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Theory of Constraints & Throughput Costing:

Eliyahu Glodratt & Theory of Constraint

                Operational efficiency and performance of the business process both are very necessary for every business. That’s the reason during achieving the best performance and efficiency in the business operations the business concerns facing many problems which are known as constraints.

                There is an Israeli Physicist named as Eliyahu Goldratt make his contribution to a new theory which is later on known as The Theory of Constraints & Throughput Costing.
According to his thinking TOC or Theory of Constraints is based on the study of those part of the business process which need more attention to achieve the more efficiency in the business process because when we start a business process the whole process is running efficiently but there are some parts which are considered weaker in the complete process and TOC is designed to make the more improvement is these processing parts.

There are many steps which help the business to achieve the TOC analysis. These Steps are as follows:
  1. Identify the Constraints or hurdles.
  2. Determine the most efficient and profitable product mix given the constraint.
  3. Maximize the flow through the constraint.
  4. Increase capacity at the constraint.
  5. Redesign the manufacturing process for greater flexibility and speed.

According to these all steps first we define the constraints means that to identify the constraints through bottleneck operation and without enough resources do not go to start a process. The second step of these steps is to determine the most efficient and profitable product mix given to constraint means to determine the throughput margin or the short run profit margin from all the processed activities.
                Throughput margin         =             Sales     -            Direct materials

 The third step is to maximize the flow through the constraint. The drum buffer rope concept helps us in it. Drum buffer and rope concept involve first to set the space for a process them determine the cost and then rope means to start that process with effective and efficient links to each and every process activity. The Last step is to redesign the manufacturing process for greater flexibility and speed that helps you in creating the value and re-engineering of the process helps you to achieve the uniform performance for all of the steps.


That’s all steps based on the identification, determination, maximization, capacity improvement and redesigning the work activities to run the process for long runs. These are the key steps of the Theory of Constraints and Throughput costing.

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