Chapter 6

Revenue Management and the Theory of Constraints

Eli Goldratt popularized the theory of constraints in his well-known instructional novel, The Goal. What he termed the theory of constraints was a renewal and extension of the long-standing scarce resource problem in economics. The theory of constraints (TOC) concept offers insight into some revenue decisions and also expands the capacity concepts discussed in the preceding chapter.

TOC Financial Measurement System

Among the features of TOC is a very lean financial measurement system. Goldratt argued that managers should focus on three measures, which he named throughput, inventory, and operational expense.

Throughput represents what the company generates through sales. It is typically ...

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