Page 457 - Design for Six Sigma for Service (Six SIGMA Operational Methods)

Theory of Constraints 415

The Goal also defines the following terms:
Throughput “The rate at which the system generates money through
sales.” The finished product must be sold before it generates money.
Inventory “All the money that the system has invested in purchasing
things that it intends to sell.” This can also be defined as solid investments
or patents.
Operation Expenses “All the money that the system spends in order
to turn inventory into throughput.” This includes depreciation, lubricating
oil, scrap, and carrying costs.
The terms throughput, inventory, and operational expenses can be simply
defined as incoming money, money stuck inside, and money going out,
respectively.
In his 1990 book Theory of Constraints, Goldratt provided more details
about his theory; he proposed the following five-step method:
1. Identify the process constraints. A process constraint limits the firm
from achieving its performance and goals. Thus constraints must be
identified and prioritized for impact.
2. Decide how to exploit the process constraints. The nonconstraints in
the process should be managed properly so that resources or materials
are provided to feed the constraints.
3. Subordinate everything else to achieve the decisions in steps 1 and 2.
Constraints may have a limit, so look for ways to reduce the effects of
a constraint, or look to expand the capacities of the constraints.
4. Elevate the system’s constraints. Try to eliminate the problems of the
constraints. Strive to keep improving the system.
5. Go back to step 1. After the constraint has been broken, go back to step
one and look for new constraints.
After Goldratt’s groundbreaking books, many researchers and practitioners
(for example, Goetsch and Davis 2000, Stein 1996, Woeppel 2001) applied,
developed, and improved the theory of constraints.
The theory of constraints can be applied to many service processes beside
that of the manufacturing sector and achieve significant gains in revenue
and profitability. In the Design for Six Sigma practice, the theory of con-
straints can be used with process management as a process diagnosis tool to
pinpoint the limitation and bottleneck of the service process under study
and generate improvement ideas for the process. We first discuss some fun-
damental concepts of the theory of constraints in Sec. 12.2. Section 12.3