Theory of Constraints (TOC):
Learning
objectives of the article:
Definition:
Theory of constraints (TOC) is a
management approach
that emphasizes the importance of managing constraints. A
constraint or
bottleneck is any thing that prevents you from getting more of what you
want. Study of constraints or bottlenecks, keeping their record and taking
necessary steps to improve them is also known as bottleneck
accounting.
Explanation of the Concept:
Every individual
organization faces at least one
constraint. So it is not
difficult to find examples of constraints. For example, You may not have
time to study thoroughly for every subject and to go out with your
friends on the weekend, so time is your
constraint.
Since a
constraint prevents you from
getting more of what you want, the theory of constraints (TOC) maintains that
effectively managing the
constraint is the key to success. As an example, long
waiting surgery is a chronic problem in the National Health Service. For example up to
100 referrals from general practitioners can be processed in a day.
|
100 patients per day |
100 patients per day |
50 patients per day |
150 patients per day |
15 patients per day |
60 patients per day |
140 patients per day |
|
General practitioner→
referral |
Appoint made→ |
Outpatient visit→ |
Add to
surgery→
waiting list |
Surgery→ |
Follow-up visit→ |
Discharge |
|
Processing surgery patients at an
NHS facility
|
This
diagram originally appeared in the February 1999 issue of the U.K.
Magazine Health Management
The constraint, or bottleneck, in the system is
determined by the step that has the smallest capacity--in this case surgery.
The total number of patients processed through the entire
system cannot
exceed 15 per day-the maximum number of patients that can be treated in
surgery.
No matter how hard managers,
doctors, and nurses try to improve the processing rate elsewhere in the
system, they will never succeed in driving down the wait lists until the
capacity in the system is increased. In fact, improvement elsewhere in
the system-particularly before the constraint-are likely to result in
even longer waiting times and more frustrated patients and health care
providers. Thus improvements efforts must be focused on the
constraint
to be effective. A
business process such as the process for serving
sugary patients, is like a chain. If you want to increase the strength
of a chain, what is the most effective way to do this? Should you
concentrate your efforts on strengthening the strongest link, all the
links, or the weakest link? Clearly, focusing your effort on the weakest
link will bring the biggest benefit.
Continuing with this analogy, the procedure to follow to strengthen the chain
is clear. First, identify the weakest link, which is the constraint. Second,
don't place a greater strain on the
system than the weakest link can handle-if
you do, the chain will break. Third concentrate to improve the weakest link.
Fourth, if the improvement efforts are successful, eventually the weakest link
will improve to the point where it is no longer the weakest link. At this point,
the new weakest link must be identified, and improvement efforts must be shifted
over to that link. This simple sequential process provides a powerful strategy
for continuous improvement.
Theory of constraints (TOC) approach is a perfect complement to
other improvement tools such as
Total
Quality Management (TQM) and
Business Process
Reengineering. It focuses improvement efforts where they are likely to be most
effective.
Real
Business Example:
The Constraint is the key:
The Lessons plant of Baxter International
makes medical products such as sterile bags. Management of the plant is
actually aware of the necessity to actively manage its constraints. For
example, when materials are a constraint, management may go to a
secondary vendor and purchase material at a higher cost than normal.
When a machine is the constraint, a weekend shift is often added on the
machine. If a particular machine is chronically the constraint and
management has exhausted the possibilities of using it more effectively,
then additional capacity is purchased. For example when the constraint
was the plastic extruding machines, a new extruding machine was ordered.
However even before the machine arrived, management had determined that
the constraint would shift to the blenders once the new extruding
capacity was added. Therefore a new blender was already planned. By
thinking ahead and focusing on the constraints, management is able to
increase the plant's real capacity at the lowest possible cost.
Source: Eric Noreen, Debra Smith, and
Jams Mackey, The Theory of Constraints and its Implications for
Management Accounting (Montvale, NJ: The IMA Foundation for Applied
Research, Inc., 1995) |
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