The unconstrained (strong) links in a process must be altered so they maximize the output of the weakest link. Reduce or eliminate where possible to avoid expensive wholesale upgrades or process changes. Use available resources to make rapid improvements to the constraint. Which part of the system constitutes the weakest link? Remember, there can only be one. The five steps of the Theory of Constraints 1. This may include payroll, depreciation, and utility expenses. Operating expense – or the money a business spends creating throughput to maintain a desired level of capacity.Inventory – or money that is tied up in physical things such as raw materials, equipment, distribution facilities, and goods awaiting sale.Throughput – or the rate of sales revenue generated by a product or service.

Throughput accounting is comprised of three parts: This is because – at least in theory – there is no limit to the amount of sales revenue a business can generate. That is, the ability to increase profits is constrained.Ĭonversely, the emphasis on increasing sales revenue via throughput accounting has no such constraint. However, the capacity to reduce expenses is limited once an expense reaches zero. This approach differs from traditional accounting methods that focus on reducing expenses to generate profit. This change is achieved via throughput accounting, which emphasizes selling more of something to generate higher profits. Since there can only be one weakest link, Goldratt suggests that this is where businesses should focus their efforts to institute significant change. Here, the weakest link is a constraint that limits the extent of profitability. In the book, Goldratt uses the chain metaphor to argue that every business system is only as strong as its weakest link. The Theory of Constraints was developed in 1984 by business management guru Eliyahu Goldratt in his book The Goal. The five steps of the Theory of Constraints.Understanding the Theory of Constraints.Digital Business Models Podcast by FourWeekMBA.Business Strategy Book Bundle By FourWeekMBA.An Entire MBA In Four Weeks By FourWeekMBA.100+ Business Models Book By FourWeekMBA.

Theory of constraints