The evolution of the theory of constraints.

Author:Gardiner, Stanley C.

According to recent reports in The Wall Street Journal and Newsweek, the total quality management (TQM) movement is floundering. The problem seems to be a lack of focus. In the Wall Street Journal report, Terrance R. Ozan, a partner with Ernst & Young said, "A lot of companies read lots of books, did lots of training, formed teams and tried to implement 9,000 new practices simultaneously. But you don't get results that way. It's just too much." Rather than applying efforts across the board, the report suggests companies "focus on a small number of decisive changes."

Before these reports of TQM's malaise were published, Eli Goldtart, author of The Goal and The Haystack Syndrome, analyzed TQM's plight in his monthly Industry Week column, "Late Night Discussions." In "Late Night Discussions #6," Jonah and Alex, the consultant and plant manager from The Goal, discuss why TQM implementations have been so unsuccessful even though there has been general consensus that TQM is the way to go.

There are interdependencies within any organization striving to satisfy customers. Because of the interdependencies, Jonah suggests that organizations are best characterized by a chain rather than a mere pile of links. The Theory of Constraints (TOC), a systems-management philosophy developed by Goldratt, asserts that constraints determine the performance of a system and that any system contains only a few constraints. A constraint is anything that limits a system's performance relative to its goal. To improve the strength of the system one would first find the weakest link (constraint) in the chain and strengthen it.

TQM carries a large bag of powerful techniques. But because the techniques are applied to all of the links, the rate of improvement is slow for the effort expended. When people realize that their efforts are not leading to real improvement in the performance of the company, they start to shy away, giving TQM no more than lip service.

The current malaise in TQM stems from a lack of payoff commiserate with the amount of effort expended to implement TQM everywhere in the organization. TOC provides a means of moving away from a "scattershot" TQM implementation to a focused TQM effort that gives a greatly improved bang for the buck. Applying TOC to TQM, quality efforts are focused on the constraint(s) to achieve rapid results.

Contrary to conventional thinking, Goldratt views constraints as positive, not negative. Constraints provide a focus for the management process. TOC-based management is management with the "blinders" of tradition and local performance removed, allowing a clearer view of the organization's goals and the path toward continuous improvement. The use of TOC to focus TQM is but one instance of its relevance to management practice. The following is a sample of results companies have publicly attributed to TOC.

Results from TOC implementations

Kent Moore Cabinets, Bryan, Texas, is a maker of custom cabinets. By implementing the TOC-based scheduling system (drumbuffer-rope), they reduced their lead time to two days versus an industry average of four weeks. Furthermore, they held employment at 160 people while using TOC-based marketing principles to increase sales from $6 million to $10 million between 1989 and 1991, despite the recession.

The following two companies use TOC in distribution. Binney and Smith, makers of Crayola crayons, previously had very high inventory and yet poor customer service. This situation is quite common in distribution environments. By learning from TOC how to properly position distribution inventory, Binney and Smith achieved a substantial inventory reduction while greatly improving customer service. Binney and Smith does not report numerical results but Proctor and Gamble, which pioneered the application of TOC to distribution, reports a TOC impact of $600 million through inventory reduction as well as elimination of capital improvements by better scheduling of existing facilities.

TOC also has been applied to non-business environments. Both the U.S. Air Force and U.S. Navy recently began to use TOC at facilities that overhaul aircraft. The impact of TOC to date is small, but participants acknowledge that the potential dollar impact is in the billions. Ashridge Management College is an executive education provider in London. They applied TOC to their not-for-profit service operation and in the first year doubled their surplus (and the tutors' annual bonus pool).

These examples are but a few of hundreds of successful TOC implementations. However, there have been failures. Failures occurred when companies did not recognize that managing a chain is fundamentally different from managing links. A mixed system is not viable and is not a true TOC-based system.

A short history

A physicist by education, Goldratt's involvement in business management began when a friend asked him to design a scheduling system for his chicken coop manufacturing business. The plant tripled its output and Goldratt marketed the scheduling system in the U.S. under the trade name OPT.

Because Goldratt initially did not divulge the theory underlying the software, the firms that implemented OPT were forced to follow schedules generated by a "black box." Supervisors found the schedules counter-intuitive and were reluctant to follow them. To remedy...

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