Lean Thinking And Toc example essay topic

What is the Theory of Constraints? The Theory of Constraints is an organizational change method that is focussed 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 be viewed as a linked set of processes that transform inputs into saleable outputs. TOC conceptually models this system as a chain, and advocates the familiar adage that a 'chain is only as strong as its weakest link. ' Goldratt defines a five-step process that a change agent can use to strengthen the weakest link, or links.

In The Goal, Goldratt proves that most organizations have very few true constraints. Since the focus only needs to be on the constraints, implementing TOC can result in substantial improvement without tying up a great deal of resources, with results after three months of effort. The Five Steps of the Theory of Constraints 1. Identify the System Constraint The part of a system that constitutes its weakest link can be either physical or a policy. 2.

Decide How to Exploit the Constraint Goldratt instructs the change agent to obtain as much capability as possible from a constraining component, without undergoing expensive changes or upgrades. An example is to reduce or eliminate the downtime of bottleneck operations. 3. Subordinate Everything Else The non-constraint components of the system must be adjusted to a 'setting' that will enable the constraint to operate at maximum effectiveness.

Once this has been done, the overall system is evaluated to determine if the constraint has shifted to another component. If the constraint has been eliminated, the change agent jumps to step five. 4. Elevate the Constraint " Elevating' the constraint refers to taking whatever action is necessary to eliminate the constraint. This step is only considered if steps two and three have not been successful. Major changes to the existing system are considered at this step.

5. Return to Step One, But Beware of 'Inertia " Goldratt cautions practitioners about becoming complacent. TOC is an on-going process, and the inertia that can build up after a change occurs can actually serve to prevent continuous improvement. Goldratt also provides a foundation for achieving change through TOC by defining a set of three essential measurements that drive the change process. He correctly realized that conventional accounting systems do not support TOC, or lean-based efforts. Goldratt proposes replacing all traditional measures derived from the 'product cost' accounting paradigm.

The following measures are the only way to increase profit through TOC: Throughput The rate at which the entire organization generates money through sales for a product or service. Throughput represents all the money coming into an organization. Inventory All the money the organization invests in things it intends to sell. Inventory represents all the money tied-up inside an organization. Goldratt's definition includes facilities, equipment, obsolete items, as well as raw material, work in process, and finished goods. Operating Expense Operating Expense is all the money an organization spends turning Inventory into Throughput.

It represents the money going-out of the organization. Examples include direct labour, utilities, consumable supplies, and depreciation of assets. All three of these measures are interdependent. This means that a change in one will result in a change in one or more of the other two.

Therefore, to improve your organization using TOC, you as the change agent would adhere to the following formula: Maximize Throughput while Minimizing Inventory and Operating Expense These measures are the key to relating local decisions to the performance of the entire system. Goldratt advocates that all improvement opportunities should be prioritized by their effect on the three measures, especially Throughput, for which the only limit on how high it can be increased is market size. How Does Lean Thinking Compare to the Theory of Constraints? Lean thinking is an organizational change method that is also implemented with the objective of increasing profit. Lean thinking originated in Japan, and is best exemplified by the Toyota Production System. Constraints placed on the Japanese manufacturing industry after the second world war lead Taichi Ohno of Toyota to pioneer a new type of production system that was so different, and so much better, than mass production, as to warrant a new type manufacturing.

Lean production is a method of organizing production using half the effort, space, inventory, and product development time compared with mass production. It also achieves fewer defects, and larger product variety. These improvements should result in increased sales, which is the key to re-deploying freed-up resources. Lean thinking codified and expanded upon the Toyota Production System to include non-manufacturing organizations, as well as product development efforts.

The objective of lean thinking, as with TOC, is to increase profit. This is achieved by focusing on reducing costs using the following simple equation: Profit = Selling Price - Cost Toyota realized that selling price is dictated by the market and cannot be increased. Therefore, the only way to increase profit is to decrease cost. Note that although Goldratt attempts to move away from cost reduction by focussing 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 sense i is required. The Goal relies on a sense i-like individual named Jonah who provides assistance at key points in the book. However, Goldratt warns against relying on a sense i, and advocates that the change agent should learn enough to become a sense i.

In parallel, successful lean implementation efforts have relied on learning through trial and error, and the resulting creation of in-house lean 'experts. ' However, the caveat to this approach is that it will invariably take longer to achieve results. A good sense i will catalyze the change effort and keep the momentum building. TOC advertises a three-month improvement lead-time, which may be next to impossible without assistance from a sense i. It would be interesting to hear how long it took TOC change agents to become 'Jonahs. ' The following table summarizes the comparison between Lean Thinking and the Theory of Constraints.

Box Summary: Theory of Constraints versus Lean Thinking Theory of Constraints Lean Thinking Goal Increase Profit by increasing Throughput Increase Profit by adding value from customers' perspective Measures o Throughput Inventory Operating Expense o Costo Lead Time Value-Added Percentage What to Change? Constraints: the 'weakest links' in the system Eliminate Waste and Add Value considering the entire system How to Implement the Change: Five-Step, Continuous Process emphasizing acting locally Five-Step, Continuous Process emphasizing thinking globally Time Both can achieve immediate results, but require a long term (about five year) effort to sustain the results Combining Lean Thinking with the Theory of Constraints Can the Theory of Constraints be used as a catalyst for lean implementation? This author says yes! TOC methods fit nicely into the lean thinking five-step change framework, between steps two and three. Using TOC can help lean change agents to improve performance in processes where it is infeasible to eliminate bottlenecks. Specifically, after creating the ideal future value stream map, how do you achieve it?

As you divide your value stream into loops and determine improvement objectives for each, as described in Learning to See, incorporating TOC methods can give the following benefits: o Determining Where to Begin TOC advocates beginning with the constraint that most limits Throughput. This should create substantial improvements to the value stream in a short time, which is beneficial for igniting the required employee momentum and support. o Sustaining Momentum Achieving your future state may require designing new equipment that has not currently been developed. Until these processes can be eliminated, and if they are constraints, TOC can be used to continue the implementation momentum. Then, you can develop continuous flow that operates based on Take, a pull system to control production, and implement production leveling. o Performance measures that support lean implementation Replacing traditional financial metrics of asset utilization and burden absorption with Goldratt's Throughput, Inventory, and Operating Expense measures will help management see the benefits of Lean Thinking. Reproduced with permission from the Lean Enterprise Institute. ResourcesDettmer, William H. Goldratt's Theory of Constraints A Systems Approach to Continuous Improvement.

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The Theory of Constraints and its Implications for Management Accounting. Great Barrington, Mass. : The North River Press, 1995. Rother, Mike and John Shook.

Learning to See. Brookline, Mass. : The Lean Enterprise Institute, 1998. Womack, James P. and Daniel T. Jones. Lean Thinking. New York: Simon and Schuster, 1996..