Enterprise Cost Management Based on the Theory of Constraints (E. Goldratt) – A Guarantee of Its Competitiveness Growth

The article is dedicated to examining the role of Theory of Constraint (TOC) approach as a business competitiveness enhancing methodology in general, and the key differences of the TOC approach to cost management in particular. The aim of this article is to analyze the shift in enterprise cost management approaches, specifically by incorporating the core postulates of the Theory of Constraints, and thereby enhancing their competitiveness. Key aspects of the way how TOC focuses on organizational constraints (limiting factors, resources, or processes which influence a company's overall productivity, profitability, and competitiveness) are highlighted. As well, it was found during the study in what way TOC classifies enterprise costs and which institutional changes have been made by E. Goldratt (the author of TOC) regarding the cost function in ensuring business competitiveness. Furthermore, the paper shows the interconnection between applying TOC to cost management and enabling better alignment of operational activities with market demands, thereby enhancing a company's competitive standing. The main emphasis is placed on the difference between traditional accounting cost allocation and the TOC approach, so-called Throughput Accounting. Special attention is given to studying special terms of TOC cost management: Throughput, Truly/Totally Variable Cost. A comparison of Throughput Accounting and Traditional Cost Accounting is conducted, with special attention given by authors to work-in-process, inventories, and operational expenses classification and their impact on competitiveness. This study examines the central indicators of TA – Throughput (T), Inventory (I), and Operating Expense (OE) – as well as their roles in decision-making processes in business systems with constraints. The study posits that implementing TOC methodology, including cost accounting, is an essential instrument for sustainable business development, especially in today's turbulent and challenging business landscape. The relevance of this research is driven by the growing need for innovative management tools that address limitations of conventional approaches, particularly under conditions of resource scarcity and heightened market uncertainty.