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The Theory of Constraints
Transcript of The Theory of Constraints
Financial & Non-Financial Measures
Return on Investment
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
Types of Constraints:
Physical vs non-physical
- material shortages - methods
- lack of space - policies
-lack of people - procedures
Step 2: Exploit
of the constraint using currently available
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.
: Non-physical (Seasonality)
Shift from cost world reasoning to throughput rational
Incentive: 20% discount
Increase of revenues by two-thirds
“spending more money to make more money”
Example: Replacing defective machinery
By: Afeera Khokhar, Changen Ma, Christina Cefaratti, Faraz Shah, Zarman Iftikhar