Constraint Examples
Why Identify the Constraint?
In the Five Focusing Steps, the core of Dr. Goldratt's management philosophy, highest prominence is given to the first step "Identify the Constraint". Without taking this first step, undertaking a process improvement is like throwing a dart blindfolded - the chances of "hitting the target" are very poor...
In other words, without knowing the constraint, any given "process improvement" will most likely waste time, energy and money of the organization without making much, if any, real improvement. And too often, the interests of the organization are actually damaged by "optimizing" processes/functions that do not increase the flow of throughput through the organization.
For example, in Dr. Goldratt's bestselling book The Goal, a factory brought in robots to automate certain functions. To improve efficiency metrics of the robots, more and more material was being converted towards the beginning of the manufacturing process. But the downstream processes are not able to handle the load and keep up with the robots. This results in ever-increasing amounts of work-in-process (WIP) inventory just piling up. This inventory in turn masks the priorities on the shop floor, decreases cash flow, and makes material management far more difficult. Thus, by trying to optimize a non-constraint, Alex Rogo unintentionally reduced the overall performance of his factory.
For example, in Dr. Goldratt's bestselling book The Goal, a factory brought in robots to automate certain functions. To improve efficiency metrics of the robots, more and more material was being converted towards the beginning of the manufacturing process. But the downstream processes are not able to handle the load and keep up with the robots. This results in ever-increasing amounts of work-in-process (WIP) inventory just piling up. This inventory in turn masks the priorities on the shop floor, decreases cash flow, and makes material management far more difficult. Thus, by trying to optimize a non-constraint, Alex Rogo unintentionally reduced the overall performance of his factory.
Prior to Identifying the Constraint
Before identifying the constraint, a good place to start is by visualizing the entire supply chain. Ask questions such as:
- What does my company buy?
- What are the major internal processes?
- What does my company sell?
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Raw Material |
Component Supplier |
Manufacturing& Assembly |
Distribution |
Retail |
Consumer Demand |
Within each of the above stages, try to map each key item. For example, components might consist of IC, plastic casing, power supply, wires, power cable, packing, etc.
How to Identify the Constraint?
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Two specific questions are useful in identifying the constraint
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These guiding questions can be asked from a gut level by someone with good experience / intuition or based on a detailed analysis of the data, where available.
Market Constraint
- When your organization already supplies 80%+ of the total market
- Frequently monopoly situations
- May be heavily regulated
Examples of Market Constraints
- Office productivity software
- Local electricity supply
- Captive business process outsourcing unit
- Diamonds
Demand Constraint
- When there is plenty of market share to grab, but we are not getting it!
- This means that it is usually something in our own capacity or capability preventing us from getting more
Examples of Demand Constraints
Company that has 80% share of the Japanese market for carburetors
- The addressable market is much larger than just Japan
- Several other products that they make have very small market share in Japan
Look Beyond the Obvious
Apart from machines, the constraint can sometimes be found in less obvious types of resources e.g. skilled labor, customer inspection approvals, cash to purchase the material, etc.
Demand:
•Truemarket constraint: when we have 80%+ of the market
•Typical demand constraint: there is plenty of market to be had, we just aren’t getting it!
•Which means, it is most typically really something in our own capacity/capability that is preventing us from getting more!Examples:
•WalbroJapan: 80% of Japan market for carburetors for small gas powered engines
•What is their real market? (Much bigger than Japan, and Walbrois much more than WalbroJapan!)
•Are carburetors the only thing they make? (No, they make so many more products. And in fact, the companies that buy their carburetors also use the other types of products they make, for which they have a tiny fraction of even the Japan market!)Warning:
•If we have lots of unsold finished goods, it is more than likely we have plenty of capacity to produce for more sales!
•Supply
Example:
•Ellwood City Forge, when Steel was on allocation.
•OHQ after the earthquake
•Warning:
•Most often, what we think are material constraints are actually purchasing policy mistakes and we are needlessly constrained.
•Note – if there is a lot of unsold Finished Goods, there is almost certainly NOT a supply constraint.
•Capacity
Example:
•Look for the biggest pile of work – which is not always physically available to see!
•Most often, the constraint is hiding – and it is hidden by so much waste and work, due to the “efficiency” policies. If work is everywhere, if the bottleneck is always moving, the way to find the constraint is to cut the WIP.
Warning:
•Look for the biggest pile of work – which is not always physically available to see!
How much more demand for the category could your business satisfy with its existing capacity, without reducing sales of any other categories?
Policy Constraints
Mindset constraints
Permanent Constraints
•Challenges?
•Market
•Demand is known and constant
•We are the first choice supplier
•Customers don’t change their minds about what they want or when they want it
•Our prices are known and constant – no discounts needed
•Customers pay the moment we finish the work
•Suppliers
•Lead time = 0
•Their prices are known and constant – they don’t surprise us with price increases, and they pay the freight charges
•Their quality is perfect
•They always deliver on time
•Internal
•Zero absenteeism
•Equipment never breaks down
•All process times are known, and experience negligible variability
•Quality is perfect
•We set the rules
•Other
•No board interference
•No government interference
•Perfect weather
Policy Constraints
Mindset constraints
Permanent Constraints
•Challenges?
•Market
•Demand is known and constant
•We are the first choice supplier
•Customers don’t change their minds about what they want or when they want it
•Our prices are known and constant – no discounts needed
•Customers pay the moment we finish the work
•Suppliers
•Lead time = 0
•Their prices are known and constant – they don’t surprise us with price increases, and they pay the freight charges
•Their quality is perfect
•They always deliver on time
•Internal
•Zero absenteeism
•Equipment never breaks down
•All process times are known, and experience negligible variability
•Quality is perfect
•We set the rules
•Other
•No board interference
•No government interference
•Perfect weather
