Supply Chain Management: Theory of Constraints

By Daniel Stanton

The Theory of Constraints (TOC) is one of the simplest, most powerful supply chain concepts. The basic idea is that every process is limited by some kind of constraint (think of the saying, “A chain is only as strong as its weakest link”). TOC is really about tuning an entire supply chain to run at the same pace as the slowest step in the process.

There are many examples of how constraints actually control all of the processes around us. In the world of auto racing, there are times when you need to limit the speed at which cars travel around the track, so you send out a pace car that no one is allowed to pass. When you’re draining a bathtub, the rate at which water flows out is constrained by the size of your drain.

In other words, the most restrictive step in a process is the one that constrains the entire system. TOC helps you focus improvement efforts on the constraints because that is where you can have the greatest effect on the supply chain.

After you find the constraint, you have two choices:

  • Slow all the other steps down so that they run at the same speed as the constraining step. This will prevent the buildup of inventory between the steps in your process.
  • Improve the constraint so that the entire system moves faster. As you continue to improve the constraint (perhaps by using Six Sigma), eventually, it reaches the point where it’s no longer the slowest step in your process. In other words, it stops being your constraint. Some other step becomes the constraint that’s limiting your process, and the cycle starts again.

The Theory of Constraints was made popular with a novel called The Goal by Eliyahu M. Goldratt (North River Press, 2014). Herbie was one of the fictional characters in the book, and his name has since been adopted into the jargon of TOC as a way of describing the constraining step in any process. Although looking for a constraint may sound obvious, the problem is that constraints are often hard to find. When a constraint is at the beginning of a process (like a pace car) or at the end of a process (like a bath drain) then the process is probably stable. When a constraint occurs in the middle of a process, the constraint can cause chaos. For example, a machine in the middle of an assembly line that breaks down might be a Herbie. But until you look at it from the perspective of TOC, people might not see how the starts and stops of that one machine actually cause inefficiencies throughout the whole supply chain and lower the company’s overall capacity.