Constraint Management

A definition of constraints

In everyday language, the word "constraint" might mean just about any inconvenience, limitation, setback, restriction or temporary fluctuation in available capacity. Sometimes it seems like constraints are lurking everywhere! In other words, the constraint is the limiting factor that prevents a system from moving closer to achieving it's goal. It is something that limits an entire value chain, such as the flow of products or services going into a market.

"TOC is a multifaceted management science. A systematic reexamination of some of the most fundamental beliefs in today's management, culminating in a new approach to address the problems facing us today.

TOC is more than a set of tools or techniques, though it certainly contains these. It is more fundementally a paradigm shift which demands that we think about our problems and solutions, our goals and objectives, policies, procedures and measures, in a different way."

- Victoria J Mabin, Steven J. Baldstone

A Brief Introduction to Constraints...

Constraints take one of three forms:

Resource Constraints - resources such as one particular machine (or no. of workers, or cash) which blocks the flow based on it's limited capacity with respect to executable orders in hand.

Policy Constraints - policies, practices or metrics that artificially distort flow due to their poor alignment to the overall performance of the system.

Permanent Constraints - limiting factors that are always present in every business such as sales skill (the ability to charge higher prices for the exact same products), R&D/new product development/innovation (the ability to create amazing new products that customers love) and management attention (the ability of managers to focus on and solve the problem at hand). Permanent constraints typically include sales/marketing (with better techniques we could always raise prices) and R&D (with more awesome products we could make far higher margins).

Difference Between Bottleneck & Constraint

A bottleneck is any resource with lower capacity than the current load. If several bottlenecks are present in the same line of flow, the one with the least capacity is the constraint.

Note that a constraint can also be a resource that is NOT a bottleneck! This happens when the resource has, on average, more than enough capacity to process the current load. But nevertheless, some sales are delayed or lost due to inadequate exploitation of and subordination to that capacity. Examples of this include mis-prioritization, late release, poor synchronization of components to be assembled (lack of full kits), early release (causing excessive multitasking), etc.

What is the One and Only System Constraint?

There is always one "system constraint" somewhere.

One hour lost on the system constraint is the same as one hour lost for the entire system, the entire organization.

One hour lost on the system constraint is the same as one hour lost for sales.

One hour gained on a non-system constraint (bottleneck) is an illusion. A non-system constraint should only work according to the actual system constraint requirements.

If a system constraint has been eliminated, go back and identify what is now the system constraint. Don't let the inertia become the system's constraint.

A dual view is necessary for bottlenecks, different rules for system constraints versus non-system constraints or simple bottlenecks.

How it works:

1. IDENTIFY the system's constraint.

2. EXPLOIT the constraint

3. SUBORDINATE everything else to the constraint

4. ELEVATE the constraint

5. RETURN to step 1

1. IDENTIFY the system's constraint.

Strengthening any link of a chain (apart from the weakest) is a waste of time and energy. Similarly, the vast majority of efforts to "improve" something in the organization fail to result in more profits for shareholders, delight for customers, or satisfaction for employees. This is because most initiatives are not focused on the constraint of the organization.

Yet it is impossible to manage a constraint until you find out what it is! And it is surprisingly easy to find, once you know how to look. Goldratt said that the most restrictive and damaging constraint in an organization was almost always a “soft constraint” like a policy or rule, not a hard constraint like a machine or the design of a work area.

2. EXPLOIT the constraint.

The output of the constraint governs or restricts the output of the organization as a whole. It is therefore imperative to squeeze as much as possible out of it. Maximize the utilization and productivity of the constraint (NOT utilization and productivity of non-constraints). Rather than immediately purchasing more of the constraint (by buying machines, hiring workers, increasing the advertising budget, etc.) we should first learn to use the resources that we already have more efficiently.

The constraint of most organizations is not well utilized, often less than 50% on a 24x7 basis. If the reasons for under-utilization are not immediately clear, try measuring the constraint's OEE (Overall Equipment Effectiveness) including the breakup of availability/quality/performance. Gather the underlying data and analyze it using Pareto (also known as the 80/20 rule) techniques. Once the primary causes are identified, use fishbone diagrams and Five Why analysis (used to determine the root cause of a defect or problem) to drill down to the root cause for under-performance.

When the root causes are clear, eliminate them on a permanent basis. Quality and productivity tools such as Six Sigma, Poka-Yoke, design of experiments, SMED, etc. often provide the answer, depending upon the nature of the problem.

3. SUBORDINATE everything else to the constraint

By definition, any non-constraint has more capacity to produce than the constraint itself. Left unchecked, this results in bloated WIP inventory, elongated lead times, and frequent expediting/firefighting. Hence, it is crucial to avoid producing more than the constraint can handle. In a manufacturing environment this is accomplished by choking the release of raw material in line with the capacity of the constraint.

Equally important is ensuring that the rest of the system supports the work of the constraint at all times. It must never ever be starved for inputs, or fed poor quality materials. This can be achieved by maintaining a reasonable buffer of safety stock. Similarly, other established policies and habits can hamper productivity at the constraint and must be systematically aligned to achieve maximum performance.

4. ELEVATE the constraint

Once the capacity of the system is exhausted, it must be expanded by investing in additional equipment/land, hiring people, or the like.

Warning! We tend to instinctually gloss over the first 3 steps and jump straight to elevation. Implementing the first 3 steps properly typically expose a minimum of 30% hidden capacity within the first few months! This capacity is available free of cost, without any investment. Investing too soon raises risk unnecessarily. Only elevate once exploitation & subordination (Steps 2 & 3) is fully complete, if at all!

5. RETURN to step 1

Once elevated, the weak link may not remain the weakest. Consider elevating other resources to retain the old constraint, depending on where you wish to have the constraint in the long-term (net demand?). A new constraint demands a whole new way of managing the system.

We therefore return to Step 1, and thus begins our journey of continuous improvement through perpetual management...

TOC Three Levers to Increase Profits

TOC postulates that the goal of a business is to make money now, as well as in the future. It describes three avenues to this goal:

Increase Throughput – the rate at which the system produces money through sales

Reduce Inventory – raw materials and finished goods

Reduce Operating Expenses – The cost of running the system, such as labor, rent, and electricity

The Theory of Constraints is a systems thinking approach that can be used to improve organizational performance. It is based on the idea that there are always constraints that limit performance of any system. Otherwise, companies would have unlimited profits.

Surprising Facts about Constraints

You will always have a constraint, so choose wisely ... perhaps the most capital intensive, or energy consuming, or largest batch, or longest touch time, etc.

If you identify the wrong constraint, it is easily rectified and causes no permanent damage. The Five Focusing Steps auto-correct for errors made over time.

The constraint may appear to shift suddenly based on product mix, however this is often due to batching practices rather than actual shifting of the constraint.

Most systems typically have ONE SINGLE RESOURCE CONSTRAINT such as a machine or department.

This constraint, which may or may not be binding at any given point of time, is referred to as the Capacity-Constrained Resource (CCR). In certain cases there may be 2-3 CCRs, but rarely more.

Permanent constraints typically include sales/marketing (with better techniques we could always raise prices) and R&D (with more awesome products we could make far higher margins).

Eventually the constraint should be stabilized; frequently shifting constraints wreck havoc on policies, procedures and people.

In summary

Most “operational improvements” achieve negligible financial impact. Yet, certain improvements offer the potential to generate tremendous results!

One “Active Constraint” governs Throughput at all times. Improvements that affect performance of this constraint impact sales volume and hence Throughput. Other changes do NOT affect sales volume. You can locate this active constraint by checking availability/reliability at each link.

Understanding and managing the constraint is a powerful tool for genuinely improving the performance of any organization. Ignore it at your peril. Manage this constraint, or it will manage you!

The Goal is one of three books that Jeff Bezos requires his top management team to read. In fact, he uses it as a framework for sketching out the future of Amazon.com.

The Goal is the #1 business book of all time. If you only read one business book, it should be this one. --Verne Harnish, Founder Entrepreneurs' Organization (EO) and author of Scaling Up (Rockefeller Habits 2.0)

The Goal is one of three books that Jeff Bezos requires his top management team to read. In fact, he uses it as a framework for sketching out the future of Amazon.com.

The Goal Movie

45-minutes Preview Only, Not for Training

Layla Pomper CEO of ProcessDriven

2-minute book review of "The Goal" by Eli Goldratt

The Dice Game Simulation

In this video, Dr. Alan Barnard, CEO of Goldratt Research Labs presents a demo of their Goldratt's Dice Game Challenge.

The Dice Game was introduced in one of the best-selling business books of all time, THE GOAL, authored by Dr. Eli Goldratt

To try out the Dice Game yourself, go to: https://www.goldrattsdicegame.com/

A Tribute to Dr. Eliyahu Goldratt (1947-2011)

Eliyahu Goldratt was an Israeli physicist turned management guru. An acclaimed author, educator and business philosopher, he remained first and foremost a THINKER who provoked others to examine their underlying assumptions to discover new breakthroughs.

Eli formulated a variety of popular applications and tools including:

Theory of Constraints (TOC)

Drum-Buffer-Rope (DBR) for Production Management

TOC Thinking Processes

Critical Chain Project Management (CCPM)

Throughput Accounting for measuring impact

The Mafia Offer for Sales & Marketing

Eli set out to establish the Avraham Y Goldratt Institute (named after his father) to promote the Theory of Constraints and it's implementation globally. (Don Bowden Note: I was fortunate to attend his Institute located in New Haven, CT in 1994.)