Comments on: Reconciling Lean and The Theory of Constraints

By: Wil

Wil — Tue, 22 May 2012 14:44:21 +0000

Great post & great comments. Steve & Scott clarify well the “people” element of TOC while Jack has provided solid clarification of throughput accounting.

Both Lean & TOC are focused on improving the flow of product from the beginning to the end of the production & sales process. I’m a bit more experienced with TOC but am currently working with a company implementing Lean. What I’ve been able to contribute from my TOC experience is focus. There are literally hundreds of opportunities to eliminate waste here so where do we start? By starting with the bottleneck that is limiting our sales!

By: Jack Vinson

Jack Vinson — Sat, 26 Jun 2010 17:53:54 +0000

The interesting thing about the Profit equations above has to do with another important topic in the Theory of Constraints literature: that of how many of the standard accounting principles are applied incorrectly to making operational decisions. This is why the definition of profits has been adjusted. The term “cost” is used in most organizations to include cost allocations to a product or service. So instead, the Throughput term specifically includes only “totally variable cost” of the product or service: the cost of the raw materials that are directly attributable to what you’ve just sold. Everything else (rent, utilities, overhead, salaries) goes into the Operating Expense bucket. So, profits are simply what you made on selling the product (T = Sales – TVC) less everything else that you spent to keep the business running (Operating Expense). In the TOC view, this makes it clearer what we are doing when trying to improve profits.

By: Mike Allin

Mike Allin — Tue, 22 Jun 2010 14:26:31 +0000

I have to agree with Holts’s insightful comment. The investment is truly in people when it comes to the workforce, project management and manufacturing. I’ve never thought about the two theories but the three points to be successful made by Holts are very true.

By: Steve Holt

Steve Holt — Mon, 21 Jun 2010 07:07:36 +0000

To add to Scott’s comment–Eli Goldratt considers layoffs, especially just for the purposes of short term profit, as being one of most evil deeds possible in a company. If you remember in “The Goal” when Alex, the plant manager, is told that his plant will be shut down in 90 days unless he meets specific profit targets the thing that most motivates him is that if the plant is shut down almost all the people will be out of a job. In “It’s Not Luck” Alex is given the role to help sell off 3 plants and he spends a fair amount of time complaining about how the Board of Directors just cares about short term profits at the expense of people’s well being. (And in the course of the book he sets it up so that people are, in fact, well taken care of.)

As Scott said, in “It’s Not Luck” there is a discussion as to the goal of a company and the necessary conditions to meet that goal. It’s also pointed out that you can choose any one of the 3 and the other two are necessary conditions. In other words you MUST have all 3 to be successful. They are:
You must make money now and in the future.
You must have a safe and satisfied workforce now and in the future.
You must have a product valued by the market now and in the future.

In each case, the “and in the future” is there to ensure that the company makes investments in the long term and that most definitely includes the people.

By: Scott Edwards

Scott Edwards — Mon, 21 Jun 2010 04:21:32 +0000

Very good synopsis. I think the “Respect for People” in the TOC body of knowledge is probably best captured in the novel It’s Not Luck. The last few pages do a good job of defining what is the actual “Respect for People” pillar of Lean in the TOC way, in my opinion. Alex Rogo, the protagonist, clarifies or spells out both necessary and sufficient prerequisites for “making money now and in the future”. A key to “in the future” is happy and productive workforce. It is saying “Respect for People” in a less explicit way.