Before introducing TOC, let’s see what definition do word “Constraint” has in our dictionary.
Something that obstructs, right? But that is what we call an obstacle as well. Are obstacles & constraints the same then? NO!
An obstacle is a limitation that can be overcome immediately whereas a constraint is a limitation that cannot be overcome for a period of time. That’s where we introduce TOC to exploit this constraint!
The Theory of Constraints is a methodology for identifying the most important limiting factor (i.e., constraint) that stands in the way of achieving a goal and then systematically improving that constraint until it is no longer the limiting factor
As you can see from the above picture, the Theory of Constraints breaks down into five steps:
- Identify the constraint
- Exploit the constraint
- Subordinate everything else to the constraint
- Elevate the constraint
- Don’t stop. Go, find the next constraint
Say, you run a dairy and you have three potential customers A, B & C.
Day 1
Milk at your dairy = 30L.
A comes with an unusual demand of 15L.
B too comes with the same unusual demand.
Stock Out!
Later when C came, he left disappointed.
Day 2
Milk at your diary=30L
C took 20L today. He doesn’t trust your capacity.
B came and took the rest of 10L.
Stock Out!
I left disappointed.
Day 3
Milk at your diary=40L
B and A respectively took their usual 10L today.
C didn’t even come.
Excess stock called but still wasted? What do we do now?
Disappoint either one of the customers daily? NO!
Excess Stock Wastage? Big NO!
You see, we are facing the challenge of balancing both shortage & excess stock. And the biggest challenge is we are losing our customers. Customer’s loss means we may lose to our competitors as well. What do we do now? How do we penetrate the market?
This is where THEORY OF CONSTRAINTS comes into the picture!
Constraint identified here: Market penetration!
What do we do? You don’t let your customer go dissatisfied! How? If we bring in excess stock, we are definitely heading to the problem of wastage. And if we go ahead with optimized inventory, we are gonna lose any customers?
Let’s balance both!
- Bring in the optimized inventory
- Don’t let the customers go empty-handed too.
Wait is that possible? Yes, let’s exploit the constraint. You satisfy each of the potential customers at least partially ( through rationing), if not fully.
Also, you ensure that there is the least wastage.
Day 4
Milk at your diary=30L
A needs 15L, show him just 10L.
B needs 10L, give him 10L
C would be fulfilled with 10L.
Now, there would be the least wastage while three of your POTENTIAL customers would still be satisfied.
You’re getting how you exploited this situation through rationing 10L to each? This way, you balance out both your shortage & excess inventory constraint 😉
That is how TOC helps.
Shoot in the comments, if you want more such discussions!
I’m sure you don’t want to receive this mail in your spam! So, if it’s so, please go through spam, and select the mail. A window on the top right corner will pop up, click on “Move to” and select “Primary”. There you go, you’re part of the newsletter now 🙂