What is the Theory of Constraints, and How Does it Compare to

Lean Thinking?
We invite you to respond to us with your opinion on the topic. We will post the best responses
below.

By The Lean Enterprise Institute

The following article reviews the Theory of Constraints (TOC), first published in The Goal by
Eliyahu M. Goldratt and Jeff Cox in 1984, and compares it with Lean Thinking, as described
by James P. Womack and Daniel T. Jones in Lean Thinking in 1996.

What is the Theory of Constraints?

The Theory of Constraints is an organizational change method that is focused on profit

improvement. The essential concept of TOC is that every organization must have at least one
constraint. A constraint is any factor that limits the organization from getting more of whatever
it strives for, which is usually profit. The Goal focuses on constraints as bottleneck processes
in a job-shop manufacturing organization. However, many non-manufacturing constraints
exist, such as market demand, or a sales department’s ability to translate market demand into
orders.

The Theory of Constraints defines a set of tools that change agents can use to manage
constraints, thereby increasing profits. Most businesses can be viewed as a linked set of
processes that transform inputs into saleable outputs. TOC conceptually models this system
as a chain, and advocates the familiar adage that a "chain is only as strong as its weakest
link." Goldratt defines a five-step process that a change agent can use to strengthen the
weakest link, or links. In The Goal, Goldratt proves that most organizations have very few true
constraints. Since the focus only needs to be on the constraints, implementing TOC can result
in substantial improvement without tying up a great deal of resources, with results after three
months of effort.

The Five Steps of the Theory of Constraints

1. Identify the System Constraint

The part of a system that constitutes its weakest link can be either physical or a
policy.

2. Decide How to Exploit the Constraint

Goldratt instructs the change agent to obtain as much capability as possible from a
constraining component, without undergoing expensive changes or upgrades.

An example is to reduce or eliminate the downtime of bottleneck operations.

3. Subordinate Everything Else

The non-constraint components of the system must be adjusted to a "setting" that will
enable the constraint to operate at maximum effectiveness. Once this has been done,
the overall system is evaluated to determine if the constraint has shifted to another
component. If the constraint has been eliminated, the change agent jumps to step
five.

4. Elevate the Constraint

 "Elevating" the constraint refers to taking whatever action is necessary to eliminate
the constraint. This step is only considered if steps two and three have not been
successful. Major changes to the existing system are considered at this step.

5. Return to Step One, But Beware of "Inertia"

Goldratt cautions practitioners about becoming complacent. TOC is an on-going process, and
the inertia that can build up after a change occurs can actually serve to prevent continuous
improvement.

Goldratt also provides a foundation for achieving change through TOC by defining a set of
three essential measurements that drive the change process. He correctly realized that
conventional accounting systems do not support TOC, or lean-based efforts. Goldratt
proposes replacing all traditional measures derived from the "product cost" accounting
paradigm. The following measures are the only way to increase profit through TOC:

Throughput

The rate at which the entire organization generates money through sales for
a product or service. Throughput represents all the money coming into an
organization.

Inventory

All the money the organization invests in things it intends to sell. Inventory
represents all the money tied-up inside an organization. Goldratt’s definition
includes facilities, equipment, obsolete items, as well as raw material, work in
process, and finished goods.

Operating Expense

Operating Expense is all the money an organization spends turning Inventory

into Throughput. It represents the money going-out of the organization.
Examples include direct labour, utilities, consumable supplies, and
depreciation of assets.

All three of these measures are interdependent. This means that a change in one will result in
a change in one or more of the other two. Therefore, to improve your organization using TOC,
you as the change agent would adhere to the following formula:

Maximize Throughput while Minimizing Inventory and Operating Expense

These measures are the key to relating local decisions to the performance of the entire
system. Goldratt advocates that all improvement opportunities should be prioritized by their
effect on the three measures, especially Throughput, for which the only limit on how high it
can be increased is market size.

How Does Lean Thinking Compare to the Theory of Constraints?

Lean thinking is an organizational change method that is also implemented with the objective
of increasing profit. Lean thinking originated in Japan, and is best exemplified by the Toyota
Production System. Constraints placed on the Japanese manufacturing industry after the
second world war lead Taiichi Ohno of Toyota to pioneer a new type of production system
that was so different, and so much better, than mass production, as to warrant a new type
manufacturing. Lean production is a method of organizing production using half the effort,
space, inventory, and product development time compared with mass production. It also
achieves fewer defects, and larger product variety. These improvements should result in
increased sales, which is the key to re-deploying freed-up resources. Lean thinking codified
and expanded upon the Toyota Production System to include non-manufacturing
organizations, as well as product development efforts.

The objective of lean thinking, as with TOC, is to increase profit. This is achieved by focusing
on reducing costs using the following simple equation:

Profit = Selling Price – Cost

Toyota realized that selling price is dictated by the market and cannot be increased.
Therefore, the only way to increase profit is to decrease cost. Note that although Goldratt
attempts to move away from cost reduction by focussing on throughput improvement, the net
effect is the same: profit increases because cost decreases.

Lean thinking achieves the objective of cost reduction by employing a system-view of an

organization that is centered on the notion of customer-defined value. Lean efforts are aimed
at eliminating all the steps in the production of a good or service that do not add value to the
final customer.

The Five Steps of Lean Thinking

1. Specify Value from the Perspective of the Customer

2. Identify the Value Streams

3. Flow

4. Pull

5. Perfection

Where TOC starts by identifying constraints, Lean thinking instructs the change agent to
rethink the notion of value first. By walking the value stream, from finished goods to raw
materials and repeatedly asking: "Are my customers willing to pay for this?", the lean change
agent identifies opportunities for eliminating waste from the system. Further, value stream
mapping is a very useful tool for determining which areas of the system to improve first. As
well, the future state map keeps the organization focused on moving towards a common goal.

Both Lean Thinking and TOC agree that the organization must first find the change, then
determine if a sensei is required. The Goal relies on a sensei-like individual named Jonah
who provides assistance at key points in the book. However, Goldratt warns against relying
on a sensei, and advocates that the change agent should learn enough to become a sensei.
In parallel, successful lean implementation efforts have relied on learning through trial and
error, and the resulting creation of in-house lean "experts." However, the caveat to this
approach is that it will invariably take longer to achieve results. A good sensei will catalyze the
change effort and keep the momentum building. TOC advertises a three-month improvement
lead-time, which may be next to impossible without assistance from a sensei. It would be
interesting to hear how long it took TOC change agents to become "Jonahs."

The following table summarizes the comparison between Lean Thinking and the Theory of
Constraints.

Box Summary: Theory of Constraints versus Lean Thinking

Theory of Constraints Lean Thinking

Goal Increase Profit by increasing Increase Profit by adding value

Throughput from customers’ perspective
Measures • Throughput • Cost
• Inventory • Lead Time
• Operating Expense • Value-Added Percentage

What to Change? Constraints: the "weakest links" in Eliminate Waste and Add Value
the system considering the entire system

How to Implement Five-Step, Continuous Process Five-Step, Continuous Process

the Change: emphasizing acting locally emphasizing thinking globally

Time Both can achieve immediate results, but require a long term (about
five year) effort to sustain the results

Combining Lean Thinking with the Theory of Constraints

Can the Theory of Constraints be used as a catalyst for lean implementation?

This author says yes! TOC methods fit nicely into the lean thinking five-step change
framework, between steps two and three. Using TOC can help lean change agents to improve
performance in processes where it is infeasible to eliminate bottlenecks. Specifically, after
creating the ideal future value stream map, how do you achieve it? As you divide your value
stream into loops and determine improvement objectives for each, as described in Learning to
See, incorporating TOC methods can give the following benefits:

• Determining Where to Begin

TOC advocates beginning with the constraint that most limits Throughput.
This should create substantial improvements to the value stream in a short
time, which is beneficial for igniting the required employee momentum and
support.

• Sustaining Momentum

Achieving your future state may require designing new equipment that has
not currently been developed. Until these processes can be eliminated, and if
they are constraints, TOC can be used to continue the implementation
momentum. Then, you can develop continuous flow that operates based on
Takt, a pull system to control production, and implement production leveling.

• Performance measures that support lean implementation

Replacing traditional financial metrics of asset utilization and burden

absorption with Goldratt’s Throughput, Inventory, and Operating Expense
measures will help management see the benefits of Lean Thinking.

That’s it for an introduction to the Theory of Constraints and its comparison to Lean Thinking.
We will summarize helpful insights and append them to this essay before migrating it to the
Lean Archive.

Bibliography

Dettmer, William H. Goldratt’s Theory of Constraints A Systems Approach to Continuous

Improvement. Milwaukee, Wisc.: ASQ Quality Press, 1997.
Goldratt, Eliyahu M. and Cox, Jeff. The Goal. Great Barrington, Mass.: The North River Press,
1992.

Goldratt, Eliyahu M. What is this thing called Theory of Constraints and how should it be
implemented? Great Barrington, Mass.: The North River Press, 1990.

Noreen, Eric, Debra Smith, and James T. Mackey. The Theory of Constraints and its
Implications for Management Accounting. Great Barrington, Mass.: The North River Press,
1995.

Rother, Mike and John Shook. Learning to See. Brookline, Mass.: The Lean Enterprise
Institute, 1998.

Womack, James P. and Daniel T. Jones. Lean Thinking. New York: Simon and Schuster,
1996.

Community Responses
TOC and Lean Thinking
The first step to understanding world class business concepts is to recognize where the
varied philosophies agree and where they differ from traditional mass production concepts.
Lean and TOC are the best examples, but many others are out there (Demand Flow
Technology, Velocity, etc.,) To engage in sustainable real world implementations it eventually
becomes beneficial to embrace one specific philosophy, but it does not require rejecting the
others. The real breakthrough is teaching others to reject the concepts of traditional mass
production which have become intuitive to us all. To undermine one or the other undermines
the potential for a revolutionary breakthrough toward either.

A key to fully understanding TOC is that it is not just a system of eliminating constraints
(bottlenecks) but more a system of managing constraints. A truly enlightened organization will
know exactly where it wants the constraints to be. Constraints are a reality, the question is
whether you want them to be internal, where you can control them or external (i.e. the
market). A company that is in control of its own destiny can use its constraints like a valve to
control and continually promote the flow of value.
John L. Werling, Business Developer, Institute for Economic Transformation,
Duquesne University [email protected]
posted November 22, 2000

---------------

The problem is the VARIATION!

In my opinion the two theories are completely complementary: only when you eliminate
bottlenecks you will be able to build a really pull system, but what to do immediately to reduce
your cost (or inventory and operating expense... it's the same!) without penalizing your
Customers and Shareholders (increasing throughput or optimizing value stream ...it's again
the same!). To do that, today, you need some right storage because your variation is not zero!
So your buffers are more than 1 (TOC) and it seems to you that lean is different.... one piece
flow!!

When you will standardize all the processes and, using every Continuous Improvement tool
you want, you will have variation = 0, then all your buffers will can be equal to 1 (one piece
flow) and so lean and TOC will be the same!

In my opinion TOC must be the way of facing the problems one by one, lean is the vision of
what your firm would be, the tools you use are not so important if the way of thinking and the
objective are clear!
Fulvio Fratamico, Lean Promotion Officer, TRW Italy [email protected]
posted October 13, 2000
---------------

TOC favors increasing volume over decreasing cost, and TOC's drum-buffer-rope is
really a pull system
I would like to clarify two points:
1. The article states that the net effect of both systems is the same: "Profit increases because
cost decreases." While it's hard to argue with the arithmetic, TOC favors increasing volume
over reducing cost. Its focus is to help people find the leverage points (policies as well as
physical constraints) to continually improve Throughput.

2. In an e-mail attached to the article, Stephen Corbett asserts that "TOC is based on a PUSH
system." In reality, while TOC's mechanisms differ from TPS, TOC is really a slightly
disguised PULL system. Because the constraint, or "drum," is scheduled based on demand
and "roped" to the release point, work is PULLed through the system at a rate that is
synchronized with demand. The constant tuning of strategic buffers allows inventories to be
kept at minimum levels.
Al Posnack, President, Productivity Partners, http://www.constraintmanagement.com
posted May 20, 1999

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Additional Reading
For further reading on the topic, please refer to the following link. This article, provided by
Chesapeake Consulting, Inc., offers an in-depth comparison between Lean Thinking and the
Theory of Constraints. The thesis concurs with that of above article: that both processes can
have a positive synergistic effect on a company's bottom line.
http://www.chesapeak.com/LeanRequest.htm
Sergio Rattner, Lean Enterprise Institute, [email protected]
posted May 13, 1999

---------------

Both TOC and Lean Thinking Focus on the Entire Organization

1. I like Goldratt's definition of a value-add activity as being one that takes the plant towards
"the goal." When we first started doing value stream mapping in BT we found it difficult to
decide which activities were adding value and which weren't, particularly in areas where
employees are interacting directly with customers. We found that spending some time up-
front defining exactly what "the goal" is for the process makes it much easier to designate
activities as value-added or non-value-added.

2. For me, one of the common themes of "Lean Thinking" and "The Goal" is the importance of
optimizing the organization as a whole, rather than local optimization. This is brought out in
"The Goal" through the concept of maximizing throughput while minimizing inventory and
operating expense. In other words, you must tackle all three measures simultaneously, not
optimize one whilst having a negative impact on the others. It's all too easy to reduce visible
costs by introducing hidden costs!

3. Another common theme is that non-bottlenecks do not have to work continuously, and that
people can be freed up from non-bottleneck parts of the process. In "It's Not Luck," the sequel
to "The Goal," Goldratt says that these people should not be made redundant but used for
improvement activities. Again, this is very much in line with lean thinking.
Carole Jones, Advanced Operational Solutions Unit, BT Laboratories,
[email protected]
posted May 13, 1999

---------------

TOC is Not a Local Optimization Method

I appreciate the effort to put TOC and Lean on the table to compare notes. I would like to offer
a few insights on this comparison based on my experience over a number of years involved in
TOC and Lean including the Toyota Production System (TPS) as practiced at Toyota. I
believe there are some very fundamental misunderstandings of elements of both systems that
need to be clarified. Without clarification on these points, implementers of either Lean or TOC,
or both of these approaches will have problems sooner or later.

First of all. Contrary to the paper conclusion on the web site (e.g., summary box) TOC is
absolutely not, never has been and never will be (at least in a proper implementation) a
"local" focus. Please click here to continue reading
Bob Elder, Chesapeake Consulting, Inc., [email protected]
posted May 13, 1999

---------------

TOC Reconciles Local Action with Global Optimization, and is Compatible with Pull
Systems
I would like to thank you for posting such a useful article. I agree with the conclusion that TOC
and Lean have many similarities and that these similarities are much more important than
their differences. I would like to point out however, two points where I disagree.

First, in the article, the author defines TOC as focused on local action, it should be pointed out
that the core question TOC grapples with is how to reconcile local action with global
optimization. TOC contends that by focusing on the constraint is the only way you can be sure
that your local action will have the positive impact on global performance. I believe this point
gets lost in the table in the article.

My second disagreement is with one of the written comments after the article. Stephen
Corbett refers to TOC as a PUSH system. I find TOC more of a PULL system than a PUSH
system. True, TOC does advocate buffers (inventory) at selected points to ensure that neither
the constraint nor the customer is left waiting. But, new orders PULL additional production
through the Constraint that in turn PULLS material into the system to feed it. I agree that this
is more complex than a lean kanban approach but it is still basically a PULL. In my
experience, PUSH systems require a large quantity of information about estimated demand
(seasonally adjusted, of course) down to the SKU level and many meetings focused on
improving demand forecasts, inventory record accuracy and implementing hugh data bases to
contain all this information. Perhaps this is all semantics, but I do not see the mutual
incompatibility Mr. Corbett asserts
Mark C. Szpila, Asset Management Group, Rohm and Haas,
[email protected]
posted May 13, 1999
Opinions expressed are mine and not those of Rohm and Haas Company

---------------

TOC and Lean Thinking are Mutually Exclusive

I just read your comparison of TOC and TPS and think that the author missed a very
important consideration. TOC and Lean have a common foundation, the identification and
elimination of waste. Lean focuses its efforts on using pull and flow to identify problems for
elimination, while TOC uses extensive analysis, which is not a major difference. When they
are compared in theory there are no major problems between them. It is in the area of
problem resolution where they differ.

The two approaches vary in their approach to problem resolution: the fundamental differences
come in their focus. TOC uses the bottleneck process to drive the entire process, while lean
focuses on pull. The material flow in a TOC facility is much more complicated than in a lean
facility. TOC is based upon a PUSH system. TOC uses a hybrid MRP process to release
materials at the rate the constraint process can handle, which is pushing the material through
the system. TPS on the other hand is a pull system that cascades that customer demand
through the system, replenishing what the customer has withdrawn. These two approaches
are mutually exclusive, and as such the two manufacturing philosophies cannot be combined.
Stephen Corbett
posted April 19, 1999
---------------

Organizational Barriers to Change: Another Difference Between TOC and Lean

Thinking
Bravo! This essay represents a thorough analysis of a controversy within many companies. I
concur with the author's conclusion that TOC can actually be used as a tool in the lean tool
box. I would like to add one additional thought. TOC is a very logical, even mathematical
approach to managing the production flow. Herein lies its allure to many. I would submit the
following hypothesis. TOC applied to a limited area can be implemented with minimal
involvement of the workforce, i.e. buffers are calculated, implemented and communicated to
the affected area workers. An organization does not require a significant level of buy-in on
their part.

Conversely a truly Toyota Production System approach to lean is built on employee

involvement. Culture change from a traditional Western way of thinking to a lean thought
process MUST occur. I would submit to you that this fact is another fundamental difference
between TOC and TPS.
Gary McGregor, Manager, Assembly Strategy, CASE Corporation,
[email protected]
posted April 12, 1999

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Goldratt Communicates Synergy between TOC and Lean Thinking

What follows is a reference to a March 24, 1999 satellite broadcast in which Eli Goldratt
commented on the compatibility between Lean Thinking and the Theory of Constraints.
Goldratt explained that TOC tells you where to look and what to change, while lean tells you
how to change; both TOC & lean provide insight about how to cause the change.

In practice, both bodies of knowledge have unique and synergistic teachings...TOC provides
a theory base (scientific thinking) and process tools (cloud/trees) that help gain perspective
on the evolved practice of lean by hands-on approaches. That's what we've found ourselves
doing in our business situation; it was terrific to hear Eli himself dispel the "inferior/superior"
debates that seems to have diverted us a bit over the past several years.
Walt Tullis, Lean Project Manager Twin Aisle Programs, Lean Mfg. Office,
[email protected]
posted April 6, 1999