TOC Fundamentals

TOCICO

TOC Fundamentals Exam

Review Session
Written and Presented by: C. Grant Lindsay and Richard Reid
Date: Nov 2006
Note: Some slides in this presentation have been used or adapted,
adapted, with permission, from a presentation developed by Alan Barnard.
Barnard.

© 2006 TOCICO. All rights reserved. 1

 Workshop Deliverables
TOC Fundamentals

• TOC-ICO certification structure overview.

• Discuss fundamental TOC concepts.
• Suggestions for successfully completing the
exam.
• Review of some sample exam questions.
• Provide an opportunity to answer and discuss
some illustrative exam questions.
• Answer your questions.
2
© 2006 TOCICO. All rights reserved.
 TOCICO CERTIFICATION ROADMAP

TOC Fundamentals

TOCICO Certification for TOCICO Certification for

“Practitioners” “Implementers”
TOCICO Certified TOCICO Certified
PRACTITIONER IMPLEMENTER

Step 3 – Submit Case Study

Demonstrate expert level synthesis & evaluation ability in
leading the IMPLEMENTATION of one or more specific TOC
applications by Submitting Case Study of actual implementation

Step 2 - Pass Application Exam Step 2 - Pass Application Exam

Demonstrate expert level analysis & APPLICATION Demonstrate expert level analysis & APPLICATION
ability in specific TOC application by passing ability in specific TOC application by passing
TOCICO Application Exam TOCICO Application Exam

TOCICO Certificate of
Achievement

Step 1 - Pass TOCICO Fundamentals Exam

Demonstrate knowledge & understanding in the fundamentals of
all TOC applications
3
© 2006 TOCICO. All rights reserved.
 TOC Fundamentals
What is Theory of Constraints?
TOC Fundamentals

Theory of Constraints provides a set of Holistic processes and rules, all based on a
Holistic/Systems approach, that simplifies the complexity of improving and managing
complex organizations through FOCUSING on the FEW physical & logical constraining
“LEVERAGE POINT(S)” and building the necessary & sufficient “LEVERS”
(holistic rules) that will SYNCHRONIZE the parts to achieve an ongoing & step
change improvement in the performance of the system as a whole…

THEORY OF CONSTRAINTS
After more than 30 years of Development and Evolution…

Part 1 Part 2 Part 3 Part 4 Part 5

5 Focusing Thinking Throughput TOC Generic Implementing TOC
Steps Processes Accounting Solutions Viable Vision
1. Identify the System’s 1. UDE Evaporating Cloud (EC) 1. Throughput (T): The rate at which 1. Operation – Drum-Buffer-Rope 1. VV Offer: Profits equal to current
Constraint the system generates money through sales within four years
2. Current Reality Tree (CRT) Sales (SR - VC) 2. Finance – Throughput Acct.
2. Decide how to Exploit the 2. Eight templates for success.
Constraint 3. Core Conflict Cloud (CCC) 2. Investment (I): The money tied up in 3. Projects – Critical Chain
4. Future Reality Tree (FRT) the organization 3. Applying the templates.
3. Subordinate everything to the 4. Logistics – Pull Replenishment
above decisions 5. Negative Branch Reservations 3. Operating Expenses (OE): All the 5. Marketing – Unrefusable offers
(NBR) money spent by the system to convert
4. Elevate the System Constraint investment into throughput 6. Sales – “Buy-in” Process
5. If in the previous steps a 6. Pre-requisite Tree (PRT)
4. Net Profit (NP) = T – OE 7. People – “Empowerment”
constraint has been broken, Go 7. Transition Tree (TrT)
back to step 1. 5. Return on Investment (ROI) = NP/I 8. Strategy – “1+4x4 process”
8. Strategy & Tactics (S&T)

4
© 2006 TOCICO. All rights reserved.
 TOC Fundamentals
The Evolution of TOC over 30 years
TOC Fundamentals
TOC Evolution over last 30 years

TOC & Strategy (Viable Vision)

Dramatic Overall Improvements
TOC & Technology
– Necessary but not Sufficient
The TOC Holistic Approach
– 8 Video Sessions
Project Management
– Critical Chain
Distribution, Marketing, Management Skills
– It’s Not Luck
The Thinking Processes
– Jonah Program
Production, Throughput Accounting
– OPT, The Goal, The Race, The Haystack Syndrome
Dr Eli Goldratt and the International TOC Community of Practitioners, Educators & Experts

1975 1985 1990 1995 2000 2005

5
© 2006 TOCICO. All rights reserved.
Keys to Writing a Successful Exam
TOC Fundamentals

The Fundamentals Exam (FE) is structured to

ascertain your knowledge and understanding
of basic TOC tools and concepts.

Some requirements for successfully completing

the FE include:
1. Knowledge of the steps in TOC
improvement approaches.
2. Understanding of basic TOC principles
concepts and tools.
3. Application of TOC improvement
approaches and tools to specific scenarios.
6
© 2006 TOCICO. All rights reserved.
 Some Suggestions for Writing a Good Exam
TOC Fundamentals

• Carefully read and understand the question

• Ask yourself what is given and what is being
requested
• If question seems unclear, then record relevant
assumptions before writing your answer
• Answer all parts of the question
• Relate the question to your answer
• Show your work where applicable
• Do not provide excessive information that has not
been requested

7
© 2006 TOCICO. All rights reserved.
 TOCICO Fundamentals Exam Outline
TOC Fundamentals

Part A – TOC Fundamentals

− Simple vs. Complex Systems
− Global vs. Local Improvement
− The Five Focusing Steps

Part B – TOC Thinking Processes

− The Change Sequence: Answering Three Questions
− UDEs, Conflicts and Injections
− Negative Branch Reservations
− Resistance to Change

Part C – TOC Applications

− Supply Chain and Operations
− Finance and Measurement
− Project Management
8
© 2006 TOCICO. All rights reserved.
 Part A – TOC Fundamentals
Achieving a Process of Ongoing Improvement
TOC Fundamentals

“Every Improvement is a Change, but not every Change

is an improvement…”

1. How can we know whether a planned “change will result in an

improvement for the system as a whole”?
2. How can we achieving a process of ongoing improvement?
Strengthening the “Weakest Link”…
The Theory of Constraints (TOC) make the case that a change will only be a
total system improvement if the change improves or protects the performance of
the System Constraint (the weakest link).
Therefore, to measure the impact of our recommended change, we should
identify the expected impact on the System Constraint and therefore on
increasing the flow of goal units through the system.
In TOC, we use the Five Focusing Steps and the measure progress with
the 3 Global Performance Metrics: (1) Throughput (Sales – Variable Cost),
(2) Investment/Inventory and (3) Operating Expense to drive and enable a
Process of Ongoing Improvement.
9
© 2006 TOCICO. All rights reserved.
 A Focused Process for Breakthrough and
Continuous Improvement
TOC Fundamentals
5 Focusing Steps of the Process of Ongoing Improvement (POOGI)
Step 0: Agree on the System GOAL (& to define “constraint” and goal metrics)
Step 1: IDENTIFY the System Constraint (the Weakest Link)
Step 2: Decide how to EXPLOIT (i.e. not Waste) the System Constraint
Step 3: SUBORDINATE everything to the above decision
Step 4: ELEVATE the System Constraint
Step 5: If the constraint was removed in previous steps, GO BACK to Step 1
Supply Demand
14/hr 12/hr 8/hr 11/hr 15/hr
12/hr 10/hr
System Constraint

Step 1 Step 2 : Step 3: Step 4:

Identify the System Decide how to Exploit Subordinate (Decide when and how to )
Constraint the System Constraint everything to this Elevate the System Constraint
decision 120%
D B
$120m Potential for Constraint
A
100% 100% Elevation
100% D’ C
$100m Potential for $100m Murphy / Common Cause $100m Murphy / Common Cause

Non-Value Add / Rework D B

Constraint Downtime & Set-ups A
80%
Exploitation D’ C $80m
60% Starvation/Blockage New level of
60% Constraint
$60m Current level of Current level of
$60m New Constraint Exploitation
Constraint Constraint focused and aligned
Exploitation Exploitation Policies & Metrics

Step 5: Go10back to Step 1

© 2006 TOCICO. All rights reserved.
 Part A – TOC Fundamentals
TOC Fundamentals

Problem A1
a) Which is more complex: System A or System B?
b) Explain why you claim this to be true?

System A System B

Please indicate your answer using a “X” next to the statement you believe is correct:
a) System A is more Complex

b)
System B is more Complex

Explain the reason for your above answer in the space provided below:

11
© 2006 TOCICO. All rights reserved.
 Part A – TOC Fundamentals
TOC Fundamentals

Problem A2
a. What is the implication of the TOC definition of a “complex system” on the way TOC experts
analyze, manage and improve complex systems?
b. True or False – Explain your answer: Any complex system is based on “inherent simplicity” and
capitalizing on this fact is what enables incredible performance improvements within a short time.

Answer to A2a:

Answer to A2b:

12
© 2006 TOCICO. All rights reserved.
 Part A – TOC Fundamentals
TOC Fundamentals

Problem A3
a. What are the 5 focusing Steps we use in TOC to achieve a Process of Ongoing Improvement?
b. Explain how the 5 Focusing Steps specifically applied to managing a specific scenario:

Answer to A3a:

Answer to A3b:

13
© 2006 TOCICO. All rights reserved.
 Part A: Concept Review
TOC Fundamentals

• TOC is a systemic-based management approach

• Simple vs. Complex Systems
• Global vs. Local Improvement
• The Five Focusing Steps in POOGI – Be able to:
1. Understand this improvement process
2. Apply this focusing process

14
© 2006 TOCICO. All rights reserved.
 TOC Fundamentals

Section B
TOC
Thinking Processes

15
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
TOC Fundamentals

What to Change?
•Identifying UnDesirable Effects (UDEs) within a System.
•Defining the Conflict that blocks us from removing the UDEs.
To What to Change?
•Finding Injections that can resolve the Conflict.
•Identifying potential Negative Effects of a new Solution.
•Constructing the “Cause-Effect” or Negative Branches between the
Solution and Predicted UDE.
•Finding Injections that can prevent or minimize the risk of the
Negative Branch Reservation (NBR).
How to Cause the Change?
•Identifying Implementation Obstacles for the new Injections.
•Determining the sequence of Intermediate Objectives (IOs) to be
achieved to overcome these obstacles with a Prerequisite Tree (PRT)
•Construct a Detailed Roadmap via a Transition Tree (TRT) showing
actions needed to overcome dependencies between successive IOs.
16
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
System Evaluation & Overcoming Resistance to Change
TOC Fundamentals

TOC uses a systematic approach based on the answers to 3 questions (change sequence) to
analyze systems and overcome each of 6 layers of resistance using a set of logical thinking
processes to get the buy-in and active collaboration from all the key stakeholders.

WHAT TO CHANGE?
Layer 1: Agree on the Core Problem and Constraint causing the Undesirable
Effects.
TO WHAT TO CHANGE?
Layer 2: Agree on the Direction of the Solution to remove the Core Problem &
better exploit and or elevate the physical system “constraint”.
Layer 3: Agree the Proposed Solution will achieve the Desirable Effects and
Strategic Objectives.
Layer 4: Ensure that all significant Negative side-effects (1st Yes, Buts...) have
been surfaced and addressed.
HOW TO CAUSE THE CHANGE?
Layer 5: Ensure that all Obstacles (2nd Yes, Buts...) to implementation have been
surfaced and addressed in a detailed action plan.
Layer 6: Overcome any Unforeseen inertia or unidentified obstacles, that will limit
or prevent the change from occurring (Un-verbalized fear).
17
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
System Evaluation TP Tools
TOC Fundamentals
Step 0. System Goal & Definition Process Step 2. UDE Map & 3 UDE Step 3. Current Reality Tree & Step 4. Identifying & Challenging the Core
Improvement Objective: ↑NP and ↑ROI
Conflict Cloud Process Core Conflict for Company Conflict Conditions for Company
Improvement Metrics: T, I, OE, CF

Shareholder/Donor
CASH ↓Sales $$$ ↑Costs ↑Invest Strategy Tactic
↓Sales $$$ ↑Costs ↑Invest
Customer
Supplier

Value Chain Conflict

UDE 4 UDE 2 UDE 3 Conditions or
UDE 2 UDE 3 UDE 4 GOAL Erroneous
Assumptions

UDE 7
UDE 7 UDE 1 UDE 5 Conflicting
UDE 1 UDE 5 Strategy Tactic
Reg Authorities
UDE 6
Step 1. List of Undesirable UDE 6
Current
Effects and Desirable Effects Compromise
OLD NEW
AREA UDE DE
AREA UDE IMPACT DE UDE 1 Tactic to
RULE RULE
NEED
prevent UDE
Sales UDE1 Reduced Sales DE1 Sales/ UDE1 Old Rule 1 DE1 New Rule 1
OBJ Tactics Core Tactics
Finance UDE2 Increased Costs DE2 Finance UDE2 Old Rule 2 DE2 New Rule 2
Conflicting Problem(s)
NEED
Tactic toTactic
UDE 3 NEED
prevent UDE Logistics UDE 3 Old Rule 3 DE3 New Rule 3
Logistics UDE 3 Increased Inventory & DE3
reduced cash OBJ
Strategy Strategy R&D UDE 4 Old Rule 4 DE4 New Rule 4
R&D UDE 4 Increased Time to Market DE4 Conflicting
NEED Marketing UDE5 Old Rule 5 DE5 New Rule 5
Lead Time Tactic
Tactic to
UDE 5 NEED
Marketing UDE5 Reduced Sales DE5
prevent UDE
GOAL
OBJ

Conflicting
NEED
Tactic

Step 6. PreRequisite Tree to overcome Step 5. Future Reality Tree to achieve DE’s and
Step 7. Strategic & Tactical Project Plan & Metrics Implementation Obstacles NBR’s to prevent any negative consequences
for Company & Departments +$$
GOAL DE DE
NEW RULES

Obstacle
DE DE
Next Step TO SO TO PUDE
New
DE Metrics DE DE
TECHNOLOGY Project Obstacle
SO Obstacle DE
Objective TO
SO TO New
“Rules”
DE
SO
18 New
New Technology
© 2006 TOCICO. All rights reserved. SO Rules/Tech
 TOC Fundamentals

Section B
Why Change?

Defining the UDEs

19
© 2006 TOCICO. All rights reserved.
 Identifying Undesirable Effects
(UDEs) of the System
TOC Fundamentals

UnDesirable Effects (UDEs) are symptoms or negative effects that you and other
stakeholders (e.g. your customers, shareholders etc) are currently experiencing.

These effects are “undesirable” in relation to the goal of your defined system and
its vision.

Usually, people have very good intuition. When dealing with a system whose
performance we want to improve, we engage our thinking about what can be done
to make it better. As such, we tend to collect observations or “complaints”, from
our own thoughts or what others say, that we believe are the major problems of
the system.

“The best way (to analyze project management) is to ask people ‘what is the problem?’ in the field of
project management or ‘what makes managing projects so difficult’. Well… people who are deeply
involved in projects are experts in bitching and moaning. And they have good reasons for it. So ask
them what really bothers them.. For example, let me show you a list that I got from a friend of mine,
who had a lot of experience in projects: Original due dates are not met...there are too many
changes...too often resources are not available when needed…there are fights about priorities
between projects…there are budget over-runs… there is too much re-work.”
Eli Goldratt, Goldratt Satellite Program, Session 3 - Project Management
20
© 2006 TOCICO. All rights reserved.
 Verbalizing the Undesirable Effects
(UDEs) of the System TOC Fundamentals

Criteria for a “Good” UDE

1. It is a complete statement. (written in present tense)
2. It exists in current reality – it is not a Predicted Undesirable Effect.
3. It is an “effect”, not a presumed “cause”, absence of “solution” or
obstacle to implementing a solution.
4. A single effect, without an “and,” “because” or “as a result of.”
5. It is negative in its own right and can be quantified or at least
qualified.
6. There is agreement that it is very important to neutralize or remove
it (because it has a significant negative impact on Goal Units,
necessary conditions, and global metrics – T, I, and OE).
7. It does not blame anybody directly, but describes the undesirable
effect being experienced.

21
© 2006 TOCICO. All rights reserved.
 Examples of “UDEs” that are NOT
“good enough”
TOC Fundamentals

No UDE Statement Good or Why? Recommended

Bad UDE? Correction in UDE
(List criteria)
1 Our Production manager Bad Blame person, Not –ve in Many of our best
is too strict. its own right people have
resigned.
2 We don’t have the budget Bad Presumed Obstacle to Our Due Date
to buy more machines. acquire solution Performance < 80%.
3 Last year’s bad weather Bad Include presumed Cause Last year we lost
lost us money. & Effect. Is this an UDE money for 1st time
or Fact of Life?
4 Our management Bad So what? Chupchik? Customers complain
meetings are too long. What is impact on T, I and that they never see
OE? management.
5 We have a bad project Bad Presumed Cause. Is it More than 50% of
management process. really a problem? our projects are late.
6 The no. of safety Good Can be improved by Safety incidents
incidents have been quantifying impact on T, I costs us $150k pa in
increasing year-on-year. & OE lost Throughput and
$50k pa in additional
costs

22
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
TOC Fundamentals

Problem B1
a) From the text below [Some of our customers are truly crazy!] identify at least three Undesirable Effects
[UDEs] and the impact on the company (in terms of T, I and OE)
b) For ONE of these UDEs, verbalize the associate conflict the person responsible for dealing with the
UDE, is facing. Use your answer to Complete the Conflict Cloud template below.
c) Identify at least 3 possible erroneous assumptions on any of the logical arrows
d) Identify the injections that could invalidate these assumptions.

“Some of our customers are truly crazy!”

This quite surprising quote belongs to G.G. Gerald, the CEO of Remedy, a medium size manufacturer of drugs. Mr.
Gerald referred to the increasing number of customer complaints. He said one of the complaints claimed that the
company’s sleeping pills caused some disturbing nightmares to the 70 years old woman who sent the complaint. As a
result of the increase number of complaints, the company had to increase the number of people who took care of the
complaints to meet the company’s publicized “one-week-at-most” response time promise to every complaint.

The company suffered a decrease in sales last year, but the CEO said that the sales are picking up due to the global
reduction of 12% off the list price on all the products. The increasing sales helped, to some degree, the severe cash
situation of the company. Mr. Gerald also explained the recent move to outsource the logistics of distributing the products
to the drug stores to an external logistics service company. According to him managing the detailed transportations
became quite difficult because the stores demanded too frequent replenishments and even demanded that the exact
arriving time to the store be arranged and agreed one day ahead. “There is no way for a truck driver to predict when he
will arrive to a certain store. You all know the state of the traffic and how unpredictable it can be.

This is an illogical request. From now on the stores would deal with our logistics service supplier that is large and strong
and also transport many more products to the same stores and let’s see whether they will request such stupid demands.
I’m truly sorry for our 25 or so employees who lost their job due to the outsourcing. I’m aware that other employees feel
uncomfortable about it and even concerned about their own job, but I had to take that difficult decision for the benefit of my
company.”
23
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
TOC Fundamentals

Problem B1
a) From the text on previous slide (#23) [Some of our customers are truly crazy!], identify at least three
Undesirable Effects [UDEs] and their impact on the company (in terms of change in T, I and OE)

No Three Undesirable Effects from the Text Impact on Company

(in T, I and OE)
1

24
© 2006 TOCICO. All rights reserved.
 TOC Fundamentals

Section B
What to Change?

Defining & Breaking

Conflicts
“Define a problem precisely and you are half way to a solution”

25
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Process Logic
TOC Fundamentals

Necessary Logic Sufficiency Logic

In order to…,I must… . If…,Then… .

Start my car Use a key I have a dog I have a pet

In either case reversing the order of the

entities creates an illogical statement

26
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Conflict Cloud
TOC Fundamentals

Defining a Problem Precisely

“Define a problem precisely and you are half way to a solution”
from “What is this thing called Theory of Constraints?” by Eli Goldratt (1990)

Let’s examine, what is the meaning of a “problem”.

• Intuitively, we understand that a problem exists whenever there is a
GAP between our current reality and some desired objective.
• What limits us from solving this problem or closing the GAP?
• It must be that some unresolved conflict or compromise limits or
blocks us from achieving the desired objective.
• Therefore, defining a problem precisely must start with a declaration of
the desired objective and the conflict that limits or blocks us from
“Solving” the problem.

Unresolved Problem = Unresolved Conflict

27
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Conflict Cloud
TOC Fundamentals

Defining a Problem as an Unresolved Conflict

In TOC we believe that the reason you have labelled a situation as a problem or UDE
(undesirable effect), is not only because it jeopardizes the goal of the system in
some way, but also because it must put you in some sort of dilemma or conflict.
Identifying this conflict not only will help us to understand the “real” problem (the
unresolved conflict) but will also enable us to surface our intuition and/or assumptions
about what is blocking us from dealing or removing the UDE.
To convert a Problem or UDE is as simple as answering the following 5 questions:
B D
Q4: What need of the Q1: What action /rule most
system would be satisfied likely caused the UDE or
by doing D (or would you feel most pressure to
compromised if you took take to deal with the UDE?
A Note: You can start with
the action in D’?)
any of the questions;
Q3: What is the one possibility is to
Objective of the begin with the one that
is ‘easiest’ to answer
part that caused and then complete the
the UDE? Q5: What system need Q2: What action / rule
rest.
is compromised by the could have prevented the
UDE (or would be UDE or is the opposite of
compromised if you what you feel pressure to
took action in D)? do to deal with the UDE?
28
C D’
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
Validating the Conflict Cloud
TOC Fundamentals

BB DD
Keep
Keepcost/unit
cost/unitas
as Maximize
Maximizebatch
batch Conflict Conditions:
low as possible
low as possible size
size
AA The conflict can exist due to:
Manage
Manage a) two conflicting “rules” or
Operations
Operations
Well
Well b) the constraint itself or
CC D’
D’ c) both (a) and (b)
Reduce
ReduceInventory
Inventory Reduce
Reducebatch
batch
and
and Leadtime
Lead time sizes
sizes

The way to validate your conflict cloud is to answer the following questions:

Is there a clear conflict between D and D’?

Is there no conflict between B and C?

Does the existence of D Jeopardize C?

29
© 2006 TOCICO. All rights reserved.
Does the existence of D’ Jeopardize B?
 Part B – TOC Thinking Processes
Surfacing Conflict Cloud Assumptions
TOC Fundamentals

The way to resolve/break conflicts without compromise is by identifying the

erroneous assumption or creating an injection that will invalidate a legitimate assumption
underlying one or more relationships between entity-pairs.
Have any erroneous assumptions been surfaced in the dashed-lined boxes below?
Large batch sizes allow managers to
allocate equipment setup costs over more
units so that costs per unit are minimized.

Low cost per unit is a

requirement for good BB DD
operations management. Keep
Keepcost/unit
cost/unitas
as Maximize
Maximizebatch
batch
low as possible.
low as possible. size.
size.
AA
Manage
Manage
It is not possible to maximize
batch sizes while concurrently
operations
operations reducing batch sizes.
well.
well.
CC D’
D’
Low inventories and short
lead times are associated Reduce
Reduceinventory
inventory Reduce
Reducebatch
batch
with well managed operations. and
and leadtime.
lead time. sizes.
sizes.

Small batches provide for

a reduction in both
inventory and
30 lead time.
© 2006 TOCICO. All rights reserved.
 Part B - Poor Cloud Example
TOC Fundamentals

• What changes are needed to make this a

well structured and valid conflict cloud?

BB DD
BD
Sales
Sales Inventory
Inventory
AB

AA
DD’
Profit
Profit

CC D’
D’
AC
Cost
Cost CD’
Inventory
Inventory

31
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Conflict Cloud
TOC Fundamentals

Problem B1
b) For ONE of your UDEs (see slide #24), record the associate conflict the person responsible for dealing
with the UDE is facing. Use your answer to complete the Conflict Cloud template below.
Be sure to surface a major assumption underlying each entity pair relationship.

BB DD
BD

AB

AA
DD’

CC D’
D’
AC
CD’

32
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Conflict Cloud
TOC Fundamentals

Problem B1
c) List all major assumptions and indicate whether erroneous (E) or valid (V).
d) Identify 1 injection that could invalidate at least one of the valid assumptions.

Arrow (c) List all 5 major assumptions; (d) Identify injection to overcome valid assumption
Specify if erroneous (E) or valid (V) or if erroneous, explain why.

33
© 2006 TOCICO. All rights reserved.
 TOC Fundamentals

Section B
To What to Change ?

Negative Branch
Reservations
“Every systemic solution has potential negative side-effects”.

34
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Negative Branch Reservation (NBR)
TOC Fundamentals

The inventor of an new idea or solution also has the responsibility to

ensure that the solution does not create new UnDesirable Effects Negative Branch
(UDEs). This responsibility is manifested through two channels: Reservation
1. Preparation - thinking about and asking others for potential negative
BUT…
BUT…
outcomes of the proposed solution.
2. Being capable of handling feedback from relevant Stakeholders and Predicted
Predicted
recognizing that their collaboration and buy-in is critical for the Undesirable
Undesirable
implementation of the solution. When these people raise their concerns Effects
Effects
and reservations (normally expressed as “yes, BUTS), the inventor should
be technically capable of converting the input into a process that addresses YES…
YES…
the concerns which TOC calls the Negative Branch Reservation.
Planned
Planned
The NBR process is described below: Desirable
Desirable
Step 1: Use your own and others’ experience and intuition potential to Effects
Effects
identify undesirable effects of the new injections by answering “what can
go wrong?”
Step 2: Construct the detailed cause-effect relationships between the Implement
Implement aa
injection and the Potential UDE (PUDE) to validate the sufficiency logic New
New Solution
Solution
Step 3: Identify how to “trim the NBR” by identifying where in the logic it (Policy,
(Policy,Process
or
Process
Metric)
turns the positive injection into a potential negative outcome. or Metric)

Step 4: Identify a potential additional injection to prevent or minimize the

risk of this PUDE by preventing the condition that can cause the PUDE…
35
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Negative Branch Reservation (NBR)
TOC Fundamentals

Detailed process for creating a NBR

1. Write the injection in the bottom box Potential Negative Outcome:
2. Use the space on the left to build a logical tree of
why the injection will lead to the predicted negatives.
Use the ‘If…then…because…’ logic
3. Write the possible negative outcome or Potential
UDE (PUDE) in the top box. If you were Because:
constructing a “Positive Branch” for a FRT, then
write the Desirable Effect or Strategic Objective you
expect the “injection” to achieve.
4. Write your reasons or logic of why you claim the
change will result in a negative (or positive outcome
for positive branches) in the middle box.
5. Split the entities of the middle box into two groups -
those that exist in the current reality and those that
do not exist in the current reality but will once the
injection will be implemented
6. Use the “will-be entities” in the “back bone” on the
link between the injection and the negative outcome Injection:

7. Add the supporting entities using the

‘If…then…because…’ logic
8. Check for clarity and sufficiency
36
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Negative Branch Reservation
TOC Fundamentals

Potential
PotentialNegative
NegativeOutcome:
Outcome: LOGIC OF NBR EFFECTS IN NBR
Throughput
Throughput of the line decreasesand
of the line decreases and
overtime costs increase Potential
PotentialUndesirable
UndesirableEffect
Effect
overtime costs increase
Throughput
Throughput decreasesand
decreases and
Overtime
Overtimecosts
costsincrease
increase

Because: Assumption
Assumption/ /Fact
Fact
Because:
1.1.Non-bottleneck 3.3.One
One way to ensureovertime
way to ensure
Non-bottleneckresources
resourcesadjusted
adjusted overtime
their isistotobecome
becomeaabottleneck
their life based onreceiving
life based on receiving bottleneck
Intermediate
overtime
overtimepayments…
payments…THEN THEN IntermediateEffect
Effect
2.2.Non-bottleneck 2.2.Non-bottleneck
Non-bottleneckresources
resources
Non-bottleneckresources,
resources,no nolonger
longer will
receiving
receiving overtime, will probablybe
overtime, will probably be
Injection to prevent NBR will have to take actionstoto
have to take actions
pressured to slow down to the Introduce new incentive ensure
ensurethey
theyreceive
receiveovertime
overtime
pressured to slow down to the
extent
extenttotowhich
whichthey
theybecome
becomeaa based in increased T to
bottleneck share improvement equally
bottleneckand andmust
mustwork
work
overtime…THEN
overtime…THEN
3.3.The
Thecompany
companywill willbe
beforced
forcedtotopay
pay
overtime (to protect customer
overtime (to protect customer
satisfaction) Assumption
Assumption/ /Fact Intermediate
IntermediateEffect
satisfaction)and andsuffer
sufferlost
lost Fact Effect
throughput 1.1.Non-bottleneck resources
Non-bottleneck resources We
We don’t have towork
don’t have to work
throughput
adjusted
adjustedlife
lifebased
basedon
on overtime on non-bottleneck
overtime on non-bottleneck
receiving
receiving extraovertime
extra overtime processes
processes
Injection:
Injection:
We
We only workovertime
only work overtimeononthe
the
bottleneck
bottleneck process (not on anyofofthe
process (not on any the
other
othernon-bottleneck
non-bottleneckprocesses)
processes)toto Assumption
Assumption/ /Fact
Fact Injection:
Injection:
reduce
reduceovertime
overtimecosts
costs To
To increase capacity,only
increase capacity, only We
We onlywork
only workovertime
overtimeon
on
need overtime on bottleneck
need overtime on bottleneck
37 Bottleneck process
Bottleneck process
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Negative Branch Reservation
TOC Fundamentals

Problem B2
a) For the new “Solution” or Change defined below, list at least three potential negative consequences
b) For the one with the largest potential negative impact on the company as a whole, construct the FULL negative branch
using “If-then-because” logic
c) Identify the assumption/fact [circle in red] that can be challenged and define an Injection [ to be written on diagram below
selected assumption that is challenged] that can prevent the negative consequence.

List of potential intermediate and overall negative consequences of:

“Laying off 10% of the employees across all the departments to achieve : cost reduction”
”
No. (a) Possible Negative Consequences of New Idea
1
Motivation of those employees that remain will
decrease and compromise customer service
2
Inevitably, 10% will also be cut at the internal
bottleneck which will reduce Co. Throughput by 10%
3
If Throughput goes down by 10% and only salary
costs go down by 10%, overall profits goes down.

38
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Negative Branch Reservation
TOC Fundamentals

Problem B2
b) For the one with the largest potential negative impact on the company as a whole, construct the FULL negative branch
using “If …, and if…, then…” logic.
c) Identify the assumption/fact [circle in red] that can be challenged and define an Injection [written on diagram below
selected assumption that is challenged] that can prevent the negative consequence.

LOGIC EFFECTS
Potential
PotentialUndesirable
UndesirableEffect
Effect
Shareholders: Sales
goes down

Assumption
Assumption/ /Fact
Fact Intermediate
IntermediateEffect
Effect
Customers: Quality
deteriorates

Assumption Intermediate
IntermediateEffect
Assumption/ /Fact
Fact Effect
Morale impact the quality of Employees: Morale
output goes down

Assumption
Assumption/ /Fact
Fact New
NewSolution
Solution/ /Change
Change
(To
(Toreduce
reducecosts
costsby
by10%)
10%)wewedecide
decidetoto
CEO do not tell remaining lay-off
lay-off 10% of employees inall
10% of employees in all
employees their jobs are safe departments
departments (to
(tobe
befair)
fair)
39
© 2006 TOCICO. All rights reserved.
 TOC Fundamentals

Section B
How to Cause a Change?

The Prerequisite Tree

40
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Prerequisite Tree
TOC Fundamentals

A long journey needs its milestones

implementing any new change or injection is not a trivial task. Let’s not forget that typically
after a TOC Analysis such as breaking a Core Conflict, at least one of the injections is a
breakthrough, a departure from the currently prevailing tradition and achieving it can be
considered an “ambitious target”. Thus, it is usually necessary to break the implementation
task into smaller increments.

Why is an ambitious target “ambitious?

...Because the path to making it happen is an obstacle course!
To prepare fully to understand and overcome this obstacle course, we use the Pre-Requisite
Tree (PRT). This thinking process starts with the identification of the implementation
obstacles that we expect we’ll encounter (based on collective experience and intuition) and
then we derive the necessary milestones – the Intermediate Objectives (IOs) verbalized as
outcomes - each needed to overcome the obstacles.

To complete the process, the Intermediate Objectives need to be sequenced; which one is
first, which ones can be accomplished in parallel, etc. The connections are provided by the
fact that any time dependency is due to the need to overcome an obstacle. The power of the
PRT stems from the fact that it doesn’t ignore the obstacles, on the contrary, they are used as
the main vehicle for building the “sufficiency” and “sequence” of the roadmap which will be the
basis of the project network.
41
© 2006 TOCICO. All rights reserved.
 Part B – TOC Thinking Processes
The Prerequisite Tree (PRT)
TOC Fundamentals
Pre-Requisite Tree (PRT)
By relying on everybody’s natural tendency and “expertise” at pointing out obstacles (why it will not be possible to implement a
breakthrough idea), the Pre-Requisite Tree Thinking Process enables managers to systematically identify these major obstacles
and the associated Intermediate Objectives necessary to overcome them. Then the manager is able to create a network
showing the interdependencies between Intermediate Objectives or Steps to implement the new breakthrough solution.

AMBITIOUS Injection 1
TARGET

No Obstacle Intermediate Who? INJECTION 1 INJECTION 2

Objective
1.1 OBS 1.1 IO 1.1 AB
OBS 2.1 OBS 2.3
1.2 OBS 1.2 IO 1.2 BC OBS 1.1

1.3 OBS 1.3 IO 1.3 AB IO 1.1 IO 2.1 IO 2.3

1.4 OBS 1.4 IO 1.4 DE

OBS 1.2 OBS 1.3

OBS 2.4 OBS 2.2
AMBITIOUS Injection 2 IO 1.2 IO 1.3
TARGET IO 2.2
No Obstacle Intermediate Who? OBS 1.4
Objective
IO 1.4
2.1 OBS 2.1 IO 2.1 AB
2.2 OBS 2.2 IO 2.2 BC

2.3 OBS 2.3 IO 2.3 AB IO = Intermediate Objective

2.4 OBS 2.4 IO 2.2 DE OBS = Obstacle
42
© 2006 TOCICO. All rights reserved.
 Part B: TP Review
TOC Fundamentals

• Change Sequence: Answer Three Questions

• Resistance to Change
• UDEs, Conflict Clouds, and Injections
• Negative Branch Reservation
• Prerequisite Tree

43
© 2006 TOCICO. All rights reserved.
 TOC Fundamentals

Section C
TOC
Applications

44
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
TOC Fundamentals

INTERNAL SUPPLY CHAIN LOGISTICS

• Managing Operations: Drum-Buffer-Rope
• Managing Supply Chain: TOC Replenishment

FINANCE AND MEASUREMENTS

• Making decisions using T, I and OE
• Making decisions using Throughput / Constraint Unit

PROJECT MANAGEMENT
•TOC Project Planning Rules: Critical Chain
•TOC Project Execution Rules: Buffer Management

45
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Internal Supply Chain Logistics
TOC Fundamentals

Problem C1 – INTERNAL SUPPLY CHAIN LOGISTICS

Apply the TOC Five Focusing Steps to the situation diagrammed below which is a
“Make-to-Order” environment for building Notebook Computers from Raw Material
(RM) Buffers by answering explicitly the questions on the next slide.

Average LT = 2 days

Stock of RM 3
A1 A2 A3 (LT = 1 wk)

Customer Demand =
12 units/hr
Stock of RM 1 20 units/hr 15 units/hr 17 units/hr
(LT = 2 wks)
C1 C2 C3

10 units/hr 15 units/hr 20 units/hr

Finished
B1 B2 Goods
Warehouse
Stock of RM 2 30 units/hr 25 units/hr
(LT = 4 wks)
Average LT = 1 day Average LT = 3 days

46
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Internal Supply Chain Logistics
TOC Fundamentals

Problem C1 – INTERNAL SUPPLY CHAIN LOGISTICS

Apply the TOC Five Focusing Steps to the situation diagrammed below which is a “Make-to-Order”
environment for building Notebook Computers from Raw Material (RM) Buffers by answering as
specifically as possible the questions below:

1. Where is the “Bottleneck” in this scenario and Why?

……………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………

2. If you were to implement the ‘Drum Buffer Rope’ system, where is the most appropriate location to position the DRUM
and describe how it will work?
……………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………

3. Where would you place Time and Stock BUFFERS?

……………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………

4. How would you calculate the required Time and Stock BUFFERS?
……………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………

5. In the diagram above, show the ROPE(s) and describe how it (they) will work?
……………………………………………………………………………………………………………………………………………
……………………………………………………………………………………………………………………………………………

47
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Internal Supply Chain Logistics
TOC Fundamentals

Problem C1 – INTERNAL SUPPLY CHAIN LOGISTICS

Apply the TOC Five Focusing Steps to the situation diagrammed below which is a “Make-to-
Order” environment for building Notebook Computers from Raw Material (RM) Buffers by
answering as specifically as possible the questions on the previous slide (#47):

Time Buffer = 1 day Weekly Demand/Supply

=50% of Avg LT of 2 days RM 3 Stock Buffer
= 400 units = 10 units/hr x 8 hrs/day x 5 days/wk
(400 x 1 wk) = 400 units/wk
A1 A2 A3 RM
RM 3 Finished Goods
1
Warehouse
RM 2 Stock Buffer 20 units/hr 15 units/hr 17 units/hr
Bottleneck
= 800 units
(400 x 2 wks)
C1 C2 C3

B1 B2
RM 10 units/hr
2 15 units/hr 20 units/hr Customer Demand =
RM 2 Stock Buffer 25 units/hr 12 units/hr
30 units/hr
= 1600 units
(400 x 4 wks)
Time Buffer = 0.5 day or 4hrs Shipping Buffer = 1.5 days or 12hrs
= 50% of Avg LT of 1 day = 50% of Avg LT of 3 days

ROPE DRUM Orders

RM # Job # Date ROPE = DRUM Date – Time Buffer Job # Date DRUM = Due Date – Shipping Buffer Order # Date
RM1 Job 1 Mon 8:00 Job 1 Tue 8:00 Order 1 Wed 12:00
RM2 Job 1 Mon 12:00 Job 2 Tue 12:00
Order 2 Wed 16:00
Etc. Etc.
Etc.

48
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Internal Supply Chain Logistics
TOC Fundamentals

Problem C1 – INTERNAL SUPPLY CHAIN LOGISTICS

Apply the TOC Five Focusing Steps to the situation diagrammed below which is a “Make-to-
Order” environment for building Notebook Computers from Raw Material (RM) Buffers by
answering as specifically as possible the questions on the slide #47:

Time Buffer = 1 day Weekly Demand/Supply

=50% of Avg LT of 2 days RM 3 Stock Buffer
= 400 units = 10 units/hr x 8 hrs/day x 5 days/wk
(400 x 1 wk) = 400 units/wk
A1 A2 A3 RM
RM 3 Finished Goods
1
Warehouse
RM 2 Stock Buffer 20 units/hr 15 units/hr 17 units/hr
Bottleneck
= 800 units
(400 x 2 wks)
C1 C2 C3

B1 B2
RM 10 units/hr
2 15 units/hr 20 units/hr Customer Demand =
RM 2 Stock Buffer 25 units/hr 12 units/hr
30 units/hr
= 1600 units
(400 x 4 wks)
Time Buffer = 0.5 day or 4hrs
= 50% of Avg LT of 1 day Shipping Buffer = 2.5 days
= 50% of Avg LT of 5 days

ROPE DRUM Orders

RM # Job # Date ROPE = DRUM Date – Time Buffer Job # Date DRUM = Due Date – Shipping Buffer Order # Date
RM1 Job 1 Mon 8:00 Job 1 Tue 8:00 Order 1 Wed 12:00
RM2 Job 1 Mon 12:00 Job 2 Tue 12:00
Order 2 Wed 16:00
Etc. Etc.
Etc.

49
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Internal Supply Chain Logistics
TOC Fundamentals

Problem C1b – TOC Distribution and Replenishment

1) Identify the key ideas associated with the generic TOC Distribution and Replenishment solution.

2) True or False - Explain your answer: The key metric in implementing the TOC D&R solution is
throughput dollar days.

50
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Finance & Measurements
TOC Fundamentals

TOC Global Measurements:

Throughput
Throughput(T):(T):The
Therate
rateat
atwhich
whichaasystem
system
generated
generatedmoney
money(or(orgoal
goalunits)
units)through
throughsales.
sales.
Inventory
Inventory(I):
(I):All
Allmoney
moneyused
usedtotopurchase
purchasethings
things
that
thatthe
thesystem
systemintends
intendstotosell.
sell.
Operating
OperatingExpense
Expense(OE):
(OE):All
Allmoney
moneyspent
spentby
bythe
the
system
systemtototurn
turnInventory
Inventoryinto
intoThroughput.
Throughput.

51
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Finance & Measurements
TOC Fundamentals

TOC Financial Measurements:

Throughput:
Throughput:TT==SR
SR--VC
VC
Net
Netprofit:
profit:NP
NP==TT--OE
OE
Return
Returnononinvestment:
investment:ROI
ROI==(T
(T--OE)
OE)//II
Cash
Cashflow:
flow:Cash
Cashinflows
inflows––cash
cashoutflows
outflows
(in
(interms
termsof
ofchanges
changesin
inT,
T,IIand
andOE)
OE)
TOC Productivity Measurements:
Productivity:
Productivity:T/OE
T/OE
Investment
InvestmentTurns:
Turns:T/I
T/I
Preferential
PreferentialProducts:
Products:Highest
HighestT/Cu
T/Cu
52
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Finance & Measurements
TOC Fundamentals

Problem C2 – FINANCE and MEASUREMENTS

What is the maximum weekly profit you can make from the company described below?
(Show your assumptions and calculations).
Situation

Product P Product Q
Weekly Demand 100 units 50 units
Selling Price per Unit $90.00 $100.00
Variable Cost per Unit $45.00 $40.00
Allocated Overhead per Unit $40.00 $35.00

This table shows the processing time per unit of each product/service on each resource. Assume that
each type of resource (i.e. person, machine, and department) works one 8-hour shift five days a week
(2400 minutes). Assume that setup time is zero, that quality is perfect and that the resources are always
available during work hours (no breaks or downtime). In addition, our weekly operating expenses
(overhead and labor costs) are $6000. Finally, we can sell up to the amount of weekly demand for each
product (will make the sale for all products/services made if they are less than or equal to the weekly
demand). The customers will buy from our competitor if we are not able to meet their demand. If we
make more, we can not sell more.

Product P Product Q
Resource A 15 min. 10 min.
Resource B 15 min. 30 min.
Resource C 15 min. 5 min.
Resource D 15 min. 5 min.

53
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Finance & Measurements
TOC Fundamentals

Problem C2 – FINANCE and MEASUREMENTS

What is the maximum weekly profit you can make from the company described below?
(Show your assumptions and calculations).
Scenario 1: Ignoring Supply Capacity Constraint
Financial M odel
Product P Product Q
Unit Total Unit Total Total
Demand per W eek 100 50
Supply per W eek 100 50

Sales Value $90 $9,000 $100 $5,000 $14,000

Variable Cost $45 $4,500 $40 $2,000 $6,500
Throughput $45 $4,500 $60 $3,000 $7,500
Operating Expenses $6,000
Net Profit $1,500

Throughput/C Min $3 $2

Capacity M odel
Product P Product Q TVA/Min
Utilization
Min/Unit Total Min/Unit Total Total P Q
Resouce A 15 1500 10 500 2000 83% $3 $6
Resouce B 15 1500 30 1500 3000 125% $3 $2
Resource C 15 1500 5 250 1750 73% $3 $12
Resource D 15 1500 5 250 1750 73% $3 $12
Totals 60 50
Available Capacity 54 2400
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Finance & Measurements
TOC Fundamentals

Problem C2 – FINANCE and MEASUREMENTS

What is the maximum weekly profit you can make from the company described below?
(Show your assumptions and calculations).
Scenario 2: Preferring Q based on highest Margin
Financial M odel
Product P Product Q
Unit Total Unit Total Total
Demand per W eek 100 50
Supply per W eek 60 50

Sales Value $90 $5,400 $100 $5,000 $10,400

Variable Cost $45 $2,700 $40 $2,000 $4,700
Throughput $45 $2,700 $60 $3,000 $5,700
Operating Expenses $6,000
Net Profit -$300

Throughput/C Min $3 $2

Capacity M odel
Product P Product Q TVA/Min
Utilization
Min/Unit Total Min/Unit Total Total P Q
Resouce A 15 900 10 500 1400 58% $3 $6
Resouce B 15 900 30 1500 2400 100% $3 $2
Resource C 15 900 5 250 1150 48% $3 $12
Resource D 15 900 5 250 1150 48% $3 $12
Totals 60 50
Available Capacity 55 2400
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Finance & Measurements
TOC Fundamentals

Problem C2 – FINANCE and MEASUREMENTS

What is the maximum weekly profit you can make from the company described below?
(Show your assumptions and calculations).
Scenario 3: Preferring P based on Highest T/C min
Financial M odel
Product P Product Q
Unit Total Unit Total Total
Demand per W eek 100 50
Supply per W eek 100 30

Sales Value $90 $9,000 $100 $3,000 $12,000

Variable Cost $45 $4,500 $40 $1,200 $5,700
Throughput $45 $4,500 $60 $1,800 $6,300
Operating Expenses $6,000
Net Profit $300 Max Profit = $300

Throughput/C Min $3 $2

Capacity M odel
Product P Product Q TVA/Min
Utilization
Min/Unit Total Min/Unit Total Total P Q
Resouce A 15 1500 10 300 1800 75% $3 $6
Resouce B 15 1500 30 900 2400 100% $3 $2
Resource C 15 1500 5 150 1650 69% $3 $12
Resource D 15 1500 5 150 1650 69% $3 $12
Totals 60 50
Available Capacity 56 2400
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications
Critical Chain Project Management Rules
TOC Fundamentals

Traditional Project Network with Critical Path

A-14 B-10 C-16
E-20 LT = 60 days
D-20 C-16

Critical Chain Project Network

1. Resolve Resource Contention
2. Identify Critical Chain
3. Insert Project Buffer (50% of Critical Chain Path LT)
4. Insert Feeding Buffers (50% of Feeding Path LT)

A-14 B-10 C-16

E-20 LT = 72 days
D-20 C-16

A-7 B-5 FB-6 C-8

E-10 PB-18 LT = 54 days
D-10 C-8 57
© 2006 TOCICO. All rights reserved.
 Part C - TOC Applications
TOC Fundamentals

• TOC application problems often require a number of steps to

arrive at the correct answer.
• Often problems have several parts and some answers
depend, in part, on answers to previous questions.
• The arithmetic is usually simple, but errors are common.
• Make sure to show work so partial credit can be given where
applicable.

Key Points:
Always show your work because if you fail to
get the right answer, but show your work, you
may still get partial credit.
Check your arithmetic.
58
© 2006 TOCICO. All rights reserved.
 Part C – TOC Applications Review
TOC Fundamentals

• Supply Chain Logistics and Operations

• Finance and Measurement
• Project Management

59
© 2006 TOCICO. All rights reserved.
 Time for your Questions
TOC Fundamentals

60
© 2006 TOCICO. All rights reserved.
 TOC Fundamentals

Summary of Key Insights

THEORY OF CONSTRAINTS

The Focusing & Synchronization Mechanism to

Achieve Breakthrough Performance

61
© 2006 TOCICO. All rights reserved.
 Summary of Key Insights
Common Question
TOC Fundamentals

How do we identify the “System Constraint”?

We can follow three different approaches to assess whether
the constraint is internal or external:
1. Develop a model to determine if demand is < or > supply.
2. If demand > supply, then interview key people in the
internal supply chain to identify where Throughput is
getting stuck (build-up of WIP).
3. Using Cause-Effect Analysis to identify the Constraint by
determining what Symptoms or Undesirable Effects key
stakeholders are complaining about…
(See the “Constraint Identification Matrix” on the
next slide for an example of approach 3.)

62
© 2006 TOCICO. All rights reserved.
 Summary of Key Insights
Constraint Identification Matrix
TOC Fundamentals
Select the set of symptoms with which you most closely identify:
• Reluctance to take on new business • Too many late or partial shipments to customers
• Poor factory on-time performance and long lead • Frequent emergency shipments to branches or
times
ons clients
ion
t i
• Frequent back orders or Lost Sales
ra ut
• Excess finished goods of some products
• High WIP and/or finished goods inventory
• High overtime
pe t ri b
• Frequent periods of high demand on production
• Excess returned goods from your channel
O
• Lots of expediting and rescheduling
• Wandering or stationary bottlenecks
i s
• Reluctance to take on new Business
D
• High number of Credit notes

ec t
• Projects regularly over budget.
• Improvement Projects not adding value
• Not able to quantify impact of “improvements”
on bottom line
e &
r o j n t
• Research & Development take too long to be
n c t
• Measurements not providing good “Early
n
P m e
considered a competitive advantage
a e
Warning” mechanism or seem in conflict with
i n m
a g e
• Projects regularly exceed expected Lead Time
• Chaotic reprioritization and midnight oil-burning
others
F ure
• Takes too long to get together data to make
n s
Ma
to meet project due dates decisions & can’t trust the numbers
a
Me
• Reluctance to take on new projects • Not all employees behaving in line with
• Takes too long to develop, launch new products company Goal
• Difficulty in attracting & retaining customers • Too much bureaucracy
• Losing Market Share to Competitors • A "keep your head down" mentality

g &
• Pressure on pricing and the need to compete on &
• Lack of initiative & “out-of-the-box” thinking
y
g nal
price

et in
• Frequent consideration of downsizing due to
• Reluctance to review what we do
ate
• Unclear vision and direction
r
r k
excess capacity relative to demand
S t tio
• "Can't do" & “Finger pointing” attitudes
a
advantage Ma ales
• We do not have a sustainable competitive
a iz
• Defensive attitudes - questions and concerns
n
perceived as attacks
g re
S
• Market demand is (much) less than Capacity
• Inability sell to all customers that could benefit
r
O Cult u
• Lack of clarity of roles and regular Conflicts
•63Many “improvement project” but few ever
from
© 2006 TOCICO.your products or services
All rights reserved. completed
 THEORY OF CONSTRAINTS
SUMMARY OF BASIC PRINCIPLES
TOC Fundamentals
Fact 1: To understand any System (such as human based organizations), we need
to understand three parts: The Goal, the Physical side and Logical side.
Fact 2: Very Few factors govern the performance of the Physical and Logical parts of
a system at any point in time (the law of the weakest link & significant few)
Fact 3: Unresolved Strategic and Tactical Conflicts can limit or block us from
exploiting, protecting and overcoming physical and logical “constraints.
Physical View of System Logical View of System
Unresolved

Flow of Cause-Effect Æ
Conflict
Effect Effect Effect
Conflicting
Tactic Tactic
Erroneous Effect Effect
Strategic Assumption? Strategic
20 15 10
Weakest 12 16 Obj #1 Obj #2
Link Root
Cause
Cause
Flow of “Goal” units Æ
GOAL

THEORY OF CONSTRAINTS provides tools to assist management to find the few

physical and logical leverage point(s) of the system (organisation) where an improvement
can cause a quantum improvement for the system as a whole….
THEORY OF CONSTRAINTS provides the tools to assist managers to build the few
physical & logical lever(s) - the new rules/metrics - and resolve conflict(s) to focus &
synchronize the whole organization according
64 to better exploiting the few leverage points.
© 2006 TOCICO. All rights reserved.
 SUMMARY OF IMPORTANT TOC INSIGHTS
TOC Fundamentals

1. The performance of any system is limited by the performance of the

weakest link or constraint. Therefore, to improve the performance of
the system, we must first improve the performance of the weakest
link or constraint.
2. Constraints governs not only the rate of Throughput but also the
level of Inventory.
3. To achieve a focused Process of Ongoing Improvement, we should
follow the following 5 Focusing Steps Process:
Step 0: Agree on the SYSTEM GOAL (and its metrics)
Step 1: IDENTIFY the System Constraint
Step 2: Decide how to EXPLOIT the System Constraint
Step 3: SUBORDINATE everything else to the above decision
Step 4: ELEVATE the System Constraint
Step 5: If a Constraint has been broken in a prior step, GO BACK to Step 1.
• To exploit the Constraint, we must focus on those
products/services with the highest
65 Throughput$/Constraint unit.
© 2006 TOCICO. All rights reserved.
 SUMMARY OF IMPORTANT TOC INSIGHTS
TOC Fundamentals

6. All problems (gap between goal and reality) are the result of a unresolved
conflict. To truly solve the “problem”, we must find a way to break the
conflict without compromise; often clouds help identify effective solutions.
7. The conditions that cause conflicts often stem from conflicting rules/metrics
and or erroneous assumptions.
8. Therefore, when we see “Bad” behavior (which results in less goal units),
most likely it stems from a “Bad” policy or measurement. The fastest and
most reliable way to change “bad” behavior is to change the policy/metric
that caused it…
9. Where ever we get stuck in the Five Focusing Step process, we can use the
Thinking Processes such as the Conflict Cloud to identify what old rules or
metrics to change to achieve the needed synchronization (what we must
STOP doing) and use TOC and other Improvement Tools such as the tools
from DMAIC (Six Sigma) and LEAN to identify what the new rules or metrics
should be (what we must START doing).
10. There are some common erroneous assumptions managers make to deal
with complexity that could result in conflicting rules and measurements
which TOC have identified (such as “An idle resource is a major waste”)
11. The only way to judge the impact of a local change, it to judge it based on
the impact it will have on the System as a Whole (impact on Sales, Costs,
Inventory and Investment or T, OE and I)
66
© 2006 TOCICO. All rights reserved.