The Theory of Constraints (TOC) is a management approach that states that, at any given time, an organization can be limited from achieving its goals by a single constraint. Constraints can include any number of hindrances such as time, materials, people, etc. According to Rahman, the
TOC is governed by two main concepts. First, every system within an organization within an organization must have at least one constraint. Constraints can include any number of hindrances
such as time, materials, people, etc. Furthermore, as indicated, they can exist in any area within the organization, including both internal-only and external-facing departments. The utilization of
TOC allows for organizations to see the big picture, as well as alternative views of productivity within various departments. Second, the mere existence of constraints represents that opportunities for improvement exist (Rahman, 1998). From this, organizations must determine what is to be changed, what it should be changed to, and how to achieve that change. As stated by Simsit et al., when seeking to make improvements from the TOC, organizations must “determine what to change is looking for constraints; determine what to change to, define how to
exploit constraint and subordinate other operations; determine how to cause change is the elevate
step.” Blocher outlines five steps in TOC analysis: Identifying the constrain, determining the most profitable product mix given the constrain, maximizing the flow through the constrain, adding capacity to the constrain, and redesigning the process for flexibility. In terms of TOC’s relationship with the strategic allocation of financial resources, organizations can determine the allocation of financial resources in a majority of these steps, from increasing throughput on higher profit products/services to simplifying the process around a particular constraint.
Strategic pricing is a methodology used by firms when deciding how to price their products or services, basing the price based on a combination of what they believe will attract the customer and maximize profitability rather than the actual cost of production. This methodology often relies on psychology more so than it does on logic, based on the principle that what is most valuable to the consumer is not always the costliest to produce. One example of strategic pricing is known as peak pricing methods, used in movie theaters across the country. Certain showtimes,
such as those on Friday and Saturday nights, are often more expensive when compared to showtimes during the week. The higher ticket prices are correlated to peaks, such as when a new movie is released or when more people can see it, thus allowing cinemas to increase profits. If implemented correctly, strategic pricing allows an organization to unlock the potential of its resources and improve its competitive position. It can also, “increase revenue realization without sacrificing volume and alter customer buying behavior to the business advantage” (Stern, 1989). In terms of the relationship with the strategic allocation of financial resources, firms can use strategic pricing data to further drive down the cost of manufacturing their high-profit items. The
more profitable an item is and the cheaper the cost to produce that item leads to increased returns
for a firm.
Proverbs 16:8 states “Better is a little with righteousness than great income with injustice.” Oftentimes, we see the quality of our favorite products or services decrease as they become more
popular. This can be directly correlated to various strategic pricing models, where organizations look to cut costs and increase profits for popular items. However, when the quality is reduced, neither the firm nor the consumer stands to benefit. Similarly, man is better off having less
