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What is the Theory of Constraints?

By Henry Gaudet
Updated May 17, 2024
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The Theory of Constraints is a business philosophy first put forward in 1984 by Dr. Eliyahu M. Goldratt. In his novel The Goal, Goldratt suggests that productivity in any system is hampered by limitations or bottlenecks slowing down a few key processes. Goldratt refers to these choke points as constraints, from which he derives the name of his theory, and he states that every system has at least one constraint limiting its maximum capacity. His Theory of Constraints offers a five-step procedure designed to improve efficiency, productivity and profitability by managing or circumventing these constraints, thereby increasing the capacity of the entire system.

Goldratt’s Theory of Constraints takes a logic-based approach to problem solving and relies on measurable data to determine goals. The three measurements that attract his focus are throughput — usually defined in terms of sales, operating expense and inventory. He suggests that by following his five-step process, throughput can increase while operating expense and inventory decline, making the entire operation more profitable.

Implementation of the Theory of Constraints is a fairly straightforward process. The first step is of course to identify a single constraint, ideally the most restrictive bottleneck in the entire system. Next, in a process Goldratt calls “exploiting the constraint,” the activities of the chosen constraining element are examined, with special attention given to dedicating that element to maximum efficiency focused entirely on a single primary function, thus ensuring that efforts relating to the constraint are on task and not wasted on any nonessential activity.

In the next step, focus shifts away from the constraint to the activities and processes being delayed, or non-constraint resources. Rather than slowing these elements to match the pace of the constraint, down time from these other resources is subordinated to help overcome the constraint’s limitations. Under this system, elements previously left idle would shift to a secondary task, which helps reduce the constraint’s restriction. So, for instance, warehouse crews waiting for finished product might help with manufacturing or packaging to speed production.

After this subordination is accomplished, it must be determined if productivity has been increased sufficiently. If not, more drastic changes might be required to elevate the constraint’s capacity. Once the bottleneck is overcome and it no longer slows the rest of the system, it is no longer a constraint. The final step in using the Theory of Constraints is to return to the first step and identify a new constraint.

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Discussion Comments
By hamje32 — On Oct 01, 2011

@everetra - All of these are good points, but I just want to reiterate what the article says about the theory of constraints.

Eliminating bottlenecks does not necessarily mean firing people. Sometimes it means helping to improve efficiencies or doing some additional training of workers.

I don’t think that we should automatically equate removing bottlenecks with removing employees. We identify the constraint first, then begin asking ourselves why it exists and how it can be eliminated. Ideally, in my opinion, we can do this without letting people go.

By everetra — On Sep 30, 2011

@Charred - I agree, but I think that sometimes it’s tricky to identify where the actual constraint is, especially in a large corporation.

It seems that everyone is trying to protect their job. Blame gets shifted very easily and often managers don’t know all the duties that employees perform, so it becomes difficult to make a qualitative analysis about who to keep and who to let go, in my opinion.

By Charred — On Sep 30, 2011

@allenJo - I think that during a down time or economic recession people naturally implement the theory of constraints, although they may not be doing it formally as described in the article.

Every company, when squeezed, looks for ways to trim its budget and improve productivity. I agree with you that it all comes down to people.

Businesses try to get rid of what they not so affectionately call “dead wood” in order to create a lean, mean operating machine, poised for growth when the economy picks up.

By allenJo — On Sep 29, 2011

Reading about the theory of constraints management reminds me of the old adage, any organization is only as strong as its weakest link.

Of course, while we can discuss constraints as an abstract concept, ultimately constraints come down to people one way or another. I agree that sales or the lack thereof is one of the biggest constraints.

Our small business sells software, and for all practical purposes can only stay in business by continually selling software. We hire top-notch sales people to sell the product, and if they can’t deliver they don’t stay with the company for too long.

Nonetheless, we do hit a lull during the summer months. Everybody’s on vacation. What can we do then? We have to pick up the slack for this constraint, as the article says. So we use the time for marketing repositioning, so that when the fall season rolls around we hit the ground running.

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