Theory of Constraints

What is the Theory of Constraints?

The theory of constraints (TOC) is a systems-based methodology that identifies and addresses the weakest link—or constraint—in a process or system. A constraint is any factor that limits a system’s ability to achieve its goals, such as a bottleneck, resource shortage, or inefficiency. By focusing on improving the constraint, TOC enhances overall system performance and productivity.

The Basic Idea

Imagine that you are trying to perfect your process for making a homemade vegetable lasagna. Despite your best efforts, it is taking you way too long to be considered an easy weeknight dinner, and you want to identify a more efficient approach. The theory of constraints suggests that you should find out which step in the process is the least efficient and is holding you back. By analyzing each step of the process, you realize that cutting up the vegetables is taking more time than it should. Now that you’ve identified the constraint, you can find efficiencies. You might sharpen your knife, buy a food processor, or cut the veggies beforehand. Once the biggest bottleneck has been eliminated, you can revisit each step of the process to see where other efficiencies may need to be implemented. 

Similarly, businesses use the theory of constraints as a continuous improvement tool by following five focusing steps:

  1. Identify: Find the part of the process that limits the rate at which a goal is achieved.
  2. Exploit: Make quick improvements using existing resources.
  3. Subordinate: Review other steps in the process to ensure they are not putting additional pressure on the limiting constraint.
  4. Elevate: If exploiting existing resources has not eliminated the constraint, consider other ways to diminish it. This often involves a financial investment, potentially in new machinery or additional staff.
  5. Repeat: Once the constraint has been solved, the steps should be repeated to identify the new constraint.1

According to Eliyahu Goldratt, the originator of the theory, even the most complex businesses can be broken down into three measures: throughput (the rate at which the organization generates money), inventory (the total financial investment into things that produce a product or service), and operating expenses (money spent turning inventory into throughput). The theory of constraints aims to help businesses to maximize throughput while minimizing inventory and operating expenses.2

“Since the strength of the chain is determined by the weakest link, then the first step to improve an organization must be to identify the weakest link.”


— Eliyahu M. Goldratt, a business management professional who introduced the theory of constraints in his novel The Goal: A Process of Ongoing Improvement 3

Key Terms

Constraint: The factor(s) that limits an organization from achieving its goals, also referred to as a bottleneck.2

Five Focusing Steps: The methodology behind the theory of constraints, specifying five steps to help identify and address the limiting factor in a process: identify, exploit, subordinate, elevate, and repeat.2

Throughput: The rate at which an organization generates money through the sale of a product or service, which the theory of constraints aims to maximize.2

Inventory: The resources an organization has invested in to create and deliver products or services. This may include facilities, recruitment, materials, products in process, and final products/services. The theory of constraints aims to minimize the money an organization must invest.2

Operating Expenses: The money an organization spends to turn inventory into throughput, which may include labor costs, utilities, and depreciation of assets such as equipment. The theory of constraints aims to minimize operating expenses.2 

Drum-Buffer-Rope: A methodology in the theory of constraints to manage workflows according to the limiting factor. The drum is the constraint that sets the pace, or “beat,” for the entire process, while the buffer is a small amount of time or resources (inventory) placed before the constraint in the workflow to ensure that the drum is never idle. The rope is a communication system that identifies when inventory has been consumed to trigger more inventory to be released into the process without creating excess. For example, if you are baking cookies, the oven would be the constraint as it takes ten minutes to bake one tray, the buffer would be having another tray of dough ready to go in the oven, and the rope would be eyeing the amount of dough left and mixing more when it gets low.1

Continuous Improvement: A philosophy where an organization is constantly making an effort to improve products, services, or processes. In the five focusing steps of the theory of constraints, the repeat step ensures an organization is always seeking new efficiencies.4

History

Israeli academic Dr. Eliyahu M. Goldratt spent his early career helping Israeli manufacturers to be more efficient and successful. This experience led him to notice a few issues with traditional management practices. Oftentimes, organizations were too focused on making improvements to individual departments or steps in a process without considering the entire workflow or system. Additionally, companies were too fixated on maximizing throughput without considering constraints and customer demand, leading to overproduction and waste.5 

As a response to these gaps, Goldratt founded Creative Output in 1979, which produced Optimized Production Technology (OPT). OPT was the first software that addressed overproduction by recognizing that resources (machinery or labor) have production limits and helped to build a realistic production schedule based on these constraints. Although OPT was successful, it did not gain a lot of attention, as people did not have enough knowledge about the role constraints played within a system.6

To help OPT and Creative Output gain more relevance, Goldratt co-authored the book The Goal: A Process of Ongoing Improvement in 1984 with business author Jeff Cox to explain the theory of constraints. The book uses a fictional story about Alex Rogo, a manager at the UniCo factory. Although on paper, UniCo is efficient, their customer orders are months overdue, and they are at risk of shutting down due to the expensive costs of order delays.7 Rogo goes on to find two bottlenecks that were causing the delays and addresses them to save the factory.6 The book uses the fictional story of UniCo to describe the five focusing steps and emphasize the need to maximize throughput while minimizing inventory and operating expenses.8 The book also outlined how OPT produces schedules using the Drum-Buffer-Rope tool.

The Goal was a huge success, with many businesses adopting the theory of constraints, catapulting Goldratt to fame. In 1992, two preliminary steps were added to the five steps of the theory of constraints: identify the goal of the system and determine global performance measures. These additional steps emphasized the importance of understanding objectives and key performance indicators to be able to accurately identify constraints.6 

Since the 1980s and 90s, the theory of constraints has been adopted by many as a project management philosophy, going beyond supply chain management to be used in other fields such as retail, healthcare, and education.9

People

Eliyahu Goldratt

An Israeli academic turned business professional who developed the theory of constraints. Originally, Goldratt left academia to found Creative Output, where he developed Optimized Production Technology to help companies build production schedules based on constraints.5 He later developed Critical Chain Project Management, which tackles inefficiency by identifying the series of dependent tasks that take the longest duration within a project.10 Goldratt later founded the Goldratt Group, a platform to help businesses become more efficient in production, supply chain and distribution, and project management.5  

Jeff Cox

An American businessman and author of many influential business books such as Zapp! and The Quantum Leap, Cox co-wrote The Goal with Eli Goldratt.11 He is well known for turning management philosophies into accessible and engaging stories, helping Goldratt turn his theory of constraints into a popular business book. Cox is oftentimes left out of discussions surrounding The Goal as it seems there was a professional difference of opinion between him and Goldratt.12 

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Impacts

The theory of constraints profoundly impacts organizations by identifying and addressing bottlenecks within systems. By focusing on the weakest link, it drives improvements in profitability, operational efficiency, and decision-making, helping businesses achieve their goals more effectively.

Increased Profits

Most businesses aim to make as much money as possible. To accomplish this, they must invest in inventory and operating expenses and strive to maximize throughput. The process of turning inventory into throughput is a set of interconnected tasks. The theory of constraints helps companies find the weakest link in the process and take action to address the bottleneck. By eliminating the constraint, a business can create throughput quicker and more efficiently, leading to more sales and greater profits.2 In fact, a 1998 international study exploring the early impacts of implementing the theory of constraints revealed that across over 100 case studies, there was a 68% revenue increase and an 82% profit increase on average.13

Enhanced Operations

The theory of constraints not only boosts profits by increasing throughput but also makes operations more efficient. Analyzing a system as a whole, rather than independent departments or processes, helps organizations to understand the relationship between steps and streamline their workflow.9

The second step of the theory of constraints—exploit—also asks businesses to consider what can be done quickly with existing resources to reduce the constraint, allowing the company to make small tweaks that improve efficiencies before investing in additional support.

Improved Decision-Making

Unlike some project management tools, the theory of constraints provides a simple, structured methodology to approach complex systems.1 By bringing attention to the constraint, the theory helps decision-makers prioritize the area that requires the most consideration and guides them on where to put their resources. If the bottleneck isn’t addressed, it doesn’t matter how efficient the other steps of the process are; focusing on the constraint means that leaders can direct their efforts toward the area that will have the most impact on profits.14

Controversies

While the theory of constraints offers a practical approach to improving processes, it has faced criticism for its limitations. Critics argue that it oversimplifies complex systems, focuses on reactive rather than proactive solutions, and neglects external factors that can impact performance.

Oversimplification of Complex Processes

The theory of constraints encourages companies to identify the weakest link in the chain. However, steps within a process are intertwined and can have nonlinear relationships. The assumption that there is a single constraint that can be identified is criticized for oversimplifying the complex reality of organizational processes.15 

Additionally, by making improvements to one constraint at a time, the theory ignores that changes in one aspect of a production line or project will have ramifications on other parts of the chain. It’s difficult to identify if the other steps are working at the desired efficiency. While the five focusing steps include a repeat step to identify the new constraint, it could save a company time and resources to approach implementing efficiencies more holistically.15 

For example, let’s say an auto manufacturing company aims to produce 100 cars per day. The manager identifies that engine installation is the bottleneck, as it can only install 80 engines per day, and assumes that all the other components of the process can handle manufacturing 100 cars per day. The company invests in new machines that make engine installation more efficient. However, now that the engine installation is producing 100 cars per day, they realize that the quality inspection team is unable to inspect that many cars, and now, that part of the process needs to be addressed. Unless a company has unlimited resources to invest in new equipment or labor, it’s important to understand the relationships between steps, which the theory of constraints sometimes fails to do.

Reactive Instead of Proactive

The theory of constraints focuses on current limitations within an existing process. It addresses problems that are already occurring instead of preemptively identifying risks that may occur. It is a reactive management tool focused on short-term efficiencies by looking at one constraint at a time instead of making assumptions and projections for future operations. 

With such a strong focus on current problems, the tool does not provide guidance for anticipating risks or looking for future opportunities. For example, if a hospital identifies that the triage process creates a bottleneck, with patients waiting too long to be assessed by a nurse, they may add more triage nurses to fix the immediate problem. Instead, they may want to proactively look into alternative strategies—like using a telemedicine platform—that could reduce the number of patients visiting the hospital. 

Ignores External Factors

Another issue with the theory of constraints is that it’s focused on internal systems and processes and assumes that constraints can be controlled. However, sometimes the bottleneck is external. It could be that the supply chain is unable to keep up with the desired throughput goal. Although a company can try to find a new supplier, that’s not always possible. 

There are also fluctuating external factors that impact an organization. For example, customer demand for skis may change with the seasons. The theory of constraints tries to limit inventory to reduce costs, but that may not be the best plan for seasonal items. For example, the ski company may spend a lot of money on resources to keep up with customer demand for skis during the winter and find themselves with excess supply in the summer months. Instead of making the process as efficient as possible, it may actually be wise to invest in more storage during the summer months to hold excess inventory.15

Case Studies

Reducing Chemotherapy Wait Times

MBA Students from the Avraham Y Goldratt Institute, founded by Eli Goldratt and named in honor of his father, applied the theory of constraints to improve cancer therapy treatment in a large public hospital.16 Patients were experiencing long waiting times for treatment, which led to fluctuating workloads for hospital staff and high stress levels. To improve both the patient and staff experience, they applied the theory of constraints to see where the bottleneck was.

By looking at the process from the moment a patient arrives to when they are administered chemo, they found that the bottleneck was waiting for the treatment drug to be created by the pharmacy. The pharmacy was waiting for the doctor to review blood test results, check the patient, and confirm treatment before making the drug. This led to patients having to wait a long time for the drug to be made and delivered to the cancer center and nurses working overtime to handle the large number of waiting patients. To diminish these constraints, the students suggested that the pharmacy make drugs ahead of time after a doctor has planned the treatment course but before the doctor has confirmed treatment through patient assessment.

They conducted a four-week pilot to see if it would improve patient wait times and staff overtime. They found that the maximum wait time for patients was reduced from four hours to 30 minutes, and nurse overtime was reduced from 61 hours to 23 hours per week. However, this led to a new constraint: greater wastage costs for pharmacy drugs that were made ahead of time and then not used. The students revised the process so that the pharmacy only made low-cost drugs ahead of confirmation but waited for the doctor’s confirmation for high-cost drugs. While this increased the wait time for patients waiting for high-cost drugs, it was only to a moderate degree since there were fewer low-cost drug patients taking up time in the waiting room. 

This case study shows the importance of the repeat step of the five focus steps, as eliminating one constraint had led to another. By making the second change, the hospital reduced waiting times, increased patient satisfaction, and increased efficiencies for the pharmacy and clinic, all while minimizing wastage costs. 

Improving a Fast Food Restaurant Model

A leading worldwide fast-food restaurant implemented a new system where food is made for a customer after it is ordered rather than ahead of time.17 Although this provides fresher food and avoids waste, this model led to long service times, which reduced profitability. The restaurant approached Marris Consulting, a management consultant company specializing in the theory of constraints, for guidance on how to keep the model but reduce wait times and boost profits. 

Marris Consulting visited the restaurant to understand the process. They identified that the bottleneck was the assemblage of a customer’s order (i.e., putting a burger, fries, and drink together on a tray). Not only did it take a long time, but it was a chaotic process that led to many order mistakes which then had to be rectified. To eliminate the constraint, they implemented full-kitting in the kitchen—cooks would tackle one order at a time instead of having different cooks work on different items of the order. That meant it didn’t have to be reassembled after. 

Marris Consulting’s advice led to a 60% reduction in service times, they experienced 7 times fewer order returns as there were fewer mistakes, and overall, they saw an increase in profits. By implementing the theory of constraints, the restaurant was able to maintain its new model while still offering quick customer service and driving profits.

Related TDL Content

Behavioral Product Roadmap Example

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What is a Balanced Scorecard?

A tool that may help companies implement the theory of constraints is a balanced scorecard, a strategy management framework that measures organizational performance in four key areas: financial performance, customer satisfaction, internal business processes, and learning and growth. In this reference guide, our writer, Annika Steele, explains a balanced scorecard and explores when and how it can be used to improve organizational performance.

Sources

  1. Lean Production. (n.d.). Theory of constraints (TOC). Lean Production. Retrieved December 17, 2024, from https://www.leanproduction.com/theory-of-constraints/
  2. Rattner, S. (2006, September 8). What is the theory of constraints and how does it compare to lean thinking? Lean.org. Retrieved December 17, 2024, from https://www.lean.org/the-lean-post/articles/what-is-the-theory-of-constraints-and-how-does-it-compare-to-lean-thinking/
  3. Goldratt, E. M. (n.d.). Author quotes. Goodreads. Retrieved December 17, 2024, from https://www.goodreads.com/author/quotes/66037.Eliyahu_M_Goldratt
  4. American Society for Quality. (n.d.). Continuous improvement. ASQ. Retrieved December 17, 2024, from https://asq.org/quality-resources/continuous-improvement?srsltid=AfmBOoomNACyhtOD3ZVs3QKmkXYHDbubJ8cQEVZGVgAzUnEikM2g6LlA
  5. The TOC Institute. (n.d.). Eliyahu M. Goldratt. The TOC Institute. Retrieved December 17, 2024, from https://www.tocinstitute.org/eliyahu-goldratt.html
  6. Şimşit, Z. T., Günay, N. S., & Vayvay, Ö. (2014). Theory of constraints: A literature review. Procedia - Social and Behavioral Sciences, 150, 930-936. https://doi.org/10.1016/j.sbspro.2014.09.107
  7. LitCharts. (n.d.). Alex Rogo. In The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt. LitCharts. Retrieved December 17, 2024, from https://www.litcharts.com/lit/the-goal-a-process-of-ongoing-improvement/characters/alex-rogo
  8. Six Sigma Daily. (2022, October 14). Eli Goldratt’s novel and the theory of constraints. Six Sigma Daily. Retrieved December 17, 2024, from https://www.sixsigmadaily.com/eli-goldratt-novel-theory-of-constraints/
  9. The TOC Institute. (n.d.). Theory of constraints (TOC) of Dr. Eliyahu Goldratt. The TOC Institute. Retrieved December 17, 2024, from https://www.tocinstitute.org/theory-of-constraints.html
  10. Genius ERP. (n.d.). What you need to know about critical chain project management. Genius ERP. Retrieved December 17, 2024, from https://www.geniuserp.com/resources/blog/what-you-need-to-know-about-critical-chain-project-management/
  11. Cox, J. (n.d.). Jeff Cox. JeffCox.com. Retrieved December 17, 2024, from https://www.jeffcox.com/
  12. Scopelliti, N. (n.d.). Jeff Cox: The goal’s unsung hero. We Are The Practitioners. Retrieved December 17, 2024, from https://www.wearethepractitioners.com/index.php/topics/warehouse-operations/theory-constraints-warehouse/jeff-cox-goals-unsung-hero
  13. Balderstone, S. J., & Mabin, V. J. (n.d.). A review of Goldratt’s theory of constraints (TOC): Lessons from the international literature. Victoria University of Wellington, School of Business and Public Management. Retrieved December 17, 2024, from https://www.tocinstitute.org/uploads/1/2/7/9/12796657/toc_impact_study.pdf
  14. River Logic. (n.d.). Eight things you need to know about the theory of constraints. River Logic. Retrieved December 17, 2024, from https://riverlogic.com/?blog=eight-things-you-need-to-know-about-the-theory-of-constraints
  15. Lead by Design. (2023, February 18). Theory of constraints for improved performance. Lead by Design. Retrieved December 17, 2024, from https://www.lead-by-design.com/theory-of-constraints-for-improved-performance/
  16. Mabin, V. J., et al (2020). The theory of constraints in healthcare: An examination of its application and impact. TOCICO. Retrieved December 17, 2024, from https://cdn.ymaws.com/www.tocico.org/resource/resmgr/2020_conference/pdfs_for_download/mabin_et_al_healthcare2_oexi.pdf
  17. Marris Consulting. (2019, December 17). The theory of constraints in action. YouTube. Retrieved December 17, 2024, fromhttps://www.youtube.com/watch?v=KcEoaesB6C8&t=992s

About the Author

Emilie Rose Jones

Emilie Rose Jones

Emilie currently works in Marketing & Communications for a non-profit organization based in Toronto, Ontario. She completed her Masters of English Literature at UBC in 2021, where she focused on Indigenous and Canadian Literature. Emilie has a passion for writing and behavioural psychology and is always looking for opportunities to make knowledge more accessible. 

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