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the capacity of a constraint. Most retailers must choose to carry a very small percentage of all the products available to them, due to physical space limitations. This implies that customers will come to buy a product and a specific retailer will often not have the product they want. For example, the distributor I worked with had 200,000 items available to sell across Europe, but their typical retail store only carried, at most, 2000 items (with variations of the same item by color and size). To elevate the constraint, you might carry out extensive advertising, expand the physical capacity of the store, or increase shelf space to increase the number of items carried in order to drive more sales.

It’s important to note the sequence implied by using the strategy of the 5FS. Before the elevate step, which often involves investing money, the sequence of the steps makes sure that you first at least try to squeeze more out of what you already have.

When the constraint changes, the last of the 5FS asks you to go back to Step 1—identify the new constraint. Ideally, since there is so much work in progressing through the 5FS, a constraint should seldom change. At least, you should be able to anticipate a change and prepare for it so that your markets are not impacted. However, in my experience, the western world paradigm of the past 20 years of ordering items in large quantities from overseas has caused the retail constraint to move frequently and unexpectedly to other parts of the supply chain. The customers came to buy, but could not get the item they wanted because the retailer could not get replenishment from their supplier. This was not a temporary shortage until the next arrival of a truck to the store, but a more permanent out-of-stock situation in country distribution centers. Through ordering much more than was necessary to satisfy short-term demand, the western world put their overseas manufacturers into a situation of being weeks or months away from replenishing the western world supply chain. The TOC strategic solution is to order much smaller initial quantities and replenish more frequently. The increased shipping costs and potential increases in product costs are usually offset by a factor of several times by the value of increased sales and reduced obsolescence.

The Role of Throughput Accounting and Other Metrics in Strategy

One of the deficiencies I have observed in many strategies is the absence of a tight link to measurable results. Scorekeeping, combined with well thought out actions to impact the score in the short term, are frequently missing from the outset of launching the implementation of a strategy. The TOC method of holistic scorekeeping called Throughput Accounting (TA), described in Chapters 13 and 14 of the Handbook, can be used to address this deficiency.

It is vital for the executive team, managers, and employees of a company to be energized by results. While I don’t discount the value of intangible results, such as feelings of satisfaction and trust, perceptions are often different in the intangibles, depending on where you sit in an organization. However, I find that most people view the TOC tangible scorekeeping as more believable because it removes the distortions and subjectivity of cost accounting allocations.

TOC TA recognizes improvement in terms of the impact on Throughput, Investment, and Operating Expense (OE), or derivatives of these (such as net profit). These impacts often lag the effort by weeks or sometimes months. Therefore, leading indicators are also used. Some examples of leading indicators relative to net profit, used effectively in TOC strategy, are:

Manufacturing—DDP percentage, buffer penetration in red zone percentage

Projects—number of late projects, priorities driven by red tasks, buffer recovery trend

Distribution/Retail—shortages percentage, average inventory turns, sales per square meter or foot of shelf space

Sales for any organization—average sales cycle duration, hit ratio on prospecting

Health care hospital emergency room—patients discharged in