SUBMITTED TO:

SIR FAISAL JOYIA

SUBMITTED BY:
HAMZA HUSSAIN (1004)
ZEESHAN YOUNAS(1005)
SHAHBAZ ALI (1020)
FIZA FATIMA(1031)
TALHA SAEED(1048)
ZAID HASSAN (1052)
GROUP NO:
2
SECTION:
A DOMS
TOPIC:
THEORY OF CONSTRAINT AND
CONSTRAINT MANAGMENT

UNIVERSITY OF OKARA
WHAT IS THE THEORY OF CONSTRAINTS?
The Big Idea – Every process has a constraint (bottleneck) and focusing improvement efforts on
that constraint is the fastest and most effective path to improved profitability.
The Theory of Constraints is a methodology for identifying the most important limiting factor
(constraint) that stands in the way of achieving a goal and then systematically improving that
constraint until it is no longer the limiting factor. In manufacturing, the constraint is often
referred to as a bottleneck. The Theory of Constraints takes a scientific approach to
improvement. It hypothesizes that every complex system, including manufacturing processes,
consists of multiple linked activities, one of which acts as a constraint upon the entire system
(i.e. the constraint activity is the “weakest link in the chain”).
So what is the ultimate goal of most manufacturing companies?
 To make a profit – both in the short term and in the long term. The Theory of Constraints
provides a powerful set of tools for helping to achieve that goal, including:
i. The Five Focusing Steps (a methodology for identifying and eliminating constraints)
ii. The Thinking Processes (tools for analyzing and resolving problems)
iii. Throughput Accounting (a method for measuring performance and guiding management
decisions)
 The Five Focusing Steps of Theory of Constraints

What Is the Focusing Process?

If at least one constraint is limiting the success of a project, then the obvious solution is to
identify that constraint. However, even if you remove all the constraints, the project won’
tnecessarily succeed. There are always other risks and mitigating factors at play. But if onecan
remove constraints, then the path to success is that much clearer.

The focusing process is the instrument by which constraints can be found and, therefore, dealt
with. What it really does is provide a roadmap to handle the constraint once it has been
discovered.

The following five steps are designed to help you discover constraints early in order to minimize
or eliminate them.
Identify the constraint: Identify the specific part of a process that is keeping you from meeting
desired goals. Constraints can come from internal factors, such as lack of training or poorly
designed processes, or external factors, such as a shortage of materials.

Exploit the constraint: Determine how you can work with existing resources to reduce the
impact of the constraint. For example, if the constraint is an overworked employee, redistribute
assignments to get the work done.

Subordinate and synchronize to the constraint: The parts of the process that are not
constraints need to align with and support the constraint. For example, a construction worker can
only use one tool at a time. You wouldn’t keep trying to hand him wrenches or screwdrivers
while he is using a hammer.

Elevate the performance of the constraint: If the constraint still exists, you will need to make
it a higher priority. For example, you may need to hire more people to increase the workflow in
the area where the constraint exists. 

Repeat the process as needed: TOC is an ongoing process that allows you to continually find
ways to improve. You will need to repeat these steps to ensure that you are getting the work done
and meeting goals.
 Theory of Constraints Thinking Process

The theory of constraints also includes a 5-step theory of constraints thinking process designed to
organize the thought process involved in approaching a bottleneck and trying to resolve
the problem relating to the constraint.

The five steps are as follows:

I. First, the people involved must agree on the problem. That is, they must all agree which
factor is the bottleneck.
II. Second, the people involved must agree on what sort of solution is required. This could be
something like increasing the output of machine number three in the production process.
III. The third step is to get everyone to agree that the solution will resolve the problem. That is,
the proposed solution is the correct action for eliminating the bottleneck in question.
IV. The fourth step is to look past potential negative ramifications of the process.
V. Finally, the fifth step is to overcome any hindrances to the implementation of the solution to
the problem.

 Throughput Accounting Throughput Accounting is an alternative accounting methodology

that attempts to eliminate harmful distortions introduced from traditional accounting
practices – distortions that promote behaviors contrary to the goal of increasing profit in the
long term.
In traditional accounting, inventory is an asset (in theory, it can be converted to cash by selling
it). This often drives undesirable behavior at companies – manufacturing items that are not truly
needed. Accumulating inventory inflates assets and generates a “paper profit” based on inventory
that may or may not ever be sold (e.g. due to obsolescence) and that incurs cost as it sits in
storage. The Theory of Constraints, on the other hand, considers inventory to be a liability –
inventory ties up cash that could be used more productively elsewhere.

In traditional accounting, there is also a very strong emphasis on cutting expenses. The Theory of
Constraints, on the other hand, considers cutting expenses to be of much less importance than
increasing throughput. Cutting expenses is limited by reaching zero expenses, whereas
increasing throughput has no such limitations.

These and other conflicts result in the Theory of Constraints emphasizing Throughput
Accounting, which uses as its core measures: Throughput, Investment, and Operating Expense.

Core Measures Definition

Throughput The rate at which customer sales are
generated less truly variable costs
(typically raw materials, sales
commissions, and freight). Labor is not
considered a truly variable cost unless
pay is 100% tied to pieces produced.
Investment Money that is tied up in physical things:
product inventory, machinery and
 equipment, real estate, etc. Formerly
referred to in TOC as Inventory.
Operating Expense Money spent to create throughput, other
than truly variable costs (e.g. payroll,
utilities, taxes, etc.). The cost of
maintaining a given level of capacity.

In addition, Throughput Accounting has four key derived measures: Net Profit, Return on
Investment, Productivity, and Investment Turns.

 Net Profit = Throughput − Operating Expenses

 Return on Investment = Net Profit / Investment
 Productivity = Throughput / Operating Expenses
 Investment Turns = Throughput / Investment

In general, management decisions are guided by their effect on achieving the following
improvements (in order of priority):

 Will Throughput be increased?

 Will Investment be reduced?
 Will Operating Expenses be reduced?

The strongest emphasis (by far) is on increasing Throughput. In essence, TOC is saying to focus
less on cutting expenses (Investment and Operating Expenses) and focus more on building sales
(Throughput).

Drum-Buffer-Rope

Drum-Buffer-Rope (DBR) is a method of synchronizing production to the constraint while

minimizing inventory and work-in-process.

The “Drum” is the constraint. The speed at which the constraint runs sets the “beat” for the
process and determines total throughput.
The “Buffer” is the level of inventory needed to maintain consistent production. It ensures that
brief interruptions and fluctuations in non-constraints do not affect the constraint. Buffers
represent time; the amount of time (usually measured in hours) that work-in-process should
arrive in advance of being used to ensure steady operation of the protected resource. The more
variation there is in the process the larger the buffers need to be. An alternative to large buffer
inventories is sprint capacity (intentional overcapacity) at non-constraints. Typically, there are
two buffers:

 Constraint Buffer (immediately before the constraint; protects the constraint)

 Customer Buffer (at the very end of the process; protects the shipping schedule)

The “Rope” is a signal generated by the constraint indicating that some amount of inventory has
been consumed. This in turn triggers an identically sized release of inventory into the process.
The role of the rope is to maintain throughput without creating an accumulation of excess
inventory.

 A successful Theory of Constraints implementation will have the following

benefits:
a) Increased profit (the primary goal of TOC for most companies)
b) Fast improvement (a result of focusing all attention on one critical area – the system
constraint)
c) Improved capacity (optimizing the constraint enables more product to be manufactured)
d) Reduced lead times (optimizing the constraint results in smoother and faster product flow)
e) Reduced inventory (eliminating bottlenecks means there will be less work-in-process)

 CONSTRAINT MANAGEMENT
he constraint management model identifies performance standards for employees andseeks to
improve operational efficiency. A business using constraint management requires structured
schedules for collecting raw materials, creating products and delivering products to consumers.
Performed properly, this model of management can
greatly improve the lag time between steps in a company's production process.
Constraint Management Definition
Constraint management is a tool used by supervisors and other management personnel to help
employees maintain task focus. According to Goal Systems International, a Washington-based
business consulting firm, constraint management seeks to help employees and supervisors
remain locked in on the most important element of business success: system constraints. These
constraints, or necessary conditions for reaching a goal, vary by business and can include
meeting manufacturing output quotas, completing products in a timely manner or
obtainingspecific customer satisfaction scores on product surveys. Constraint management
believes that losing focus on these key elements can spell disaster for a workforce and the
business as a whole.
Identify System Constraints
A business owner or supervisor using the constraint model of management can't focus
employees on system constraints without first identifying those constraints. Naming the
constraints that are integral to a company's success, including company work policies and
manufacturing standards, sets up clear expectations for employees regarding performance and
productivity. Stating these constraints clearly to employeesin simple language ensures that
workers understand expectations and how to operate within those parameters. Disciplining
employees who do not meet these expectations is necessary to preserve the integrity of system
constraints.

Exploiting the Constraint

Maximizing production through a particular system constraint is integral for a companyto receive
the highest profit from an existing capacity limit. According to Rockford Consulting Group, an
Illinois-based management consulting firm, exploiting the constraint is the process by which a
company maximizes profit through use of a given system constraint. For example, streamlining a
manufacturing process by eliminating an unnecessary production step helps maximize profit and
doesn't change the company's existing capacity limitation. A capacity limitation can be money,
raw materials or number of workers needed to create a product.
Improve
Constraint Gaps
The constraint management model seeks to improve gaps between constrained resources and
nonconstrained resources. Tying the completion of project steps by nonconstrained resources to
completion by constrained resources improves operational efficiency and closes gaps in
schedules. For example, slowing down the production schedules of raw material deliveries and
product shipping allows constrained product manufacturing to finish items without accumulating
a huge backlog of building materials and shipping demands. This keeps the three departments
working as one unit without any one department waiting around for the others to catch up in the
production cycle