Definition of Theory Of Constraints



The theory of constraints that is known as a bottleneck in the production process is a systematic process of identifying the constraints, exploiting them, removing the constraints, and then repeating the process until the constraints are removed.

 


Assume a product requires raw material, labor, and machine hours to achieve the desired production. If the company receives an order to make 5000 units in a month, first you will have to look for any constraint to achieve this target. The raw material is extensively available, labor is also available, however, the machine operating capacity is 500 hours a month but the order requires 600 hours in a month.

 


The constraint here is machine hours that should be exploited first by using 500 hours completely. Then to complete the order another machine can be rented for 100 hours work. This will complete the order and the constraint will be removed this way.


View More General Accounting Definitions