TOC is an on-going process, and the foundation for achieving sustainable change through TOC is by defining a set of three essential measurements that drive the change process. Conventional accounting systems do not always provide the right support for TOC, or lean-based efforts. We recommend to steer away from traditional measures derived from the "product cost" accounting methods. The following measures should be monitored closely while working on profit improvements through TOC:
The rate at which a process generates money through sales of a product or service.
Inventory represents all the money tied up inside an organisation. This includes facilities, equipment, obsolete items, as well as raw material, work in process, and finished goods.
Operating Expense is all the money an organisation spends turning Inventory into Throughput. It represents the money going out of the organisation. Examples include direct labour, utilities, consumable supplies, and depreciation of assets. All three of these measures are interdependent. This means that a change in one will result in a change in one or more of the other two. Therefore, to improve your organisation most effectively using TOC, the following formula applies:
Maximize Throughput while Minimizing Inventory and Operating Expense