Executive Briefings

Plan, Source, Make & Deliver Using the Theory of Constraints

Misalignments in the many linkages of the supply chain lead to variability in delivery performance or in demand, says Dale Houle, chief technology officer at AGI-Goldratt Institute. The theory of constraints can help nullify the effects of that variability.

The theory of constraints, or TOC, looks at organizations as systems and addresses them as such. Similarly, it looks at activities or processes the same way. Accordingly, a supply chain is a "system of systems" governed by cause and effect, says Houle.

Under the TOC lens, plan, source, make and deliver are not viewed as independent actions but as interdependent processes that must be integrated into the overall planning process. However, for the desired results of that plan to materialize, execution in supporting areas needs to be managed to maintain alignment with the overall plan.

Practically speaking, what does all that mean? Houle says you must clarify your objective first. That means being responsive to the needs of the customer, considering lead time, delivery availability and price while lowering overall costs and improving return on investment. "This is demand-driven performance."

When considering integration and alignment, often it helps to go back to basics, says Houle. "The supply chain is best analogized to the physical chain, in that it has links and linkages. The links would represent businesses, organizations, functions, industries, manufacturing, suppliers, 3PLs, planning, transportation, etc. The linkages are much more governed by policies that link the measures they use and what basis they use for information exchange. Then the resulting linkages themselves will enable either greater or lesser degrees of organizational alignment. The more misalignments there are organizationally, the greater the variability in the performance of the links in the supply chain."

However, it isn't necessary to correct all misalignments before there can be significant supply chain improvement. The most important impact on supply chain performance is in variability, whether in delivery performance or in demand. Variability causes expediting, out-of-stocks, poor fill rates, overstocks, longer lead times, late deliveries, lost sales, more overtime and other negative effects on business.

What to do? You can focus either on addressing variability or on nullifying its effects, Houle says. "Given that it's very unlikely you will totally eliminate variability, organizations often are better off starting by nullifying the effects and then using that information to then identify and address subsequent causes. In this way, the supply chain actually gets the best improvements in performance."

To view video in its entirety, click here


Keywords: Business Strategy Alignment, Quality & Metrics, Supply Chain Analysis & Consulting, Global Supply Chain Management, Supply Chain Planning, Supply Chain Optimization

The theory of constraints, or TOC, looks at organizations as systems and addresses them as such. Similarly, it looks at activities or processes the same way. Accordingly, a supply chain is a "system of systems" governed by cause and effect, says Houle.

Under the TOC lens, plan, source, make and deliver are not viewed as independent actions but as interdependent processes that must be integrated into the overall planning process. However, for the desired results of that plan to materialize, execution in supporting areas needs to be managed to maintain alignment with the overall plan.

Practically speaking, what does all that mean? Houle says you must clarify your objective first. That means being responsive to the needs of the customer, considering lead time, delivery availability and price while lowering overall costs and improving return on investment. "This is demand-driven performance."

When considering integration and alignment, often it helps to go back to basics, says Houle. "The supply chain is best analogized to the physical chain, in that it has links and linkages. The links would represent businesses, organizations, functions, industries, manufacturing, suppliers, 3PLs, planning, transportation, etc. The linkages are much more governed by policies that link the measures they use and what basis they use for information exchange. Then the resulting linkages themselves will enable either greater or lesser degrees of organizational alignment. The more misalignments there are organizationally, the greater the variability in the performance of the links in the supply chain."

However, it isn't necessary to correct all misalignments before there can be significant supply chain improvement. The most important impact on supply chain performance is in variability, whether in delivery performance or in demand. Variability causes expediting, out-of-stocks, poor fill rates, overstocks, longer lead times, late deliveries, lost sales, more overtime and other negative effects on business.

What to do? You can focus either on addressing variability or on nullifying its effects, Houle says. "Given that it's very unlikely you will totally eliminate variability, organizations often are better off starting by nullifying the effects and then using that information to then identify and address subsequent causes. In this way, the supply chain actually gets the best improvements in performance."

To view video in its entirety, click here


Keywords: Business Strategy Alignment, Quality & Metrics, Supply Chain Analysis & Consulting, Global Supply Chain Management, Supply Chain Planning, Supply Chain Optimization