- Learning Objectives
- Evolution of the Supply Chain Concept
- Total Systems Approach and Boundary Spanning
- Conceptual Foundations of Demand Chain, Value Chain, and Supply Chain
- Strategic Alliances and Partnerships
- Organizational Learning from Strategic Alliances
- Interfaces among Purchasing, Production, Logistics, and Marketing
- Theory of Constraints (TOC) for Supply Chain Management
- Change Management for Supply Chain Management
- Chapter Summary
- Study Questions
- Zara's Rapid Rise as a Cool Supply Chain Icon
Theory of Constraints (TOC) for Supply Chain Management
The strength of the supply chain link can dictate the effectiveness and efficiency of the supply chain partnership and the ultimate success of the supply chain. To maximize the supply chain benefit, supply chain partners should uncover weak links and prevent variations in supply chain capacity (e.g., production/distribution capacity and inventory) and supply chain performances. Perhaps one of the most effective ways of doing so is to apply the theory of constraints (TOC) to supply chain management. The core idea in TOC is that every system such as profit-making firms must have at least one constraint that limits the system from getting more of whatever it strives for and consequently determines the output of the system (Noreen et al., 1995). A constraint is anything in an organization that hampers the organization’s progress or increased throughput. Thus, the firm’s failure to manage this constraint leads to the significant decline in its productivity. The same TOC analogy can be made to the supply chain, where the weak supply chain link can limit the effectiveness and efficiency of the entire supply chain. In other words, the supply chain will fail at the weakest link.
For example, the part production slowdown and the subsequent delivery delays caused by the upstream supplier would increase the lead time for the downstream manufacturer and distributor and then result in product shortages at the retailer. These product shortages would not allow the retailer to meet customer needs and consequently would deteriorate customer services. In this example, the supplier’s production capacity will become the system’s (supply chain’s) constraint. In TOC terms, the supplier production capacity will be regarded as the “drum” that sets the beat for the entire supply chain. The size of the inventory held by the supplier will be viewed as the “buffer,” because it buys time needed to recover from the anticipated disruptions occurring in the upstream supply chain. The “rope” is symbolic of the link between the upstream and downstream supply chains, where the rate of the final sales or distribution does not exceed the supplier’s production capacity.
This drum-buffer-rope (DBR) logic of TOC thinking would protect against variability at the constraint and ensure the continuous improvement of the supply chain processes. Considering the usefulness of TOC thinking to supply chain management, the supply chain partners may consider the following TOC focusing steps to optimize the supply chain benefits (see Dettmer, 1997 for the detailed discussion of the five TOC focusing steps).
- Identify the weakest link in the supply chain.
- Decide what to do to get the most out of the weakest link (constraint) without committing to potentially expensive changes.
- Adjust the rest of the supply chain processes to a “setting” that would enable the constraint to operate at the maximum effectiveness.
- Take whatever action is required to eliminate the constraint.
- Once the current constraint is broken, keep on looking for other constraints to continuously improve the supply chain performances.