Throughput is the rate at which the system generates money. It is similar to Gross Margin or Contribution Margin, but it is also different in that TOC (Theory of Constraints) does not consider direct labor as a variable cost, but rather as Operating Expense. The role...
The core idea in the Theory of Constraints (TOC) is that every real system, such as a for-profit business, must have at least one constraint. If it were not true, then the system would produce an infinite amount of net profit. Because a constraint is a factor that...
What is the effect on the monthly Profit and Loss statement from this? Because cost accounting (and GAAP) requires that inventory absorb allocated costs, the effect is that all of the cost allocations from prior months that are attached to the inventory will be...
Conventional cost accounting assumes that incremental and isolated cost improvements are productive and in support of an organization’s goals, and that global improvement equals the sum of local improvements. Since a conventional cost accounting system relies on...
“Cost Accounting: Public Enemy #1 of Productivity” Way back in 1983, prior to writing his popular business novel “The Goal”, Dr. Eliyahu M Goldratt gave a speech by this controversial and confrontational title at a conference of Management Accountants. However, it was...
Tom Foster of ManagementBlog.org interviewed me about Goldratt's Theory of Constraints. Here is the fifth installment: --- Start interview TF: If we do a good job of placing our constraint in our highest cost, most scarce resource, what is the next most difficult...
Tom Foster of ManagementBlog.org interviewed me about Goldratt's Theory of Constraints. Here is the fourth installment: --- Start interview TF: If the idea is to strategically select your bottleneck (constraint), what are the characteristics you look for in a...
Tom Foster of ManagementBlog.org interviewed me about Goldratt's Theory of Constraints. Here is the third installment: --- Start interview TF: You talk about bottlenecks in systems. Conventional wisdom says bottlenecks are bad and that it is management’s job to get...
Tom Foster of ManagementBlog.org interviewed me. Here is the second installment of that interview. We discussed maximizing efficiency. --- Start interview TF: Intuitively, we try to maximize efficiency (profitability) of the entire company by working in each...
Tom Foster of ManagementBlog.org interviewed me and this is the installment of that interchange. We talked about problem solving and figuring out where to focus. --- Start interview A couple of weeks ago, I got to spend some time with Dr. Lisa Lang about one of my...
