What is the Theory of Constraints?

The Theory of Constraints (TOC) is a management philosophy meant to help a company achieve their main organizational goals. For example, the Theory of Constraints is used to help a for-profit company make more money. Results should be seen immediately and in the future.

Every company has at least one constraint. These constraints can be internal resource constraints, market constraints or policy constraints. According to the Theory of Constraints, you must identify what constraints are preventing your business from achieving its goal.

The Theory of Constraints was made popular by its developer Eliyahu Goldratt. I n 1984 Goldratt wrote a book entitled "The Goal." In it, he describes his Theory of Constraints concepts. In his book, Goldratt uses the example of a machine called the NCX10. The NCX10 was the powerhouse of the organization. It was the maker of products and money could only be made at the rate that the NCX10 could produce a product. Thus the NCX10 was a constraint to the business's goal of making money.
The Theory of Constraints is often referred to as a philosophy or a way of thinking. If we are able to understand the world around us, than we can better understand our own working environment and identify ways to improve.
TOC acknowledges the importance of an understanding of cause and effect. Something called the "Thinking Processes" of TOC outlines a series of steps which combine cause-effect and our own understanding. Doing so allows us to use our own intuition to gain knowledge and be more observant of the world around us. When we understand why things happen, we can make changes and improve.
The Thinking process encourages us to have a paradigm shift in our thinking. This means that we are able to set aside pre-conceived notions and realize that even though our assumptions about things are always changing the basic principles or rules by which they are governed do not. We live in a constantly evolving and changing society. When a business operates under the same assumptions, regardless of noticed or un-noticed changes to the reality of their market, they do not make the adjustments necessary and the business suffers.
 When contemplating your own Thinking Process as part of the Theory of Constraints, ask yourself these questions: What do I need to change? To what do I need to change to? and How can I cause the change?
 Have daily tools available to which you can turn for constant use and evaluation. How is the team working together? What sort of changes are working?
 Apply what solutions you have found and apply them to all areas such as production, distribution, marketing, project managing, sales, etc.
As is the basis for the Theory of Constraints, you must identify what is constraining you from more positive results. Here is a suggestion for the process that operating managers might implement to manage constraints:
Steps to Managing Constraints
1. Identify - In order to manage a constraint, you must be able to identify it. Can work around a particular constraint be increased? Find where productivity is not at 100%
2. Exploit - Focus on how to improve productivity. Can schedules, mechanical operations, or speed of output be changed? Perhaps, a problem has more to do with an operator than the mechanical devise.
3. Subordinate - As is often the case, changing one part of the system will effect the whole method. Take these larger scale effects into consideration and have plans for their execution as well.
4. Elevate, and ... - Is the newly changed output improved? Is production better? If so, excellent! If this is not the case...
5. REPEAT! - Start at the beginning of the thinking process and try again!

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