Theory of Constraints (TOC) - Application for Different Industries

‘The way to have a decisive competitive edge is to satisfy a client’s significant need to an extent that no significant competitor can’
Dr. Goldratt.

Every industry has its own unique business challenges. By no means, one generic solution can solve problems across industries. While TOC provides the fundamental concepts and framework to solve business problems, it needs experience and wisdom to analyse the problems faced by the individual company versus its competition to come up with customized business solutions.

While the core principles remaining the same, it is imperative to build unique competitive edge(s) that would differentiate individual companies from competition. A given ‘Competitive edge’ has its own validity of time before competition closes in. Therefore for an ongoing business growth companies should contiguously resort to developing competitive edge(s) in their respective markets. Through our TOC consultancy approach, we enable companies to build and sustain unique ‘Competitive Edge(s)’ to ensure realistic ongoing business growth.


The generic practice in the FMCG industry is to plan their operations (raw material/production/distribution) based on forecast. Forecast accuracy plays a vital role determines the business plan validity. Companies due to lack of alternatives resort to forecast (push) based approach to plan their materials and capacity for the short, mid & long term. In reality, realizing a high forecasting accuracy has always been challenging. If the actual demand for a given time horizon is higher than forecasted numbers it invariably results in ‘Shortages’ and when demand is lower than forecast it results in ‘Surpluses’ leading to low inventory turns performance; lower stock turns block working capital and cash flow of the company. Most importantly, low forecast accuracy results in lower availability of SKU’s in the company’s stocking points (warehouses) and hence increases the chance for lost sales. TOC’s pull replenishment solutions ensures high availability of SKU’s at stocking points while ensuring minimal inventories at the stocking points resulting in higher sales, market share growth, better stock turns besides eliminating firefighting/stress of managers. Most consumer goods companies also face the issue of skewed month end sales due to ‘push’ based practices for realizing top line targets; however in many instances the actual consumption is not skewed and has a uniform pattern. Our business solutions have enabled FMCG companies to correct the skewed sales pattern and align it true consumption pattern as demanded by the market. FMCG companies that have used TOC principles have improved their SKU availability to 95%+ across their supply chain stocking points, improved sales (in the range of 10% to 100%), reduced inventory in the pipeline (by 50%), improved their stock turns by up to 300% besides realizing a very high visibility of supply chain.


Typical automotive (including off road equipment & capital equipment manufacturers) manufacturers have a multi-tiered vendor base supplying several thousand items related to raw material, parts and sub-assemblies. Synchronising the supplies from such a large number of vendors have always remained challenging, this problem is further accentuated due to ever increasing varieties and part level design changes. From the manufacturers perspective, not having the right supplies (full kit of items with relevant quantities) lead to frequent changes in production and assembly schedules and frequently result in not exploiting the market opportunities adequately. Our business solutions involve seamlessly linking of the entire eco system (supplier-manufacturer-customer) to ensure smooth flow of material and alignment of demand to supply resulting in a WIN-WIN-WIN for all. Higher alignment between demand and supply had led to significant top line (by 10% to 100%) and bottom line growth while minimizing (by 50%) unneeded inventory in the pipeline. Firefighting and stress levels have been dramatically reduced due to better visibility of the supply chain.

Engineered to Order / Make to Order Companies

Companies that are in the business of designing, manufacturing and delivering equipment’s/components/products that are specific to a given customer order face stiff challenges in terms of honouring their due date commitments. Long queues in front of key resources, high work in process and low due date performance are commonly witnessed under such environments. Not honouring due date commitments has its negative impact in terms of penalties, loss of goodwill/reputation and future sales besides breeding competition. TOC’s drum buffer rope methodology enable these companies to smoothen their work flow through their shop floor besides providing high visibility of customer order status. Companies that have implemented TOC solutions for such environments have experienced high due date performance (95%+), reduction in work in process inventory(50%), shorter manufacturing lead times besides high resource and worker productivity.

Aftermarket Businesses

Companies that deal with spare parts experience never ending problems of non-moving aged stocks coupled with low availability of fast movers leading to lower stock turns and poor top line performance. Although the margins are higher in spares, companies struggle to provide the requisite service levels to their market which in turn has a negative impact on the primary equipment sales. Spare part supply chains are complicated due to erratic demand pattern; yet there is a decisive need to maintain high service levels. Our TOC based business solutions have improved our client’s spare part availability to 95% while minimising the inventory by 40% by ensuring a proper alignment between stock and impending demand. Firefighting and stress levels have been eliminated with smooth dovetailing of supplies and demand.


Retail companies typically deal with several thousand SKU’s that are sold across different stores and are plagued with the problems of low Return On Investment (ROI)/inventory turns, less than desirable foot falls at their stores and lack of freshness on their merchandise. There are relatively fewer SKU’s that fetch larger chunk of sales (‘HEAD’s) and it is imperative to maintain high availability of these “HEADS’. In our experience, as these ‘HEADS’ are relatively sought after SKU’s, they are constantly running out of stock (sold out) leading to less than desirable sales performance, while there are large number of SKU’s that are non-moving (TAIL) that block previous working capital. Our business solution have helped retail companies to improve and sustain high availability of SKU’s while simultaneously minimizing the unneeded inventories that releases precious cash into the system. In addition, it is essential to constantly refresh (add/delete) the product portfolio to ensure merchandizing effectiveness and to boost customer walk-ins. We have worked with retail companies to instil the TOC based retail practices that have resulted in higher sales and inventory turns performance.


Project based companies have an herculean task to meet the triads of ‘Time’, ‘Cost’ & as per ‘Agreed specifications/Scope of work’ of every customer order. Survey results reveal that more than 90% of projects executed worldwide are delivered late relative to the originally committed due dates. Failure to deliver projects on time has its repercussions in terms of penalties, loss of good will and future business. Contrary to the conventional practices of project management, TOC’s Critical Chain Project (CCPM) instils robust processes to proactively alert impending project delays, highlightens management attention on tasks that cause delays and aids timely managerial attention to ensure project progress against planned timelines/milestones. CCPM concepts have been successfully used to manage new product development projects, green field & capacity expansion projects, construction projects, software development, drug discovery projects by pharma companies and in critical maintenance projects carried out in process industries such as cement, petrochemical etc. Companies that have used CCPM concepts have successfully delivered projects on time (95%+), delivered more projects with similar resources resulting in higher resource productivity.