuous manner hence the term on-going improvement. Application of Theory of Constraints Theory of constraints principles has been applied in a wide variety of fields ranging from business, government to non-government organizations.            Utilization of TOC processes creates huge savings in costs and increase in profitability. Basically it can lead to faster realization of system goals, which is the desire of any organization.            Some of the areas that TOC concept can be applied include the following Manufacturing operations Logistic and supply chain Finance and accounting Project management Marketing and sales Synchronous Flow manufacturing (SFM) In a manufacturing process, the factory’s resources in terms of capacity is hampered by its constraints operation, the capacity constraining resource (CCR)            The constraint leads to inefficiencies, which may include loss of time due to e.g. idle time. The loss of this time is irrecoverable.            In a manufacturing process, the theory of constraints measures the performance based on the amount of finished goods produced, levels of inventories and operating expenses. The number of units of finished goods produced should be more while the inventory levels and operating expenses amount should be lower (Levinson: 2002).             In a synchronous flow manufacturing, the production information is between CCR and production starts. The CCR ensures production in form of production starts. A deficit at the CCR leads to lose of time, which cannot be recovered.            The Drum-Buffer-Rope production control is achieved in a SFM in the following way: The constraint operation controls the factory’s production speed by hindering the overall rate of production. This is same as â€Å"beating the drum†of the speed of production. The constraint is then connected with the production outputs by a rope in order to achieve the level of production speed dictated by the CCR. It is also necessary that a buffer of inventory is maintained at the or just before the constraint to avoid stoppages in pre constraint production stages. The whole process thus results in a Drum-Buffer-Rope production (Levinson: 2002). Logistics            TOC application in logistics involves the analysis of drum-buffer-rope scheduling, buffer management and VAT. Drum-Buffer-Rope            It is used to plan the flow of materials in a TOC process. As explained earlier in the SFM, the drum is the constraint and is responsible for determining the speed of the whole process. Buffer is the resource that sustains the end product. Buffer stock avoids breaks in the process therefore ensuring the optimization of the end product. The rope is a plan for introducing inputs to the production floor. It is basically a control that ensures that no more than the required resources are released into the production floor. The rope also ensures that the constraint is subordinated by the non-capacity constraints (Dettmer: 1998) Buffer Management            It helps in the management of the production schedule in the production floor. The buffers can be at the constraint, assembly or shipping. Buffer management ensures that there is no idle capacity, which can lead to the non-achievement of the end product or customer deadline. VAT Analysis            VAT analysis establishes the general flow of the production process from the beginning to the end i.e. the flow of inputs up to the end product. VAT analysis assumes that the whole production process in terms of products, raw materials and processes are intertwined. VAT analysis, therefore, establishes that the interactions result into three production structures; the V logical, A logical and T logical structures. Logical structures are the expected patterns and processes hat a product must undergo to its completion (Dettmer: 1998)            The V logical structure starts the production process with one or a few inputs, which then result into many products as it flows through the logical structures. The end result of this production process is many end products. The A logical structure starts with many inputs which then converge as the production process progress and consequently result into a single or few finished products.            The T logical structure results into same end products produced from the same process and sub processes. The raw materials pass through a number of same processes, which then provide inputs to the several sub processes that result into similar end products. In VAT analysis, the system control points, which can be gating operations, divergent points, constraints and delivery points are identified and managed once the production flow is determined. These control points are then analyzed to establish whether buffers can be used to maximize the production and avoid stoppages (Dettmer: 1998)            The control points to be adopted in the management of the production process depend on the shape of the logical structure. A V structure utilizes the constraint, gating operation and divergent points. Buffers are used to ensure uninterrupted flow to the constraint with gating operation controlling the resource availability. Divergent point uses the delivery schedule thus avoiding wrong material allocation.            A T structure uses constraint and gating operation with the output of the gating being pegged on the constraint. The constraint is managed using the five steps focusing process. In the A logical structure, the constraints, gating operation, divergent and convergent points are analyzed. Finance and Accounting            In a Finance department of a company, there are two types of accounting statements that are made; the Financial accounting (for shareholders, government and other external stakeholders) and Management accounting (for management). Under the management accounting, the following accounting techniques are used: Absorption costing – focuses on cost Variable costing – contribution Throughput accounting is arrived at if the concepts of absorption and variable costing are applied to management accounting. Throughput accounting is basically cash based non allocation method which is slightly different from full absorption costing in the sense that throughput accounting expenses manufacturing overhead costs in the period the product is produced while full absorption costing allocates the costs to products until sold (Youngman 2008). The measures of throughput, inventory and operating expense can be used together with the analysis of constraints to maximize profitability in a business. Decisions made are based on the knowledge of constraints within the system and where it will occur in the future. These constrains can be external or internal. Internal constraints calls for the calculation of the through put generated per unit item of the constraint while external constraints treats any through put above total variable costs or positive contribution to the system (Youngman 2008). In throughput accounting, a change of one critical aspect calls for the complete evaluation of the whole system. It is basically the effects of decision but not the product that is considered.  Despite of all the benefits of throughput accounting over marginal and absorption costing, it has been found that it is not perfect. It does not allocate fixed costs. This thus has lead to the development of Constraints Accounting concept. Constraints accounting, introduces the effects of constraints to profit and loss statement thus subordinating management accounting to the set goals of the firm. Constraints are broken as operating providing ways of achieving goal congruence in both short term and long term results (Caspari and Caspari: 2004) Project Management All types of projects in different fields have two common problems; that they are uncertain and competing resources, deadlines and project details. These problems therefore make project management an uphill task. TOC tries to address the problems associated with projects by answering the three pertinent questions of: What to change To what to change How to cause the change In answering the â€Å"What to change†question, the organization must identify and effectively solve the cause of all the problems associated with project management. (Jacob and Mc Cleland: 2001) Multiple projects may pose serious problems resulting from wrong decisions on project start times. Wrong start times may affect the resource committed to existing projects thus delaying their finish times. Single projects problems may originate form wrong assumptions made during the planning and scheduling stages (Schragenheim: 1999) Answering the â€Å"to what to change†question should adequately tackle the root causes of problems associated with project management. This is done through planning, effective scheduling, introduction of work that creates extra capacity, project control and work actions that facilitate good project performance (Newbold: 1998) Project planning involves all stakeholders and basically identifies constraints thereby avoiding reworks halfway through the projects. Important tasks, paths and resource needs are established Project scheduling considers the critical chain by evaluating task, resources and iteration dependencies. Introduction of work should not exceed the existing capacity so as to avoid creating further constraints. Buffer management helps in the control of the project by identifying areas that need buffer stock thus ensuring uninterrupted flow of work. TOC project management adopts delay runner work ethics, which enables the workers to immediately start working on the assigned tasks, and provide notification of completed works (Jacob and Mc Cleland: 2001) The last question of the project management is the â€Å"How to cause the change†. Change should be implemented at a pace that allows for the identification of necessary changes while at the same time ensuring project progress. Conclusion            It is evident from the discussions above that TOC is an important concept, which revolutionizes business processes hence leading to the attainment of the set goals of organizations. The adoption of TOC concept in the various organizational functions in many industries underscores its importance. References Goldratt, E. M., and Cox J., (1994). The Goal: A process of continuous improvement, 2nd Revised Edition. The North River Press. Goldratt, E. M., Schragenheim, E., and Ptak, C., (2000) Necessary but not sufficient. The North River Press. Caspari, J. A., and Caspari, P., (2004) Management Dynamics: merging constraints accounting to drive improvement. John Wiley Sons Inc. Dettmer, H. W., (1998) Breaking the constraints to world class performance. ASQ Quality Press. Scheinkopf, L., (1999) Thinking for a change: putting the TOC thinking processes to use. St Lucie Press/APICS series on constraint management. Schragenheim, E., (1999) Management dilemmas: The Theory of Constraints approach to problem identification and solutions. St. Lucie Press. Newbold, R. C., (1998) Project management in the fast lane: applying the theory of constraints. St. Lucie Press, 284 pp. McMullen, T. B. C., (1998) Introduction to the Theory of Constraints (TOC) management system. St. Lucie Press. Jacob, D., B and Mc Cleland, W., T (2001). The Theory of Constraints: Project Management. The Goldratt Institute. Retrieved on 6/3/2008 from http://www.goldratt.com/tocpmwhitepaper.pdf Youngman, K. J (2008). A guide to implementing TOC. Retrieved on 6/3/2008 from  http://www.dbrmfg.co.nz/Bottom%20Line%20Accounting%20for%20Change.htm Levinson, A. W. (2002). The theory of constraints and synchronous flow manufacturing. Levinson Productivity Systems P.C. retrieved on 6/3/2008 from http://www.ct-yankee.com/lean/toc_sfm.html
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