How Theory of Constraints is Changing The Organisations

In the current economic climate, many companies continue to struggle with their future prospects. However companies using applying Theory of Constraints (TOC) are well placed to not only weather the storm but emerge smelling of roses.

Theory of Constraints was introduced in mid 1980s by Dr Eli Goldratt. Since then it has been producing startling bottom line results to companies all over the world. Here are some examples from independent audits:

  • Revenue / Throughput – Increased 68%
  • Due Date Performance – Improved 60%
  • Inventory Levels – Reduced 50%
  • Lead Times – Reduced 69%

There have been many organisations reporting profit improvement of more than 100% in the first year of implementing the TOC.

So What is Theory of Constraints?
According to TOC, there are only a few constraints in any organisation at any one time which control the overall performance of that organisation. If these constraints are identified and eliminated, performance can be improved.

Using systems approach, TOC simplifies the identification of these physical and logical constraints or ‘leverage’ points. Depending upon the organisation, these constraints could be internal, e.g. a policy or a functional area of the company or external, i.e. market place.

TOC then provides tools to build and implement the “levers” that synchronise the parts to achieve an order of magnitude improvement in the performance of the organisation as a whole.

Underlying Assumptions:
The TOC has three underlying assumptions:

Convergence or Inherent Simplicity: However complex an organisation is, there is inherent simplicity in its operations. The more complex a system to describe, the simpler it is to manage.

Consistency: There are no conflicts in nature. If two interpretations of a natural phenomenon are in conflict, one or possibly both must be wrong.

Respect: People are not stupid; even when people do things that seem stupid they have a reason for that behavior

The Theory of Constraints is a proven method that can be used to increase throughput (sales), reliability, and quality while decreasing inventory and work in progress (WIP) etc. TOC also provides tools and framework to help make tactical & strategic decisions for continuous improvement.

The Five Focusing Steps of Ongoing Improvement
As long as a system, company or department’s performance levels (or RoI or whichever other way it is measured) are less than infinite, they can be improved by using these 5 steps:

  1. Identify the system’s constraint
  2. Decide how to exploit the system’s constraint
  3. Subordinate everything else to the prior decisions
  4. Elevate the system’s constraint
  5. If, in the prior steps, the constraint has been broken, go back to step one.

Theory of Constraints Jonah Thinking Processes

  • Evaporating Cloud or conflict diagram
  • Current Reality Tree (CRT)
  • Future Reality Tree (FRT)
  • Negative Branch Reservation (NBR) or branch
  • Prerequisite Tree (PrT)
  • Transition Tree (TrT)
  • Strategy and Tactics Tree (S&T)

Generic Solutions
TOC has developed solutions in operations, finance, project management, distribution, marketing, sales, corporate strategy and day to day management.

Six Necessary and Sufficient Questions on Information Technology

  1. What is the power of the technology?
  2. What limitation does it diminish?
  3. What are the old rules that accommodated the old limitation?
  4. What are the new rules that should be used now?
  5. In light of the new rules, what changes are required in the technology?
  6. How to cause the change to take advantage of the new technology (the new win/win business model)?
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Business Consultants – How They Can Help Your Company

Most businesses could greatly benefit from a business consultant but most business owners usually have to run into a serious problem before they recognise the need for one. A problem may have arisen in the business through expansion or having to take on more staff. Any significant shift in the working environment will greatly magnify difficulties that most likely already existed.

There are other reasons why business owners are reluctant to use business consultants. They may fear losing control or being asked to implement strategies they don’t like. They may even fear criticism or worry about running up huge fees.

However, good business consultants are used to dealing with all these common concerns. They should know how to handle people as well as steer a business in the right direction. They know the trust and full co-operation of all personnel have to be gained to be successful.

By retaining a good business consultant, an owner should expect to benefit in the following ways:

  • Increased clarity – the business consultant should be able to identify clearly where the business currently stands and the way forward
  • Increased focus – as an attainable plan of action is developed with practical paths to each goal
  • Better time management – more time spent productively and time wasting activities eliminated
  • Increased commitment – as personnel are deployed more satisfactorily
  • Improved communication – for employees and clients
  • Better co-operation – with all members of the business feeling valued
  • Increase in retention – as staff value their employer’s business and their place in it
  • Less stress – as issues are faced and dealt with

Care needs to be taken when choosing a business consultant. Checks should be made on references, credentials and personality. If the owner or staff cannot get on with them on a personal level, it simply won’t work.

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How to Get More Value Out of Your Consulting Budget

When you are in need of a consultant be it for business, investing or other forms of guidance there is usually a set cost for this in your budget. How to get more value out of your consulting budget is going to be the major challenge you will face. The consultant will not likely want to do more than what you are paying for and what is fair and reasonable in terms of expectation on your part is going to be subjective at best. This is because the consultant on other side is also on guard with their business policy to defend.

In the case of maximising the benefits you are getting from the consultant, it always advisable that you be a good inquisitive speaker. Asking more questions is the key to all the solution when it comes to consultant. It helps you to put him off guard and as a service provider he is forced to give an ear to a client’s problem and seek to solve them.

It is very important to know the capacity of the consultant to solve the issue you have and as to how much of help he would be to solve the issues you have. Be critical analyst indirectly if that helps your case and being professional themselves, consultant do know its coming and are ready to give in after certain point when it comes to first meeting. After hiring, try to get him involved with the whole issue closely as to make him understand the problem better and come up with great piece of solution and thus making the fees that you pay worth it.

Also you must be absolutely sure and as clear as you can possibly be about what the project or your needs are and your expectation of the consultant. Try to have a detailed outline of what you want.

Regarding the amount you pay to a consultant, it depends from person to person and from agency to agency as to whether the bargaining is possible or not. As a service buyer there is nothing bad about it and can lead to save some of your money, you never know. Make him spend time on the issues you have and as a service buyer you have all the rights to make him do things for you.

Generally a service buyer expects a lot from a consultant and there is nothing wrong in it as they are the ones who are paying the money. It is necessary to have a look at their past projects and their qualifications to determine their capabilities and the extent of the services offer per project.

It is very important to let them know it is not going to be an easy ride throughout the project or till the time issue resolves. Observe the kind of attitude they reflect in terms of eagerness to working with you. Try to gain the knowledge of their working capabilities and the potential to work hard upon your assignment as hard as you want them too. Getting more from your budget is never going to be easy as the other person just might have different idea in mind but if the professionalism and high profile attitude is maintained then it becomes much easier to take out your money’s worth and much more.

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