Theory Of Constraints - An Effective Strategy To Fight Erratic Economic Climate
Businesses manage themselves amidst pressure from multiple fronts - there are shareholders
, partners, clients and employees, all wishing for prosperity, growth and better prospects. The company must show higher revenue, better productivity, however, keeping the costs under check. The inconsistent economic situations that dominate business environment in general only make things worse for the organizations. It is when organizations turn to Theory of Constraints (ToC) to counter difficult times with persistence and tact.In the face of unfavourable economic conditions, it is general tendency among organizations to slow down and wait for the bad weather to wither away; the organizations slacken their pace and even implement layoffs. Nevertheless, it is widely accepted as a self-injurious practice. This is because any retrenchments rob the organization off its competitiveness force in the market. Implementation of Theory of Constraints, on the other hand, has proven to be an effective method to help an organization sustain and grow in the face of tough economic conditions.
The basis of Theory of constraints is to concentrate on the base growth of the organization during down time and hence improve its productivity and revenue. So the organization does not try to grow in business volume, but increases profitability by strengthening itself. It involves reducing inventory, late deliveries, over time and Work-In-Progress (WIP). It discourages workforce reduction. Rather, it encourages improvement in profits by using performance improvement strategies, like implementing newer technologies to overcome organizational constraints, one by one.
The Theory of Constraints was introduced by Eliyahu Goldratt in his book on business management to enhance profits. It advocated adoption of certain holistic insights and processes to improve sales (throughput), quality and reliability at the hands of existing personnel. The goal is to get set the organization on the path of success. However, it says, do not crouch, sit back and watch, but focus on the constraining leverages points - some physical and some logical - but all specific to the organization in question.
The Theory of Constraints has been showing remarkable results since 1985 in terms of bottom line growth in organizations. In fact, the response has been so cheering that not only organizations in troubled waters are using it, but also successful organizations are implementing the theory.
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