Goldratt and the Theory of Constraints: The Quantum Leap in Management
By Uwe Techt
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About this ebook
Businessmen and managers, consultancy clients, readers of the Goldratt novels, and workshop attendees often ask: What is this Theory of Constraints? How can it benefit me? How is it different from other management theories? Is there something I can read to quickly understand its fundamentals? This book is an answer to these questions. Using engaging language and offering many real-life examples, it provides an overview of the methods and tools of the Theory of Constraints: Drum-Buffer-Rope, Buffer Management, Throughput Accounting, Pull Distribution, Irresistible Offer, Corporate Strategy, and Viable Vision. You will learn how to recognize and use constraints, how to complete projects quickly and reliably, and how to gain a competitive lead and to turn it into profit.
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Reviews for Goldratt and the Theory of Constraints
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Book preview
Goldratt and the Theory of Constraints - Uwe Techt
ibidem Press, Stuttgart
Table of Contents
Preface
Why this book?
Acknowledgements
What are the goals of the ToC?
So what are the benefits to me?
So who was Eli Goldratt?
How did the ToC come about?
Why Theory …?
… of Constraints?
So where is the ToC today?
What are my business targets?
Earn money
Excite markets
Ongoing improvement
Secure employment
Profitable growth
Summary
Food for thought
Earning money—what exactly does it mean?
Throughput (T)
Inventory/Investments (I)
Operating expense (OE)
Financial decisions
How successful are we?
Net Profit (NP)
Return on Investment (RoI)
Productivity (P)
Investment Turns (IT)
Summary
Food for thought
What keeps us from earning money?
There is a constraint!
Five steps toward continuous improvement
1. Identify the constraint
2. Decide how to optimize use of the constraint
3. Everything else must be subordinate to this one decision
4. Elevate the constraint
5. Start over if the constraint shifts
Summary
Food for thought
We are not producing enough!
Problem: Local optima
Dilemma: But we do need local optima!
Idle resources are a waste
Solution: Drum Buffer Rope
Drum
Buffer
Rope
Relay runner work ethic
Buffer management
The dangers of success
Shifting the constraint
Summary
Food for thought
What about finances?
Problem: Cost accounting
Cost considerations
Division of tasks
Investment decisions
Make or buy decisions
Evaluating business success
Evaluating profit centers
Product profitability
Is there a constraint?
Which product is more profitable?
How much profit are we making?
To summarize our difficulties
Dilemma: Throughput vs. Costs
The chain analogy
Managing the chain in the cost world
Managing the chain in the throughput world
The core conflict
Do costs really follow the additive rule?
Conclusion
Solution: The Throughput accounting system
How much profit do we make from our products?
Find the constraint
Determine the throughput created by the product
Determine usage of the constraint
Calculate the relationship between throughput and constraint usage
Business profit
Is the investment worth it?
Impact of Investment on Throughput
Increasing the constraint's capacity
Increasing the demand for X
Decreasing the costs of raw materials or purchased parts
Conclusions:
Impact of Investment on Operating Expenses
Impact of Investment on Inventory and Investment Levels (I)
Manufacturing yourself or purchasing?
What about inventory?
Summary
Food for thought
What lies behind the constraint?
Problem: Local optimization
The inherent simplicity of complex systems
An analogy: A visit to the doctor
Diagnosis
Treatment plan
Carrying out the treatment
The methods of effective thinking
What needs to be changed?
Tool 1: The Conflict Cloud
Tool 2: The Current Reality Tree
Where should the change lead?
Tool 3: Resolving the conflict
Tool 4: The Future Reality Tree
How do we bring about these changes?
Tool 5: The Prerequisite Tree
Tool 6: Transition tree
Summary
Food for thought
Our stock levels are too high … and often too low!
Dilemma: Large warehouse or small warehouse?
What is distribution?
Constraint: The client willing to buy
Using the constraint
How high do stock levels need to be?
What if … ?
The replenishment lead time …
Order lead time
Production lead time
Transportation lead time
Fluctuations balance each other out
Solution: PULL
Smaller fluctuations in demand mean lower stock levels
Increase delivery reliability by reducing rush orders
From Push
to Pull
Reliability and effectiveness
Reliability (TDD)
Effectiveness (IDD)
Conclusion
Food for thought
Our projects are taking too long!
Projects are interdependent
Problem: Bad multitasking
Solution: DRUM–BUFFER–ROPE for projects
Identify the constraint
Decide how to optimally use the constraint
Everything else must be subordinate to the decision of optimally using the constraint
The other employees don't have enough to do!
My project is stuck because I have to wait for D!
Elevate the constraint
Conclusion
Food for thought
How can projects become even faster?
The magic triangle
Problem: Hidden safety nets
Built-in safety buffers are lost
Parkinson’s Law
Student syndrome
Task and resource dependencies
Solution: The Critical Chain
Supply chain buffers
Relay runner work ethic
How are the projects managed?
Project progress
Buffer consumption rate
Project status
Multiproject controlling
Summary
Food for thought
Our clients aren't queuing for our products
The constraint is in the market
Problems in the market
The marketing dilemma
Marketing’s true task
Rigorous market analysis
The irresistible offer
Yes, but …
Summary
Food for thought
How can I convince everyone else?
Problem: I have a great idea!
What is it we want to change?
Where do we go from here?
How do we implement the solution?
Cause-and-effect relationships
Necessity logic
Sufficient condition logic
Layer 1: Is it my problem?
Layer 2: And this is supposed to solve our problem?
Layer 3: This won’t work …
Layer 4: Yes, but …
Layer 5: We will never manage!
Layer 6: And yet nothing happens …
Summary
Food for thought
So is ToC a corporate strategy?
The basis of a sound corporate strategy
The irresistible offer
Viable Vision: Turn total sales into net profit within 4 years
Segmenting the market
The quantum leap
Status check
Flexibility
Summary
Food for thought
Looking ahead
Preface
Both managers and employees in today's business landscape are faced with a competitive situation that is evolving ever more rapidly. In times where time to market
and the shortening of product life cycles play an important role, we are looking to find solutions for these types of problems. This can play a central role in the success of an organization.
Both traditional and more recently developed optimization concepts will often have been applied already. Best practice
and lessons learned
concepts are also widely being used. So which options remain to get ahead?
A true quantum leap in terms of productivity can only be attained through innovation. The Theory of Constraints
(ToC) by Dr Eliyahu M. Goldratt offers the means of discovering and applying these innovative ideas. This book by Uwe Techt offers a great overview as well as practical tips for using the ToC
to shorten project duration in a practical setting.
As well as successfully and entertainingly conveying the theoretical foundations of the ToC, the author highlights the possible pitfalls of traditional approaches. As an example, let us mention his observations on Throughput vs. Cost,
where Uwe Techt offers the reader new perspectives by providing many interesting new ways of looking at the situation. An important element of this change of perspective is the human component, which is incorporated in the ToC as a central success factor, both in the role of client and as an employee.
A reader who engages with this book will be surprised after only a short time to find that it has ended. At this point you will realize that you have only had an initial introduction into the subject matter. There will still be some way to go from I know how this works
to I can actually do this.
Personally I have started applying the ToC principles in practice after finishing this very interesting book by Uwe Techt, and will be using them more in the future.
I hope you enjoy reading the book.
Günther Jakobi
SYRACOM AG – The Business- & IT-Architects
Why this book?
I often hear these questions from businessmen, managers, clients, workshop attendees, or readers of the Goldratt novels (The Goal, It's Not Luck, Critical Chain): "So what is this Theory of Constraints? How can it benefit me?