The
Five Focusing Steps
of Eli Goldratt's
Theory of Constraints
Understanding application of the five
focusing steps in any system requires
first understanding the GOAL of
the system.
In a commercial enterprise, the GOAL
usually is 'to make money now and
in the future.' With that goal, a
workable definition of financial metrics
that support the Goal is necessary.
Evaluation of existing financial
measures revealed some significant
weaknesses. The three basic metrics
necessary are:
Throughput: The rate at which the system makes money (sales minus totally variable costs). Direct labor SHOULD NOT be deducted in calculating Throughput. Sales are only recognized when the money is available to the firm. That is, production for inventory is not part of Throughput.
Inventory: Actual cost of assets plus variable cost of inventory. The cost of DIRECT LABOR to produce the inventory IS NOT part of Inventory in TOC accounting.
Operating expense: All expenses not deducted in arriving at Throughput. This includes direct labor and all operating and maintenance expenses.
Non-commercial enterprises (Government, Not-for-profit organizations (e.g. religious, humanitarian, educational) ), must carefully define their GOAL and metrics which unambiguously support the global GOAL before focusing is possible.
