<figure class="table"><table><tbody><tr><td>Shubham Agarwal :</td><td>Theory of Constraints or TOC proposed by Eliyahu Goldratt is acknowledged as a powerful yet simple management philosophy that suggests that system constraints limit the performance of an organization. He suggested that focussing on the system constraints can help improve organizations continually and bring them closer towards their goal. He also prescribed five “focusing steps” to identify and manage these constraints so that organizations can improve continuously and move closer towards its goal. These steps are Identify the constraint Decide how to exploit the constraint Subordinate to the above decisions Elevate the constraint Go back to step 1 Sounds so simple and clear, right? This concept may sound simple but it is often misunderstood. Let me recount an interesting conversation I had a little while back.I was discussing TOC with a friend who happens to be the plant head of a manufacturing unit. He claimed to know the subject quite well and I got super excited to discuss more. He went ahead and claimed that he practices it almost every day. “It is nothing but fancy jargon for what is essentially common sense”, he added with a wink. And I suddenly turned cautious at this statement, but I was patient to know more. I have had similar experiences before too and so I found it wise to ask before making any judgements that “Can you please elaborate on how you practice it daily?”. He answered it so quickly as if he had it on his tongue already. He said, “Well I always identify the constraints, and remove them to improve the environment,” in a slightly patronizing tone. He was referring to the word constraint as defined in the dictionary. The dictionary defines a constraint as any limitation or a restriction or an obstacle. According to this definition, 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 always trying to identify constraints and remove them as per the dictionary definition of the term. However, this is not a correct understanding of Theory of Constraints. In-fact I told him my friend, “You just defined what is NOT Theory of constraints”. This was a startling statement for him and I now had his full attention. I went on to clarify that we need to first clearly define the terms constraint, limitation and obstacle, and understand the key differences in their definitions to be able to comprehend the subject. An organizational system has many limitations. Some limitations which can be removed immediately after identification is an obstacle. For instance, your hiring policy or even the organizational structure, if it can be changed in the short term, are only obstacles. There will be many such in a system. However there are some limitations, which cannot be removed for significant time duration. These are constraints. These would be one or very few. 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 the capacity of the resources or customer demand. And there is no system or company that does not come with a constraint, or else there would be 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.When I explained this my friend exclaimed saying “but isn’t all this plain common sense”! To which I replied and I am sure you would agree with me, that common sense does not mean that it is commonly held sense. I asked him, “Let us take an example. Try answering, what happens to the behaviour of consumers when there is a perceived scarcity of commodity in the market”. He replied, “People start hoarding the commodity”. And we all saw a full-blown real-time depiction of this phenomenon in the wake of the impending lockdowns this year and the previous one too. When people hoard, the scarcity further aggravates, which in turn can lead to more hoarding and more scarcity. Now I topped-up with another question asking him “if suppose it was going to take long to restore normalcy, what should be the first step to improve the situation then”. He said the first step to improve the situation would be to set rules of rationing or distributing the commodities guided by some rules, so that hoarding is reduced, and everyone gets quantities which are just enough for immediate consumption and not more. I had my counter-questions ready. We improve the situation to prevent wastage of the scarce commodity by this but the biggest wastage happens when someone is hoarding it while many others are starving for it. He added that this would require that everyone agrees to a common goal in the entire population that partakes of the commodity, and then nearly no one would face a stock out. So, actually, 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. This will prevent wastage of the constraint and allows its effective utilization. Unless everyone decides to subordinate, there is no way one can exploit the full potential of the constraint. My friend thought for a second and said “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”. I agreed with him, “Exploitation should be the first prudent step but not just to delay expansion. Many times, the exploitation steps reveal so much hidden potential that expansion may not be required at all!”. And so in order to practice Theory of constraints , one has to internalise four steps. These are:&nbsp;<ul><li>&nbsp;To agree on the system’s goal</li><li>To identify the constraint (which cannot be expanded immediately like customer demand or plant capacity)</li><li>To decide on how one will exploit the constraint</li><li>To subordinate everything else to the above decisions</li></ul>Now with this understanding, we should 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, we should 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. He seemed to have really understood the concept well this time, his heavy nod was proof. He also shared his insight and said, “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”, with a smile. The smile was more like an acknowledgement to the harmony between us and a common understanding of the philosophy.</td></tr></tbody></table></figure>

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This episode explores constraints in complex systems, distinguishing them from general obstacles. It emphasises strategic thinking to leverage constraints for transforming and improving overall system performance.

What is a Constraint? Understanding systemic limitations

<figure class="table"><table><tbody><tr><td>Shubham Agarwal :</td><td>Theory of Constraints or TOC proposed by Eliyahu Goldratt is acknowledged as a powerful yet simple management philosophy that suggests that system constraints limit the performance of an organization. He suggested that focussing on the system constraints can help improve organizations continually and bring them closer towards their goal. He also prescribed five “focusing steps” to identify and manage these constraints so that organizations can improve continuously and move closer towards its goal.&nbsp;These steps are Identify the constraint Decide how to exploit the constraint Subordinate to the above decisions Elevate the constraint Go back to step 1 Sounds so simple and clear, right? This concept may sound simple but it is often misunderstood. Let me recount an interesting conversation I had a little while back.I was discussing TOC with a friend who happens to be the plant head of a manufacturing unit. He claimed to know the subject quite well and I got super excited to discuss more. He went ahead and claimed that he practices it almost every day. “It is nothing but fancy jargon for what is essentially common sense”, he added with a wink. And I suddenly turned cautious at this statement, but I was patient to know more. I have had similar experiences before too and so I found it wise to ask before making any judgements that “Can you please elaborate on how you practice it daily?”. He answered it so quickly as if he had it on his tongue already. He said, “Well I always identify the constraints, and remove them to improve the environment,” in a slightly patronizing tone. He was referring to the word constraint as defined in the dictionary. The dictionary defines a constraint as any limitation or a restriction or an obstacle. According to this definition, 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 always trying to identify constraints and remove them as per the dictionary definition of the term. However, this is not a correct understanding of Theory of Constraints. In-fact I told him my friend, “You just defined what is NOT Theory of constraints”. This was a startling statement for him and I now had his full attention. I went on to clarify that we need to first clearly define the terms constraint, limitation and obstacle, and understand the key differences in their definitions to be able to comprehend the subject. An organizational system has many limitations. Some limitations which can be removed immediately after identification is an obstacle. For instance, your hiring policy or even the organizational structure, if it can be changed in the short term, are only obstacles. There will be many such in a system. However there are some limitations, which cannot be removed for significant time duration. These are constraints. These would be one or very few. 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 the capacity of the resources or customer demand. And there is no system or company that does not come with a constraint, or else there would be 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.When I explained this my friend exclaimed saying “but isn’t all this plain common sense”! To which I replied and I am sure you would agree with me, that common sense does not mean that it is commonly held sense. I asked him, “Let us take an example. Try answering, what happens to the behaviour of consumers when there is a perceived scarcity of commodity in the market”. He replied, “People start hoarding the commodity”. And we all saw a full-blown real-time depiction of this phenomenon in the wake of the impending lockdowns this year and the previous one too. When people hoard, the scarcity further aggravates, which in turn can lead to more hoarding and more scarcity. Now I topped-up with another question asking him “if suppose it was going to take long to restore normalcy, what should be the first step to improve the situation then”. He said the first step to improve the situation would be to set rules of rationing or distributing the commodities guided by some rules, so that hoarding is reduced, and everyone gets quantities which are just enough for immediate consumption and not more. I had my counter-questions ready. We improve the situation to prevent wastage of the scarce commodity by this but the biggest wastage happens when someone is hoarding it while many others are starving for it. He added that this would require that everyone agrees to a common goal in the entire population that partakes of the commodity, and then nearly no one would face a stock out. So, actually, 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. This will prevent wastage of the constraint and allows its effective utilization. Unless everyone decides to subordinate, there is no way one can exploit the full potential of the constraint. My friend thought for a second and said “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”. I agreed with him, “Exploitation should be the first prudent step but not just to delay expansion. Many times, the exploitation steps reveal so much hidden potential that expansion may not be required at all!”. And so in order to practice Theory of constraints , one has to internalise four steps. These are:&nbsp;<ul><li>&nbsp;To agree on the system’s goal</li><li>To identify the constraint (which cannot be expanded immediately like customer demand or plant capacity)</li><li>To decide on how one will exploit the constraint</li><li>To subordinate everything else to the above decisions</li></ul>Now with this understanding, we should 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, we should 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. He seemed to have really understood the concept well this time, his heavy nod was proof. He also shared his insight and said, “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”, with a smile. The smile was more like an acknowledgement to the harmony between us and a common understanding of the philosophy.</td></tr></tbody></table></figure>

Vector Consulting Group - Counterpoint Podcast: Learn how to identify a constraint in a system, exploit it and gain higher productivity

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