It is human nature to break every complex system down into it's component parts. We all do it naturally. But that is not the driving force behind the Theory of Constraints (TOC). In fact, quite the opposite. TOC treats a system as a whole. Within that system it then identifies the bottleneck, or constraint, which limits the throughput of the entire system. Your constraint may be time or perhaps sales or purchasing policies you have instituted in your business.

This sounds simple enough but the implementation is a paradigm shift in thinking. The "cost world" is where we live in modern businesses but TOC operates from the "throughput world". The difference is surprising, if not shocking!

Why not try out this little exercise to see what we mean. Click on the button below.

By exploiting the constraint and subordinating the rest of the organisation to it, overall system throughput can be increased.

This is a powerful statement. This means the operation of the rest of the system must be subordinated to the constraint so that the constraint is operating at peak efficiency, even if other elements of the system are sometimes idle. As it is the constraint of the system which limits throughput, having non-constrained elements idle does not in fact influence throughput nor profitability.

Would you currently permit parts of your business to be idle? TOC has proven that localised optima are detrimental to the optimisation of the overall system. Why, then, would you concentrate on achieving maximum efficiency everwhere when the only place that impacts your overall business performance is at the constraint?  

Once a bottleneck has been eliminated another part of the system will become the new bottleneck and the whole TOC optimisation process can begin again. In fact TOC defines a process of ongoing improvement. At any point in time there is always one limiting constraint in a system and so TOC principles can always be applied to continue to propel organisational performance forward. The important thing is to keep going!

Do you know what your constraints are? In practice they are rarely pieces of equipment on the factory floor, but more likely market constraints or purchasing policy constraints or the way in which departments use their time.

TOC uses the 5 Focusing Steps to manage the systems constraints. These are:

1. Identify the system’s constraints.

2. Decide how to Exploit the system’s constraints.

3. Subordinate everything else to the above decision.

4. Elevate the system’s constraints.

5. If in the previous steps a constraint has been broken, Go back to step 1, but do not allow inertia to cause a system constraint.
   

Do you know which are your most profitable products?

Assuming these are your "highest margin" products could be wrong!

Do you know where your constraints are?

That is the first TOC step we can help you with. You may be in for a surprise! If you don't know where your constraints are, how do you judge whether a capital project will provide a return on investment? The constraint determines the throughput of the revenue stream so if you aren't spending money to increase the capacity of the constraint then you won't have an effect on the bottom line. If you're not spending money on the constraint, could you be wasting your money on that investment?

In TOC, Throughput = Sales - Truly Variable Costs.

Do you know what your Truly Variable Costs are?

You should know all of these things. You must know them if you want to rapidly increase your profitability.