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The Theory of Constraints

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Afeera Khokhar

on 28 November 2013

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Transcript of The Theory of Constraints

The Theory of Constraints
Financial & Non-Financial Measures
Financial Measures:
Net Profit
Cash Flow
Return on Investment

Non-Financial Measures:
Throughput
Inventory
Operating Expense
Impact of TOC in the contemporary world
Dr. Eliyahu Goldratt
The Five Steps
Nature and meaning
every organization has
at least one
constraint that limits the management from improving their profitability

"anything that blocks the system from accomplishing its stated goal”
Step 1: Identify
Weakest link

Types of Constraints:

Physical vs non-physical
- material shortages - methods
- lack of space - policies
-lack of people - procedures


Step 2: Exploit
- Maximize

throughtput
of the constraint using currently available

resources
Step 3: Subordination & Synchronization
Whole organization should focus on adressing and fixing the bottleneck/constraint

Everything else in organization should be treated of lesser importance

Step 4: Elevate
Total elimination of the constraint through
acquiring additionally needed resources
Step 5: Repeat
Business processes will always manifest limiting factors.
24/7
Type
: Non-physical (Seasonality)
Solution
:
Shift from cost world reasoning to throughput rational
Incentive: 20% discount
Benefit:
Increase of revenues by two-thirds

Thank you!
“spending more money to make more money”
Example: Replacing defective machinery
By: Afeera Khokhar, Changen Ma, Christina Cefaratti, Faraz Shah, Zarman Iftikhar
Full transcript