Eli Goldratt developed the concept of Theory of Constraint (TOC) in the mid-1980s as a general view of running organizations. The TOC explains that in every organization or production situation, at least one constraint should exist. If this argument is incorrect, profit-making companies and corporations will make infinite money. TOC also helps explain that since constraints exist in organization and production situations, there is room for improvement (Goldratt & Cox, 2012). This could be so once the constraints are mitigated in organizations. Regulations determine organizations’ performance, and an elevation of the limitations will lead to improvement of organizations’ performance.
The Three Measurements
In the novel ‘The Goal,’ Jonah uses the terms operational expenses, throughput, and Inventory to explain to Alex how he can improve his company’s competitive advantage. In my interpretation of Jonah’s descriptions, the operating costs of a company or a manufacturing scenario could be used to apply to the expenses involved in converting Inventory into inputs. In other words, operating expenses in an enterprise can be defined as trading costs that the organization uses to convert resources into goods and services, such as labor charges, insurance, or commuting costs in supply chains. The term inventory can be used to identify inputs used by an enterprise to generate outputs. Raw products, labor, or property may be used as examples of this situation. Even so, outputs are outputs or products of manufacturing processes.
It is therefore important to remember that products not marketed are not part of the finished result and are counted under the Inventory. Tangible inventories such as raw materials slog not finished, finished goods not sold, and firms’ implements, machinery, and building are also Inventory. According to The Goal novel, Jonah associated the three main dimensions, operational costs, rate of success, and records, with financial capacities, the net profits (NP), the investment return, and the flow of cash. Consequently, he, in the beginning, specified that global or financial dimensions could be articulated through operative measurements.
Therefore, the rate of success or better known as throughputs (T), will normally equal sales minus the overall adjustable expenses, which characterize the principal amount invested in manufacturing the merchandise which the company is looking forward to selling. Operating expense (OE) refers to the capital invested in the system to turn inputs into output. In my opinion, net profit is calculated by getting the difference between throughputs and Operating costs. Moreover, Investment Return is determined by the division of NP and the Inventory; besides, for an organization to survive, there should be adequate cash. From the assessment of the organization’s investment return and the NP can be used the determination whether the involved organization will thrive or not.
Since there is a relationship between operational and global measurement parameters, there is a possibility of evaluating the working dimension impact with worldwide quantities. On the occasion of profitability rises without altering capital expenditure and operational spending, all three major metrics strengthen concurrently. Equivalent outcomes are obtained when operating costs are decreased without interference with maximum throughput and investment opportunities. The impact on investment is not so simple; when Investments are decreased, return on Investment and Cash Flow only increase, while Net Profits remain the same. Reduced Inventory impacts can be tortuously determined by the decrease in Operation Expenses.
In the novel The Goal, Eliyahu and Goldratt use the term Drum Buffer Rope (DBR) to explain bottlenecks in companies and how they can be unblocked. In my understanding, the analogy DBR is Theory of Conflicts, which helps explain how management systems in firms can increase profit margins. It can be achieved by identifying the difficulties in production systems and solving them to create room for progress. It is worthy of remembrance in the explanation of Constraint Theory; it was highlighted that improvements in throughput exist when the limitations are mitigated in an organization. In simpler terms, the drum mentioned in DBR refers to slower activity in the entire production process. All other undertakings in the processes of productivity succeeding in the slow venture are delayed. The buffer used in DRB describes the material or activity upstream of the bottleneck. The rope signifies a communication system between the drum and the buffer.
In organizations, communications can either be upstream, downstream, or horizontal. Transportations in a firm are upstream when departments pass information to the management team. When the administration team passes infrastructures to the subsystems, the relations become downstream. Roads in institutions are horizontal when sub-sections communicate with each other. For instance, the case of a group of hikers can be used as an appropriate example in the explanation of the Drum Buffer Rope operation. The slowest hiker determines the pace of those who are with them. This means that they develop into the drum or constrain in the hiking system. To improve the general speed of the hikers, the slowest one should move faster. In a case of a construction project, single activity lowers the general speed of project completion; for instance, land purchasing cannot come before groundbreaking. The occurrence of delays during land purchase contributes to difficulties in carrying out activities on this land, making the purchase to become constraining. Acquiring the land faster also makes the entire implementation process quicker.
Bottlenecks in the Facility
Bottlenecks are encountered in their routine manufacturing procedures in corporate environments. Unblocking bottlenecks is by far the most fundamental method of all and facilitates the seamless flow of manufacturing activities. Identifying the bottlenecks in companies and businesses is a critical management aspect but, at the same time, an elementary one (Rahman, 1998). If bottlenecks are not found in time, the profits of the company may be substantially reduced since the manufacturing times are longer than they otherwise would be. Any signals may warn the top management of the organization that bottlenecks occur in the output chains. These signs may include a long waiting time for an activity to come to an end.
Another warning that could indicate the availability of bottlenecks is the emergence of backlog work. In certain organizations, employees take too long to finish the assignments assigned to them. Under these cases, workers employed now will be a prime example of a job they might have completed a month earlier. If this phenomenon is experienced in any business, the management team should move with speed to unblock the bottleneck. If it is left unattended, the firm may experience reduced profit margins. It is quite obvious that no one would want a reduction in revenues since it is the fundamental reason for conducting business.
High levels of stress and pressure in the working environment may also mean the existence of a bottleneck. There are restrictions in a company where workers have too much work to complete in a limited amount of time. The pressure of handling abundant activities affects workforce performance. Employee morale may be low, especially if there are no incentives to cover up for the job that they do. Personnel may be forced to work for extended hours to reduce the workloads, which may result in complaints arising from them the employer. These protests can also be an exhibition of bottlenecks in firms. To address this issue, management should set specific objectives for workers, provide flexible job hours and appreciate hard work.
On-Going Improvement in The Goal
According to ‘The Goal,’ novel, Jonah encourages Alex and his group to be using a five-step plan to turn their loss-making business into a profitable enterprise. Alex had to do this since his company was on the verge of collapsing. These are the measures that can be used in an enterprise to define and clear bottlenecks and restrictions in any industry. Five-step operation is a method of continuous development discussed in the subsections below. In ‘The Goal,’ the process is described and is highlighted briefly in the steps below.
Step One: Constraint Identification
Many organizations get it hard to deal with an unknown problem. Hence the main aim of this step is to carry out the identification of the aspect where there is the emergence of the issues in the production process. The activity of constraining identification is a managerial role that should be done in a critical way. During the stages when the allocation of capabilities is equal to or less than the demand conferred on them, it leads to the emergence of bottlenecks. A perfect example could be where little time is set to complete a task. When less period is located for a job, the employees will have to work without stopping to avoid delays.
Step Two: Exploit the Constraints
The process of exploiting constraints in the novel is described as the procedure of trying to unblock the restrictions without increasing the operational costs and investments. Increasing investments or operational costs may result in a significant reduction in net profits and, therefore, not achieving the goal of making the company competitive (Rahman, 1998). Thus, the team should explore some options, such as increasing working hours to complete a task.
Step Three: Subordinating Everything to the Constrains
This process involves letting the bottlenecks set the pace for the entire project. In this stage, the book advises that resource capacity should not match the exact market demand. It also demonstrates why bottlenecks should be allowed to take charge of the whole project’s pace. The managers can therefore reduce the time allocated to perform other tasks and add it up to the delaying assignment. In this step, management is advised to put their focus on the bottleneck.
Step Four: Elevate the System’s Constraints
A bottleneck is unblocked if the constraint itself is long enough to meet the existing demand. The novel explains that if the limitations are still unblocked after the first three steps, then it is necessary to employ more resources to boost the challenge on capacity. Therefore, this will mean that investments should increase, whereas the net profit can either remain the same or change when investments are increased.
Step Five: Repeat for New Constraints
This is the last step in the process of ongoing improvements. The process involves repeating the procedure from step one to the fourth step whenever a constraint is discovered in Organizations. However, the above stages should be tailored to suit the problem at hand depending on the type of business in question; bottlenecks vary from one setup to another. Furthermore, the goal of the Theory of Constraint is to identify and remove constraints that hinder productivity since the fundamental objective of running a business is to make profits. All organizations that exist to make revenues must therefore work to achieve a higher competitive advantage over other competing organizations.
The production process is an integrated system with correlating activities; and one action leads to another, and failure in one activity may result in failure in the whole process. For this reason, the Theory of Constraint focuses on the whole management system to make sure that constraints are removed from the system in time to facilitate ease in achieving the organizational goals. Therefore, if the managerial team of an organization isolates and focuses on that particular issue, the entire system is destined to fail because any subsystem’s performance depends on other subsystems, such as the daily operations of the company. If one fails, all the others will not succeed until one subsector’s performance is enhanced. Likewise, there will be an improvement in the general performance of the whole system.
Theory of Constraint and Supply Chain Management
A value chain is a business model with a full range of activities that are carried out to bring a product or merchandise to life. These activities range from the product’s conception to distribution to customers and any action between conceptions to supply. Just like the production process, value chains are integrated systems with interrelated events. Any change in a single activity leads to an alteration in the whole system. The concept of the Theory of Constraints can be used to explain value chains. A weak value chain link limits the efficiency and effectiveness of the whole process. In simpler terms, value chains will often fail at their weakest links if something is not done to strengthen the weak links.
From the above description of value chains, a conclusion can be made that organizations are part of value chains. Businesses, at one point, contribute to bringing products and services to life (Goldratt & Cox, 2012). In a case of the paper industry, for example, the manufacturing companies that produce this product are part of the value chain. Activities of the manufacturing companies have a significant impact on the general performance of the paper industry. In addition to that, paper-producing organizations will be directly affected by any activity outside the company but within the paper industries. For instance, the activity of timber suppliers will affect these establishments. For the entire industry performance, all components of the value chains should contribute.
Application of Theory of Constraint to the Current Project
Projects can be defined as activities with definite start and finish times performed to achieve a specific goal. In my current organization, numerous projects are taking place, but I will pick the construction of a new library complex to describe how and where the principle of the Theory of Constraints can be applied. In this case, it is necessary to start with identifying the principles of the TOC, which are three. These three principles include consistency, convergence, and respect (Perez, 1997). First, the principle of convergence in the Theory of Constraint implies that a system that is complicated becomes easier to manage since interference or change of one component of the chain impacts the whole system. The second principle of TOC is consistency, and it implies that any internal constrain is a result of at least one imperfect assumption. The third one is the respect principle, which suggests that humans are generally good and deserve respect even when they blunder. In the completion of the project I mentioned, the construction of a library complex, these three principles can be applied perfectly.
Project implementation is the process of putting the project plan into action. During this process, convergence as a principle of TOC helps understand the relationship between the different interrelated activities. In project implementation, it is important to note that the activities are sequential in that one activity leads to another. In the case of library complex construction, the first step may be the identification of the construction area. The second stage may be clearing the land for construction. It is impossible to clear land for the construction of the library complex before the property itself is identified. Convergence as a principle of TOC may be applied in this case to explain the manner in which the first step was handled. Likewise, there is a direct impact on the entire project from the second stage to the last step. For example, if the land to construct the library complex was identified late, then the project handing over will also be delayed.
The second principle of TOC, which is the principle of consistency, can also be applied in the process of completion of the library complex. The principle can help the project management team in cases of conflicts since it owns up to any bottleneck that may be experienced as a result of an internal mistake. Therefore, in project management settings, it is not possible to blame the external sources. In library construction, a bottleneck may be experienced in the second stage, which refers to clearing land to create room for succeeding activities. The delay may occur because few people were hired to do the job. This is an internal issue in the human resource management department. Similarly, the consistency as a principle will also mitigate challenges resulting from negligence. This is because there is no room to place blame. All the stakeholders will try as much as they can to avoid mistakes. The project completion time, in this case, will remain as projected or shortened since bottlenecks resulting from faulty assumptions are reduced.
Project management setups require discipline, and respect is paramount; thus, this brings in the third principle of TOC. Stakeholders working toward the completion of a project must treat each other with respect. The principle can also be used by project management teams to mitigate the chances of conflicts since mutual understanding exists. The principle explains that project implementation involves human beings who are to error. Mistakes may occur in the process of project implementation even though it was not someone’s liking or intention. Although it is possible that some stakeholders may take advantage of the principle, it is necessary to uphold the principle all the time. The project management team should always be in a position to judge the intentions of every stakeholder’s actions.
In conclusion, in the novel ‘The Goal,’ Eliyahu and Goldratt explain the Theory of Constraint in organizations. The book highlights that organizational setups are not perfect and are surrounded by challenges that should be mitigated to improve the general performance of businesses. The novel also states that there is room for improvements in companies if the bottlenecks are unblocked. It also describes bottlenecks and how they can be identified and mitigated in five-step process activity. The concept of the Theory of Constraint in an organization is important and should be used by management teams to improve competitive organizational performance.
Goldratt, E. M. & Cox, J. (2012). The goal: A process of ongoing improvement (3rd ed.). North River Press.
Rahman, S. (1998). Theory of constraints: A review of the philosophy and its applications. International Journal of Operations & Production Management, 18(4), 336-355.
Perez, J. L. (1997). TOC for world class global supply chain management. Computers and Industrial Engineering, 33(1-2), 289-293.