Theorganizations are complex web of People, Equipments, Methods, Materials,Processes, and Measures. Such detail complexity is bad enough, then add to itthe dynamic complexity of changing Customers, Suppliers, Workforce, regulationsetc and we have a picture of challenge faced by todays management team.
Traditionally,management has divided the organization into smaller, more manageable sectionslike spinning/weaving/dyeing/finishing etc in case of textile manufacturingindustries. The basic objective is to maximize the performance of the eachpart. After all, the global improvement is the sum of the local improvements.
However,the Theory of Constraints claims that a change to most of the variables in anorganization will have only a small impact on the global performance on thebottom line. There are very few variables, perhaps only one, where asignificant improvement in local performance causes a significant improvementin global performance. Such a variable is called "Constraint" whichcan be compared to weakest link in the chain.
TheThroughput, Investment and Operating Expenses are a buzz words and will be seenfrequently in this write-up and they have a very good cordial relationshipamong all three of them. This relationship will give and explain thesignificant role of these words and also we can understand basic objective inmanaging the constraint. It is not based on standard costing or activity basedcosting and equally applies to not- for -profit organizations. It helps toincrease velocity at which products move through an organization by eliminatingbottle necks within the organization and is also business intelligence forprofit maximization. In this, effectiveness of each processes is importantrather than their efficiencies which means flow of material is important thanproduction. Anybody outside the organization can use such accounting forinvestment. The Throughput accounting uses measurements of Throughput,Inventory and Operating Expense, which can be applied universally across thecompany and are easily understood by those at the cutting edge of shop floordecision making. In particular, Throughput Accounting rejects the conventionalreliance on efficiencies - and in particular, labor efficiencies - which it seesas counter productive. Since the goal of every for-profit company is to makemoney, the primary measurements of progress towards that goal are expressed inthe same unit - Money.
The author is SeniorManager & HOD - Spinning PV, Raymond Limited, Textile Division, Chhindwara(M.P)).