The theory of constraints (TOC) emphasises that, organisations face constraints that hinder the progression of an organisation. For example, in the market place, organisations may struggle with selling goods/services due to prices not suiting consumer’s needs or competitor activities in a market which is a constrain to a business because it influences profits and sales.
Theory of constraints Process
The theory of constraints regards organisations as a chain of processes that turn inputs into a saleable product or service. Each process acts as a link in a chain and the theory allows a company to identify the weakest links (constraints) in an organisations hindering profit improvement.
Note identifying the constraints can be very difficult because it is difficult to identify linkages.
The theory suggests a business once it has found the constraint should:
- Concentrate improvements on the constraint and not at other parts of the overall process.
- When the improvements are successful the constraint will no longer be the constraint and the new constraint will need to be found.
- When all the constraints in the manufacturing/service delivery processes are eliminated the search for constraints then goes to the organisational level looking at procedures, strategies and so on.
- Finally when all these constraints are eliminated the organisation can advance to the “final frontier” which is the constraint in the market place.
Theory of constraints tool
The Theory of constraints includes using certain tools to enhance productivity. The tools can be split into two sorts:
- Limiting factor arithmetic and marginal costing- These techniques focus on physical productions.
- Logical problem solving techniques- These techniques focus on the constraints administrative departments and in the market place.
|The theory of constraint can help for focus and structure for a company adopting a total quality management approach.||Product costing faces large changes which may not be line with the company’s accounting policies.|
|Adopting this theory helps in cycle-time reductions and on-time performance, which are critical areas for improving productivity.||Often considered as only useful to production situations and ignores other parts of the organisation.|