Theory of Constraints in Supply Chain Management

Published by MBA Skool Team, Published on November 23, 2013

In this era of cut throat competition the problem that most of the chain members today face is that whether they should look at their individual profitability & performance, or the overall supply chain’s performance. Often, members of the supply chain tend to implement the procedures which are beneficial for them thereby resulting in poor performance of the supply chain. The real impact on the supply chain of the overall performance is completely. The existing practices which are used in most of the industries are more focused on cost minimization leading to degradation of quality and ultimately lead to poor performance of the chain in totality. To improve the existing level of performance the organizations need to implement new and innovative improvement solutions beyond their internal business processes. Presently many organizations have started the TOC approach to guide their improvement programs to enhance their supply chain performance.

In the TOC approach the main focus is on constraints – finding the constraints and finally resolving the problems. This kind of approach is continual and it requires a lot of effort from all the members of the chain. Application of TOC for supply chain management is quite new and unique approach to tackle the problems. The problem the supply chain members face is conflict of interest –all the members look for their own profitability at the expense of other member. This can be resolved by changing the strategy followed by the manufacturers and the retailers. The focus of the approach should be delivery of the product to the end customer and finding the constraint at each level.

Image Courtesy: sritangphoto,

The first step is to identify what is preventing the chain members from satisfying the desired level of performance or profitability. This step of TOC approach in known as constraint identification. The constraint can be any of the following types -

• Internal or external

• Physical or non- physical

• Dependent or independent

The process of constraint identification involves a lot of analysis and collaboration between the chain members .The constraints can be at a very individual level or at a macro level (market forces). The constraints can also be a result of human behavior- the role of employees/ managers becomes critical and they may be the cause of the constraint. For example- The “no risk approach” taken by senior production manager to produce goods based on the previous forecasts only and not analyzing the need to change strategy due to market dynamics. This approach followed by the manager may result in non availability of goods to the retailer which in turn causes loss to both retailer and manufacturer. The constraints developed in a system can also be a result of the policies and procedures followed by the organization for day-to-day operations. There a lot of interdependencies between a numbers of factors which ultimately lead to a constraint.

Identification of the constraint leads to second step of the approach which is exploiting the constraint. This step is essential for the overall implementation of TOC and requires a lot of brain storming from the chain members. This step involves optimizing the existing capacity at the constraint. For example- if a company manufactures three different types of products (A, B and C), non-availability of type C product is the problem then supplier has to observe the constraint and replenish the constraint without delays. This change of continuous replenishment is initiated by the change of production schedule and product mix manufactured at the facility.

The third step is to sub ordinate all other activities to the constraint. This means that changes may be required to the existing rules and procedures which used to cause the problem. Hence all activities or procedures which used to cause problems will be eliminated or changed, which in turn helps in exploiting the constraint.

The next step (fourth) is to elevate the constraint .This step involves increasing of the capacity of the constraint to a higher level. And this step often involves the creation/ identification of a new constraint.

The fifth and the last step essentially deal with managing the problems which hamper the improvement process. This is the constraint based approach which can be followed to tackle the problems associated and enhance the overall performance of the supply chain.

The ultimate aim of the supply chain management is to bridge the gap between demand and supply. In a supply chain of make to order type products the constraints is the end customer, so to exploit this constraint of the supply chain one needs to have the right product in the right place at the right time. For this to happen the kind of collaboration required is huge and it involves a lot of information sharing. This step will require information sharing of overall supply chain about each and every level and finally taking decisions at the local level. This decision is dependent on the factors such as non availability of any particular resource and other forces which may be internal or external to the system. For these types of problems the application of D-B-R (Drum buffer rope) solution can give desired results, overall planning and scheduling problems can be tackled by implementing the solution.

Although there are both internal and external forces hampering the overall performance of the supply chain, the solution developed must be internal in nature. This doesn’t mean that there should be no collaboration between the chain members; it means the desired level of performance of the supply chain will not be achieved until and unless there are policy and procedure changes at the local level. Directly looking at the big picture and ignoring the internal problems will not lead to overall supply chain effectiveness. Effective implementation of TOC approach requires perfect integration and alignment of the business strategy & supply chain strategy to achieve business goals & objective which in turn will lead to overall supply chain’s effectiveness and improved performance.

This article has been authored by Tarun Shukla and Anand Singh Balyan from Symbiosis Institute of Management Studies, Pune

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