About TOC

The Theory of Constraints (TOC) is a body of applied knowledge that treats a corporation as an interlinked, interdependent system rather than just a collection of independent processes or functions. Dr. Eli Goldratt, the creator of TOC, observed that just as the strength of a chain is dictated by its weakest link, so the overall performance of any company is dictated by its constraint.

 

Every company has at least one constraint preventing it from achieving infinite profits. This constraint might be production capacity, or ability to generate new orders, or capability to procure raw material, or even the market size itself! We must find a way to manage the constraint or it will manage us!

 

Traditionally, organizations tried to improve performance by utilizing ALL resources as much as possible. This led to a “local optima” mentality and to poor synchronization across functions, with frequent conflicts of interest.

 

Dr. Goldratt’s “5 Steps” of Process of Ongoing Improvement describes a more focused, systems-oriented method:
1. Identify the constraint
2. Exploit the constraint to the fullest
3. Subordinate and synchronize everything else to the constraint
4. Elevate the constraint

5. If the constraint has shifted, go back to Step 1. Do not allow inertia to become the constraint!

 

This systematic approach is the key to increasing the goal units of any system. It also serves as the underlying diagnostic framework supporting various TOC solutions, including Production, Distribution, Sales, Marketing, Procurement, People Management, Decision-Making and Project Management.

 

The overwhelming popularity of Dr. Goldratt’s bestselling book “The Goal” has led some to believe that TOC applies primarily to the manufacturing environment. Time has proven, however, that the fundamental TOC principles apply generically to all industries. TOC has been successfully applied in universities, high-tech, FMCG, hospitals, logistics, government, and retail, to name a few.

 

Over 5,000 organizations around the world have achieved breakthrough results with TOC, including well-known names such as Intel, Cadillac, Texas Instruments, Boeing, Lucent Technologies, Ford Motors, Samsonite, Bethlehem Steel, Pratt & Whitney, General Electric, and Procter & Gamble.

 

The World of the Theory of Constraints, Mabin and Balderstone, St. Lucie Press

 

Many Indian companies have also implemented TOC including ABB, Dalmia Cement, Eicher Motors, Godrej & Boyce, Indo Asian Fusegear, Sheela Foam, etc. Sales typically increased 25%-100% and profits 50%-100%.

 

Organizations try to improve their performance by utilizing all their resources as much as possible rather than focusing on their critical resource.  This in turn leads to losing focus. TOC helps organizations in focusing, and thereby achieve Big Hairy Audacious Goals (BHAG) in relatively short time.

 

TOC focuses on on-going global improvement rather than attempting local improvements everywhere. TOC is proven to help organizations identify what to change, construct robust solutions and draw up implementable road maps to achieve noteworthy results.

 

TOC in India

 

Does TOC really work?  Will it work in the Indian environment?

 

In India there are many leading organizations that have seen significant improvements with the use of TOC.  Our consultants draw upon years of direct, front-line experience as well as deep industry knowledge to ensure our clients' success.

 

  • An automotive component manufacturer achieved significant improvements in profits and working capital reduction within 12 months:
    - Throughput increased by 41%
    - Profits increased by 129%
    - Receivable days reduced from 157 to 48 days

     

    These results were achieved with the help of rigorous training on TOC concepts and Weekly Review Process, that remains the cornerstone of all the engagements that we undertake.

 

  • A consumer goods manufacturer that had been growing topline consistently was facing challenges in increasing profits. Introduction of TOC was instrumental to help the company to grow its throughput year after year by 35%, resulting in significant increase in profits.

     

    The company grew its revenues by more than 30% and profit by more than 70%. The profits are now not only the responsibility of the CEO, but also the top two tiers of management.

     

  • Through the introduction of TOC, a flexi-packaging business that was making losses for a few years was able to turnaround its operations, within the first 13 weeks. This was achieved without any reduction in manpower or any significant capital investment. 

     

    The company was able to improve its delivery performance as measured by OTIF (On Time in Full) significantly and maintain it at a high level (>95%) consistently. The throughput increased by 30% year after year, and the company made its highest ever profit in Financial Year 2011-12.

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  • A consumer electronics manufacturer reduced its working capital within 13 weeks:
    - Lead-time was brought down from 5 days to just 1 day.
    - Reduction in Work-in-Progress (WIP) inventory by 80%, Finished Goods (FG) inventory by 30%, and Raw Materials (RM) inventory by 10%.
    - Stock-outs were eliminated.

 

  • A Hospital Equipment Manufacturer improved its sales by 25% and cash by 35% within a year of initiating TOC. In 2004, for the first time in its 56 years of existence, the organization became totally debt free!

     

    During its journey to achieve quantum improvement in throughput and profit, the company accomplished the following results in Financial Year 2007-08:

  • - Manufacturing dispatches increased by 72% over previous year
  • - Dispatches were always on time
  • - Profits increased by 400% over previous year
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  • There was no addition of manpower or machinery during this period.

 

Goldratt India helps its clients to shrink their lead-time by at least 50% in less than 13 weeks by focusing on the weakest link. Organizations improve their bottom line significantly through the TOC implementation. Apart from bottom line improvement, organizations also achieve some or all of the following:

 

1. Reduction in rework and rejections
2. Improvement in On-time Delivery
3. Reduction in Finished Goods Inventory
4. Reduction in Work-In-Process (WIP)
5. Increased customer orders due to shorter lead-time commitment and on-time delivery
6. In certain cases, higher prices for the same product due to shorter lead-time

7. Increase in cash velocity

 

We have observed that many organizations have orders but are unable to deliver due to cash shortage. These organizations gain significantly through the reduction in their Cash to Cash cycle.  For cash-starved organizations, this is the single largest factor in their ability to turnaround.

 

Contact

Please get in touch with us to learn more about how Goldratt India helps organizations to achieve quantum improvement in results.

 

Email : info@goldrattindia.com
Phone : +91 96320 18261

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