The Theory of Constraints - Application of Tools - Case Study Example

Abstract

Business entities’ performance is based on achievement of their set goals and objectives. Although it is necessary to set goals as high and as real as possible, sometimes there are limiting factors to register sterling performance. For this reason, it is relevant to evaluate the hindering factors and the desire to remedy the situation is always necessary. The Theory of Constraints is one of the functional methods that are handy in this process. In this paper, the applicability of this theory is reviewed with reference to the Top Nosh Catering Company as a case study. Various tools of TOC such as the evaporating cloud, the prerequisite tree, and the negative branch are clearly described and evaluated in relation to the case study. Guidelines on how to draw these tools are highlighted. Besides, recommendations are made regarding the utility of the tools of the theory of constraints and appropriate procedures for its application. Information sources are the provided literature materials, print books, other journals, and scholarly articles.

Key Words: Theory of Constraints, Tools TOC

The Theory of Constraints: Application of Tools

• Part One: Summary of TOC
• The theory of constraints is a method applied in many businesses to identify the constraints or limiting factors that bar a business from achieving its set goals and objectives. The concept further analyses how to improve the defined constraints or limiting factors until they are eliminated. The limiting factors in many industries are often referred to as bottlenecks. The concept of Theory of constraints involves a systematic approach that is more scientific, which defines a production process as a series of steps that are interlinked, and the steps involve different activities each under a specific system. One of the processes acts as a constraint to the whole system. The activity working as the constraint is also the weakest link in the production chain or process. According to Dettmer (1997), the main objective of many organizations is to make a profit and minimize the costs of production, which can either be short term basis or the long term basis. The theory provides a good strategy to achieve the set goals in the shortest time possible. The tools that are involved in the theory of constraints are the thinking process that involves the basic tools for resolving and analyzing the production problems, a method which is applied in guiding and analysing the performance of management, which is referred to throughout accounting. The third tool is the five focusing steps which are an analytical method for identifying and minimizing the main constraints.

Theory of constraint is a broad theory that has widely been accepted as today's organization management strategy, as continues to develop in many aspects. Its main agenda is to improve activities and it does this by prioritizing the most current constraint in an organization. It provides the best possible methodology for improvement. A successful TOC will result in more profits, increased capacities of an organization, reduction in the inventories, and a much faster improvement process.

Basics of Theory of Constraints

McMullen (1998) reviewed that the main concept in this theory is that every organisational process has a specific constraint, and the whole process should be improved through the elimination of the identified constraints. Putting a lot of importance on the non-constraints does not lead to good results. Improvement on the constraints gives good results, thus, higher profits for the organisation, which makes it easy for achieving goals. The theory provides focus on one current constraint as management works on towards the next constraint until the entire process is improved. It has the benefit of providing priority to the core goal of an organisation, which is making profits (Dettmer, 1997).

TOC Methodology (Five Steps)

Figure 1: The five steps for TOC according to McMullen (1998).

There is a specific methodology which is applied in identifying and eliminating constraints; the methodology involves five steps which are cyclical. The five-step process includes identifying the key constraint in the organization in which improvements are made to the constraint using the available resources. Further, the activities of the organization are reviewed and only the activities that support the process are fully utilized with what is available, which is characterized as exploiting. The activities should align with the entire needs of the constraint, and further actions are then considered if the constraint has not improved, which is known as elevating. The process is repeated as the activities move on to the next constraint (McMullen, 1998).

Tools of TOC

These tools include the evaporating cloud, the prerequisite tree, the current reality tree, the future reality tree, the negative branch reservation, and the transition tree. The evaporating cloud is used to determine what is supposed to be changed to solve a given dilemma in business. It is utilized in determining the unfavourable effects in the business and links them to their most probable causes. It also creates a realistic perception of the vision with a vivid description of the most appropriate strategies that can be implemented to realize the desired business environment. A prerequisite tree is a tool that describes what should be done to attain the desired change. It is a means of deriving implementation measures from the business obstacles and is mostly applicable where a team is required to meet the expected goals. The transition tree is utilized in cases that require a detailed route of action that relates to the anticipated results.

Part Two: Case

Five Focusing Steps

The preliminary step in this case is the key thinking process. Zimmerman and Yahya-Zadeh (2011) reviewed the TOC as a sophisticated method of solving problems in an organisation and should involve a systematic approach. The thinking process can analyze the line of activities that has a lot of interdependencies. For the Top Nosh case, which is a catering company, the activities involved are cooking and presenting meals, and the location of the business is in an old building which also hosts apartments. The tool will first identify the cause of the problem within the organisation and define what should be changed and the measures to be employed.

Step 1: Identifying the key constraints. The goal of the Top Nosh Company is to deliver quality and increase the profits because there are various factors that limit its efficiency and maximum productivity. In this case, the constraint is the resource that has a lower capacity compared to demand. The services are offered by employees, who are full-time students except the head chef, which may compromise the proper functions of the organisation. Therefore, a high employee turnover is a key problem identified and the constraints identified in this case are small working space, lack of permanent employees, and limited finances. The single and most important aspect that limits the whole process is the lack of finances.

Step 2: Exploiting what the company has. The company can improve its services by improving on the resources it has. The improvement can be made on the weakest link of the activities and the company could opt for another lobby that can reduce the congestion.

Step 3: Subordinate everything else. Having a private entrance can reduce the congestion of the lobby. However, this cannot eliminate the constraint of employee turnover completely because a reduced congestion can enable the company to attract more customers, and an increased profit margin. However, this will still put more pressure on the employee turnover due to the increased workload.

Step 4: Elevate the constraint. The constraint still exists, and another action for the company to consider is to hire permanent professionals as waiters, which would require more capital for their salaries. The company does not have enough finances to cater for an upgrade. Step four involves adding more people, or more working tools into the company. The team of waiting for employees is elevated by hiring more qualified employees. The new employees will lower the rate of productivity as they will need to be trained and delegated with roles. This improvement will take some time to give good results.

Step 5: Repeating the process. The last step will check if the company's goal of expanding is valid. The measurement throughout is then identified to be correct, and getting permanent employees will solve the problem of high employee turnover. Nonetheless, this has not solved the worst problem of upgrading the company with limited finances. A new problem emerges of wanting to reduce congestion within the lobby. Thus, the second worst problem now becomes the key constraint, and the process goes back to step one. The attention is now diverted to solving the congestion problem (Zimmerman &Yahya-Zadeh, 2011).

Drum-Buffer-Rope: The Company will be using it to analyze the essential elements of the identified solution. It looks at the constraint and the release duration and the time for the release. The company will have a monitoring system for the activities towards a viable solution. The drum-buffer-rope is used in planning, and allowing an effective management system.

Figure 2: Application of drum-buffer-rope according to (Schragenheim, 1998).

The Evaporating Cloud

Figure 3: An illustration of an evaporating cloud according to (Schragenheim, 1998).

Dilemma. The company manager cannot upgrade the organization due to lack of finances.

How to draw. The evaporating cloud is a structure built of five boxes, arrows then connect the boxes, and the arrows are referred to as logical connectors. Each box is used to answer a question that helps describe the main conflict. A broken arrow provides the conflict, and wants are often opposite of each other and cannot exist together.

How it is read. The evaporating cloud has a particular way of being analyzed, such as, from the diagram above; a company must have a requirement B to have an objective A. To have the element B, the company should have the prerequisite D. An objective D is required when there is the A requirement, and condition C is crucial once there is the prerequisite D'. The two requirements, need D and need D' are in conflict. The conflicts are analyzed as unexplained assumptions, and the cloud is used to illustrate a vivid view of the dilemma and gives a simple way of analyzing the provided assumptions (Schragenheim, 1998). Assumptions are made to explain a reason under every arrow.

Figure 4: An evaporating cloud according to the case study (Schragenheim, 1998).

Referring to Mabin and Balderstone (1999), the cloud will solve the conflict in the company, which is the lack of finances to upgrade the premises. The conflict will be defined by the two wants, hiring new employees who will be permanent and getting a new entrance into the building to reduce congestion. Both wants are identified to achieve the common goal of increasing profits. The two needs link the two actions to the common goal. The conflict might be solved by satisfying both needs (Schragenheim, 1998).

From the cloud diagram, for the company to upgrade, it will need finances, and a low employee turnover to get finances and have a low employee turnover. The manager must want to get more finances and hire permanent employees with a lower workload. Hiring new employees and upgrading are in a conflict with each other as shown by the arrows. The company is faced with the conflict of upgrading, but has a financial crisis, which puts the manager in a dilemma of whether to upgrade or not, and how to solve the turnover staff crisis. What the company needs to change is the high employee turnover at the workplace because there is limited space and finances to upgrade. There are some assumptions under the noted conflict arrow in which case the manager is faced with the conflict of either using the current finances to upgrade or hiring new employees as the key agenda (Cox & Schleier, 2010).

Assumptions. An assumption is that the company has little funds to use, and the employees are unavailable for permanent employment. The current employees have low skills as they are students and require to be trained by the head chef who puts a lot of workforce on the organization. Hiring employees would require bigger finances as they would require a better pay compared to the students that are on part time. The company seems to be operating fully only on weekends as that's when the employees are required to be around.

The company is located in a building that hosted expensive apartments; this helps us assume that it needs to stay in the same building as residents act as potential customers and affluent clients for the business.

Injections. They are new ideas that the company manager will introduce into the business, as they will be needed to create a totally new strategy and mitigate the occurring undesirable effect, some of the injections include finding new premises for the business, hiring permanent employees, delegating the work to outside support companies for baking and deliveries, training the current employees, and sourcing for funds to upgrade the company. The best and most promising injection to apply in this situation is to hire new employees who are more qualified, this will solve the high employee turnover and eliminate the costs required to train the current employees.

Negative Branch

Schragenheim’s (1998) study found that the negative branch is a modification of the reality tree, thus it will consider all the negative outcomes expected within the Top Nosh Company organization structure after the previous injections are done. It is considered a vital aspect of the decision-making process by the organization and will consider trimming the expected outcomes that have bad results because many organizations treat it as a component on its own. In this case, the company is facing many outcomes from the decisions it will put in place. The outcomes might be obvious or unanticipated, which are verbalized as a "yes but" situation. The tree allows the manager to identify and mitigate the negative by working through an effective logic and systematic cause-effect. When the effect becomes clear, it can be removed or mitigated (Mabin & Balderstone, 1999).

Three positive outcomes. The Company will experience a lower employee turnover due to higher commitment from the staff, better services to the customers that will lead to high customer satisfaction, and increased profit margins.

Three negative outcomes. The injections will cause several negative outcomes such as a high constraint in the financial aspect of the business.

Trimming. The negative outcomes are the negative branches from the decisions made by the manager. The results are modified by altering the original injection or adding a better injection in the evaporating cloud previously formulated. Anticipated negative branches have grown due to the injection into the evaporating cloud, the negative branch. However, it did not exist before the injections were done because they come as a result of the new desirable effect that needs to be trimmed. Outrata, Kocvara and Zowe (2013) found that the strategy helps the manager gain a clear understanding of the reservation tool in helping to eliminate the undesirable side effects developed from the proposed solutes of getting more finances and employing permanent staff. Some researchers in the business field illustrated trimming a negative branch involves a new addition or implementing the solution put in place to be simpler, and the branch is trimmed before the negative result identified.

Figure 5: A negative branch (Rand, 2000).

Drawing. After attaining all the materials needed and information formulated to achieve the desired outcomes, the manager formulates the desired effects as having a low employee turnover and expanding the company to reduce congestion could increase the speed of work. The injections identified are to add more capital to the business and be able to operate well. Adding injections at the bottom is done by choosing the best strategies to put in place, including hiring new employees, which will put a financial strain on the manager who will be required to train the new employees. In this case, a gap is formed, which is an adverse outcome of employing new employees. The negative outcome can either be trimmed by facing the reality of the outcome. The gaps are then filled while working up the negative branch tree by adding extra injections. The manager needs extra finances and staff to effectively train the employees (Watson et al., 2007).

Prerequisite Tree

It will analyze the steps the Top Nosh company will apply to achieve its goal. The main objective of the company, which seems unreachable, is to upgrade the organisation and solve the problem of employee turnover.

Define the target. The Top Nosh Company is facing an expansion problem because of financial constraints. The manager wants to upgrade and reduce the congestion in the lobby, which necessitates the employment of more staffs. The team involved is the manager, the head chef, and full time student employees. In 1997, Kendall reported that when everybody decides that the target should be achieved, then various ideas are brainstormed within the organization. Achieving the goal then becomes the main target, which is agreed by everybody.

Targets. The key targets of the manager are to expand the business and have a low employee turnover; however, the congestion at the lobby creates another target of having sufficient space and effective services.

Identifying the obstacles. There are obstacles within the company that prevents the company from achieving its main target, these are listed:

• Limited space
• Work overload
• Congestion
• Limited time
• Poor skills

Intermediate Objectives (IOs)

The intermediate objectives will be the situations achieved after overcoming the obstacles within the company’s organization. They will be identified as the stepping stones that join the current situation and the ambitious target of the company. Each obstacle identified above will have an intermediate objective to overcome it.

The arrangement of the IOs. After analyzing the intermediate objectives, they are then arranged in a logical order, in which the arrangement portrays which intermediate objectives have to be achieved first before others, and the goals that can be achieved in line with each other.

Drawing. The tree is read from top to the bottom, whereby, an intermediate objective is first fulfilled before an injection is completed, and then the manager gets a good strategy to overcome the obstacle. Rand (2000) illustrated that to build the tree, the first step is to identify the most crucial injection to analyze. In this case, the most crucial injection is the employment of new staffs into the organization. The employees are the most crucial aspect of an organization and need to be productive and highly skilled. Employing new individuals has many obstacles such as lack of finances, the training manpower, lack of time and resources, and limited space within the premises. The intermediate objectives that need to overcome these obstacles are training the current employees and improving the services provided to customers to have a better value proposition strategy.

Table 1: A list of obstacles and their respective intermediate objective required to draw a prerequisite tree (Kendall, 1997).

Figure 6: Prerequisite tree for the case (McMullen, 1998)

Reflection

TOC tools can be of use in many aspects today as they can be applied in many fields to provide solutions to various problems in a systematic manner. They allow a company or an organization to draw better conclusions when faced with varying operations problems or dilemmas. It is a way of lean thinking that involves various combined tools that are all useful. A bottleneck or a constraint can limit business from achieving its main goal, and the constraints can exist in various forms, such as social, economic, or psychological. However, financial problems are the main factors that affect a company's growth and expansion. Reducing the barriers in an organization helps improve its performance and drive it towards achieving its main goal.

Constraints are often recognized through realizing the things that hold back individuals in everything they do. The process is easy and requires identifying what is limiting a performance. However, resolving the constraint is a big challenge to an organization as it requires a skilled manager to formulate the best steps to tackle the problem without creating more constraints into the business. The whole process is about critical thinking, and involves structured, systematic, and logical criteria. It involves having a cause and an effect, realizing assumptions, and looking for alternatives until the best option is reached.

A company should have a healthy business environment for a theory of constraint to be applicable. It is important to note that most of the changes applied to deal with a problem affect employees, and lack of understanding between them may result in more conflicts within the organization. The primary goal of every organization is to achieve a good win-win solution while respecting every party involved. This theory can also be applied in other aspects such as social disputes, institutions of learning conflicts and within an individual to recognize and satisfy ones needs. TOC is helpful in thinking and reducing money wastage and resources. The operations of this theory can be incorporated into the software to be applied easily and conveniently.