Definition of Theory of constraints (TOC):« Back to Glossary Index
The theory of constraints (TOC) is an effective methodology in the field of lean business management that focuses on specific limitations facing businesses. Centering strategy around key bottlenecks positions leaders to seize new opportunities for growth and develop greater operational consistency.
Overview: What is the theory of constraints (TOC)?
The TOC methodology emphasizes the significance of limitations on business growth and profitability. The theory recognizes that there are many types of limitations that can face a company. Factors may be either internal or external and restrictions are either flexible or fixed. No two situations are identical, which means this method must be tailored to each situation.
3 benefits of the theory of constraints
There are several reasons why businesses implement constraint management, but one of its main benefits is the potential to jumpstart growth during a period of stagnation.
1. Picking the right priorities
Everything about the theory of constraints pivots on specific limitations for company growth and productivity. Accurately and properly identifying these limitations allows leaders to set priorities that are appropriate for the company’s present situation.
2. Finding growth opportunities
Analyzing and examining the major limitations on business operations typically opens up new growth opportunities. This process often reveals possibilities for new efficiencies or the potential to use alternatives to remove existing constraints.
3. Throughput improvements
For most businesses, improving the bottom line is what really matters. This is also the primary goal and objective when implementing the theory of constraints. Identifying, prioritizing and addressing limitations is always based on the potential for throughput and profit increase.
Why is the theory of constraints important to understand?
The TOC is a relatively simple approach to lean management with a unique perspective, so every business leader should at least know the basics.
1. Genuine troubleshooting
The strategy for recognizing problems and identifying the underlying constraint can be difficult and isn’t perfect. Leaders need to be honest about the realities their company faces and be willing to work with outside professionals to do an objective analysis.
2. Limits and opportunity
Limitations and opportunities are opposites, but they are also closely connected in the business world. Learning how to overcome or make the most of business bottlenecks that define an industry can completely transform a company.
3. Exploiting constraints
There are always ways to exploit a known constraint, but it’s not always easy to find the best way to do this. Leaders need to understand the options for leveraging or overcoming a constraint and how these efforts will impact overall throughput.
An industry example of the theory of constraints in practice
A small deli has seen steady growth after the last year thanks to the opening of a new office park nearby. In fact, the shop gets so many customers during the lunch and dinner rush that customers start turning away due to long lines. In this situation, the main obstacle for more growth is employee capability during lunch and dinner rushes.
Customers typically come during a lunch break or after work, so there’s no way to spread out demand over more time. This means the deli must hire more people for the lunch and dinner rush as much as the work space allows or find a way to improve efficiency without sacrificing quality.
An example of managing around this constraint is to have the employees “prep” for rushes by making regular versions of some of the most popular items ahead of time. The deli could also try to overcome the constraint by expanding their workforce and workspace to serve more customers at a faster rate.
3 best practices when thinking about the theory of constraints
Like any form of lean business management, results vary with execution. There is no perfect formula for applying the theory of constraints, but there are plenty of best practices and basic strategies.
1. Ask simple questions
Start with simple questions even if you expected a complicated answer. Keep everything circling back to the priorities and core goals of your business management strategy. Focus on how each factor impacts overall productivity, expenses and stability.
2. Bring it back to the bottom line
In business, almost everything is quantifiable. That’s why you should always bring constraints, and their solutions, back for a bottom-line comparison. There are usually multiple ways to manage a constraint, so you need to also know what way is the best for profits.
3. Split internal and external constraints
Companies often face both internal and external constraints at the same time. Handling internal constraints is usually a matter of analysis and management changes. External constraints can be trickier. It’s usually a good idea to split these off and deal with them individually according to priority.
Frequently Asked Questions (FAQ) about the theory of constraints
1. What are the 5 steps of constraint management?
The theory of constraints methodology can be divided into five basic steps: identify constraints, exploit constraints, subordinate other processes, elevate constraints and repeat. It’s a cyclical process that progresses through repetitive iterations.
2. What is the Drum Buffer Rope (DBR) in the theory of constraints?
Drum Buffer Rope is a process in constraint management that identifies a leading limitation that can’t be easily changed, which is called the “drum.” The buffer is a surplus of inventory that is sufficient to keep the capacity of the drum in use for a set period of time.
When using this strategy, the company focuses on periodically replenishing this surplus to maximize uptime and efficiency of the drum. The rope is a signaling mechanism that’s designed to trigger a buffer replenishment when certain thresholds are reached.
3. Is TOC a Six Sigma practice?
The theory of constraint is a fundamental practice in lean business management. However, there are some differences between the theory of constraints and conventional six sigma.
Don’t let constraints control you
Every organization will always have limitations. Some of these limitations should be overcome, while others should be accepted. The ability to recognize, discern and address these limitations defines businesses and their leaders alike. Don’t run from constraints or pretend they don’t exist. Instead, face these realities and learn how to make the most of it.« Back to Dictionary Index