TOC (Theory of Constraints) is a theory saying that the weakest point is the target of intensive improvement because it becomes the constraint of the entire process and impacts the accomplishment of goals.
If one part of a waterway is narrow, the flow rate per unit of time of the entire waterway is limited to the flow rate of the narrow part. Even if we make any other parts wider, it does not increase the entire flow rate. We can increase the entire flow rate of the waterway only by widening the narrow part. TOC says that the same thing is applicable to business.
If we intend to increase the production speed, we need to increase the production speed of the slowest part of the production process. Therefore, in order to improve the achievement of the company, we must identify which part is the constraint of the entire process and manage that part intensively, instead of accumulating separate improvements. The concrete procedure is as follows.
- Identify the constraint part (bottleneck)
- Make the constraint part work 100%
- Make all other processes assist the constraint part (bottleneck)
- Increase the capability of the constraint part
- Repeat the procedure from identifying a bottleneck because some other part becomes a new constraint when the bottleneck is dissolved by improving its capability
Theory of Constraints is proposed by Dr. Eli Goldratt, an Israeli physicist, in the late 1970s.
Relationship between BPM and TOC
TOC originally focused on management of production schedule, but nowadays it has become a business renovation technique to maximize profits. In BPM, the concept of TOC is crucial. Identifying which task is the bottleneck of the business process helps us execute effective improving activities.
More specifically, concerning the business process, we should find answers to the following three questions.
- "What to change?"
- "What to change to?"
- "How to cause the change?
The simple procedure to do that is shown below.
Evaluation of Business Process
Two important points to evaluate business process in terms of TOC are as follows.
- Added values produced per unit of time ("Output" - "Input")
- In TOC, the figure obtained by subtracting "input" from "Output" is called "throughput." Profits can be maximized by increasing the "throughput."
- In case the "throughput" per unit of time is small, we need to identify which part of the business process is consuming a time and try to shorten the processing time. Thereby, we can reduce the processing time taken for each execution of the business process and increase the number of business processes executed per unit of time, which results in increase of "throughput."
- Resources required to execute business process
- Even if business process produces a lot of added values, the business process does not eventually produce a large amount of profit if the business process requires enormous equipments and manpower or causes troubles very frequently. By improving the bottleneck in terms of required resources, we can increase the profits.
In sum, good business process is one that can produce high throughput per unit of time without requiring a lot of resources, such as manpower and equipments, for its execution.
Let us start searching the answer to the first question of the three, "What to change?" If we trace back the causal association, we will see that each problem is caused by a radical cause. That radical problem is a constraint, and, by solving it, we can solve each problem. Therefore, the radical problem is the answer to the question, "What to change?"Concretely, we can identify it as follows.
- Based on the results of business process monitoring, enumerate 5 to 10 unfavorable situations and results, including activities and business processes that did not accomplish the defined KPI.
Unfavorable situations and results in Business Process]]
- List concrete complaints and problems. For example,
- "Owing to the delayed delivery of materials from other departments, some tasks did not meet the deadline, which resulted in frequent alerts."
- "Complex decision-making process prevented smooth business execution."
- "Conference rooms were fully booked whenever needed."
- "Alerts were raised since the number of complaints exceeded the threshold."
- "Many participants did not follow the defined order of tasks in business process, which resulted in frequent alerts."
- "Too much pressure to meet a deadline was posed by a supervisor."
- "Troubles frequently happened."
- Confirm the causal associations of unfavorable situations by interpolating leaps. (See the diagram on the right.)
- Interpolate the causal association that are not described enough only with the listed problems. The rectangles in the diagram represent interpolated parts.
- Identify the most radical problem based on the causal associations.
- Factors that can be bottlenecks for companies to accomplish goals are categorized into three types.
- Market constraints: Too much supply. Since there is little demand in the market, the amount of inventory disposed, excess materials, and equipments that are not utilized increase.
- Physical constraints: Too much demand. Companies lack materials, equipments, and manpower.
- Policy constraints: Activities are restricted by companies' regulations, systems, organizational structures, and so on.
- In this example, we can conclude that the bottlenecks are "complex decision-making process" and "lack of information sharing," both of which are policy constraints.
Identifying Bottleneck in Business Process
Effective improvements can be done by solving essential problems: "complex decision-making process" and "lack of supporting tools." Practically, we need to re-design business process concerning both of them and make other parts of the business process support improvements of efficiency of "decision making" and "information sharing." We must improve the efficiency of the entire business process even if efficiency of other parts deteriorates.
- Improving decision-making process
- Consider the ways for improvement by identifying the decision-making authority and information flows in business process related to decision-making process
- Information Sharing
- Check information flows by using business process diagram and consider the ways for improvement. Also think about introduction of supporting tools.
Until we go through this phase, we can not start searching the answers to the remaining two questions, "What to change to?" and "How to cause the change?."
Monitoring of Improvements
Since BPM is a continuous improving activity, monitoring is indispensable. In addition to observing the results of improvements, monitoring plays an important role to identify the next bottleneck. In this way, PDCA Cycle is realized.