4 replies to this topic

[Aadrit Kashyap]

When managers need a focusing method, they should collect data and use it effectively. Two focusing methods which are commonly used are The 80-20 principle and the Theory of Constraints.

1. The 80-20 principle – states that, for many events, roughly 80% of the effects come from 20% of the causes.
If we are able to find those vital few that contribute to most of the delays or delays or time spent, we can try to find methods to address them. This requires data collection and preparation of a Pareto chart.

• A hospital may like to know which of the complaints are most frequent at the OPD.
  
• A manufacturing company would like to find what contributes most of their inventory cost.
  
• A boutique may like to know which type of designs is most demanded.
  
• An ice-cream parlour may like to know which types are most sold and should be promoted, displayed or stacked better.

2. Theory of Constraints – states that, any manageable system is limited in achieving more of its goals by a very small number of constraints, and that there is always at least one constraint.

In simple words, a step is called a constraint if its inflow rate is more than its outflow rate. For example –

• If there is a queue in a billing counter but all other steps are smooth flowing, (as found in a mall on a weekend), the billing step is a constraint.
  
• If a machine commonly has unfinished inventory before the operation and no inventory after the operation, the machine’s step is a constraint.

The important learning from TOC are -

• If we improve processes or steps that are not constraints in the system, then we are probably wasting our resources and the business impact of change is not going to be felt.
  
• Once you remove a constraint from the system, another constraint appears. The constraints keep shifting but never disappear altogether.

QUESTION - Do you find the two methods similar? Do you have a point to make on this subject?

[hedaoo.yuvraj]

Both tools are focusing for improvements; however they are used in different approach. 80:20 principle is broadly applied, not limited to process but extends scope to statistical data as well. TOC is mainly focus on bottleneck in the processes. It is acceptable fact that both impact the bottom-line i.e. profitability of the company, however the way to utilization of tool is quite different. The following example depicts the way to use:

80:20 principle (Pareto principle):
Example 1: 20 % of customers constitute 80% profit and 80% customers constitute 20% profit. For instance, company wants to launch new product or service for premium customer segment. This tool can easily demonstrate the 20% valuable customer.

TOC: (Theory of constraints)
In retail shop, all the processes are running smoothly except the billing process. So billing process is the bottleneck in system.
Example 2: chocolate making process is going thorough 5 different steps and step 2 si followed by step 1 and so on. All the steps except 3 has the same capacity of production however process 3 has low capacity to produce, so process 3 will be bottleneck.

As per my view both processes differentiate by its use. Those are not similar.

[hedaoo.yuvraj]

Both tools are focusing for improvements; however they are used in different approach. 80:20 principle is broadly applied, not limited to process but extends scope to statistical data as well. TOC is mainly focus on bottleneck in the processes. It is acceptable fact that both impact the bottom-line i.e. profitability of the company, however the way to utilization of tool is quite different. The following example depicts the way to use:

80:20 principle (Pareto principle):
Example 1: 20 % of customers constitute 80% profit and 80% customers constitute 20% profit. For instance, company wants to launch new product or service for premium customer segment. This tool can easily demonstrate the 20% valuable customer.

TOC: (Theory of constraints)
In retail shop, all the processes are running smoothly except the billing process. So billing process is the bottleneck in system.
Example 2: chocolate making process is going thorough 5 different steps and step 2 si followed by step 1 and so on. All the steps except 3 has the same capacity of production however process 3 has low capacity to produce, so process 3 will be bottleneck.

As per my view both processes differentiate by its use. Those are not similar.

[Mamoon]

Rather than stating that both the methods are similar, I would prefer rephrasing the statement by saying that both methods have synergic connotations in terms of their application. While the area of application or the spectrum of usage of ‘80:20 Principle’ is much wider, TOC mostly deals with identifying the bottleneck, may it be in a process or in any system.

[cvr9999]

The 80-20 ( trivial many vital few) and Theory of constraints are 2 different tools which compliments each other.
Theory of constraints is a tool used for identifying the process inefficienies and find the constraints or bottlenecks in achieving the desired results or improving the process from present state to desired state.

Once the constraints are identified ,the effect of each constraint on the process to be studied for achieving the end result.Once the effect of each constraint is quantified,the 80--20 tool is used to get best output with less work.As one of the respondent pointed out to identify 80-20 the Pareto chart is the best tool utilised.
So these both tools are not the same,both important tools to achieve the best results in problem solving.