Theory of Constraints (TOC)

Every process has a constraint (bottleneck) and focusing improvement efforts on that constraint is the fastest and most effective path to improved profitability.

What Is the Theory of Constraints?

The Theory of Constraints is a methodology for identifying the most important limiting factor (i.e., constraint) that stands in the way of achieving a goal and then systematically improving that constraint until it is no longer the limiting factor. In manufacturing, the constraint is often referred to as a bottleneck.

The Theory of Constraints takes a scientific approach to improvement. It hypothesizes that every complex system, including manufacturing processes, consists of multiple linked activities, one of which acts as a constraint upon the entire system (i.e., the constraint activity is the “weakest link in the chain”).

So what is the ultimate goal of most manufacturing companies? To make a profit – both in the short term and in the long term. The Theory of Constraints provides a powerful set of tools for helping to achieve that goal, including:

  • The Five Focusing Steps: a methodology for identifying and eliminating constraints
  • The Thinking Processes: tools for analyzing and resolving problems
  • Throughput Accounting: a method for measuring performance and guiding management decisions

Dr. Eliyahu Goldratt conceived the Theory of Constraints (TOC), and introduced it to a wide audience through his bestselling 1984 novel, “The Goal”. Since then, TOC has continued to evolve and develop, and today it is a significant factor within the world of management best practices.

One of the appealing characteristics of the Theory of Constraints is that it inherently prioritizes improvement activities. The top priority is always the current constraint. In environments where there is an urgent need to improve, TOC offers a highly focused methodology for creating rapid improvement.

A successful Theory of Constraints implementation will have the following benefits:

  • Increased Profit: the primary goal of TOC for most companies
  • Fast Improvement: a result of focusing all attention on one critical area – the system constraint
  • Improved Capacity: optimizing the constraint enables more product to be manufactured
  • Reduced Lead Times: optimizing the constraint results in smoother and faster product flow
  • Reduced Inventory: eliminating bottlenecks means there will be less work-in-process
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Basics of TOC

Core Concept

The core concept of the Theory of Constraints is that every process has a single constraint and that total process throughput can only be improved when the constraint is improved. A very important corollary to this is that spending time optimizing non-constraints will not provide significant benefits; only improvements to the constraint will further the goal (achieving more profit).

Thus, TOC seeks to provide precise and sustained focus on improving the current constraint until it no longer limits throughput, at which point the focus moves to the next constraint. The underlying power of TOC flows from its ability to generate a tremendously strong focus towards a single goal (profit) and to removing the principal impediment (the constraint) to achieving more of that goal. In fact, Goldratt considers focus to be the essence of TOC.

The Five Focusing Steps

The Theory of Constraints provides a specific methodology for identifying and eliminating constraints, referred to as the Five Focusing Steps. As shown in the following diagram, it is a cyclical process.

Circle flowchart featuring the Five Focusing Steps of TOC.
The Theory of Constraints uses a process known as the Five Focusing Steps to identify and eliminate constraints (i.e., bottlenecks).

The Five Focusing Steps are further described in the following table.

IdentifyIdentify the current constraint (the single part of the process that limits the rate at which the goal is achieved).
ExploitMake quick improvements to the throughput of the constraint using existing resources (i.e., make the most of what you have).
SubordinateReview all other activities in the process to ensure that they are aligned with and truly support the needs of the constraint.
ElevateIf the constraint still exists (i.e., it has not moved), consider what further actions can be taken to eliminate it from being the constraint. Normally, actions are continued at this step until the constraint has been “broken” (until it has moved somewhere else). In some cases, capital investment may be required.
RepeatThe Five Focusing Steps are a continuous improvement cycle. Therefore, once a constraint is resolved the next constraint should immediately be addressed. This step is a reminder to never become complacent – aggressively improve the current constraint…and then immediately move on to the next constraint.

The Thinking Processes

The Theory of Constraints includes a sophisticated problem solving methodology called the Thinking Processes. The Thinking Processes are optimized for complex systems with many interdependencies (e.g., manufacturing lines). They are designed as scientific “cause and effect” tools, which strive to first identify the root causes of undesirable effects (referred to as UDEs), and then remove the UDEs without creating new ones.

The Thinking Processes are used to answer the following three questions, which are essential to TOC:

  • What needs to be changed?
  • What should it be changed to?
  • What actions will cause the change?

Examples of tools that have been formalized as part of the Thinking Processes include:

Current Reality TreeDocuments the current state.Diagram that shows the current state, which is unsatisfactory and needs improvement. When creating the diagram, UDEs (symptoms of the problem) are identified and traced back to their root cause (the underlying problem).
Evaporating Cloud TreeEvaluates potential improvements.Diagram that helps to identify specific changes (called injections) that eliminate UDEs. It is particularly useful for resolving conflicts between different approaches to solving a problem. It is used as part of the process for progressing from the Current Reality Tree to the Future Reality Tree.
Future Reality TreeDocuments the future state.Diagram that shows the future state, which reflects the results of injecting changes into the system that are designed to eliminate UDEs.
Strategy and Tactics TreeProvides an action plan for improvement.Diagram that shows an implementation plan for achieving the future state. Creates a logical structure that organizes knowledge and derives tactics from strategy. Note: this tool is intended to replace the formerly used Prerequisite Tree in the Thinking Processes.

Throughput Accounting

Throughput Accounting is an alternative accounting methodology that attempts to eliminate harmful distortions introduced from traditional accounting practices – distortions that promote behaviors contrary to the goal of increasing profit in the long term.

In traditional accounting, inventory is an asset (in theory, it can be converted to cash by selling it). This often drives undesirable behavior at companies – manufacturing items that are not truly needed. Accumulating inventory inflates assets and generates a “paper profit” based on inventory that may or may not ever be sold (e.g., due to obsolescence) and that incurs cost as it sits in storage. The Theory of Constraints, on the other hand, considers inventory to be a liability – inventory ties up cash that could be used more productively elsewhere.

The Theory of Constraints, on the other hand, considers inventory to be a liability – inventory ties up cash that could be used more productively elsewhere.

In traditional accounting, there is also a very strong emphasis on cutting expenses. The Theory of Constraints, on the other hand, considers cutting expenses to be of much less importance than increasing throughput. Cutting expenses is limited by reaching zero expenses, whereas increasing throughput has no such limitations.

These and other conflicts result in the Theory of Constraints emphasizing Throughput Accounting, which uses as its core measures: Throughput, Investment, and Operating Expense.

Core MeasuresDefinition
ThroughputThe rate at which customer sales are generated less truly variable costs (typically raw materials, sales commissions, and freight). Labor is not considered a truly variable cost unless pay is 100% tied to pieces produced.
InvestmentMoney that is tied up in physical things: product inventory, machinery and equipment, real estate, etc. Formerly referred to in TOC as Inventory.
Operating ExpenseMoney spent to create throughput, other than truly variable costs (e.g., payroll, utilities, taxes, etc.). The cost of maintaining a given level of capacity.

In addition, Throughput Accounting has four key derived measures: Net Profit, Return on Investment, Productivity, and Investment Turns.

In general, management decisions are guided by their effect on achieving the following improvements (in order of priority):

  • Will Throughput be increased?
  • Will Investment be reduced?
  • Will Operating Expenses be reduced?

The strongest emphasis (by far) is on increasing Throughput. In essence, TOC is saying to focus less on cutting expenses (Investment and Operating Expenses) and focus more on building sales (Throughput).


Drum-Buffer-Rope (DBR) is a method of synchronizing production to the constraint while minimizing inventory and work-in-process.

The “Drum” is the constraint. The speed at which the constraint runs sets the “beat” for the process and determines total throughput.

The “Buffer” is the level of inventory needed to maintain consistent production. It ensures that brief interruptions and fluctuations in non-constraints do not affect the constraint. Buffers represent time; the amount of time (usually measured in hours) that work-in-process should arrive in advance of being used to ensure steady operation of the protected resource. The more variation there is in the process the larger the buffers need to be. An alternative to large buffer inventories is sprint capacity (intentional overcapacity) at non-constraints. Typically, there are two buffers:

  • Constraint Buffer: immediately before the constraint; protects the constraint
  • Customer Buffer: at the very end of the process; protects the shipping schedule

The “Rope” is a signal generated by the constraint indicating that some amount of inventory has been consumed. This in turn triggers an identically sized release of inventory into the process. The role of the rope is to maintain throughput without creating an accumulation of excess inventory.

The Nature of Constraints

What are Constraints?

Constraints are anything that prevents the organization from making progress towards its goal. In manufacturing processes, constraints are often referred to as bottlenecks. Interestingly, constraints can take many forms other than equipment. There are differing opinions on how to best categorize constraints; a common approach is shown in the following table.

PhysicalTypically equipment, but can also be other tangible items, such as material shortages, lack of people, or lack of space.
PolicyRequired or recommended ways of working. May be informal (e.g., described to new employees as “how things are done here”). Examples include company procedures (e.g., how lot sizes are calculated, bonus plans, overtime policy), union contracts (e.g., a contract that prohibits cross-training), or government regulations (e.g., mandated breaks).
ParadigmDeeply engrained beliefs or habits. For example, the belief that “we must always keep our equipment running to lower the manufacturing cost per piece”. A close relative of the policy constraint.
MarketOccurs when production capacity exceeds sales (the external marketplace is constraining throughput). If there is an effective ongoing application of the Theory of Constraints, eventually the constraint is likely to move to the marketplace.

There are also differing opinions on whether a system can have more than one constraint. The conventional wisdom is that most systems have one constraint, and occasionally a system may have two or three constraints.

In manufacturing plants where a mix of products is produced, it is possible for each product to take a unique manufacturing path and the constraint may “move” depending on the path taken. This environment can be modeled as multiple systems – one for each unique manufacturing path.

Policy Constraints

Policy constraints deserve special mention. It may come as a surprise that the most common form of constraint (by far) is the policy constraint.

Since policy constraints often stem from long-established and widely accepted policies, they can be particularly difficult to identify and even harder to overcome. It is typically much easier for an external party to identify policy constraints, since an external party is less likely to take existing policies for granted.

When a policy constraint is associated with a firmly entrenched paradigm (e.g., “we must always keep our equipment running to lower the manufacturing cost per piece”), a significant investment in training and coaching is likely to be required to change the paradigm and eliminate the constraint.

Policy constraints are not addressed through application of the Five Focusing Steps. Instead, the three questions discussed earlier in the Thinking Processes section are applied:

  • What needs to be changed?
  • What should it be changed to?
  • What actions will cause the change?

The Thinking Processes are designed to effectively work through these questions and resolve conflicts that may arise from changing existing policies.

TOC Example

An excellent way to deepen your understanding of the Theory of Constraints is to walk through a simple implementation example. In this example, the Five Focusing Steps are used to identify and eliminate an equipment constraint (i.e., bottleneck) in the manufacturing process.

Step One – Identify the Constraint

In this step, the manufacturing process is reviewed to identify the constraint. A simple but often effective technique is to literally walk through the manufacturing process looking for indications of the constraint.

WIPLook for large accumulations of work-in-process on the plant floor. Inventory often accumulates immediately before the constraint.
ExpediteLook for areas where process expeditors are frequently involved. Special attention and handholding are often needed at the constraint to ensure that critical orders are completed on time.
Cycle TimeReview equipment performance data to determine which equipment has the longest average cycle time. Adjust out time where the equipment is not operating due to external factors, such as being starved by an upstream process or blocked by a downstream process. Although such time affects throughput, the time loss is usually not caused or controlled by the starved/blocked equipment.
DemandAsk operators where they think equipment is not keeping up with demand. Pay close attention to these areas, but also look for other supporting indicators.

The deliverable for this step is the identification of the single piece of equipment that is constraining process throughput.

Step Two – Exploit the Constraint

In this step, the objective is to make the most of what you have – maximize throughput of the constraint using currently available resources. The line between exploiting the constraint (this step) and elevating the constraint (the fourth step) is not always clear. This step focuses on quick wins and rapid relief; leaving more complex and substantive changes for later.

BufferCreate a suitably sized inventory buffer immediately in front of the constraint to ensure that it can keep operating even if an upstream process stops.
QualityCheck quality immediately before the constraint so only known good parts are processed by the constraint.
Continuous OperationEnsure that the constraint is continuously scheduled for operation (e.g., operate the constraint during breaks, approve overtime, schedule fewer changeovers, cross-train employees to ensure there are always skilled employees available for operating the constraint).
MaintenanceMove routine maintenance activities outside of constraint production time (e.g., during changeovers).
Offload (Internal)Offload some constraint work to other machines. Even if they are less efficient, the improved system throughput is likely to improve overall profitability.
Offload (External)Offload some work to other companies. This should be a last resort if other techniques are not sufficient to relieve the constraint.

The deliverable for this step is improved utilization of the constraint, which in turn will result in improved throughput for the process. If the actions taken in this step “break” the constraint (i.e., the constraint moves) jump ahead to Step Five. Otherwise, continue to Step Three.

Step Three – Subordinate and Synchronize to the Constraint

In this step, the focus is on non-constraint equipment. The primary objective is to support the needs of the constraint (i.e., subordinate to the constraint). Efficiency of non-constraint equipment is a secondary concern as long as constraint operation is not adversely impacted.

By definition, all non-constraint equipment has some degree of excess capacity. This excess capacity is a virtue, as it enables smoother operation of the constraint. The manufacturing process is purposely unbalanced:

UpstreamUpstream equipment has excess capacity that ensures that the constraint buffer is continuously filled (but not overfilled) so that the constraint is never “starved” by the upstream process.
DownstreamDownstream equipment has excess capacity that ensures that material from the constraint is continually processed so the constraint is never “blocked” by the downstream process.

Some useful techniques for this step include:

DBRImplement DBR (Drum-Buffer-Rope) on the constraint as a way of synchronizing the manufacturing process to the needs of the constraint.
PrioritySubordinate maintenance to the constraint by ensuring that the constraint is always the highest priority for maintenance calls.
SprintAdd sprint capacity to non-constraint equipment to ensure that interruptions to their operation (e.g., breakdowns or material changes) can quickly be offset by faster operation and additional output.
Steady OperationOperate non-constraint equipment at a steady pace to minimize stops. Frequent inertial changes (i.e., stops and speed changes) can increase wear and result in breakdowns.

The deliverable for this step is fewer instances of constraint operation being stopped by upstream or downstream equipment, which in turn results in improved throughput for the process. If the actions taken in this step “break” the constraint (i.e., the constraint moves) jump ahead to Step Five. Otherwise, continue to Step Four.

Step Four – Elevate Performance of the Constraint

In this step, more substantive changes are implemented to “break” the constraint. These changes may necessitate a significant investment of time and/or money (e.g., adding equipment or hiring more staff). The key is to ensure that all such investments are evaluated for effectiveness (preferably using Throughput Accounting metrics).

Performance DataUse performance data (e.g., Overall Equipment Effectiveness metrics plus downtime analytics) to identify the largest sources of lost productive time at the constraint.
Top LossesTarget the largest sources of lost productive time, one-by-one, with cross-functional teams.
ReviewsImplement ongoing plant floor reviews within shifts (a technique called Short Interval Control) to identify tactical actions that will improve constraint performance.
Setup ReductionImplement a setup reduction program to reduce the amount of productive time lost to changeovers.
Updates/UpgradesEvaluate the constraint for potential design updates and/or component upgrades.
EquipmentPurchase additional equipment to supplement the constraint (a last resort).

The deliverable for this step is a significant enough performance improvement to break the constraint (i.e., move the constraint elsewhere).

Step Five – Repeat the Process

In this step, the objective is to ensure that the Five Focusing Steps are not implemented as a one-off improvement project. Instead, they should be implemented as a continuous improvement process.

Constraint BrokenIf the constraint has been broken (the normal case), recognize that there is a new constraint. Finding and eliminating the new constraint is the new priority (restart at Step One).
Constraint Not BrokenIf the constraint has not been broken, recognize that more work is required, and a fresh look needs to be taken, including verifying that the constraint has been correctly identified (restart at Step One).

This step also includes a caution…beware of inertia. Remain vigilant and ensure that improvement is ongoing and continuous. The Five Focusing Steps are kind of like “Whac-A-Mole”…pound one constraint down and then move right on to the next!

Integrating with Lean

Contrasting Theory of Constraints and Lean Manufacturing

The Theory of Constraints and Lean Manufacturing are both systematic methods for improving manufacturing effectiveness. However, they have very different approaches:

  • The Theory of Constraints focuses on identifying and removing constraints that limit throughput. Therefore, successful application tends to increase manufacturing capacity.
  • Lean Manufacturing focuses on eliminating waste from the manufacturing process. Therefore, successful application tends to reduce manufacturing costs.

Both methodologies have a strong customer focus and are capable of transforming companies to be faster, stronger, and more agile. Nonetheless, there are significant differences, as highlighted in the following table.

What?Theory of ConstraintsLean Manufacturing
ObjectiveIncrease throughput.Eliminate waste.
FocusSingular focus on the constraint (until it is no longer the constraint).Broad focus on the elimination of waste from the manufacturing process.
ResultIncreased manufacturing capacity.Reduced manufacturing cost.
InventoryMaintain sufficient inventory to maximize throughput at the constraint.Eliminate virtually all inventory.
Line BalancingCreate imbalance to maximize throughput at the constraint.Create balance to eliminate waste (excess capacity).
PacingConstraint sets the pace (Drum-Buffer-Rope).Customer sets the pace (Takt Time).

From the perspective of the Theory of Constraints, it is more practical and less expensive to maintain a degree of excess capacity for non-constraints (i.e., an intentionally unbalanced line) than to try to eliminate all sources of variation (which is necessary to efficiently operate a balanced line). Eliminating variation is still desirable in TOC; it is simply given less attention than improving throughput.

Combining Theory of Constraints and Lean Manufacturing

One of the most powerful aspects of the Theory of Constraints is its laser-like focus on improving the constraint. While Lean Manufacturing can be focused, more typically it is implemented as a broad-spectrum tool.

In the real world, there is always a need to compromise, since all companies have finite resources. Not every aspect of every process is truly worth optimizing, and not all waste is truly worth eliminating. In this light, the Theory of Constraints can serve as a highly effective mechanism for prioritizing improvement projects, while Lean Manufacturing can provide a rich toolbox of improvement techniques. The result – manufacturing effectiveness is significantly increased by eliminating waste from the parts of the system that are the largest constraints on opportunity and profitability.

While Lean Manufacturing tools and techniques are primarily applied to the constraint, they can also be applied to equipment that is subordinated to the constraint (e.g., to equipment that starves or blocks the constraint; to post-constraint equipment that causes quality losses).

The remainder of this section describes how to apply a range of Lean Manufacturing tools and techniques to the Five Focusing Steps.

Process chart for applying the Five Focusing Steps of TOC with Lean Manufacturing tools and techniques.
The Five Focusing Steps of the Theory of Constraints can utilize established lean manufacturing tools as shown in the above diagram.

Applying Lean Tools to “Identify the Constraint”

Lean Manufacturing provides an excellent tool for visually mapping the flow of production (Value Stream Mapping) as well as a philosophy that promotes spending time on the plant floor (Gemba).

Lean ToolDescription
Value Stream MappingValue Stream Mapping (VSM) visually maps the flow of production (current and future states) using a defined set of symbols and techniques.
  • Provides a foundation from which to work when identifying the constraint. For example, the cycle time of each stage can be marked on the map.
  • Engages teams and useful for problem solving exercises.
  • Helpful for documenting complex processes.
GembaGemba encourages leaving the office to spend time on the plant floor. This promotes a deep and thorough understanding of real-world manufacturing issues – by first-hand observation and by talking with plant floor employees.
  • Walking the plant floor, observing production, and interacting with employees can be a very effective way to gather information that helps identify the constraint.

Applying Lean Tools to “Exploit the Constraint”

Lean Manufacturing strongly supports the idea of making the most of what you have, which is also the underlying theme for exploiting the constraint. For example, lean teaches to organize the work area (5S), to motivate and empower employees (Visual Factory/Andon), to capture best practices (Standardized Work), and to brainstorm incremental ideas for improvement (Kaizen).

Lean ToolDescription
5S5S is a program for eliminating the waste that results from a poorly organized work area. It consists of five elements: Sort (eliminate that which is not needed), Straighten (organize the remaining items), Shine (clean and inspect the area), Standardize (create standards for 5S), and Sustain (consistently apply the standards).
  • Creates a foundation for better performance at the constraint.
  • Enables faster identification of emerging issues at the constraint.
  • Results in increased motivation and pride (from the improved work environment).
Visual Factory / AndonVisual Factory is a strategy for conveying information through easily seen plant floor visuals. Andons are visual displays that indicate production status and enable operators to bring immediate attention to problems – so they can be instantly addressed.
  • Displays constraint production metrics in real time – a powerful motivator.
  • Reduces reaction time to stoppages by instantly alerting operators to intervene.
  • Empowers operators to call immediate attention to problems at the constraint.
  • Increases focus by using visuals to reinforce the importance of the constraint.
Standardized WorkStandardized Work captures best practices in work area documents that are consistently applied by all operators and that are kept up-to-date with the current best practices.
  • Improves throughput by consistently applying best practices at the constraint.
  • Reduces variation by applying standardized procedures at the constraint.
  • Ensures that all operators setup and run the constraint in a repeatable way.
KaizenKaizen provides a framework for employees to work in small groups that suggest and implement incremental improvements for the manufacturing process. It combines the collective talents of a company to create an engine for continuous improvement.
  • Provides a proven mechanism for generating ideas on how to exploit the constraint.
  • Identifies “quick win” opportunities for improving throughput of the constraint.
  • Engages operators to work as a team and to think critically about their work.

Applying Lean Tools to “Subordinate to the Constraint”

Lean Manufacturing techniques for regulating flow (Kanban) and synchronizing automated lines (Line Control) can be applied towards subordinating and synchronizing to the constraint.

Lean ToolDescription
KanbanKanban is a method for regulating the flow of materials, which provides for automatic replenishment through signal cards that indicate when more materials are needed.
  • Offers simple visual techniques for controlling the flow of materials.
  • Synchronizes material usage at the constraint with material usage in the upstream process by controlling when new materials are released into the process.
Line ControlLine Control is a sophisticated technique used with synchronous automated lines, such as FMCG (Fast Moving Consumer Goods) lines, which slaves non-constraint equipment to the constraint in such a way as to increase overall system throughput.
  • Provides an effective alternative to traditional Drum-Buffer-Rope for FMCG lines.
  • Optimizes constraint and non-constraint running speeds to maximize throughput and reduce the frequency of minor stops.
  • Reduces startup delays on the constraint by synchronizing equipment startup.

Applying Lean Tools to “Elevate the Constraint”

Lean Manufacturing techniques for proactively maintaining equipment (TPM), dramatically reducing changeover times (SMED), building defect detection and prevention into production processes (Poka-Yoke), and partially automating equipment (Jidoka) all have direct application when elevating the constraint. TPM and SMED can also be viewed as exploitation techniques (maximizing throughput using currently available resources); however, they are fairly complex and are likely to benefit from working with outside experts.

Lean ToolDescription
TPMTPM (Total Productive Maintenance) offers a holistic approach to maintenance that focuses on proactive and preventative maintenance to maximize the operational time of the constraint (increasing up time, reducing cycle times, and eliminating defects).
  • Reduces the frequency of constraint breakdowns and minor stops.
  • Provides operators with a stronger feeling of “ownership” for their equipment.
  • Enables most maintenance to be planned and scheduled for non-production time.
  • Targets quality issues by finding and removing the root causes of defects.
SMEDSMED (Single-Minute Exchange of Die) is a method for dramatically reducing changeover time at the constraint. As many steps as possible are converted to external (performed while the process is running) and remaining steps are streamlined (e.g., bolts and manual adjustments are eliminated).
  • Increases usable production time at the constraint.
  • Enables smaller lot sizes, resulting in improved responsiveness to customer demand.
  • Enables smoother startups, since a simplified and standardized changeover process improves quality and consistency.
Poka-YokePoka-Yoke (also referred to as “mistake proofing”) designs defect detection and prevention into equipment with the goal of achieving zero defects.
  • Reduces the number of defects (which is also very important post-constraint).
  • Enables the operator to spend more time on Autonomous Maintenance.
JidokaJidoka means “intelligent automation” or “automation with a human touch”. It recognizes that partial automation is significantly less expensive than full automation. Jidoka also emphasizes automatic stoppage of equipment when defects are detected.
  • In some cases, the constraint cannot be broken without significant capital investment. Jidoka can provide valuable guidance on equipment design and upgrades.


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