Tag Archives: theory-of-constraints

Theory of Constraints spelling

Yeah I misspelled Theory of Constraints in my rush to post earlier. I don’t normally spell it Thoery of Contraints.

I thought I’d add another point that I learned from The Goal. In business accounting Inventory is an asset, which normally means it is a good thing. However inventory must be insured, counted, protected and marketed. Inventory becomes obsolete. Inventory consumes working capital. You can go broke with inventory.

As an exercise, value your inventory at fire sale prices. Then realise that someone, somewhere in the world is offering a product that is a replacement for yours at a fire sale price.

Inventory is only an asset at the moment it is turned into cash – not sold, but when you actually get paid.

Theory of Constraints

I got a question on my mention of Theory of Constraints (TOC) in an earlier post.

As my factory production has reached capacity, my most critical goal is to introduce TOC into my production facility. I first heard of the Theory of Constraints in the book The Goal by Eliyahu M. Goldratt and Jeff Cox.

The TOC is based on the view that there is some essential limiter in a system, i.e. at least one bottleneck. Overall increases in production can only be achieved by increasing the throughput of that bottleneck.

The steps to implement TOC are:

  1. Identify the constraint (bottlenecks are identified by inventory pooling before the process)
  2. Exploit the constraint (increase its utilisation and efficiency)
  3. Subordinate all other processes to the constraint process (other processes serve the bottleneck)
  4. Elevate the constraint (if required, permanently increase bottleneck capacity)
  5. Rinse and repeat (after taking action, the bottleneck may have shifted or require further attention)

source wikipedia article on Theory of Contraints

I’ll provide updates here on how the process at my factory goes.

You can buy the book from Amazon