Master of Business Administration Program
University of South Florida, Spring 2003
Theory of Constraints Main Page | The Goal | What is this thing called TOC? Written in 1990, this book is still ahead of its time. The issue of data and information incongruence continues to be a hot-button issue in every boardroom. A "must" for every manager concerned with meeting the challenges of the 21st century. Examines the differences between data and information in a new light, and shows precisely how misunderstanding those differences can affect the quality of the decision-making process. PART I (FORMALIZING THE DECISION PROCESS)
1. Data, information and the Decision process - How they relate We are drowned in oceans of data; nevertheless it seems as if we seldom have sufficient information. Goldratt examines the key differences between data and information. Data is any answer while information is "the answer" to the question asked. In fact, he points out that what we call information systems are really just immense data systems. They tend to collect and store volumes of data and produce mammoth scores of reports—but fail to answer the questions we need to answer. The decision process itself is imbedded in any good information system and the decision process is changing. If we want information systems and not just data systems, we need to adjust accordingly. Goldratt recounts an Israeli legend of an Army captain who decided to stop printing a certain report. This huge report was run periodically and distributed in paper copy to several locations. When the report ceased to exist, only one complaint was recorded…from the person who's job it was to neatly file the reports. 2. What a company tries to achieve
Just in time (JIT) is not just reduction of inventory on the shop floor or a Kanban technique—it is a new overall management philosophy. Theory of Constraints is not just bottleneck reduction on the shop floor or an optimized production technique--It is a new overall management philosophy. Total Quality Management (TQM) is not just about the quality of products or a mechanical statistical process control technique—it is a new overall management philosophy. To begin to understand how this is so, we must answer the question, “why is an organization built?” From there, “who decides the goal of an organization?” Is it the customers, the employees, or the owners? Is it some other power group? In conclusion, Goldratt states that the goal of a company is solely in the hands of the owners, or shareholders. And from that, the goal of any organization is “to make money now as well as in the future.” To see how JIT, TOC, and TQM are new overall management philosophies, these fundamental points must be understood. 3. Getting a hold on Measurements
Measurements are a direct result of the chosen goal. We do not choose to measure “things” before we know the goal. Most companies judge their performance based on 2 bottom line numbers (Net Profit and Return on Investment). Another measure that is very important is the data found on the cash statement. But these are NOT the measurements we are after. We are looking for measures that show the impact of local decisions. From a Gedunken (or a mental, “thinking” exercise) about a cash-making machine, we come up with several questions that lead us to local measures that impact the goal (if we equate buying a money-making machine to investing in a company).
a. What is the rate at which this machine makes money?
b. How reliable is this machine?
c. How much money is captured by the machine?
d. How much money will we have to pour into the machine on an ongoing basis to turn the machine’s wheels?
4. Defining Throughput
Throughput is defined as the rate at which the system generates money through sales. Through sales can be omitted and...