Theory of Constraints - M.Ravichandran

The Theory of Constraints is a way towards profit.

At least one constraint shall be there in every business. Constraint limits the system from getting more of whatever it strives for, which is in fact a profit. 

The theory defines a method that can be in force to manage constraints, thereby increasing profits.

Most of the businesses yet considered for a chain of processes that transform inputs into saleable outputs.  

It is realized that conventional accounting systems do not support TOC, or lean-based efforts. It proposes replacing all traditional measures derived from the "product cost" accounting paradigm.

The following measures are the only way to increase profit through TOC:

Throughput: For which price the organization generates money through sales. Throughput represents all the money coming into an organization.

Inventory: All the money the organization invests in things it intends to sell. Inventory represents all the money tied-up inside an organization.

Operating Expense: Operating Expense is all the money an organization spends turning Inventory into Throughput. It represents the money going-out of the organization.

All three of these measures are interdependent. This means that a change in one will result in a change in one or more of the other two. 

Therefore, to improve organization using TOC, we as the change agent would adhere to the following formula:

Maximize Throughput while Minimizing Inventory and Operating Expense.