Theory of Constraints (TOC) is a systemic approach to improvement that identifies inaccurate underlying assumptions and implements simple solutions. Some common inaccurate assumptions include that everyone must always be busy, buying in bulk is cheaper, and estimates are imprecise. TOC seeks to identify the underlying constraint causing negative effects, implement a common-sense solution, and change rules accordingly. It provides principles for production, distribution, project management, and conflict resolution by addressing inaccurate assumptions and behaviors resulting from them.

1. Theory of Constraints A systemic approach to improvement

2. TOC Uses logical cause and effect relationships between outcomes and current reality to expose underlying inaccurate assumptions that need to be challenged and addressed

3. Some common inaccurate fundamental assumptions Everyone and everything must always be busy Buying in large quantities lowers cost People must give “ballpark” estimates with regard to time, money and scope Conflicts exist in reality Systems are complicated

4. Some common behaviors that are the result of the inaccurate assumptions People and machines produce products that will not be sold before the next production cycle Buyers buy products that will not be sold before the next replenishment cycle People will overestimate estimates for due dates, budgets and deliverables and never over deliver The fact that the negative effects related to conflicts exist is considered the unavoidable result of they way things are Simple solutions no matter how much common sense they make are dismissed because of the assumption that complicated problems require complicated solutions

5. Negative outcomes of the behaviors Production resources are spent making items that are stored and not sold A a large amount of raw materials and finished goods that are purchased are stored and not sold Projects take much longer, cost more and deliver less than expected Conflicts are mostly addressed through negative behaviors like hiding waste, forcing priorities and accepting inadequate and incomplete solutions Instead of doing what makes sense companies do what can be defended

6. Theory of Constraints Identify the underlying conflict that is causing the negative effects Implement a simple, common sense solution that breaks the conflict Identify and change the “rules” to conform with the new environment caused by the solution

7. TOC – Solutions PRODUCTION / OPERATIONS Addresses the negative effects of the assumption that everyone and everything must be utilized as much as is possible to be as productive as possible. Basic Principles Any production/operations system can only be as productive as the resources with the least capacity Cause the resource with the least capacity to produce more and the entire system will produce more Credit for production is given only when the product produced is consumed by the end user

8. TOC – Solutions DISTRIBUTION/REPLENISHMENT Addresses the negative effects caused by the assumption that in order to protect sales and buy at the lowest price purchases must be made in large quantities – case, pallet, truck, container Basic Principles All forecasts are inaccurate but forecasts made further upstream are considerably more accurate due to the law of large numbers and averaging of fluctuations Stock on hand should be a derivative of two factors: The amount necessary for proper visual display The amount needed to protect sales between what is the reliable time to replenish Credit for distribution is only given when the distributed product is consumed by the end user

9. TOC – Solutions PROJECT MANAGEMENT Addresses the negative effects caused by the assumption that estimates of time, money and scope should be accurate Basic Principle Estimates of time, money and scope should be made at a level of 50% chance of success Dependent resources should be ready and available to commence work as soon as the resource that is depended upon has completed Credit for completion is only given when the entire project – time, money and scope are delivered

10. TOC – Solutions CONFLICT RESOLUTION Addresses the problems caused by focusing solutions on symptoms and not on underlying rules created by inaccurate assumptions Basic Principles Undesirable Effects are most often caused by well intentioned but poorly executed decisions Acceptance that what appears to be a conflict is the result of attempting to satisfy a specific need without understanding that there are other needs that also must be satisfied A conflict is not resolved until both sides “Win”