Theory of Constraints (TOC)

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Theory of Constraints (TOC)

Concepts and methodology aimed (like lean production) mainly at achieving most efficient flow of material in a plant through 'continuous process improvement' (CPI). Basically a scheduling and inventory control philosophy, it proposes that (1) a firm is a 'chain' of interdependent links (departments, functions, resources) some of which may have potential for greater performance but cannot realize it because of a weak link that is an (2) external or internal bottleneck (constraint) and every firm has at least one. (3) The highest priority of a management is (or should be) to maximize the firm's throughput (rate of generation of revenue) and not just output (rate of generation of goods or services). (4) The primary goal of a firm is to realize ever higher net income now and in future. And (5) ignorance or disregard of distinction between constraint factors and non-constraint factors inevitably leads to wrong decisions. Whereas the central idea in lean production is identification and removal of wastes (non value-adding activities), in TOC it is identification and removal of bottlenecks often through purchase of additional production capacity. Proposed by the Israeli-US physicist business consultant Dr. Eliyahu Goldratt in his 1991 book 'The Goal' and developed in his later books 'Critical Chain' and 'Theory Of Constraints.' Source: Business Dictionary

See: Lean Production

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