The theory of constraints, in English Theory of Constraints or simply TOC, is one of the most recognized business management philosophies worldwide. Its success continues to grow more than thirty years later and has become one of the most effective supply chain management paradigms.
In this article we tell you what the theory of restrictions is and we review its history.
In the second article of this series, we will go into more detail on the fundamental concepts for applying the theory of constraints in the supply chain.
In the third article we will focus on production and the similarities and differences between the theory of constraints and Lean Manufacturing.
What is the theory of constraints?
The Theory of Constraints, abbreviated TOC, or the theory of restrictions in Spanish (also called theory of limitations) is a philosophy of business management and supply chain raised by PhD in physics Eliyahu Goldratt and popularized from his best seller “The Goal” (“La meta” in Spanish) published in 1984, which is based on the fact that a system (a production plant, a supply chain, a company, etc.) is formed by interdependent elements and that, as in a chain, the system can only be as strong as its weakest link, that is, the restriction or bottleneck (bottleneck in English).
The basis of the theory of restrictions is to see a system as a whole, being fully aware that a company, a production plant, a warehouse, a supply chain, etc. it is actually a series of strongly interdependent links. Although this may seem self-evident, often in practice the different parts of the system are managed as if they were much more independent. Consider, for example, a firm of a certain size that is firmly departmentalized. It is quite common for the different departments (marketing, sales, production, customer service, etc.) to act in pursuit of local objectives. Thus, each of them will try to perform optimizations in their area, hoping that the sum of the different local optimizations is equal to the global optimization of the company. Unfortunately, this does not give such good results. The company must be seen as a whole and establish a philosophy of continuous improvement in which, in addition to optimizing processes, fluidity, communication and value creation between them are ensured.
The goal of every company is to obtain greater benefits in the present and with sustainability in the future. Frequently, we see how companies use resources to optimize processes that do not represent the weakest links, which has little impact on overall performance, that is, on getting closer to our goal. TOC focuses on identifying the weakest links and what are the real constraints, because improvements in them will have a great global impact. For this reason, it is sometimes said that in the theory of limitations it is not only a question of doing what must be done, but, even more important, it is a question of not doing what must not be done.
Although the “Theory of Constraints” has the word “theory” in its name, Eliyahu Goldratt developed it with a clearly pragmatic approach, adapting practical tools of logical reasoning common in the hard sciences for their application to “soft” sciences such as management. business, production, supply chain management, project management, marketing, etc.
What is a restriction?
A restriction is what limits us in achieving our objective, the objective of every company being to obtain greater benefits in a sustainable way.
In other words, a constraint or bottleneck is any resource whose capacity is equal to or less than what we demand. Similarly, a resource that does not represent a constraint is any resource whose capacity is greater than what we demand from it.
Constraints can be physical, which are relatively easy to identify (for example, a specific machine on a production line, or limited space in a warehouse). But more often the restrictions are not physical (behavior patterns, assumptions that are taken for granted, lack of information, lack of fluid communication between departments, etc.). These types of restrictions are more difficult to identify and potentially more dangerous, and it is important not to confuse the symptoms they produce with restrictions.
The restrictions can be internal to the company: equipment in a factory, the order preparation process in a warehouse, etc.; or they can be external, for example, the logistics of the last kilometer in an online store or the lack of demand.
Every system has at least one constraint. This is obvious, because otherwise its performance would be infinite. But what the theory of constraints revealed is that in practice systems usually have only one or at most a few constraints and no more.
It is essential to consider the company as a whole, behaving as a chain of interdependent links. As in a chain, the performance of the company will be limited by the weakest link, which will represent the restriction of the system or bottleneck.
Investing resources in optimizing what is not the constraint of the system will not have a substantial impact on the overall performance, while if we focus our efforts on optimizing the bottleneck the overall impact will be huge.
The theory of constraints is a philosophy of continuous improvement, so that once the constraint of the system is optimized, it could stop being the weakest link that would happen to be elsewhere. For example, if in a manufacturing plant the restriction is machinery, after applying TOC for its optimization it could stop being the bottleneck, which could now be an external restriction such as lack of demand. Then, the efforts would have to focus on increasing sales, taking advantage of the greater production capacity.
The history of the theory of constraints
Eliyahu Goldratt was an Israeli PhD in physics who, after leaving academia, led a software development company for the optimization of production plants in the late 1970s and early 1980s.
During this stage, Goldratt frequently found that companies had limitations that prevented them from getting the most out of their software. These limitations were, in most cases, related to old behavioral habits, assumptions that were considered completely true, outdated company policies, etc. From the experience he was acquiring in this type of situation, he wrote his book “The Goal” (“La meta” in Spanish) that he would publish in 1984 becoming a great success.
From then on, Dr. Eliyahu Goldratt took a turn in his professional career, focusing on consulting and training, continuing to develop the theory of constraints and publishing numerous books. He helped some of the world’s largest multinational companies revolutionize their competitiveness, and today, more than thirty years later, his books continue to be considered essential reading for business management and supply chain management.
In June 2011, Eliyahu Goldratt passed away at the age of 64, leaving behind a great legacy of knowledge and having been heralded throughout his life as a guru of business management. Today, Goldratt Consulting, founded by Eliyahu, continues to help implement the theory of constraints to which Dr. Goldratt devoted his life.
“The Goal”, or “La meta” in Spanish, is the first book by Eliyahu Goldratt, published in 1984, and which quickly became a best seller.
Despite being a book about production management, Goldratt gave it an innovative format, like a novel. It tells the story of Alex, the protagonist, who returns to his hometown to take up the position of manager of one of the manufacturing plants of the company for which he works. Soon, he will discover that the plant is in a desperate situation and his superiors will give him an ultimatum: either improve the profitability of the factory in three months or it is closed. The story tells how Alex progressively overcomes the different difficulties, typical in many real factories, as well as their consequences in his personal life.
Jonah, the second main character, is a former college professor of Alex’s and to whom he will repeatedly turn for advice. Following a Socratic method, Jonah will not give Alex direct solutions, but will ask him questions that will make Alex rethink situations in a different way and reach new conclusions himself, identifying the roots of the problems, beyond the symptoms, following cause-effect reasoning.
Under this framework, Goldratt introduces the concepts of the theory of restrictions applied to real life situations.
After more than three decades, “The Goal” remains one of the most popular business management books and is used by universities around the world. The highest managers of some of today’s most successful multinationals have declared in media interviews that “The Goal” is among the books that have helped them the most and that they recommend to all their managers.
After the success of “The Goal,” Eliyahu Goldratt continued to publish more books while further developing and specializing in the theory of constraints.
Two years after publishing “The Goal”, Eliyahu published “The race” (“The race” in Spanish) in 1986, in collaboration with his colleague Robert E. Fox. In “The Race”, the continuous improvement system is exposed and the Drum-Buffer-Rope system applied to manufacturing is detailed, inherent to the theory of restrictions and which can also be applied to other areas besides production, such as manufacturing. marketing or financial management.
in 1990, Eliyahu published his book “The haystack syndrome” (“The haystack syndrome” in Spanish), where he raises the difference between data and information when making decisions, delves into the system Drum-buffer-rope, in the definition of Throughput and other company performance metrics, the concept of time-buffers, etc. is introduced.
In 1994, he published a new novel: “It’s not luck” (“It’s not luck” in Spanish) which continues the story of Alex, the protagonist in “The goal”. After the optimizations in the production plants, the system constraint now becomes an external constraint: the lack of demand. This time, Alex will have to apply the theory of restrictions to the areas of marketing and sales.
Also in novel format, “Critical chain” arrived in 1997, where the theory of restrictions is adapted for its application to project management and it is analyzed why it is so frequent that projects do not run out on time.
In the year 2000, the novel “Necessary but not sufficient” (“Necessary but not sufficient” in Spanish) saw the light, written by Eliyahu Goldratt in collaboration with Eli Schragenheim and Carol A. Ptak. With new characters, a different story from “The goal” and “It’s not luck”, it deals with the impact of new technologies, the restrictions they remove and the new challenges they introduce.
In 2008, Eliyahu Goldratt published his book “The choice” (“The decision” in Spanish) in collaboration with his daughter Efrat Goldratt-Ashlag, PhD in organizational psychology. Taking a more philosophical approach, Eliyahu exposes his vision of life in a conversational narrative with his daughter, where he discusses how to apply his reasoning methods to all areas of life in order to live a fulfilling life.
In 2009, Goldratt published “Isn’t it obvious?” (“Isn’t it obvious?” in Spanish) with collaborations by Ilan Eshkoli and Joe BrownLeer. In this work, the application of the theory of restrictions to retail sales (“retail” sector) is exposed through the story of a married couple where the husband is the manager and the wife is responsible for purchases in the chain. of family stores.
In addition to the aforementioned books, Eliyahu Goldratt has published several essays and written numerous articles for business management and supply chain journals.
Application of the theory of restrictions
After our journey in this article throughout its history, in a later article we will go into more detail on the fundamental concepts for the application of the theory of restrictions in the supply chain.