The document discusses the relationship between the Theory of Constraints (TOC) and Lean Manufacturing. It defines basic TOC concepts and explores how TOC and Lean can be synergistic. The key connection is that TOC aims to increase throughput and reduce inventory and expenses, while Lean seeks to reduce waste and improve flow, which supports the TOC goals. Applying both approaches together can help organizations maximize profits through continuous improvement efforts.

1. The Theory of Constraints &
Lean Manufacturing
Don Guild
Synchronous Management, Milford, CT
P: 203-877-1287 E: synchronous@att.net
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Objectives
• Define basic Theory of Constraints concepts
• Examine the application of TOC
• Explore the linkage between TOC and LEAN
• How to gain synergy of TOC and LEAN
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2. What is the Theory of Constraints?
A business philosophy which seeks to strive
towards the global objective, or goal, of a system
through an understanding of the underlying cause
and effect.
Theory of Constraints, Eli Goldratt, 1990
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TOC: What is the Goal?
GOAL = $
NET PROFIT
(Absolute)
RETURN ON
INVESTMENT
(Relative)
CASH FLOW
(Survival)
THROUGHPUT INVENTORY
OPERATING
EXPENSE
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3. TOC: Global Operational Measures
INCREASE THROUGHPUT
(SALES)
The rate at which money is generated through sales.
DECREASE INVENTORY
(INVESTMENT)
The money invested in things intended for sale.
DECREASE OPERATING EXPENSE
(SPENDING)
The money spent to convert inventory into throughput.
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Traditional Investment Justification
COMPANY: CIRCUIT BOARD ASSEMBLY JOB SHOP
SALES: $8MM PER YEAR
DIRECT LABOR: 50 EMPLOYEES @ $25K/YEAR EACH
OPPORTUNITY: $300K MACHINE ELIMINATES 6 EES
FINANCIAL ANALYSIS:
COST OF MACHINE: $300,000
SAVINGS (6 X $25K) 150,000
PAYBACK = 2 YEARS
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4. TOC: Throughput Justification
BUT, WHAT IF:
LOST SALES FOR LACK OF LABOR: $2MM PER YEAR
MATERIAL COST: 30% OF SALES DOLLAR
FINANCIAL ANALYSIS:
COST OF MACHINE: $300,000
SAVINGS:
Additional sales ($160K X 6EES) $960,000
Less material cost ($960K X 30%) $288,000
Additional net profit: $672,000
PAYBACK = 5 MONTHS
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Traditional Headcount Reduction
COMPANY: INJECTION MOLDING SHOP
SALES: TEMPORARILY DOWN 20%
DIRECT LABOR: 15 OPERATORS ON 30 MACHINES
OPPORTUNITY: LAY OFF MATERIAL HANDLER
SAVINGS: $30K PER YEAR
WITHOUT MATERIAL HANDLER
OPERATORS MUST NOW MOVE OWN MATERIAL
SET
UP RUN PARTS
MOVE
MAT
SET
UP RUN PARTS
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MOVE
MAT

5. TOC: Inventory Reduction
WITH MATERIAL HANDLER
SET UP MORE OFTEN & RUN SMALLER BATCHES
SET
UP
SET
UP
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TOC: What is a System?
The total business, taken as a whole.
Not a division, cost center, or department.
The level at which financial ownership exists.
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SET
UP
SET
RUN PARTS UP RUN PARTS RUN PARTS RUN PARTS
RESULTS
INVENTORY REDUCTION: $300,000
COST REDUCTION (10%): $30K PER YEAR
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6. TOC: What is a Constraint?
A constraint is anything that limits a system from
achieving higher performance versus its goal.
Logistical: Physical, e.g. bottleneck, plant layout, long
changeovers.
Managerial: Policy, e.g. efficiency, utilization, allocations,
absorption.
Behavioral: Human, e.g. resistance to change, lack of
understanding, politics.
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TOC: What are the Elements of TOC?
• Global operational measures
• Five focusing steps
• Process of ongoing improvement
• Drum, buffer, rope
• Cause and effect trees
• Thinking processes
• Throughput accounting
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7. TOC: The Five Focusing Steps
Identify the system’s constraints.
Usually very few, but at least one
Decide how to exploit the system’s constraints.
Don’t waste the constraint
Subordinate everything else to the constraints.
Non-constraints supply only what constraints need
Elevate the system’s constraints.
Open up the capacity of the constraints
If a constraint has been broken, repeat the process, but
avoid inertia.
Another constraint will limit performance
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TOC: Process of Ongoing Improvement
What to change?
Diagnosis: Description of "current reality" and the core
problem that will have a major impact
To what to change?
Description of “desired state” and strategy to attain it
How to change?
Detailed plans for what needs to happen in the group
effort to implement the change
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8. TOC: Drum, Buffer, Rope
Drum
Focusing step: Identify the constraint
What to do: Schedule the constraint to capacity
Buffer
Focusing step: Exploit the constraint
What to do: Protect the constraint against Murphy
Rope
Focusing step: Subordinate non-constrained resources
What to do: Release raw materials to drum schedule
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TOC: Cause and Effect Tree
SHORTAGES EXPEDITING OVERTIME
REALITY POLICY RESULT
TIMING
PROBLEMS
IMPACT ON
BUSINESS
GOAL
PROCESS
DEPENDENCE
PROCESS
VARIATION
HIGH
UTILIZATION
EXCESS
COMPONENT
PARTS
INVENTORY
INVENTORY
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LONG
SETUPS
INFLEXIBLE
RESOURCES
SHORT
CUSTOMER
LEADTIMES
EFFICIENCY
EXCESS
CAPACITY
OPERATING
EXPENSE
EXCESS
WORK IN
PROCESS
LONG
PRODUCTION
LEADTIMES
EXCESS
RAW
MATERIAL
INVENTORY
LARGE
BATCHES
WANDERING
BOTTLE-NECKS
INACCURATE
FORECASTS
EXCESS
FINISHED
GOODS
POOR
ONTIME
DELIVERY
THRUPUT
OPERATING
EXPENSE
THRUPUT
FINISH
TO
ORDER
FABRICATE
TO
FORECAST

9. TOC: Cause and Effect Tree
PROCESS
DEPENDENCE
PROCESS
VARIATION
SHORTAGES EXPEDITING OVERTIME
HIGH
UTILIZATION
EXCESS
COMPONENT
PARTS
INVENTORY
INVENTORY
TIMING
PROBLEMS
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TOC: Thinking Processes
Current Reality Tree Maps out a sequence of cause
and effect from the core problem
to the symptoms.
Evaporating Cloud Means of displaying and solving
an apparent conflict or dilemma
between two actions.
Future Reality Tree Maps out future expectations
given that we will introduce
something new into the reality.
Negative Branch Reservation Modification of the future reality
tree that accounts for new
negative outcomes.
Pre-requisite Tree The implementation plan to which
timelines, responsibilities, and
accountabilities can be assigned.
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LONG
SETUPS
INFLEXIBLE
RESOURCES
SHORT
CUSTOMER
LEADTIMES
EFFICIENCY
EXCESS
CAPACITY
OPERATING
EXPENSE
EXCESS
WORK IN
PROCESS
LONG
PRODUCTION
LEADTIMES
EXCESS
RAW
MATERIAL
INVENTORY
LARGE
BATCHES
WANDERING
BOTTLE-NECKS
INACCURATE
FORECASTS
EXCESS
FINISHED
GOODS
POOR
ONTIME
DELIVERY
THRUPUT
OPERATING
EXPENSE
THRUPUT
FINISH
TO
ORDER
FABRICATE
TO
FORECAST
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10. What is a Lean Enterprise?
A continuing agreement among all the firms sharing the value
stream for a product family to correctly specify value from the
standpoint of the end customer, remove wasteful actions from
the value stream, and make those actions which do create
value occur in continuous flow as pulled by the customer. The
cooperating firms must analyze the results and start the
process again through the life of the product family.
Lean Thinking, Womack and Jones, 1996
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LEAN: What Is A Value Stream?
All of the activities (both value-adding and non-value-adding)
required to bring a product from raw material
suppliers to the customer.
The value stream includes all activities which:
Transform the product (local solutions)
Process information from the customer (system solutions)
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11. LEAN: The Five Focusing Steps
Specify value
What is the customer willing to pay for?
Identify the value stream
All of the steps, VA and NVA, from raw material to shipment.
Establish flow
Organize by product family to eliminate waste.
Establish pull
Control the non-continuous flow of material.
Work to perfection
Goal is perfect value with no waste.
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The TOC-LEAN Strategic Connection
Reduce Waste (Sales ÷ Spending ) & Improve Flow (Sales ÷ Inventory )
Lean Metrics/Accounting:
Measure the flow
LEAN
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TOC
Business Goal = $
Reduce
Spending
Reduce
Inventory
Increase
Sales
Kaizen Teams:
Respect for people
Future state VSM
Current state VSM
See the flow
Pull Systems:
Control the flow
Toyota Production System:
Improve the flow
Changeover reduction
Cellular manufacturing
Cross-training
Zero defects
5-S visual controls
Preventive maintenance

12. The TOC-LEAN Tactical Connection
Business Goal = $
Reduce Waste (Spending ÷ Sales ) & Improve Flow (Sales ÷ Inventory )
What to change? Drum, buffer, rope Avoid inertia
Elevate the constraint
Lean Metrics/Accounting:
Measure the flow
How to change? What to change to?
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Current State VSM (What to Change?)
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Reduce
Spending
Reduce
Inventory
Increase
Sales
Kaizen Teams:
Respect for people
Future state VSM
Current state VSM
See the flow
Pull Systems:
Control the flow
Toyota Production System:
Improve the flow
Changeover reduction
Cellular manufacturing
Cross-training
Zero defects
5-S visual controls
Preventive maintenance
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13. Future State VSM (To What to Change?)
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VSM Action Plan (How To Change?)
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14. The Toyota Production System
Changeover reduction
Cellular manufacturing
Cross-training
Zero defects
5-S visual factory
Total productive maintenance
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Changeover Details
The time required for removing the old tools, dies or fixtures; attaching
new tools, dies or fixtures and running the machine until a new part,
without defects, is produced.
Completion
of last
Good Part
Locate
tools,
dies or
fixtures
Attach
new
Run
Part
Enter
Offsets
Run
Part
Adjust
Completion
of first
Good Part
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1st piece
inspection
Set-up Time
Set-up time includes run time and adjustment time until a good part is
produced. If a good part is produced with no adjustments, run time is part of
machine process time.

15. Cellular Manufacturing
PROCESS FOCUS PRODUCT FOCUS
RECEIVING
SHIPPING
STOCK
ROOM
TEST
= POU RAW MATERIAL
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Cross-Training Matrix
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CIRCUIT
BOARD
ASSEMBLY
FINAL
ASSEMBLY
SUB
ASSEMBLY
CABLE
ASSEMBLY
SHIPPING
CABLE
ASSY
CIRCUIT
BOARD
TEST
FINAL
ASSEMBLY
SUB
ASSEMBLY
= POU FINISHED GOODS
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16. 5-S Visual Factory
Make waste in the workplace visible
Sort (seiri): separate & remove unneeded items
Set in order (seiton): arrange items for easy access
Shine (seiso): clean the work area
Standardize (seiketsu): detailed plan to maintain first 3-S’s
Sustain (shitsuke): ongoing commitment of workforce
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Attaining Zero Defects
Define defects
Track rejects
Pareto analysis
Root cause analysis
Corrective action
Poka-yoke: error-proofing
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17. Total Productive Maintenance (OEE)
A = Total Available Time
B = Uptime Downtime
B/A = Availability rate
C = Standard Output
D = Actual Output Speed loss
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The Kaizen Approach
The Kaizen Event is a focused, short-term project to
improve a process.
1. Initial Analysis of Process:
• Event area selection
• Team selection
• Development of a contract and a mandate
2. Kaizen Blitz Event:
• Full day of training
• Process analysis & baseline measurement
• Development & implementation of new processes
• Formal presentation of the process and accomplishment
3. Follow Up:
• Debug the process
• Assure timely completion of all remaining action items
• Assure the new process is institutionalized
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Minor stops
D/C = Performance rate
F = Good Output Quality
yields
E = Actual Output
E/F = Quality rate
OEE = B/A x D/C x E/F
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18. The Five Steps of TOC and TPS
Identify the system’s constraints
Level-loading and EPEI
Exploit the constraint
Supermarkets, 5-S
(DRUM)
(BUFFER)
Subordinate all else to the constraint
Kanban
Elevate the constraint
TPM, SMED, OEE, 6SIGMA
Repeat the process – avoid inertia
Lean metrics
(ROPE)
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Controlling Flow With Pull (or DBR?)
“The most significant source of waste is
overproduction, which means producing more,
sooner or faster than is required by the next
process.”
Learning to See
by Mike Rother & John Shook
Moving from push to pull production has the single
greatest impact on improving material flow and
eliminating waste.
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19. ID Constraint: Level Load vs. Level Mix
LEVEL LOAD: GOOD LEVEL MIX: BETTER
ITEM MON TUE WED THU FRI
B 100
C 100
D 100
E 100
TOTAL 100 100 100 100 100
ITEM MON TUE WED THU FRI
A 20 20 20 20 20
C 20 20 20 20 20
D 20 20 20 20 20
E 20 20 20 20 20
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The Replenishment Interval is . . .
. . . the shortest period (usually in days) over which a
resource can make some of every product.
. . . resource-specific, not product-specific.
. . . capacity-driven, not cost-driven.
. . . also known as Every Part Every Interval (EPEI).
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A 100
B 20 20 20 20 20
TOTAL 100 100 100 100 100
What is the shortest replenishment interval over which a
resource can set up and make some of every part?
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20. Setting the Replenishment Interval
Available resource time per day
Minus:
Time to cycle one day’s parts
Daily changeover time available
Divided into:
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Example: A 3-Day Replenishment Interval
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Equals:
Total changeovers on all parts
Equals:
Replenishment Interval in days
Available resource time per day
Time to cycle one day’s parts
Total changeovers on all parts

21. Example: A 3-Day Replenishment Interval
Some of every part . . .
Every three days!
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Example: Acme Stamping SpotWeld 2
1 machines X 2 shifts X 460 minutes
31 736 (80% 920 mins/u70p5time) day
184
PART W/C C/O MINS C/T SECS
DAILY
DEMAND
DAILY
CYCLE TIME
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MINS EPEI BATCH
LH BRACKET SPOTWELD2
RH BRACKET SPOTWELD2
TOTAL
10
10
46
46
600
320
EPEI = 20
31 = .65 days
20
460
245
705
.65
.65
300
210

22. Who Is The Constraint?
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Exploit Constraint: Supermarkets
A strategically-placed inventory of an item, which:
• Triggers replenishment based on consumption of the item
• Protects the flow of material through the value stream
• Links the flow among value streams and loops
• Focuses additional lean improvements
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Supplier
EPEI=
1 DAY
Process
C
EPEI =
2 DAYS
Customer
Process
B
EPEI =
5 DAYS
Process
A
EPEI =
3 DAYS
The longer the interval,
the more constrained the resource!
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23. Sizing Supermarkets
SUPPLIER CUSTOMER
Average Demand During
Replenishment
Interval
Safety Stock
To Cover
Deviation From Average
Average Demand During
Replenishment
Lead Time
Replenishment Interval
CONSUMPTION PATTERN
All driven by the daily rate!
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Total
Super
Market
aka
Standard
Inventory
Sizing Supermarkets
Average Demand During
Replenishment
Interval
Safety Stock
To Cover
Deviation From Average
Average Demand During
Replenishment
Lead Time
Order Quantity:
How Much to Order
Order Point:
When to Order
All driven by the daily rate!
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24. Subordinate Non-Constraints: Kanban
Pull Signal
80/DAY
Process
A
Capy=100/day
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Logistical Pull Techniques (Ropes)
Kanban: Card which signals consumption has taken place
Order point: Replenish fixed quantity when inventory reaches this level
Min/max: Replenish to max when inventory reaches min
Two-bin: Fill one container while working out of the other
Reorder report: Triggers replenishment based on perpetual inventory records
Breadman: Refill depleted shelf inventory
Vendor managed: Outside supplier replenishes inventory
Trigger board: Accumulates kanbans at supplier
Virtual kanban: Electronic version of trigger boards
FIFO lane: Visual control of first-in-first-out at secondary operations
Heijunka box: Visual load-leveling technique
Mixed-model: Smoothing of production volume & mix
Kanban post: Accumulates kanbans in the order received
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Supplier
Capy=150/day
Process
C
Capy=120/day
Customer
Process
B
Capy=80/day
First-In-First-Out
DEMAND =
90/DAY
Pull Signal
80/DAY
No one goes faster than the slowest step in the system (constraint).
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25. Pull Systems (DBR) Account For. . .
Demand constraints
Demand rates and variability
Competitive lead times and service levels
Supply constraints
Supplier lead times and reliability
Resource uptimes, changeover times and cycle times
Quality yield rates and startup scrap
Material logistics, containers, storage
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How LEAN Addresses Cause/Effect
SHORTAGES
PROCESS
DEPENDENCE
PROCESS
VARIATION
LARGE
BATCHES
WANDERING
BOTTLE-NECKS
HIGH
UTILIZATION
INACCURATE
FORECASTS
EXCESS
WORK IN
PROCESS
EXCESS
FINISHED
GOODS
LONG
PRODUCTION
LEADTIMES
EXCESS
COMPONENT
PARTS
INVENTORY
FINISH
TO
ORDER
SHORT
CUSTOMER
LEADTIMES
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LONG
SETUPS
INFLEXIBLE
RESOURCES
EFFICIENCY
EXCESS
CAPACITY
THRUPUT
OPERATING
EXPENSE
POOR
ONTIME
DELIVERY
INVENTORY
INVENTORY
THRUPUT
OVERTIME
OPERATING
EXPENSE
EXCESS
RAW
MATERIAL
EXPEDITING
TIMING
PROBLEMS
FABRICATE
TO
FORECAST
SMED
CELLS
SIX SIGMA
XTRAINING
LEAN METRICS PULL/KANBAN

26. A TOC/Lean Translator
TOC LEAN
Optimize system Lean value stream
T, I, OE Flow and waste
Identify constraint Level-loading and EPEI
Exploit constraint Supermarkets, 5-S
Subordinate to constraint Kanban
Elevate constraint TPM, SMED, OEE, 6SIGMA
Repeat – avoid inertia Lean metrics
What to change? Current state VSM
To what to change? Future state VSM
How to change? TPS AND Kaizen
Drum-buffer-rope Pull/Kanban
Effect-cause-effect 5-whys
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Words of Caution
Theory of constraints:
• A system is the total business, taken as a whole. The level at which
financial owner ship exists.
Lean manufacturing:
• A value stream is all of the activities required to bring a product from
raw material suppliers to the customer.
Value stream waste is not reduced unless
total system spending decreases!
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27. Continuous Improvement: Cost Accounting?
EFFICIENCIES
Amortize changeover costs
Encourages large batches
HIGH UTILIZATION
Over-activates non-bottleneck resources
Builds inventory ahead of constraints
OVERHEAD ALLOCATION
Assumes all costs are variable
Ignores fixed cost
OVERHEAD ABSORPTION
Encourages inventory build
Ignores impact of fixed costs
EARNED HOURS
Credit for partial completion
Encourages input – not output
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Continuous Improvement: Throughput Accounting?
•Sales dollars per person
•On-time shipments to customer
•Dock-to-dock lead time
•First pass yield
•Target cost performance
•Average cost per unit shipped
•OEE at bottlenecks
•Average cross-training per person
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28. Why Marry TOC with Lean?
• Global business strategy
• Sync value streams with each other
• Quantify constraints to better flow/less waste
• Springboard to continuous improvement
• Evolve the TOC/lean mindset - not cost reduction
• Crush the competition!
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