Webster’s defines the word theory as “the analysis of a set of hypothetical facts and their relationship to each other.” Constraints are restrictions placed on those facts, inhibiting the desired outcomes. The theory of constraints (TOC) is a philosophy of “how to think” associated with Dr. Eliyahu M. Goldratt, author of The Goal (1992). According to Goldratt, if people know “how to think,” they can greatly influence the outcome of any situation where constraints exist. The Goal is a novel in which the main character, Alex Roga, uses Goldratt’s ideas to save the local factory and his marriage. The author includes himself in the novel as the character Jonah. Managers who have gone through the extensive theory of constraint training often refer to themselves as “Jonahs.”
The theory of constraints includes three distinct but interrelated concepts: performance measurement, logistics, and logical thinking. Performance measurement emphasizes throughput rather than cost control. Throughput is the rate at which the organization generates sales revenue. In traditional accounting procedure, production is considered output. In theory of constraints thinking, output, which is not sold, is not relevant. What counts is money generated through sales. Anything that restricts the company from the goal of attaining sales is a constraint, which can include production capacity, resources, distribution, market demand, and management.
Goldratt emphasizes the role of corporate policies and procedures as constraints to performance. Requirements act as barriers, limiting managers’ decision-making ability. Theory of constraints focuses on overcoming constraints, first by identifying the constraint and then by establishing goals and objectives that will remove the barriers.
The second concept in TOC is logistics. In theory of constraints language, logistics include drum-buffer-rope scheduling and VAT analysis. Professors Mokshagundam Srikanth and Michale Umble define drum as the detailed master production schedule that sets the pace for the entire system and buffer as the additional planned lead time allowed, beyond the required setup and run times. The buffers protect the system against uncertainty. Rope is defined as the set of instructions needed to release materials into the system, flowing to the buffers in a way that supports the planned overall throughput. In other words, it is the coordination of inputs, governed constraints, that maximizes throughput.
VAT analysis is a conceptualization of the organization with respect to the interaction of parts of the process. Goldratt suggests there are three logical structures. A “V” structure starts with one or a few raw materials which, when used in a variety of production processes, ultimately leads to a variety of products. The few materials are the bases of a “V,” and the many products are the tops of the V. An “A” structure is the opposite of a V structure. In an A structure, many materials go through a series of processes, resulting in one or a few final products. A “T” structure involves a few processing or assembly operations working in parallel, which coordinate at later stages, resulting in a variety of final products using the output of the early processing systems. The shape of the production process defines where constraints on throughput occur.
The third theory of constraints (TOC) concept is logical thinking. Goldratt coined a number of terms to describe tools to address logical thinking, including effect-cause-effect diagramming, current reality tree, the evaporating cloud, and other colorful descriptors for analyzing logical thinking.
During the 1980s and 1990s, theory-of-constraint analysis, along with just-in-time production (JIT) and total quality management (TQM) was three of the most widely applied production management techniques. Executives embraced each as a revolutionary new way of thinking about management and developed almost cult-like followings among managers. Each contributed to improving efficiency, quality, and productivity in the United States and other industrial countries.