The organizations are complex web of People, Equipments, Methods, Materials, Processes, and Measures. Such detail complexity is bad enough, then add to it the dynamic complexity of changing Customers, Suppliers, Workforce, regulations etc and we have a picture of challenge faced by todays management team.
Traditionally, management has divided the organization into smaller, more manageable sections like spinning/weaving/dyeing/finishing etc in case of textile manufacturing industries. The basic objective is to maximize the performance of the each part. 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 an organization will have only a small impact on the global performance on the bottom line. There are very few variables, perhaps only one, where a significant improvement in local performance causes a significant improvement in global performance. Such a variable is called "Constraint" which can be compared to weakest link in the chain.
The Throughput, Investment and Operating Expenses are a buzz words and will be seen frequently in this write-up and they have a very good cordial relationship among all three of them. This relationship will give and explain the significant role of these words and also we can understand basic objective in managing the constraint. It is not based on standard costing or activity based costing and equally applies to not- for -profit organizations. It helps to increase velocity at which products move through an organization by eliminating bottle necks within the organization and is also business intelligence for profit maximization. In this, effectiveness of each processes is important rather than their efficiencies which means flow of material is important than production. Anybody outside the organization can use such accounting for investment. The Throughput accounting uses measurements of Throughput, Inventory and Operating Expense, which can be applied universally across the company and are easily understood by those at the cutting edge of shop floor decision making. In particular, Throughput Accounting rejects the conventional reliance on efficiencies - and in particular, labor efficiencies - which it sees as counter productive. Since the goal of every for-profit company is to make money, the primary measurements of progress towards that goal are expressed in the same unit - Money.
The author is Senior Manager & HOD - Spinning PV, Raymond Limited, Textile Division, Chhindwara (M.P)).