The Theory of Constraints And Bottleneck Identification

By Issa Bass



The Theory Of Constraints was first introduced in 1985 (just a few years before Six Sigma) by Eliyahu Goldratt in his famous book the Goal and later developed in his subsequent books such as “The Critical Chain”, “It’s Not Luck”, “the Haystack Syndrome” and “The Theory Of Constraints”.
It is founded on the notion that in any business structure, at any given time, one factor tends to impede the company’s ability to reach its full potential. All business operations are structured like a chain of events, like linked processes with each process being a dependent link and at any given time, one link on the chain tends to restrain the whole chain and prevent it from reaching its Goal. Since the objective of a company is not to maximize the efficiency of the different parts that compose it, but to maximize the overall efficiency of the business as an entity, it becomes necessary to identify the constraint and proceed with the needed improvements.

One of the first lessons that Goldratt gives in The Goals is an obvious one, even thought some businesses fail to understand it: Companies do not exist for the sake of being productive or for the sake of producing high quality goods and services or making their customers happy. The reason why companies are set up, their raison d’etre, their Goal is to make profit, to make money. Productivity, high quality products and services and customer satisfaction are nothing but very necessary ways and means that companies have to use to reach their Goal. So the cost of being productive, the cost of quality and customer satisfaction must be contingent upon the Goal. 

 In his quest to show the ways and means to reach the Goal, Goldratt borrows some commonly used business terms but he gives them a different meaning. Three of the most important of which are the Throughput, Inventory and Operational Expenses which he defines as follow.

·         Throughput:  Money generated by a company through sales

·         Inventory: Money invested on purchasing things intended for sales

·         Operational Expenses: Money spent to turn Inventory into Throughput.

 Some of the derivatives of these metrics are the Throughput Per Unit and the Throughput Per Unit of the Constraining factor.

·         Throughput Per Unit = Throughput /( units of Product)

·         Throughput Per Unit of the Constraining Factor = (Throughput Per Unit) / (units of the constraining factor required to produce each unit of product).

To maximizing total Throughput, The Company must concentrate on improving the sales of the products that provide the highest throughput per unit of the constraining factor. This is because the bottleneck determines the throughput.
The objective of a company must be to maximize the Throughput by minimizing the Inventory and the Operational Expenses. To reach that objective, it must continuously strive to identify the Constraints, the Bottlenecks and proceed with the necessary changes. The bottleneck is defined as a resource whose capacity is equal to or is less than the demand placed on it. The slowest performing area in a process determines the level of output generated by that process.

 To make the necessary changes, the company needs first, to answer the following three questions:

·         What to change?

·         What to change to?

·         How to make the change happen?

The changes that need to be made must address the area of the business that constitutes the bottleneck; Overlooking the interactions between the different departments in a company and only improving on areas that are perceived to constitute constraints might only address the symptoms and in some cases aggravate the problems.

To make the necessary changes, Goldratt suggests the 5 following steps:

1.       Identify the constraint

2.       Exploit the constraint

3.       Subordinate all other operations to the necessity to exploit the constraint

4.       Elevate the constraint if after exploiting it and subordinating all other operations to it, more capacity is needed to meet market demand.

5.       Restart the process without letting inertia become the system’s constraint. The process needs to be restarted again and again until the current constraint is no longer the constraint.

The way we can tell that the current constraint is no longer the constraint is that when further changes are made on the current constraint, they do not positively impact the bottom line of the company as a whole. Therefore another process, another department, another link must have become the weakest link, the new constraint, and it needs improvement.


About the author
Issa Bass is the managing editor of SixSigmaFirst. He can be reached at issa@sixsigmafirst.com

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Internal Lean Resources

A Combination Of Six Sigma, Lean, TOC And The Use of Triz Can Lead To A Radical Process Improvement
TOC can be helpful since it is about identifying bottlenecks and improving them for a continuous improvement. The identification of the bottlenecks may require value stream and process mapping. Once the bottlenecks are identified, a Six Sigma project would be an effective tool to improve on them and TRIZ techniques can efficiently speed up contradiction resolutions and help save resources. By Issa Bass

Map Your Value Stream Before Selecting Your Six Sigma Project
Just as in the case of process mapping, the purpose of value stream mapping is to visualize the chain of events that leads to the generation of a throughput in order to pin point a bottleneck, a clutter or opportunities for improvement. Yet it is necessary to distinguish Value Stream Mapping from Process mapping since a value stream is a chain of processes.  By Issa Bass
 

 

External Resources for the Theory Of Constraints

What is the Theory Of Constraints

How to Compare Six Sigma, Lean and the Theory Of Constraints

A Guide to Implementing the Theory of Constraints (TOC)

Theory Of Constraints and Six Sigma Better Together

 
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