We have discussed some of the problems with Cost Accounting, yet only touched on the alternative, “Throughput Accounting”. We promised to explore Throughput Accounting in more depth, and explain how implementing its concepts will help you understand the rate at which...
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...
Most companies don’t have processes in place to sell twice what they are selling now, so it is necessary to develop a compelling, un-refusable “Mafia Offer”. A Mafia Offer is an offer so good that your customer can’t refuse it and your competition can’t or won’t offer...
The subtitle of The Goal is “A process of ongoing improvement”. Over the last 25 years, Dr. Goldratt has further developed the Theory of Constraints (TOC) as a holistic process to quickly and substantially improve business results. It is very compatible with Lean and...
I have received a pricing question about market constraints and s-DBR (Simplified Drum Buffer Rope). I have written a detailed answer. Here it is ... Q: What about companies that have a market constraint and use S-DBR? A: For companies that have a market constraint,...
This is the final installment on Theory of Constraints pricing. At least for now. Goldratt's Theory of Constraints, The Goal, and Throughput Accounting don't address pricing specifially. So, I tried to summarize what we do with our clients. This pricing exercise has...
For the products that are well above the T/CU you need to look into the following things: - what is your close rate on these items, is it low? - have your customers/prospects told you that you were over priced? - do you want more of this type of business? The products...
Let's look at the products that are currently priced below the minimum T/CU that you calculated. You can have some products priced below your min T/CU because the weighted average just needs to be at the minimum. To determine if this is one that should be below the...
Compare the minimum T/CU to the T/CU for each product. You will find current prices that are too low and too high relative to the min T/CU. Now look at your quotes and calculate the T/CU for all your quotes. What is the T/CU for the ones your winning versus the ones...
