The Theory of Constraints (TOC) may be the most effective business philosophy you have never used (or have never heard of for that matter). Today, as much as any time before, business leaders are overwhelmed with the onslaught of things they think they should pay attention to. Applying the principles of TOC brings clarity to what business leaders should be focusing on – the weakest link.
TOC states that businesses are systems, which can be viewed as chains. The products or services a company provides to its customers are the outputs of those chains. And, the chains are only as strong as their weakest links or constraints.
All businesses have constraints. If they didn’t have constraints, then their potential profit would be infinite. Therefore, when considering what to improve, focus on the constraints. Improving the strength of a link other than the weakest link does not improve the strength of a chain. Time spent improving non-constraints is not nearly as valuable – if valuable at all – as time spent improving the constraints.
To illustrate, let’s use a simple example (see Exhibit 1). There are four stations in the process, each of which is supported by a unique set of resources – human and/or machine. Each station has a given capacity, approximated by the average number of units per day that flow through it. I’ve kept the units general as this can apply to any type of business. The units could represent parts, widgets, code, loans, insurance claims, patients – you name it.
In this example, the constraint is Station 3. Improving the flow of any station other than Station 3 is time wasted. Making improvements to the flow through Stations 1 or 2 would only overwhelm Station 3 and exacerbate the accumulation of inventory, resulting in an inefficient use of capital. Similarly, any improvement in the flow of Station 4 would not improve the flow through the system as it would be starved for inputs due to the constraint of Station 3.
That’s it. It can be that simple. However, it isn’t usually. Typically, improvement initiatives play out like this …
First, an executive team declares “operational excellence” a strategic initiative. As a result, a cross-functional team is spun up, comprised of subject matter experts representing their functional areas. A person is appointed to lead the team.
The team identifies a process or processes it intends to improve. Even at this early stage, many teams struggle in that they do not narrow in tightly enough on one process. They become overwhelmed and bogged down.
Then, the team meets to discuss and agree upon the current state for the identified process(es). This step can be painful and feel like bridging a chasm. It’s amazing how often cross-functional teams disagree on how “it” works today.
Then, they set off to identify pain points. Usually, these are symptoms as opposed to root causes. Identifying a bunch of pain points can feel like progress, but it isn’t necessarily. Next, they set off to brainstorm solutions for the pain points. Given the laundry list of pain points, they end up with a laundry list of solutions. There’s no clear focus.
And it’s in the last few steps above that many improvement efforts fall flat on their faces. They try and solve for pain points that are non-constraints. They spend time and money on solutions that do not yield material improvements.
As John Wooden used to say, “don’t mistake activity for achievement.” While the team may have improved the strength of one or more links in the chain, it did not improve the strength of the weakest link in the chain. And since it did not improve the strength of the chain as a whole, it did not improve the output of the chain, i.e., the products and services it provides to its customers.
If you’re looking for a notable example of success in applying the principles of TOC, then look no further than Amazon. In the book The Everything Store, the author Brad Stone notes that the book The Goal is a favorite of Jeff Bezos. He goes on to write that around 2000, Amazon faced issues with its fulfillment centers (FCs). The FCs were expensive to operate and the output was inconsistent. Bezos wanted to be able to tell customers precisely when their packages would be delivered. At the time, Jeff Wilke was Head of Global Operations and was charged with addressing this issue. He and the team used TOC to solve for the FCs’ constraints, and we all know how that story plays out.
It may sound too simple, but it’s not. The effectiveness is in the simplicity – in the focus it brings.
It helped Amazon. Maybe, it can help your company.