Theory of Constraints

Imani W.

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Theory of Constraints

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Theory of constraints, Goldratt, production management, operation management, lead time, inventory, capital expenditure, cost of production

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Abstract

In the late 1970s, Goldratt developed a production and operation management approach which was based on two major strategies. The two strategies include the philosophical principle of continuous improvement and analysis, investigation and creation of solutions to the underlying problems in an organization (Panizzolo, 2016). The theory is purely based on techniques of the hard sciences which are applied to soft sciences such as business management. The performance of a system is purely determined by the constraints applied according to the theory of constraints.

The Lead Time
Composition of Costs
How to avoid them?

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[...] (2009). Critical Steps & Analysis on a Capital Expenditure. Retrieved from Small Business Chron: https://smallbusiness.chron.com/critical-steps-analysis-capital-expenditure-73731.html Panizzolo, R. (2016). Theory of Constraints (TOC) Production and Manufacturing Performance. International Journal of Industrial Engineering and Management, 15-23. Six Sigma. (2019). Lead Time. [...]

[...] Lead time has a direct impact on customer satisfaction. When an organization fails to deliver a customer order within the required period, the company gives the customer the option of looking for alternatives. It is advisable for the organization to assume zero inventory and work in progress while calculating lead time (Six Sigma, 2019). This assumption helps the organization to include the time taken to receive the inventory in the lead time calculation. This gives the organization the chance to forecast such that whenever the demand increases, it will be ready for production. [...]

[...] Often, a company's production performance is driven by the demand constraint of its goods. For a company to reduce the cost of production, it is important to apply the demand constraint in its production planning. When the demand is high, the company's sales revenue increases. Demand constraint helps the organization to save on production costs when the demand is low. The Lead Time Lead time refers to the time taken from the order placement to the time it is fulfilled to the customer. [...]

[...] It is also advisable for organizations to consider the application of lead time analysis and calculations to avoid inventory issues. References Blackstone, J. (2010). Theory of Constraints. Scholarpedia. Kokemuller, N. (2007). What Are Some Various Constraints that Firms Face in Maximizing Their Economic Profit? Retrieved from Small Business Chron: https://smallbusiness.chron.com/various-constraints-firms-face-maximizing-economic-profit-59904.html Lester, R. (2017). What is Lead Time, why is it important, and how do you reduce it? LinkedIn. Lohrey, J. [...]

[...] This process involves a lot of analysis to improve the overall performance of the company. One major reason why the company's performance results in a loss is the failure to conduct capacity planning. This action results in the company having inventory issues which trickle down to their customer satisfaction. When a customer requests specific products from an organization and the company fails to deliver them, the customer opts to look for other alternatives. This results in the loss of business for the company (Kokemuller, 2007). [...]

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