Goldratt's Theory of Constraints - An Introduction

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Introducing the Theory of Constraints, its applications and the Viable Vision concept.

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Goldratt's Theory of Constraints - An Introduction

  1. 1. Goldratt’s Theory of Constraints Fred Wiersma Spirit Management Consultancy 22 feb 2006, ONHW 3 Rotterdam
  2. 2. Contents <ul><li>Introduction </li></ul><ul><li>What is the Theory of Constraints? </li></ul><ul><li>Applications </li></ul><ul><li>What’s in it for me? </li></ul><ul><li>How to apply ToC? </li></ul><ul><li>Questions </li></ul>
  3. 3. Introduction <ul><li>Fred Wiersma </li></ul><ul><li>Owner Spirit Management Consultancy </li></ul><ul><li>Services: </li></ul><ul><ul><li>Consultancy </li></ul></ul><ul><ul><li>Coaching </li></ul></ul><ul><ul><li>Interim Management </li></ul></ul><ul><li>Associate Goldratt Consulting </li></ul><ul><li>Drive: how can people and companies perform better? </li></ul>
  4. 4. Theory of Constraints: history <ul><li>Founder: dr. Eliyahu M. Goldratt </li></ul><ul><li>Developed in production and distribution (from the ’80s on)‏ </li></ul><ul><li>Grown into business management philosophy in almost all areas </li></ul><ul><li>More and more new and improved applications </li></ul>
  5. 5. Theory of Constraints: what is it? <ul><li>Theory and tools to gather, analyze, solve and implement solutions of (management) problems </li></ul><ul><li>Based on the questions: </li></ul><ul><ul><li>What to change? </li></ul></ul><ul><ul><li>What to change to? </li></ul></ul><ul><ul><li>How to implement the change? </li></ul></ul><ul><li>The ToC tools fully support the answering of these questions </li></ul>
  6. 6. Examples management problems <ul><li>My company’s market is shrinking </li></ul><ul><li>My company is losing market to competitors </li></ul><ul><li>My company can’t get the right people </li></ul><ul><li>My company cannot produce enough </li></ul><ul><li>My company delivers too late </li></ul><ul><li>My company’s performance is insufficient </li></ul><ul><li>My departments don’t co-operate </li></ul>
  7. 7. Underlying problems <ul><li>Company isn’t working toward its goal </li></ul><ul><li>Company can’t communicate goal to stakeholders (customers, staff, investors, …)‏ </li></ul><ul><li>Without goal: decline and fall… </li></ul>
  8. 8. Goal of each (profit) company <ul><li>Make money now and in the future by: </li></ul><ul><ul><li>selling products and / or services </li></ul></ul><ul><ul><li>to selected markets </li></ul></ul><ul><li>Necessary conditions: </li></ul><ul><ul><li>Profit </li></ul></ul><ul><ul><li>Continuity </li></ul></ul>
  9. 9. Constraints: what’s that? <ul><li>Consider a company as a system </li></ul><ul><li>A system is a chain of dependent processes </li></ul><ul><li>Each system has 1 constraint </li></ul><ul><li>This constraint determines the throughput of the system </li></ul>
  10. 10. Example system A:10 B:8 C:6 D:9 End product
  11. 11. What to do with constraints? <ul><li>Identify the constraint in the system </li></ul><ul><li>Decide how to exploit the constraint (= perform maximally)‏ </li></ul><ul><li>Subordinate all other processes to the constraint </li></ul><ul><li>Elevate the system’s constraint </li></ul><ul><li>Go to step 1 but beware of inertion! </li></ul>
  12. 12. Example system A:10 B:8 C:6 D:9 End product
  13. 13. Types of constraints <ul><li>Physical constraints </li></ul><ul><ul><li>Capacity in machines </li></ul></ul><ul><ul><li>Capacity in staff </li></ul></ul><ul><li>Policy constraints </li></ul><ul><ul><li>Rules that were once effective but not anymore </li></ul></ul><ul><ul><li>Worse, that can become counterproductive… </li></ul></ul>
  14. 14. TOC tools <ul><li>Visual diagram techniques </li></ul><ul><li>Based on cause-effect thinking </li></ul><ul><li>Connect intuition to logic </li></ul><ul><li>Powerful communication tools </li></ul><ul><li>Examples of tools: Conflict Resolution Diagram, Current Reality Tree, Future Reality Tree, Transition Tree, Intermediate Objectives Map </li></ul>
  15. 15. TOC Applications <ul><li>Production (S-DBR)‏ </li></ul><ul><li>Distribution (Replenishment)‏ </li></ul><ul><li>Marketing (Mafia offer)‏ </li></ul><ul><li>Sales ( Δ -T selling)‏ </li></ul><ul><li>Project management (Critical Chain)‏ </li></ul><ul><li>Finance (Throughput Accounting)‏ </li></ul><ul><li>Etc, etc </li></ul>
  16. 16. Ideal solution? <ul><li>Yes and many proven successes </li></ul><ul><li>But… </li></ul><ul><li>Hard to sell </li></ul><ul><ul><li>Paradigm shift </li></ul></ul><ul><ul><li>Resistance to change </li></ul></ul><ul><ul><li>Perceived risks to failure </li></ul></ul><ul><li>Problem solved using ToC! </li></ul>
  17. 17. Statement (1)‏ <ul><li>If we do what our competitors do we will never be (much) better… </li></ul>
  18. 18. Statement (2)‏ <ul><li>If we believe in max 10% growth per year we will never reach more than that… </li></ul>
  19. 19. Statement (3)‏ <ul><li>If we continue to do what we always did we will never have an always great performing company… </li></ul>
  20. 20. How to sell a ‘paradigm shift’? <ul><li>Viable Vision concept </li></ul><ul><ul><li>Develop a ‘mafia offer’ for a company </li></ul></ul><ul><ul><li>Implement the offer together with the company </li></ul></ul><ul><ul><li>Pay based on results (> 90% !)‏ </li></ul></ul><ul><li>Sales process open and fair </li></ul><ul><li>Based on win-win </li></ul>
  21. 21. What is a Viable Vision? <ul><li>A business strategy leading to a profit in 4 years time, equal to current turnover! </li></ul><ul><li>Unique for each company </li></ul><ul><li>Hard to follow by competitors </li></ul>
  22. 22. For whom? <ul><li>Companies with a turnover > € 1M </li></ul><ul><li>More than 250 companies worldwide have attended a Viable Vision seminar </li></ul><ul><li>Of those, more than 110 companies are implementing their Viable Vision </li></ul><ul><li>Suppose your competitor is one of them? </li></ul><ul><li>Suppose your company is one of them? </li></ul>
  23. 23. Viable Vision process <ul><li>Start 1 day seminar by Dr. Goldratt </li></ul><ul><li>Target group CxO’s and owners </li></ul><ul><li>½ day explanation Theory of Constraints </li></ul><ul><li>½ day develop offer Viable Vision for your company </li></ul><ul><li>For smaller and bigger companies (turnover > € 1M up to > € 400M!)‏ </li></ul><ul><li>References companies, successes </li></ul>
  24. 24. Summary <ul><li>ToC answers: </li></ul><ul><ul><li>What to change </li></ul></ul><ul><ul><li>What to change to </li></ul></ul><ul><ul><li>How to implement the change </li></ul></ul><ul><li>By: </li></ul><ul><ul><li>Determining the constraint </li></ul></ul><ul><ul><li>Exploiting the constraint </li></ul></ul><ul><ul><li>Elevating the constraint </li></ul></ul><ul><li>In a process of ongoing improvement </li></ul>
  25. 25. What’s in it for me? <ul><li>Learn ToC yourself as a powerful set of tools founded on solid theory </li></ul><ul><li>Apply ToC with colleagues and ToC facilitator in your company on different business processes </li></ul><ul><li>Create spectacular results with your company through a Viable Vision </li></ul>
  26. 26. Questions? Fred Wiersma [email_address] www.spiritmanagement.nl +316 428 24 008

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