TOC is a management philosophy which focuses on continuous improvement and places a high emphasis on increasing Throughput. Dr. Goldratt defines Throughput as the rate a system generates money. TOC is a significantly different philosophy than traditional cost accounting.
Inventory is defined as all the money invested in products sold.
Operating expense is defined as all the money that is spent to turn inventory into Throughput. Traditional cost accounting focuses on reducing operating expense first, increasing Throughput second, and reducing inventory third. TOC increases Throughput first, than reduces inventory, and lastly reducing operating expense. Dr. Goldratt's reasoning for this order is based on the law of diminishing returns. The Thinking Process Tools TOC uses the above steps and tools to achieve and maintain the continuous improvement process.