Advanced Projects, Inc.

Home
Up
Conflict

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.

 






Home ] Up ] Conflict ]