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Theory of Constraints | Magnacor Mfg.

Contrasting Theory of Constraints and Lean Manufacturing

There are a number of constraints that affect manufacturing processes in every industry. These constraints are often referred to as bottlenecks, and they could be in any form, ranging from physical or policies or even marketplace conditions. This article will examine and contrast two major perspectives to handling constraints in manufacturing operations – the Theory of Constraints and Lean Manufacturing. In this article, you’ll get insights on how to best optimize both perspectives in manufacturing processes and the economics behind each rationale.

  • The Theory of Constraints?
  • The Five Steps for Constraint
  • How Theory of Constraints can impact your business
  • Lean Manufacturing in Contrast with Theory of Constraints
  • The five steps for Lean manufacturing
  • How is Lean Manufacturing Actualized?
  • Combining Lean Manufacturing and The Theory of Constraints

The Theory of Constraints?

The theory of constraints is all about improving a business’s profit levels by affecting a few changes in its processes. Several constraints affect a business’s profitability, and these constraints are limiting factors that cause delays in manufacturing processes.  In non-manufacturing scenarios, these constraints could be market demand, manpower, capacity, materials, and sales conversion from demand to successful orders, just to name a few. The theory of constraints was centered around manufacturing and business when it was developed by Eliyahu M. Goldratt in his 1984 book The Goal.

Contrasting Theory of Constraints and Lean ManufacturingThe theory of constraints is a list of viable steps to managing these limiting factors that affect manufacturing operations. Think of a business as a process of transforming inputs into outputs with a sales value.

The Five Steps for Constraint

The theory of constraints views the manufacturing or business process as a chain that is only as strong as its weakest link. There is a five-step approach to resolving underlying issues surrounding the theory of constraints and improving the seemingly weaker links’ characteristics. With the focus of the theory on improving the constraints, substantial results can be achieved without committing more resources than necessary.

The five steps for improving seemingly weaker links in a manufacturing  process are:

  1. Identify the manufacturing constraint – this is generally the weakest link in the entire manufacturing process. The constraint could either be a policy or it could be physical.
  2. Exploit the constraint – find out the best ways to utilize that particular constraint to the maximum.
  3. Subordinate the entire process – make other components in the chain give support to the defaulting constraint; to make it function at its peak effectively. This third step is to determine if the constraint will shift to another manufacturing component once its at maximum performance. If the constraint is eliminated at this phase, you could skip step iv and proceed to step five.
  4. Elevate the constraint – If the results in the above steps aren’t yielding satisfactory results, consider investing more resources to improve the capability or withdraw and eliminate the constraint. Take all necessary steps to eliminate the constraints provided that steps II and III have not been successful.
  5. Repeat cycle, but be cautious of Inertia – If the results yielded on improving the constraint are satisfactory enough, consider returning to step I to identify possible new constraints; beware of similar environmental factors such as policies, rules, and patterns that might trigger the previous constraints just avoided

How Theory of Constraints can impact your business

The theory of constraints has precedence for bringing about change in a process via three core measurements that spearhead the change process

  • Revenue or Throughputs – this describes the rate at which a business or an organization makes money from its sales of services and products. It is all the money that a business makes.
  • Inventory – these are resources that are utilized in the manufacturing process. This includes equipment, raw materials, finished goods, and other facilities.
  • Operating expenses – costs incurred in the process of converting inventory into revenue or throughput. Operating expenses include utilities, direct labor, depreciation of assets, and consumable supplies.

The above measurements are all interdependent, as a change in the resources assigned to one will yield changes in the values for the others. Therefore, minimize your operating expenses and inventories to maximize revenue or throughputs.

There are assumptions on the theory of constraints that the manufacturing process’s success is mainly determined by the speed and volume of services and products involved in the system irrespective of the constraints to improving profitability. Further effects of the theory of constraints include improvement in quality, reduction in output variation, more detailed inventories, and a positive increase in profits.

Lean Manufacturing in Contrast with Theory of Constraints

Lean manufacturing is derived from the concept of lean thinking; an effective approach to yield a change in a business process with a focus on improving profit levels by eliminating wastes and unnecessary components from the manufacturing process to reduce costs. The lean manufacturing approach utilizes half of the required resources in terms of inventory, space, and product development duration to achieve a larger product variety and lesser defects when compared to mass production.

Lean manufacturing aims to increase sales and improve profit levels, the same with the theory of constraints. The difference is that the lean manufacturing approach focuses on reducing costs to increasing profits. Profit increases because costs decrease. The best case study of the lean manufacturing approach is established with the Toyota Production System and its approach to solving its constraints issues after WWII by reducing its costs as the selling price was set by the market and could not be influenced.

The five steps for Lean manufacturing

Contrasting Theory of Constraints and Lean Manufacturing

Figure 1. Five steps for Lean thinking

The lean manufacturing approach consists of five key steps listed below.

  • Identify the components that do not add value to subsequent processes or the final customer
  • Identify value stream – know the set of components or activities that add value to the final customer; determine which of the components are necessary and which isn’t.
  • Flow – make these components and activities flow with the least interaction possible; be cautious of interruptions such as transportation, batch processing, and queues
  • Pull – Let the demand for products from the customer be the requirement for availability.
  • Perfection – get the hang of the flow, perfect the process and improve value streams.

How is Lean Manufacturing Actualized?

The lean manufacturing approach prioritizes customer-defined value in the final products or services. In other words, the elimination of components in the manufacturing process that do not add worth to the final customer. Further effects of the lean manufacturing approach include improved products and service quality, reduced constraints, and an accelerated manufacturing process.

Lean Manufacturing can impact your business in these three core measurements

  • Throughputs or Revenue – all the money that a business generates from sales of its products or services
  • Profits – the surplus after deduction of costs from throughputs
  • Costs – expenses incurred during the production of products and services.

The goal of lean manufacturing optimizes these three measurements by reducing costs to increase profits.

Combining Lean Manufacturing and The Theory of Constraints

Both lean manufacturing and the theory of constraints have a five-step process for effecting change in a business. Using the theory of constraints can help lean thinkers to improve their business performance and eliminate limiting factors and constraints in the business operation.

Benefits of this combination include:

  • Theory of Constraints helps identify limiting factors to making profits. This provides an avenue for value addition in the short run when lean thinking is applied.
  • Unnecessary processes are eliminated to create room for a more robust and more effective business flow.
  • Core measurements to track performance across costs, inventory, profits, and operating expenses.

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