The Science of Management
Theory of Constraints (TOC) is a management paradigm that considers that any system is limited to achieve more than its objective goals by a very small number of constraints.
There is always at least one constraint, and TOC uses a focus process to identify the constraint and restructure the rest of the organization around it.
TOC adopts the common language "a chain is not stronger than its weakest link". This means that processes, organizations, etc., are vulnerable because the weakest person or party can always damage or break them, or at least negatively affect their results.
The Theory of Constraints (TOC) is a Management philosophy introduced by Eliyahu M. Goldratt in his book entitled The Goal in 1984, which is aimed at helping companies achieve more of their goal continuously. Goldratt produced many other works. Some of the most notable are:
La Carrera (The Race, 1986) further develops the logistics system called drum-buffer-rope (DBR), based on metaphors developed in La Meta.
The Haystack Syndrome (1990) delves into the idea of performance measurements, examines the differences between data and information and explains the logic of the need for information. What is This Thing Called Theory of Constraints and How Should it be Implemented, 1990, addresses the five approach steps of continuous improvement and the foundations of Thought processes.
It's Not Luck, 1994, applies TOC to marketing, distribution and business strategy; Goldratt illustrates the use of Thought processes to address policy constraints.
Critical Chain, 1997, applies TOC to project management and illustrates the Critical Chain method of managing projects while commenting on the MBA academic environment and its problems. Necessary But Not Sufficient (2000) applies TOC to enterprise resource planning (ERP) and operating software.
His latest works:
The Choice, 2008, talks about the approach that makes Goldratt reflect, this time through a conversation with his daughter Efrat, while explaining his fundamental belief system.
The Choice, Revised Edition, 2010, the revised edition includes Efrat's own notes he made during the conversation with his father, helping the reader determine the true essence of the book.
Isn't it Obvious, 2009, Her latest book focuses on retail. Ilan Eshkoli and Joe Leer Brown are co-authors. The story is about a husband (manager) and wife (buyer) who work at their family's retail chain. An unexpected crisis helps them find new ways of doing things, ending successfully.
The underlying premise of constraint theory is that organizations can be measured and controlled by variations in three measures: performance, operating expenses, and inventory. Inventory is all the money the system has invested in buying things it intends to sell. Operational expense is all the money the system spends to convert inventory into performance. Yield is the rate at which the system generates money through sales.
Before the goal can be achieved, the necessary conditions must be met. These generally include safety, quality, legal obligations, etc. For most companies, the goal itself is to make money. However, for many non-profit organizations and companies, earning money is a necessary condition for achieving the goal. Whether it's the goal or a necessary condition, understanding how to make sound financial decisions based on performance, inventory, and operating expenses is a critical requirement.