Theory of Constraint

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  • Topic: Theory of Constraints, Eliyahu M. Goldratt, The Goal
  • Pages : 5 (1372 words )
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  • Published : April 29, 2013
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JIT versus the Theory of Constraints|
AMB303 International Logistics
|
Theory of Constraints|

Name : Hui LuStudent Number: N8035636Date: 02/09/2012Word Count:1007|

Contents
1.0 Definition……………………………..…………………….3

2.0 Discussion…………………………………………...……..3 2.1Core concept…………………………………..….3 2.2Five Steps of TOC………………………………..4
2.3 Evaluation………………………………………..4 2.3.1 Advantages…………………………...4
2.3.2 Disadvantages……………………...…4
2.4. Example……………………..…………………..5

3.0 Conclusion6

4.0 Reference7
1.0 Introduction
TOC is a management philosophy introduced by Dr. Eliyahu M. Goldratt in his 1984 book The Goal, which is geared to help organizations continually achieve their goal. Based upon the contention that any manageable system is limited in achieving more of its goal by a small number of constraints (that there is always at least one). The TOC process seeks to identify the constraint and restructure the rest of the organization around it, through the use of the Five Focusing Steps. 2.0 Discussion

2.1Core concept
The basic premise of TOC as applied to business is that improving any process is best done not by trying to maximize efficiency in every part of the process, but by focusing on the slowest part of the process, called the constraint. For instance, during the early days of the American Civil War, several units calling themselves legions were formed, consisting of combined infantry, artillery, and cavalry. This arrangement did not last because the entire unit could only maneuver as fast as the slowest part. So, the artillery was the constraint. Throughput costing, sometimes called super-variable costing recognizes only direct materials costs as being truly variable and thus relevant to the calculation of throughput margin. All other manufacturing costs are ignored because they are considered fixed in the short run. Throughput margin = Sales - Direct materials

2.2The Five Steps of TOC
The theory of constraints should be used as a dynamic process and managers can improve throughput by following the steps: 1) Identify the system’s constraint.
2) Decide how to exploit the system’s constraint.
3) Subordinate everything else to the above decision.
4) Elevate the system’s constraint.
5) If in the previous step the constraint has been broken, go back to Step 1. 2.3 Evaluation
2.3.1 Advantages
In terms of the core of TOC, it assumes that any origination is composed of a number of subsystems. It is an organized way to approach a business operation and to try to improve it. TOC takes the analytical and diagnostic process and lays it out into a step-by-step procedure. Also, the theory of constraints allows the managers involved in the process to focus on the constraints in the process. TOC is potential for tremendous increases in productivity with minimal changes to operations as the most powerful and cost effective tool for increasing production capacity. Furthermore, it is very simple to communicate and apply, making it ideal for departments and also great for fostering teamwork as different areas become aware of the constraint and the need to work together to assist the constraint process. It improves capacity decisions in the short-run and allows growth of productivity without the need for additional space or staff and establishes clearly defined quality measurements and utilizes this to select the best options, and drive the right decisions. 2.3.2 Disadvantages

Some criticisms of Goldratt’s theory of constraints include the idea that Goldratt himself treats the theory as a product to sell and he acts as a salesman. Also, some say Goldratt’s theory of constraints borrows ideas and concepts from previous studies and theories, but Goldratt does not acknowledge these contributions to his theory. For example, it only focuses on short-term goals and emphasis on increasing sales and volume, not quality. It has a negative impact on non-constrained areas. Moreover, it may lead...
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