Recently, I had an interesting conversation with a plant manager on the subject of Theory of Constraints. He claimed to know the subject well. I practise it almost every day,” he said. It is nothing but fancy jargon for what is essentially common sense, he added with a wink. He knew he was talking to a TOC practitioner who had put in 15 years implementing the paradigm in different organizations. Don’t feel insulted, he seemed to say with the wink. To me, the comments were amusing; I had encountered the attitude before. “Can you please elaborate on how you practise it daily?” I asked. “Well I always identify the constraints, and remove them to improve the environment,” he replied in a patronizing tone. The manager was using the word constraint as defined in the dictionary. The dictionary defines it as a limitation or a restriction or an obstacle. According to this, he was right. Almost every manager trying to meet targets, is dealing with obstacles that come his way. He overcomes a few, stumbles over the others. He is identifying constraints and removing them. Is this Theory of Constraints?
“You just defined what is NOT Theory of Constraints,” I replied with a wink. I now had his full attention. “We need to clearly define the terms constraint, limitation and obstacle, and understand the key differences in the definitions to comprehend the subject, I clarified.
A limitation, which can be removed immediately after identification, is just an obstacle. But a limitation, which cannot be removed for significant time duration, is a constraint. All obstacles can be and should be removed immediately, but a constraint cannot be removed in the immediate future. There will always be a limitation that cannot be easily removed – it could be either capacity of the resources or customer demand. (Without a constraint a company will make infinite returns.)
This means that the only way we can improve the system is by exploiting the constraint.
If there is a constraint, which cannot be expanded upon immediately, it is obvious that managers should be exploiting it fully. That is common sense! remarked the plant manager.
“Common sense does not mean that it is commonly held sense. Let us understand this with an example. What happens to behavior of consumers when there is a perceived scarcity of commodity in the market, I asked.
“People start hoarding the commodity,” the manager replied.
The scarcity further aggravates, which in turn can lead to more hoarding and more scarcity. Suppose it is going to take long to restore normalcy, what should be the first step to improve the situation, my questions continued.
The first step to improve the situation would be to set rules of rationing so that hoarding is reduced, and everyone gets quantities which are just enough for immediate consumption and not more, replied the manager.
We improve the situation to prevent wastage of the scarce commodity. The biggest wastage happens when someone is hoarding it while many others are starving for it, I added.
This requires that everyone agrees to a common goal in the entire population partakes of the commodity, and nearly no one faces a stock out, added the manager.
Before we identify a constraint, there needs to be an agreement on the goal of the system. Once the goal is known and the constraint is identified, everyone who is part of the system should be willing to subordinate everything else to the decision, which prevents wastage and allows effective utilization. Unless everyone decides to subordinate, there is no way one can exploit the full potential of the constraint.
“If there is a constraint, then there is a high chance that people would be wasting it. So the first step is to find out ways to exploit it before looking for ways to expand,” remarked the manager.
“Exploitation should be the first prudent step not just to delay expansion. Many times, the exploitation steps might reveal so much hidden potential that expansion may not be required at all!” I added.
To practise Theory of Constraints, one has to internalise the following four steps.
- Agree on system goal
- Identify the constraint (which cannot be expanded immediately like customer demand or plant capacity)
- Decide on how one will exploit the constraint
- Subordinate everything else to the above decisions
Now with this learning, let us find out if we are actually taking subordinating steps daily to exploit the constraint. If production is the constraint, let us check if we are producing items which are not required while ignoring the ones which are immediately required. If the answer is yes, we are wasting the capacity not exploiting it.
If customer demand is the constraint, let’s examine if we are satisfying customers by giving them what they want at the right time and right place. Are we reaching out to all potential customers willing to buy our product? If not, then we are not exploiting the constraint.
“As I see it, among the four steps of TOC, the real “action” step is subordination. How well the entire organization has decided to subordinate determines how well one is practicing Theory of Constraints,” remarked the plant manager with a wink. This time, the wink was to acknowledge the harmony between us. .