The theory of constraints can be described as a system management philosophy that was introduced by Eliyahu M. Goldratt in the early 1980s. It is basically a management concept that is specifically designed to provide continual improvement. The underlying principle of the theory of constraints is that constraints set limits of performance for any systems. The main focus of this theory is on the identification of constraints in a process or business and exploiting and eliminating these constraints. Majority of the organization only entail a few constraints. The supporters of this theory suggest that managers ought to concentrate on effective management of the capability and capacity of these constraints if they intend to enhance the profitability of the organization.
The theory of constraints can also be characterized as a concept, which focuses on the role of constraints in limiting the performance of the organization. This theory encourages the managers to attack the constraints to accomplish their fundamental goal i.e. to generate revenue. TOC being well-designed in the concept drives the attention of the management towards the factors that impede the system performance. The theory further laid emphasis on the performance within the defined set of constraints of the product offerings and existing processes. By applying TOC, a tremendous change can be observed in the direction, focus and management.
The theory of constraints is grounded on the premise that the performances of the organization against the defined goals can be determined and managed by the variations in the three measures: throughput (money from sales), operating expense (money spent converting investment to throughput) and investment (money to be invested in the business. Focusing on the need to maximize the throughput, TOC emphasizes on comprehending and managing the constraints that rest between the firm and the accomplishment of its goals. After the goals are identified, the TOC assigns all the non-constraining resource to the requirements of its main constraints.