Theory of Constraints (TOC) and Supply Chain Management

Theory of Constraints (TOC) and Supply Chain Management
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 Theory of Constraints (TOC) and Supply Chain Management
Introduction
‘The Goal’ is a business novel that follows the journey of Alex, a highly educated and competent manager working at UniCo. Alex is transferred back to Bearington (his hometown) only to realize that the factory is facing a crisis that might lead to a shutdown. Among the problems were a growing production backlog, late shipments, and growing inventory (Goldratt, 1984). The team in the factory does not understand why timely, quality and affordable shipment of products is problematic. After a conversation with his old Physics professor (Jonah), Alex mobilizes his team to actualize some of the professor's thoughts with only three months to turn around the factory, of which the overall 'goal' is to make more and more money. Among the essential concepts that Jonah mentioned include operational expense, throughput, and inventory.
 At the time of Alex's arrival at the factory, it was facing a bottleneck along its chain of production. A bottleneck refers to the point of congestion in a system that emerges when workloads arrive quicker than they are processed, leading to congestion of workloads (Barone, 2019). Bottlenecks cause inefficiencies along the production system leading to higher production costs and delays in delivery. To get around the bottlenecks at the company, Jonah defines and relates the mentioned terms as follows. 
Operational Expense
Operation expense (OPEX) is an expense incurred by a business during business operations. Examples of operating expenses include, but not limited to, marketing expenditures, payroll, insurance, rent, equipment purchase, and inventory costs. A business can only make a profit if operational expenses do not exceed income. Such expenses are, however, not associated with the production process. Jonah argues that operational expense refers to the funds spent by the system to turn inventory into throughput. According to Jonah, managers should not worry whether a dollar is an expense or an investment. Rather, what matters is if the dollar not part of the final packaged product to be sold, then it is an operating expense. Installing robots in a factory, for instance, reduces labor costs, increases sales, and decreases inventory needed. In essence, measures that reduce operating expenses increase the profits and, therefore, works towards 'the goal' of making more money.
Inventory
 Further, Jonah defines inventory is the documentation of property held by a company. The property includes finished goods waiting to be sold, goods in the production process, goods to be consumed during the production process, and raw materials. At his new factory, Alex realized that the inventory was always on the increase, creating problems for the company's operations. High inventory levels have several disadvantages. First, higher inventories a symptom that a company is not selling enough to prevent the buildup of inventory (Kokemuller, 2017). 
 Often, the goal of any company is to produce and maintain enough inventory to sufficiently addres...