Constraints Determine Performance

Do constraints really determine systemic performance?

Yes, whether profit is the main objective or not, whether it’s known exactly where constraints are or not, whether the system is a small or large enterprise, constraints do determine the performance of systems … otherwise infinite profits would always be achievable. This logic is based on the principles of the Theory Of Constraints¹ and Throughput Accounting.

It takes time to reliably determine progress. Delayed decisions result in less returns.

Throughput Accounting provides KPI² metrics for swift decisions.

Throughput Accountants know that constraints determine the performance of an enterprise, so they measure the Throughput generated by constraints. Knowing what constraint performance is, enables better product & service mixes. More Throughput correlates directly with more Net Profits. It’s a win:win:win for the system, its shareholders, suppliers/vendors, and its customers.

Throughput¹ is the velocity of money (from net sales and totally variable costs) flowing through an enterprise. Understanding the constraints that limit an enterprises Throughput, improves the ability to generate Throughput, adding more returns to the bottom line.

Companies flourish when they start to measure the things that affect their performance the TPACC way.

¹ Throughput is used in  the Theory Of Constraints (TOC) as developed by Dr EM Goldratt. TPACC are experts in TOC.

² KPI=Key Performance Indicators are Throughput/Constraints based.


 

Throughput Accounting requires commitment to implement it. The reality is that most systems do not really implement Throughput Accounting, even if they say so. Implementing Throughput Accounting means that the system functions with goal congruence where actions are focused on reaching its goal.

Is your enterprise ready to accept the concepts of Throughput Accounting?

Throughput Accounting

Products do not have profits, systems do

Performance measurement is systems based

Constraints determines systemic performance

TA drives behavior focused on global performance

Traditional Costing

Products have profits

Performance measurement is cost center based

Efficiency determines department performance

TC drives behavior focused on local performance

 


Uses of Throughput Accounting:

• Improve the mix of products and services your organization offers to the market.

• Learn how constraints determine the performance of organizations.

• Build achievable budgets, forecasts, plans, & strategies.

• Improve customer mixes.

• Easily model the system’s Throughput.

• Improve productivity.

• Improve investment in non-constrained resources.

• Develop achievable financial goals.

• Design products that customers demand.

• Monitor distribution channel Throughput.

• Make a significant impact on wealth creation.

• Improve ROI (Return on Investment).

• Improve the productivity of entire supply chains.

• See why inefficiencies don’t always loose money.

• Combine LEAN principles with the Theory Of Constraints

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