What is "Theory of Constraints"?

Recently, a team mate heard me telling a success story about using "Theory of Constraints" (TOC) to improve performance, velocity and capacity at a company in Hampton Roads, Va. He asked me what he could read to find out more about this "TOC stuff". My answer to him is posted below, in case some on LinkedIn might have the same question. Mine is not the "definitive answer" on the topic. There are many who are far more qualified than I am, some of whom have been my teachers and coaches on the subject and are cited below.

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J. - As requested, here’s my attempt to provide an introduction to the big topic of "Theory of Constraints" (TOC). Please feel free to share this with any others who might be interested or might have employees who would be interested for professional development.

                TOC is a body of knowledge for identifying and exploiting the constraint that limits any system of work in order to:

Get Control > Execute Well> Release Capacity > Enjoy Success           (Mark Woepple - Pinnacle Strategies)

               Above is the picture I drew on the board in your office that illustrates the idea of a constraint in a simple way. It's an image called "Liebig's Barrel" from Wikipedia in their explanation of Liebig's Law of the Minimum. In this illustration, it's pretty simple to see the constraint that is limiting the capacity of this system (the shortest barrel stave). Improvement of any barrel stave other than the shortest may make us feel good about ourselves, but improvement in system performance is only possible by finding and exploiting the constraint (the shortest stave). Theory of Constraints is a body of knowledge offering a set of standard solutions for making better decisions in various kinds work systems. These standard solutions are all built on the assumption that every system is limited by a constraint, otherwise performance of the system would be infinite. The key to increasing performance is to find and exploit the constraint for greater success, typically without increasing resources. The TOC standard solutions that I am most familiar with are:

TOC Drum-Buffer-Rope (TOCDBR); For increasing velocity and capacity of “Flow” work systems despite the effects of demand variability, policy and workforce behavior (e.g. manufacturing lines, paperwork processing, applications processing, medical waiting rooms). REFERENCES: The Goal, Dr. Eli Goldratt, (the most widely read business novel of all time); Racing Breakneck to the Bottleneck; the Macondo Spill Cleanup; Mark Woeppel, Pinnacle Strategies; The website at https://www.dbrmfg.co.nz/ - A Guide to Implementing the Theory of Constraints (TOC), Dr. Kelvyn Youngman (a great Excel simulator of TOCDBR is available here).

TOC Reliable Replenishment (TOCRR); For profitable management of inventory replenishment systems. TOCRR makes sure the right inventory is available in the right places in the supply chain when needed, despite unpredictable demand forecasts. TOCRR provides a replenishment system with 1) a minimum of inventory and carrying cost, 2) lowest possible occurrence of stock-outs, 3) lowest possible incidence of stock obsolescence, and 4) greatest net profits of retail operations and complex supply chains. It's also useful for replenishment systems that might not typically be thought of as such. For example, training programs that must continually provide the right numbers of people with a right skills over time (e.g. nurses, welders, bank tellers, etc.). REFERENCES: Isn't it Obvious?, and It’s Not Luck, two business novels by Dr. Eli Goldratt.

TOC Project Management (TOCPM); An approach for achieving a high success rate, and increased velocity and capacity in the execution of complex projects, despite the degrading effects of variability, interdependence and workforce behavior. TOCPM is sometimes called Critical Chain Project Management (CCPM), when applied to a single project in isolation. TOCPM will often increase project work capacity by 200 - 300% with existing resources, while reducing project overtime costs by 50%. REFERENCES: Critical Chain, Dr. Eli Goldratt (business novel); The pdf paper by A. Goldratt Institute (AGI) - TOC Project Management; A Brief Introduction to the Basics; Project Management in a Lean World -- Translating Lean Six Sigma (LSS) into the Project Environment (Chapter 6 of Theory of Constraints Handbook) by James Cox; The website at https://www.dbrmfg.co.nz/ - A Guide to Implementing the Theory of Constraints (TOC), Dr. Kelvyn Youngman. There is also a wealth of information on Ian Heptinstall’s website at https://www.ianheptinstall.com/, and the website of Marris Consulting in Paris at https://www.marris-consulting.com/en/, which has a tremendous collection of videos and success stories.

TOC Throughput Accounting (TOCTA); A decision support operational accounting method to improve Net Profits, ROI, ROS, EBITA, etc. over traditional cost accounting methods by changing the way important business decisions are made. A key element of TOCTA is to replace "allocated cost" (labor, overhead, etc.) thinking, with a focus on 1-Truly Variable Cost and 2-Fixed Operating Expense. All methods to “allocate" costs lead to wrong thinking about the financial health of an operation and poor operational decisions that harm bottom-line performance. REFERENCES: “how to” book Throughput Economics, by Eli Schragenheim, Henry Camp and Rocco Surace; “how to” book Throughput Accounting, Thomas Corbett; Paper by Pinnacle Strategies titled “Throughput Accounting” available at https://pinnacle-strategies.com/wp-content/uploads/2018/11/How-to-Grow-Profit-with-Throughput-Acounting.pdf,  by Mark Woeppel of Pinnacle Strategies.  Dr. Lisa Lang, Science of Business, Inc. is another expert in this field, particularly regarding job shop companies, unrefusable “mafia” marketing offers and product pricing. Her website is https://www.scienceofbusiness.com/.

TOC Thinking Process (TOCTP); A critical thinking approach for strategic, operational and improvement planning, based on cause and effect logic and the assumption that a constraint (core conflict) is the limiting factor in any "wicked problem" or complex situation. TOCTP is the method that was used to create all of the other standard solutions above. REFERENCES: The “how to” book The Logical Thinking Process: A Systems Approach to Complex Problem Solving, by Bill Dettmer; “how to” book Thinking for a Change: Putting the TOC Thinking Processes to Use, by Lisa Scheinkopf; the business novel Necessary But Not Sufficient, by Dr. Eli Goldratt; The pdf paper by A. Goldratt Institute (AGI) - Theory of Constraints and It's Thinking Process

MORE EXCELLENT REFERENCES APPLICABLE TO MOST OF THE TOC STANDARD SOLUTIONS ABOVE;

• The website at https://www.dbrmfg.co.nz/ - A Guide to Implementing the Theory of Constraints (TOC), Dr. Kelvyn Youngman
• The business novel Velocity: Combining Lean, Six Sigma and the Theory of Constraints to Achieve Breakthrough Performance, by Dee Jacob (business novel)
• The “how to book” The CIO's Guide to Breakthrough Project Portfolio Performance: Applying the Best of Critical Chain, Agile, and Lean, by Michael Hannan, et. al.
• The “how to book” on TOC / Critical Chain Project Management; Lean Maintenance Repair and Overhaul, by M. Srinivasan, M. Bowers and K. Gilbert
• There are lots of other excellent sources of information by experts like Eli Shragenheim, Dr. Lisa Lang, Bob Sproull, Phillip Marris and many others, but this will get you started. There are also a number of excellent discussion groups on the various TOC standard solutions on Linked In.

Best Regards for Great Success!