Theory of Constraints (TOC) gets its name from the fact that all enterprises are constrained by something. If they weren’t, they could grow as large and as fast as they wanted. But one has to monitor Wall Street or Main Street for only a moment to know that for the vast majority of enterprises growth is really hard. Constraints are why.

So the first step in applying TOC is to figure out precisely where the constraints are. In enterprises with professional managers, it seems fair to assume that they must know where the constraints are. In fact, many don’t have a clue. That’s because lots of things seem like constraints but aren’t. Most managers are surprised to learn that factories and offices each may have just one constraint. Everything else is noise insofar as identifying the constraint goes. So what separates constraints from noise? A constraint limits what can be produced by the factory or office as a whole. Everything else is a nonconstraint. For example, in an office processing insurance forms, the one step that’s the perennial bottleneck is the constraint because it limits production of the entire office. In the final analysis, it doesn’t matter how much any nonconstraint produces if the constraint can’t keep up.

The second step in applying TOC is to utilize the constraint to its fullest extent. If that constraint in the insurance office is a machine that’s often broken or a worker who’s often absent, a more reliable machine or worker must be found because the productivity of the entire office depends on this. Note that the machine or worker in question doesn’t have to be the most expensive or highest-profile. An ancillary machine or entry-level worker can be the constraint, despite their apparent insignificance in the office hierarchy.

The third step in applying TOC is to make sure that nonconstraints keep the constraint busy—but otherwise stay out of the way. Often this means that the nonconstraints have to be dialed down. This probably seems counterintuitive: The way to increase overall productivity may require cutting back production on everything but the constraint? It’s counterintuitive only if you believe that every machine and worker determine overall productivity—but we’ve already established that they don’t. For example, at the end of the day, it doesn’t matter how many forms the office processed if they just piled up at the postage machine rather than going out the door.

The fourth step in applying TOC is to improve productivity of the constraint because lifting its performance is the only way to lift the office’s performance. For instance, if the worker tending the postage machine now keeps it running continuously during business hours, yet forms continue to pile up ahead of it, the only way to improve the office’s productivity is to improve the constraint’s productivity. Ways to do this include running the machine outside business hours, replacing it with a faster model, getting a second machine,switching to e-mail, or eliminating some forms altogether. Once this is done, the nonconstraints can be dialed up, and the office’s overall productivity will rise.

Quote of the day: Any clod can have the facts, but having opinions is an art. – Charles McCabe

The final step in applying TOC is to repeat the previous steps. This step is more important than it might seem at first, because the foregoing steps may have caused the constraint to shift. That is, with a few tweaks, the postage machine may now be fully capable of keeping up. And if there are times when the postage machine sits idle because it has no work to do, it may no longer be the constraint. If so, where is the constraint? To answer that question, we must look for piles of work elsewhere in the office. If the piles are ahead of insurance underwriters, for instance, they’re the new constraint. However, if there are no piles of work anywhere, and everyone is struggling to find work at times, the constraint is no longer within the office. It’s outside, with insurance agents, claims adjusters, or customers. How could any of these roles be the constraint if they’re outside the office? They’re the constraint if they sell, adjust, or buy less than the office can produce.

Theory of Constraints thus gets its name from the central role that constraints play in determining overall production. Yet people sometimes react to that name in contradictory ways. Academics complain that there’s no theory in Theory of Constraints, while managers dismiss anything called a theory because it sounds so disconnected from the real world. Fortunately, neither viewpoint is entirely correct. TOC is grounded in the real world because it has evolved based on what actually works in practice. A simple web search yields more than 100,000 hits for “TOC,” with plenty of testimonials by managers. Though TOC hasn’t been formalized in the way most theories are, it offers plenty of testable hypotheses, and refereed journals are well populated with TOC research. So if you’re put off by theory—or the lack of it—do what others have done, and refer to TOC as constraint management. Anyone familiar with TOC will know what you mean.

Excerpted from

Reaching The Goal: How Managers Improve a Services Business Using Goldratt’s Theory of Constraints

PS: I couldn’t explain it better!

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