Theory of Constraints Essay

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Pages: 7

What is the Theory of Constraints?
The Theory of Constraints is an organizational change method that is focused on profit improvement. The essential concept of TOC is that every organization must have at least one constraint. A constraint is any factor that limits the organization from getting more of whatever it strives for, which is usually profit. The Goal focuses on constraints as bottleneck processes in a job-shop manufacturing organization. However, many non-manufacturing constraints exist, such as market demand, or a sales department's ability to translate market demand into orders.

The Theory of Constraints defines a set of tools that change agents can use to manage constraints, thereby increasing profits. Most businesses can
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Therefore, the only way to increase profit is to decrease cost. Note that although Goldratt attempts to move away from cost reduction by focusing on throughput improvement, the net effect is the same: profit increases because cost decreases.

Lean thinking achieves the objective of cost reduction by employing a system-view of an organization that is centered on the notion of customer-defined value. Lean efforts are aimed at eliminating all the steps in the production of a good or service that do not add value to the final customer.

The Five Steps of Lean Thinking

1. Specify Value from the Perspective of the Customer
2. Identify the Value Streams
3. Flow
4. Pull
5. Perfection
Where TOC starts by identifying constraints, Lean thinking instructs the change agent to rethink the notion of value first. By walking the value stream, from finished goods to raw materials and repeatedly asking: "Are my customers willing to pay for this?", the lean change agent identifies opportunities for eliminating waste from the system. Further, value stream mapping is a very useful tool for determining which areas of the system to improve first. As well, the future state map keeps the organization focused on moving towards a common goal.

Both Lean Thinking and TOC agree that the organization must first find the change, then determine if a sensei is required. The Goal relies on a