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    Goldratt and the Theory of Constraints: The Quantum Leap in Management
    Goldratt and the Theory of Constraints: The Quantum Leap in Management
    Goldratt and the Theory of Constraints: The Quantum Leap in Management
    Ebook250 pages1 hour

    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.

    LanguageEnglish
    PublisherIbidem Press
    Release dateJun 1, 2014
    ISBN9783838267371
    Goldratt and the Theory of Constraints: The Quantum Leap in Management

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    Book preview

    Goldratt and the Theory of Constraints - Uwe Techt

    9783838267371

    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?

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