SCM Terminology

TOC (Theory of Constraints)


A concept advocated by Eliyahu Goldratt, which is the theoretical base of supply chain management. TOC is a model that explains the impact on profitability from decision-making by a supply chain in terms of time. TOC is also a method of managing bottlenecks.

The "TOC (Theory of Constraints)" developed by Eliyahu Goldratt is a method of increasing throughput by managing "constraints" (bottlenecks). It is a concept that serves as the theoretical base of supply chain management and a model that explains the relationship of variables in business as to how cash flow-based profitability is affected by decision-making in the supply chain concerning business processes in terms of time. As a metaphoric explanation, let's use the example of "a group hiking", to describe the management of improving throughput by using the TOC.

Using the example of hiking, I'll try to think about the management by which a team leader can let all the members (operations) reach the destination (increase throughput) as soon as possible. Suppose that the team leader does not know physical capacity of all of the team members. Seeing what happens for a little while after starting hiking, the team leader will be able to find out who is the slowest member, i.e. the bottleneck. The interval between the person who is the bottleneck and the person who walks before him will get wider and the interval between the bottleneck person and the person who walks behind him will get narrower. Since the bottleneck person will get slower and slower if they continue to walk this way, place the bottleneck person at the front of the group to make all the other members keep pace (synchronize) with the bottleneck person. By doing so, the group does not spread out and the speed of the bottleneck person increases a little bit, allowing the speed (throughput) of the whole group to increase by increasing the speed of the bottleneck person. By reducing the burden carried by the bottleneck person and by cheering him on to increase his capacity, the speed (throughput) of the whole group will increase.

The important concept here is to increase the overall speed not by making all of the members exercise at the same capacity but by making improvements focusing on the capacity of one or two bottleneck persons.

If the speed of the whole group increases, there may be other bottleneck members who decrease the overall speed. But if you repeat the same process for the new bottleneck persons as well then the overall speed (throughput) will get faster and faster. Keep repeating this process until no new bottleneck persons appear. After all, it is necessary for a supply chain to make continuous improvements until the limit of throughput is reached.

When looking at the word "TOC", bottlenecks (constraints) may appear to be the most important concepts. However, the concept of synchronization has a bigger impact on the theory.

Taken with kind permission from the book:
"Understand Supply Chain Management through 100 words" by Zenjiro Imaoka.