In a fast-paced environment such as in the logistics and warehousing industry, efficiency is key to remaining competitive and delivering on promises to customers. The Theory of Constraints (TOC) is being used in more and more companies to transform warehouse operations and deliver breakthroughs in productivity, capacity, and profits. TOC is a business management philosophy developed by Dr. Eli Goldratt which focuses on identifying the business’ Constraint (or bottleneck) and systematically improving it. In warehousing organisations, introducing and embedding TOC within operations can lead to improved space utilisation, faster order fulfilment, enhanced inventory accuracy, and ultimately, increased profitability.

Step One: Identifying the Constraint.

A Constraint (or bottleneck) is the critical point in your system which limits performance. Business operations can only go as quickly as the Constraint allows; it dictates the performance of your entire business. For this reason, it is imperative that you are effectively managing the capacity and the output of your Constraint.

A Constraint in warehousing can manifest in different forms. Here are some of the bottlenecks we frequently see in warehousing operations:

• A slow picking and packing process that prevents orders leaving the facility.
• Limited storage capacity creating bottlenecks in inventory handling.
• Inefficient layout design contributing to longer travel times for workers.
• Delays in shipping and receiving operations.
• Manual processes that are prone to errors and lead to lower quality.

TOC looks to identify the bottlenecks in operations and improve these areas to increase the flow of work through the entire system. Warehouse managers implementing TOC can expect to optimise everything from labour efficiency to space utilisation, which will all contribute to a more streamlined process and higher productivity from the team.

The Five Focusing Steps of The Theory of Constraints (TOC)

Implementers of TOC follow a helpful framework to guide their improvement initiatives: Eli Goldratt’s Five Focusing Steps for Continuous Improvement. This framework can be applied to many different business functions but here we will apply the steps to a warehousing environment.

1. Identify the Constraint – determine the one point in your system which is limiting performance (e.g., a congested picking area).
2. Exploit the Constraint – make the most of the capacity you have available! Find ways to improve the Constraint operation’s efficiency (e.g., make sure ‘pickers’ are set up with a Full Kit of everything they need in order to complete an order, so they are not wasting time chasing missing information/products).
3. Subordinate Everything Else to the Constraint – ensure all other operations are working in alignment with the Constraint (e.g., can you pull resources from other areas to routinely help the picking area in periods of high order volumes?)
4. Elevate the Constraint – once you’ve done all you can with your existing capacity and are still in need of more, it’s time to invest… (E.g., is there automation or new equipment which will improve productivity?)
5. Go Back to Step One – don’t let inertia become your Constraint! Once you have broken your bottleneck, go and find your next most limiting factor and break that one.

Goldratt’s Five Focusing Steps offer a structured approach for warehouse management teams to improve their processes through improving the strength of the weakest link in their chain.

This is a process of on-going improvement. It encourages managers to follow the cycle and continuously improve and refine processes to develop and maintain a competitive edge and remain best in class.

Benefits of Applying TOC in Warehousing

A Faster Picking and Packing Process

The picking and packing process is commonly identified as the bottleneck for many warehousing organisations. Applying the tactics of TOC in this area streamlines the process and promotes significantly faster delivery to customers.

One tactic, mentioned earlier, is Full Kitting which means providing pickers/packers with everything they need in order to complete an order before they begin the process. This means equipping resources with all the necessary information, packaging supplies, necessary print outs, marketing materials, etc. Ensuring the picking and packing process is always supplied with Full Kits will reduce delays resulting from chasing down any missing components, allowing resources to focus and finish the task.

Another useful tactic to further promote a ‘focus and finish’ environment and increase the speed of picking and packing is to refrain from picking orders as soon as they come in. Instead, batch orders together and introduce focused windows of time (e.g., 30-minutes) where orders can be picked quickly. In our experience, teams often get competitive over who can pick the most orders in this time and express that this exercise adds fresh excitement and motivation for workers.

Layout optimisation is also another tactic you can employ to speed up the rate of picking. Relocating faster-moving stocked items closer to the picking station and slower-moving products further away will cut down the required travel time and increase the number of orders being picked.

Goldratt UK examples:

Here are some examples from client implementations in warehousing environments. Click here to read the full case studies.

• Within 6-weeks, Birkdale increased the number of picks per hour by 50% and the average number of lines picked by 65%.
• Autoline’s pick rate increased from 25-30 per hour to 40-50 per hour; and their pack rate increased from 15-20 per hour to 25-30 per hour.
• Fixmart managed to increase the average number of items picked and packed per hour from 17 to 24 during the day shift, and on the night shift they achieved an increase from 15 items up to 24.

“There’s been a drastic increase in the rate of picking and packing in the warehouse. We are hitting our deadlines much more comfortably. The team in the warehouse and the Senior Management Team have confidence in our ability to deliver on promises to customers.” – John Abernathie, Business Owner.

Space Optimisation

Having sufficient space in your warehouse is fundamental to achieving efficient inventory management, smooth workflow, and overall operational safety. It allows for organised storage, improves visibility, and prevents accidents which contributes to a safer, happier working environment for your team. Adequate space will also give you the opportunity to reduce costs (e.g., through removing the need for any third-party storage), optimise your resources, ensure compliance with safety regulations, and stay on top of any other tasks which frequently fall by the wayside.

Ultimately, effectively managing your warehouse space can offer you flexibility – to scale operations and grow your business, to quickly adapt to changes, and to free up your cash.

There are a few Theory of Constraints-based tactics you can implement to optimise the space in your warehouse. One of which was mentioned in the section above: layout optimisation. Re-locating stock to make life easy for your pickers – high-moving products should be brought closer to the picking station and those items picked less frequently should be moved further away. Equally, making sure the higher-picked items are more easily accessible to make it easier and safer for your team to access them – i.e., stocking these in-demand items on lower shelves.

“We optimised the warehouse layout to make picking more efficient. Stocking parts needed more frequently closer to the operation has saved so much time and effort. We have created an environment which allows them to succeed.” – Ben Merrin, Goods-In Lead at Borg & Overström.

Another key element to ensure your warehouse remains well-organised and promotes higher visibility over SKUs (Stock Keeping Units) and order status is establishing an efficient process for goods-in (i.e., putting away deliveries at the front end). Warehousing is a hectic environment, and the priority is always getting orders out the door to the customer, and rightly so, however it’s important goods-in is not neglected!

The way we achieve this with clients is through the introduction of ‘sand tasks’ which effectively manage all the tasks which need doing but are less of a priority than picking and packing orders for customers. These can include stock taking, pick face replenishment, general tidying – and unloading and putting away deliveries. One easy step you can take is to arrange your deliveries to arrive outside of your busiest picking periods. For example, many warehousing teams find they are busiest in the afternoons as customers rush to get their orders placed in time for next-day delivery, so organise your deliveries to be scheduled for early morning.

When Borg & Overström worked with us to implement the Theory of Constraints, one of their most impressive results was the reduction in foot and vehicle traffic they required to pick orders. They created a safer working environment for their team. In addition, they created additional storage space through better organisation – aisles are now clear of stock and warehouse operations can flow more freely. You can read the full case study here.

Improved Inventory Management

Space optimisation goes hand-in-hand with effective inventory management. The key question here is: are you stocking the right products?

All businesses want to offer their customers a great range of products, but you must understand the difference between an extensive range and an effective range. Ultimately, to increase sales and grow the business you need to stock the products you can reliably sell. Typically, when looking at different business’ ranges, you can expect to find that 80% of their sales comes from only 20% (or less!) of their product range. This is commonly referred to as the Pareto Principle.  When analysing your product range you should divide your SKUs into ‘head’, ‘body’, and ‘tail’. The ‘head’ consists of the most attractive products. The fast-moving products that are consumed by many people. These will constitute a large proportion of your business’ sales. The ‘body’ usually consists of the majority of the SKUs and the ‘tail’ equates to very low levels of sales but often businesses believe they need these products in order to market a full range.

Your strategy should be to identify the ‘tail’ of your range and remove it…

Removing slow-moving and dead stock from your warehouse will of course free up space, but also, if you refrain from investing in slow-moving products you will also free up your cash. Purchase more of the products you know will sell and continuously replenish these to your warehouse – stock outs of your bestselling products are lost opportunities for increased sales. Purchase less of the slow-moving products which are going to tie up your space and your cash!

Enhanced Customer (and Employee!) Satisfaction

Implementing the Theory of Constraints in your warehouse will increase flow and capacity to enable your team to deliver on-time to customers – every time. Your business will be able to reliably deliver on promises and your customers can be happy with the service they receive.

As a valuable bonus, you will have set up a working environment your employees can flourish in. Workers can work confidently, quickly and efficiently in a safer space. Our clients often report back to us how motivated their teams feel following the introduction of these new ways of working.

“It’s been like a shot in the arm.” – Calum Young, Warehouse Manager at Exporta Global.

We love to hear the positive feedback from the businesses we work with. Implementing these methods can transform your warehouse and the lives of the people working in it. Making sure your team members are happy at work goes a long way to ensuring the sustainability of great results.

If you are ready to begin your TOC transformation get in touch at [email protected] or on 01234 834510. Alternatively, if you would like to learn more about any of the topics touched on in this article, you can find case studies here, and further blog posts here.

_{By Lauren Wiles © Goldratt UK, 2024.}