Leveraging Theory of Constraints in Supply Chain Control Towers

Theory of Constraints

Theory of Constraints is widely hailed as one of the most widely leveraged process optimization and continuous improvement method. As proposed by Prof. Goldratt, the crux of this theory is that the bottleneck determines the process’s pace or performance. You must identify and focus on improving the bottleneck to improve the end-to-end process. Once you improve the bottleneck sub-process, some other sub-process may become the bottleneck. The focus then shifts to that sub-process. This is how you can continuously keep on improving your end-to-end process. This article discusses how this theory can be leveraged for end-to-end supply chain control, synchronization, and continuous improvement.

Modern supply chain control towers provide capabilities that can be leveraged in many different ways. Whether an off-the-shelf control tower solution or a control tower built using solutions from hyperscalers, control towers’ visibility, insights, and planning capabilities can be leveraged in many different ways. There are opportunities to go beyond the traditional visibility, alerts, and planning approach, leveraging the visibility and insights control towers provide. One such opportunity is continuous improvement and synchronization of your end-to-end supply chain leveraging the theory of constraints.

Connecting the Forest and the Trees

In my opinion, many typical supply chain challenges have existed for decades despite advances in planning solutions and technologies because our view of improving supply chains has been siloed. If you categorize supply chain improvement or transformation projects, you will realize that they typically are siloed in the three typical supply chain planning levels (strategic, operational, and tactical). The result is that either we optimize sub-functions within the supply chain or achieve some form of end-to-end optimization within a planning layer. For true end-to-end supply chain optimization, we need to understand where the bottleneck lies within the end-to-end supply chain, improve it across the three layers of planning, and keep working on this process continuously. And the theory of constraints is the perfect methodology as an initial, initiating methodology for this.

All the data you need to establish this analysis is typically available in a control tower setup. The first step is to determine a set of Key Performance Indicators (KPIs) that you will leverage to identify your bottleneck. Take a thirty thousand feet view of your supply chain to build a process view where each sub-function is a sub-process that feeds into the next sub-process. The set of KPIs that you define will then help you identify which sub-function is the current bottleneck in your end-to-end supply chain. The next step is deep diving into this sub-function, using the KPI(s) as the starting point to understand the drivers.

For example, if you identify end-to-end cycle time as your key KPI, you may find that your cycle time is longer than required because your manufacturing cycle time has recently been higher than expected. You then start doing a deep dive into the drivers. As you can envision, all this data is available in a control tower setup.

You then start getting into operational and tactical drivers behind this longer-than-usual cycle time. In our example, let us assume that we find out that the long manufacturing cycle time is due to re-work requirements on a specific part. This level of information should be available, when needed, in your supply chain control tower. As highlighted in this article, a control tower is not just an execution and command center. It is a hub for all things the supply chain. You can keep identifying drivers as your bottleneck keeps changing. Note that this view focuses on end-to-end continuous improvement vs. the siloed approach of using methodologies like TOC in manufacturing.

Supply chain control towers are not just another box you can check once you have this capability. If implemented effectively, supply chain control towers provide a treasure trove of data that can be leveraged to control and optimize supply chains like never before. For example, while the theory of constraints can help you continuously improve your end-to-end supply chain, you can use queuing theory to continuously synchronize your end-to-end supply chain flow. Remember, data in itself is not the new oil or gold. How you leverage data is what makes it valuable. Supply chain control towers provide you with that opportunity. Also, when you build your capabilities like smart manufacturing or smart warehousing, think about what data points you may need to generate within these capabilities that can help you leverage and experiment with many analytics methodologies in your control tower environments.