TOC's role in IT success

Research Papers

Theory of Constraint's
role in the success of IT with
special reference to ERP

by Kuldeep Singh Malik

Theory of Constraint's role in the success of IT
with special reference to ERP

IT has its main weapon as Enterprise Resource Planning:
ERP is a packaged business software system that enables a company to manage the efficient and effective use of
resources by providing a total, integrated solution for the organization's information-processing needs” [Sumner Mary
(2000)]. This software facilitates the integration of all the functional information flows across the organization into a
single package with a common database. Therefore, it allows easy and immediate access to information regarding
inventory, product or customer data, and prior history information [Shehab, E., Sharp, M., Subramanian, L. and
Spedding, T. (2004.)]. ERP initially covered all routine transactions within an organization only. However, it was later
expanded to cover external customers and suppliers [Turban, E., Leidner, D., Mclean, E. and Wetherbe, J. (2006)]. Most
ERP systems now have the functionality and the capability to facilitate the flow of information across all business
processes internally and externally. Furthermore, ERP systems have the capability to “reach beyond their own
corporate walls to better connect with suppliers, distributors and customers to engage in e-business” [Nah, F.and Lau, J.
(2001)].Today, many public and private organizations worldwide are implementing ERP systems in place of the
functional legacy systems that are not anymore well-compatible with modern business environment. However, the
process of moving from functional applications to an ERP system is difficult and challenging [Kroenke, D. (2008)].The
switch to ERP system is expensive and it requires development of new procedures, training and converting data [Zhang,
Z (2005)].

1. A Literature Review on ERP:
More than 60 percent of Fortune 500companies had adopted of ERP system [G.Stewart, M. Milford, T.
Jewels, T. Hunter, and B. Hunter (August 2000)]. The relation between ERP and competitive advantage as
well as different managerial and organizational process enhancing the competitive position has not been
well covered by the ERP literature. And, ERP system can yield at most a temporary competitive advantage as
others are also installing these enterprise-wide systems [Steven J. Balderstone and Victoria J.Mabinsearch
(1999)].Nearly all literature on ERP is focused on ERP project and ERP implementation. Little attention had
been paid on the post implementation phase of ERP projects. IT cannot by itself influence the productivity
of a company.. The main efficiency factor lies in the way people use these technologies. ERP is one of the
major motives of firms attaining a competitive advantage [Sumner Mary (2000)]. Those organizations that
can customize their ERP systems with the new ideas to match specific strategic and decision-making needs
will be more difficult to imitate. ERP systems may support the extended value chain of the organization,
allowing them to link and share data with its suppliers and customers to improve business operations
through business process innovations [Zhang, Z., Lee, M., Huang, P., Zhang L. and Huang, X. (2005)].It is also
suggested to better adapt business process to human factors by explicitly taking into account concepts like
the role, competence and knowledge of human resources [Millman, G.J. (2004)].

2. IT alone can be problematic:
Enterprise systems create both the difficulties and advantages. For instance, especially ERP takes length
implementation process that creates troubles. ERP has been credited with providing competitive advantage
in some environments, the ERP market is maturing. ERP systems have drawback of being large, complicated,
and expensive [Shehab, E., Sharp, M.,Subramanian, L. and Spedding, T. (2004.)].It focuses leads to techno-
functional issues leading to project failures. The classification of functional requirements and code
development with respect to changes in the business are common problems. The implementation cycle
times and the inherent problems towards planning the code development draw managerial attention
According to [Somers T.M. and Nelson K.G. (2004)], the Critical success factors in ERP implementation is BPR
that drives technology choice is an enabling factor that can give to ERP success. ERP implementation
requires an enormous time commitment from an organization's information technology department or
outside professionals. According to [Smith,D. (2000)], Many ERP implementation shave failed as a result of
lacking clear plans. It is noted that for successful ERP implementation, one of the most critical success
factors is Re-engineering the business process, called as BPR. Organizations should be willing to change
their businesses to fit the software in order to reduce the degree of customization [Murray, M., & Coffin, G.

Vector Consulting Group www.vectorconsulting.in


(2001)]. ERP systems tended to create changes in many business processes, and as noted by [Shang, S. and
Seddon, P. (2002)] putting ERP in place requires new procedures, employee training, and both managerial
and technical support. Many organizations have made unnecessary, complex customization toERP software
because the people making the changes do not fully understand the organization's business practices
[Sumner Mary (2000)]. It is noted by [Sumner Mary(2000)] that BPR should continue with new ideas and
updates to take full advantage of the ERP system when the system is in use.

3. The Theory of Constraints:
The Theory of Constraints (the TOC) is a developed by Eliyahu M. Goldratt. It claims that each system has at
least one constraint, challenging current state of businesses practices Thus, if the organization is viewed as a
chain, then the place to focus our improvement efforts must be at the point of greatest weakness – the
weakest link, limiting factor or constraint. It is this aspect that lies at the heart of the Theory of Constraints
approach called the Five Focusing Steps, first described by [Goldratt,E.M. (2000)] and shown below:

1. Identify the constraint:
This is the starting point, the area of greatest weakness, the area of maximum focus. The constraint might
be physical, a machine, the size of the building, the number of people etc. It might be a policy such as an
overtime ban, only allowing one shift etc. Sometimes a policy constraint creates a physical constraint and
then the organization suffers from a bottleneck. It can lie at any point on the revenue chain, internal to the
organization, within the supply base, in the market, or in the link between the market and the organization.
Indeed there are few market constraints but many marketing constraints within organizations. The problem
seems to be that many companies operate without knowing where the constraint is.

2. Exploit the constraint:
Once the constraint has been properly identified, and assuming it is physical the next step is to maximize
the performance of the constraint. This is about making sure that the performance of the chain is
demonstrating its full capability before any major spend is undertaken.

3. Subordinate to the constraint:
This is the tough call for any companies. This demands that all decisions are linked to the performance of
the constraint and the relationship between whatever, and wherever, it is and the three necessary
conditions for success. The performance of all the other links in the revenue chain must support the
performance of the weakest link; their performance is only linked to their contribution to that of the
constraint.

4. Elevate the constraint:
This is the time to increase the capability of the revenue chain as a whole, by increasing the capacity of the
physical constraint, or changing the policies. This step is only undertaken once control has been achieved
throughout the whole of the revenue chain through subordination.

5. Prevent inertia – go back to step 1:
If the constraint has been addressed by elevation then there is the certainty that there is a new constraint
which means the process must be completed once more, and this ensures a process of on-
goingimprovement.

4. TOC -based IT solutions work well.
The new technology has to be implemented into an existing system of policies, behaviors, measurements
and other assorted rules and regulations. The key dimension of any technology is that it should diminish a
limitation within the operational aspects of any organization. The new technology has to be implemented



into an existing system of policies, behaviors, measurements and other assorted rules and regulations
(Goldratt,E.M. (2000) .ERP with TOC provides fast, direct and whole-companywide performance
improvements, wherein the notion of the constraint is linked to the focus and leverage offered by
throughout accounting [Somers T.M. and Nelson K.G.( 2004)]. It is suggested by [Dr Ted Hutchin (2001)] that
the notion that the organization should be viewed as a chain and the importance of the constraint also
need to be recognized. There are typically three key areas of focus of ERP-TOC, namely, manufacturing,
project management and distribution. Firstly, in the manufacturing area, the application of approaches such
as Drum – Buffer – Rope, have been well researched and the results clearly achieved. The whole of the
revenue chain from supply to customer is made possible with ERP. There is a conflict between controlling
costs and protecting sales [Turban, E., Leidner,D., Mclean, E. and Wetherbe, J.(2006)].Secondly, in the
project management focus area of ERP-TOC, its capability of data integration presents robust system. During
ERP project life cycle, in the pre-implementation stage, TOC helps in the right selection of an ERP system.
During the project implementation stage of an ERP system, TOC helps in management, makes the
implementation smooth and fast. During middle of an implementation, it provides a set of policies,
procedures and measurements that give new focus, direction and momentum to the process; it can change
employee's behavior towards resistance to the change by showing the value of ERP via TOC.

5. IT with TOC – How do both work
IT with TOC determines and monitors the bottleneck resource, set and manage the Buffers, time the release
of work to maintain a smooth flow to the bottleneck and maximum throughput for the plant, and analyze
resources and buffers for performance improvement. It is about attitude, approach, and process than about
software .It helps reinforce new procedures, disciplines, and measurements that are taking the place of the
old ways of doing things. Once the 'drum' is identified and the“rope” put in place to time the launching of
work into the plant, the most critical ongoing concern is to keep the right amount of buffer in front of the
CCR to ensure maximum throughput and a smooth flow of work. ERP-TOC helps in scheduling work in
counterintuitive environment. Typical scheduling logic and practice, including priority calculations, work on
a no-later-thandate basis, tied to due date for completion of the entire production process. Scheduling for
all other work centres is tied directly to scheduling for the CCR and is not aimed at increasing utilization on
these subordinate resources. The concept of “buffer penetration” is unique to ERP-TOC and is a key
management tool. Management reports display appropriate priorities and highlight potential problems to
keep operations moving according to TOC principles.

˜ The TOC body of knowledge as it applies to manufacturing has areas both of synergy and contrast with
Lean and ERP. Managers are positioned to realize the most effective performance improvements when
they understand the fundamental assumptions behind the differences.

˜ TOC often gives management the vehicle to transform a stalled or failed ERP implementation into a
success, both in terms of acceptance of the system and a generous return on the investment made in the
system.

˜ While the manufacturing application of TOC has some counter-points in Lean, the TOC body of
knowledge as it applies to Throughput Accounting, Marketing, Supply Chain Management, Project
Management, Sales, Strategy & Tactics, and People Skills have no real equivalent in Lean, ERP or "Best
Practices." These powerful applications provide even the most successful Lean companies with rich
opportunities for substantial further improvement.

˜ Similarly the TOC Thinking Processes, with their powerful analytical, planning and communication
applications and their ability to generate outside-the-box, win/winsolutions have no equivalent in Lean,
ERP or "Best Practices.".



6. Case based evidences:
After ERP-TOC implementation, the service days taken by the US Navy helicopter service division to service
54helicopters in a year, reduced to 133 days from previous average of 190-200 days ,this means a 1000
hours/direct labour reduction and a dip in overtime from between 15 –18% to 5%..It is noted from this case
that ERP-TOC is a successful technique focused on improving planning cycle time, simultaneously. In
another case, ITT Night Vision, a manufacturer of night vision devices (NVDs) for the United States.,
Developed an enabling SAP APO model based on the Theory of Constraints, found that there was an
improved planning cycle times from 10 days to 2 or 3 days, Improved capacity utilization by 20%, reduced
finished goods inventory by 19%, improved product-mix planning through better understanding of co
product sales.

7. Conclusions
Enterprise systems have been instrumental in advancing efficiency in organizations throughout the world by
giving access to inventory, product and customer data towards attaining a competitive advantage. However,
putting ERP in place requires new procedures, training and converting data, adapt business process to
human factors in the context of the role, competence and knowledge of human resources. It renders ERP
system being complicated, and expensive. One of the most critical success factors is Re-engineering
business process, which should continue with new ideas and updates. Here, ERP system's critical
shortcoming is its failure to respond to changes in the rules, procedures, measurements, and even in the
belief systems. If ERP is used in combination with TOC, the three key areas are focused, namely
manufacturing, project management and distribution. TOC helps an ERP system throughout the project life
cycle in effective implementation. On the basis of results of ERP-TOC, it can be concluded that TOC can help
ERP to succeed.

References:
Akkermans, H., Bogert, P., Yucesan, E.,and Wassenhove, L. (2003) 'the impact of ERP on supply chain management :
Exploratory findings from a European Delphi study', European Journal of Operational Research, Vol. 146, No. 2, pp. 284
– 301.

Sumner Mary (2000). “Risk factors inenterprise-wide/ERP projects”, Journal of Information Technology, 15, pp 317-327.

Dr Ted Hutchin (2001), “Enterprise
Resource Planning – Creating Real Bottom-Line Impact”,

G. Stewart, M. Milford, T. Jewels, T. Hunter, and B. Hunter (August 2000), “Organizational readiness for ERP
implementation,” Proceeding of the Americas Conference on Information Systems, pp.966-971.

Goldratt, E.M. (2000), “Necessary But Not Sufficient”, North River Press Great Barrington MA

Kroenke, D. (2008), “Experiencing MIS”, Prentice Hall.

Mabert, V.M., Soni, A. andVenkataramanan, M.A. (2000) 'Enterprise resource planning survey of manufacturing
firms', Production and Inventory Management Journal, Vol. 41, No. 20,pp.52–58.

Millman, G.J. (2004) 'What did you get from ERP and what can you get?' Financial Executive, May, pp.38–42.

Murray, M., & Coffin, G. (2001). 'A case study analysis of factors for success in ERP system implementations',
Proceedings of the Seventh Americas Conference on Information Systems, Boston, 1012–1018.



Nah, F. and Lau, J. 2001. 'Critical factors for successful implementation of enterprise systems'. Business Process
Management Journal, 7 (3): 285-296.

Olson, D.L., Chae, B. and Sheu, C. (2005) 'Issues in multinational ERP implementation', Int. J. Services and Operations
Management, Vol. 1, No. 1,pp.7–21.

Shang, S. and Seddon, P. (2002) 'Assessing and Managing the Benefits of Enterprise Systems: the Business Manager's
Perspective', Information Systems Journal,20(12): pp. 271-299.

Shehab, E., Sharp, M., Subramanian, L.and Spedding, T. (2004.) 'Enterprise resource planning: An integrative review'.
Business Process Management Journal, 10 (4): 359-386.

Smith, D. (2000), “The Measurement Nightmare”; St Lucie Press Boca Raton USA

Somers T.M. and Nelson K.G.( 2004). “Taxonomy of players and activities across the ERP project life cycle', Information
and Management, 41(3):257–278.

Steven J. Balderstone and Victoria J. Mabinsearch (1999), “The World of the Theory of Constraints: A Review of the
International Literature” (The CRC Press Series on Constraints Management), CRC Press; 1 edition.

Turban, E., Leidner, D., Mclean, E. and Wetherbe. (2006). 'Information Technology for Management: transforming
organizations in the digital age'.5th edition, John Willy & Sons.

Zhang, Z., Lee, M., Huang, P., Zhang L.and Huang, X. 2005. 'A framework of ERP systems implementation success in
China : An empirical study'. International Journal of Production Economics.

Kuldeep Singh Malik is Head of Research at Vector Consulting Group.

Vector Consulting Group (www.vectorconsulting.in) is the leader of ‘Theory of Constraints’ consulting in India. Vector has been
working closely with some of the well known retail chains, FMCG, fashion products, custom manufacturing industry and auto
after market companies to improve their overall profitability through supply chain effectiveness.

Kuldeep Singh Malik can be reached at kuldeep@vectorconsulting.in


TOC's role in IT success

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