THEORY OF CONSTRAINTS

The theory of constraints refers to the methodology of identifying the most important factor or constraints which limits the productivity of a process and obstructs ridge organization to achieve its goals. 

One of the appealing characteristics of the Theory of Constraints is that it inherently prioritizes improvement activities. The top priority is always the current constraint. In environments where there is an urgent need to improve, TOC offers a highly focused methodology for creating rapid improvement.

The theory of constraint seeks to identify and improve the factor until the point it stops being a limiting factor by scientific and systematic approaches. 

THC generally involves 3 tools, i.e are

• The Five Focusing Steps 
• The Thinking Processes
• Throughput Accounting

When we look at each of the tools in detail, we can comprehend -

FIVE FOCUSING STEPS 

The first tool is five focusing steps. The organization is required to follow all the five steps to identify, improve, and eliminate the limiting constraint. The five steps are-

1. To Identify the constraint which is limiting the current goals of the organization-
2.  To exploit,  i.e, to resolve the issues by using the existing resource available to the organization.
3. To subordinate, i.e, to ensure that all the activities in the process are aligned and supporting the needs of the constraints. 
4. To Elevate, if the existing resources are not able to improve the constraints then the organization may have to put off investment to ensure the improvement.
5. To repeat, The overall process is recurring in nature, therefore, it is very important to repeat all the steps again, to identify the other constraints once the previous constraint is resolved.

THE THINKING PROCESS 

Another tool in the methodology is the thinking process. The thinking process is generally based on the cause-effect relationship of various activities. It involves questions like -

• What should be changed?
• How much it should be changed?
• What actions are causing their changes?

There are different tools involve in the process. Tools like - Current reality tree which tells about the current situation, Future reality trees which predicts the future situations, Strategy and tactics trees which provides a plan of action for improvement and etc. 

The thinking process requires a lot of planning and laying out different strategies to tackle the constraints and it is a complex task. 

 THROUGHPUT ACCOUNTING

Throughput accounting is used to remove the disadvantages of traditional accounting methods.

The difference between the throughput accounting and traditional accounting is that in traditional accounting inventory is considered as assets and it emphasizes more on cutting expenses whereas in the Throughput accounting is that inventory is considered as a liability and less emphasis on cutting expenses. 

The major difference cause here is that it allows the throughput accounting to use more efficient measures such as- Net Profit, Return on Investment, Productivity, and Investment Turns.

• Net Profit = Throughput ? Operating Expenses 
• Return on Investment = Net Profit / Investment
• Productivity = Throughput / Operating Expenses
• Investment Turns = Throughput / Investment

Throughput accounting is one of the most important and efficient tools of the theory of constraints as it focuses less on cutting expenses and focus more on building sales as it the inventory is considered as a liability, so it is paid off, therefore, building more sales. 

If the tools are utilized in an efficient manner then the organization can avail these benefits-

• Increased profit
• Fast improvement
• Improved capacity
• Reduced lead times
• Reduced inventory
• Lean Supply chain

The theory of constraints is a methodology that helps the organization to carry out each activity without any hindrance. Theory of Constraints operates on the idealogy of "a chain is no stronger than its weakest link". This means that processes, in the organizations are vulnerable because the weakest person or part of a constraint can always damage or disrupt the overall efficiency of the operations.