How the Theory of Constraints Can Make You More Efficient


Did you know that a bottleneck in your organization can be a great opportunity to make your business better?

It may sound counterintuitive at first, but the weak link in your chain may be the key to unlocking additional capacity, and increased business and profits. Using the Theory of Constraints, your business seems to simply be at the mercy of your bottleneck, but once addressed and fixed, you can leverage your bottleneck to dictate your business’s process, right-size your team, and create less chaos in your team.

In the Theory of Constraints, an organization identifies the thing in the process that limits business and keeps it from achieving the goals it set out. These could be physical constraints, policies, organizational practices, or market factors. Using the Theory of Constraints as a methodology to address these bottlenecks, your company can increase profits, improve your business quickly, increase your capacity, reduce lead times and increase your inventory turnover. Think of it like going hiking with one friend that is in shape and one that is out of shape. According to the Theory of Constraints, allowing the out of shape friend to dictate the pace creates better flow and leads to less waste.

Do this in three ways: the Five Focusing Steps, the Thinking Process, and Throughput Accounting.

The Five Focusing Steps aren’t quick fixes. Rather, they’re a cycle of constantly identifying and eliminating constraints in your business. In this part of the Theory of Constraints, your organization will:

-       Identify the constraint

-       Exploit it through quick improvements (make the most with what you have)

-       Subordinate (align or realign all activities to support the constraint)

-       Elevate (make the constraint priority one until it’s fixed)

-       Repeat (Did you fix one constraint? Great! Now see if there are others that need to be addressed)

The Thinking Process will help you see the bottleneck and its effect on the other parts of your business from all angles. You can accomplish this by answering three questions:

-       What needs to be changed?

-       What should it be change to?

-       What do we need to do to make change happen?

This allows you to see what your reality is, how to fix it, and what the future will look like when the constraint is fixed.

The last way to put the Theory of Constraints into practice is throughput accounting. By redefining inventory as a liability to productivity, and focusing on throughput activity rather than cutting expenses, you can more accurately measure your return on investment, inventory turns, productivity, and net profit. When you increase your throughput, you take the focus off expenses and make increased sales your goal.

For a time, this means that the weakest part of your business takes priority, and your organization will have to shift its focus to fix the bottleneck. When done properly and frequently, applying the Theory of Constraints can take your business from surviving to thriving again.