Theory of Constraints

1. The Definition of Teorhy of Constraint (TOC)

This theory developed by Eliyahu M. Goldratt. He develope this management philosophy because he believe no one perfect in the world. It mean, in a organization, we always find some constraint, trouble, or something mistakes that make the inertia of organization. This theory focus to looking for how to minimize the constraint in one company, and maximize efficientcy of every resources in company. TOC is similar to JIT in that it has elements of a philosophy as well as practice.

So, i can define, TOC is a theory to assign the efficientcy to use all the resource of company with minimize the constraint in the company to make a better profit.

 

2. The Basic Principle of TOC

There are 3 basic principle of TOC :

1.      Convergence

If  a company more complex, there are simple one to direct. It mean, if company can directing of management function well, the contstaint will be decrease because of the good system that we developed.

 

2.      Consistency

This principle mean, the good company is the company which can keep the consistency of product in quality and quantity of production.

 

3.      Behavior

The last one of basic principle is behavior. It mean, every workers or components in the company must be respect  each other, with this condition, it can make a stability to work.

 

3. The Global Measurements of TOC

Throughput is defined as sales dollars less direct materials in the products sold. More specifically, direct materials include raw materials, components and sub-components that are part of the products that are sold. Conceptually, throughput is money flowing into the system.

Inventory = assets or investment in the terminology of TOC since, everything is for sale. However, TOC product inventory (inventory in the traditional accounting sense of the term) includes only the cost of direct materials that remain unsold in the form of raw materials, work in process and finished goods. Note that the TOC definition of product inventory does not include direct labor or factory overhead costs, only direct material costs.

Operating Expense is defined as the costs of converting the inventory into throughput. Operating expense includes all costs other than direct materials, direct labor and factory overhead, as well as selling and administrative costs. Conceptually, operating expense is the money flowing out of the system.

 

4. The Five Continuous Steps To Obtain The Goal

Although the terminology associated with the theory of constraints is different from the traditional accounting terminology, the key concept of TOC is relatively easy to understand. The idea is that the sum of the local, or subsystem optimums does not equal the system optimum.

Maximizing throughput, according to the theory of constraints, involves the following five steps:

a. Identify the company's most binding constraint.

The factor that places the greatest limitation on increasing throughput. This constraint may be external or internal. For example, external constraints may include a weak consumer demand, or a shortage of quality raw materials. Internal constraints may be capacity related.

b.Exploit the internal constraints by maximizing the flow of work through the   constraint.

With save of labour hour in internal constraint, it can make increase of throughput, because it make a save money for the company. External constraints, such as weak demand are exploited by increased advertising, market promotion and developing new distribution channels, direct sales, mail order, and wholesalers. A constraint caused by a shortage of quality raw materials is exploited by actions such as locating new vendors and certifying vendors that meet standards concerning quality and delivery schedules.

c.Subordinate and synchronize the other internal constraints with the most binding constraint.

This means to keep them working at the pace of the most binding constraint. The idea is to balance the flow of work, not try to balance the plant. A balanced plant refers to a theoretical situation where there is equal capacity at each operation in the plant. In the theory of constraints, a balanced plant is viewed as impossible because of the variability associated with the various processes involved.

d. Elevate the performance of the constraint

 The performance measurements should emphasize the efficiency and effectiveness of the total operation, or total system, not the efficiency of individual operations, or subsystems. And the goal of course  to maximize throughput.

e. if in any of the above steps the constraint has shifted, go back step 1

These are called the 5 Steps of TOC and provide the foundation for many of TOC’s generic solutions, which include, the management of processes, inventory, supply chains, product development and projects (single and multiple), personnel and decision-making.

Although the 5 Steps of TOC can be applied to every process at every level in an organization, which is how TOC is frequently often implemented, the true power - and results - comes from:

• Understanding the interdependencies between and across processes that     contribute to delivering a product or service,

• Understanding the impact that those interdependencies and normal variability have on their combined, overall performance, and

• Appropriately buffering for interdependencies and normal variability so that that  performance can be predictably and consistently high.

 

 

5. TOC Problem To Applied

a.       Find the constraint needed to maximize throughput.

It mean the organization sometimes difficult to find out the constraint, cause so many thing procedural or system that build organization. If we can find the constraint, in that time we can use “the five continious step of TOC”.

b.      Determine the optimum product mix with overlapping constraint.

Company is a big structural divided many department, is hard if we try to determine optimum product mix that can we produce, because of that, we need one more system to determine the optimum product mix, and it will barrier to apllies and implement the TOC.