Page 117 - The Handbook for Quality Management a Complete Guide to Operational Excellence

104 I n t e g r a t e d P l a n n i n g

except to Throughput. And look at the Throughput bar in Fig. 5.10. The
improvement potential may not be infinite, but from a practical perspec-
tive there’s a lot more potential to improve profitability by increasing T
than there ever will be by reducing I and OE. So what does it make sense to
prioritize: rearranging the deck chairs on the Titanic, or steering away
from the iceberg? In summary, not many com panies can “save their way”
to prosperity.
Using T, I, and OE is variously referred to as Throughput accounting, con-
straint accounting, or Throughput-based decision support. They aren’t rigor-
ous enough to replace GAAP for standard accounting needs. But they’re
simpler and usually more effective for decision making than traditional man-
agement accounting. More details on how to use T, I, and OE may be found
in Goldratt (1990), Noreen et al. (1995), Corbett (1998), and Smith (1999).

Summary and Conclusion
To summarize, constraint management:
• Is a systems management methodology.

• Separates the “critical few” from the “trivial many.”
• Emphasizes attention on the critical few factors that determine
system success.

It’s based on four underlying assumptions:
1. Every system has a goal and a finite set of necessary conditions that
must be satisfied to achieve that goal.
2. The sum of a system’s local optima does not equal the global
system optimum.
3. Very few variables—maybe only one—limit the performance of a
sys tem at any one time.
4. All systems are subject to logical cause and effect.

The Theory of Constraints, as conceived by Goldratt, is embodied in
the five focusing steps (Identify, Exploit, Subordinate, Elevate, Repeat/
Inertia), a set of financial progress measurements (Throughput, Inventory,
and Operating Expense), and three generic tools (the Logical Thinking
Process, Drum-Buffer-Rope, and Critical Chain) that can be applied in a
variety of organizational situations.

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