Wednesday, July 23, 2014

Focus and Leverage Part 365

In my last posting I discussed the concept of systems thinking.  As a result of this posting, a blog follower asked me to write a bit more about constraints in general,  That is, the definition of a constraint and the different types of constraints that we might find as we attempt to identify it.  So with this in mind, let me start by providing my own definition of what a constraint actually is.

There are several definitions of what a constraint is that are floating around the TOC community, but I prefer to keep all definitions simple and easy to understand.  For me, a constraint is anything within a system that prohibits or blocks the system from reaching its intended goal.  So if the goal of a system is to increase profitability, for example, then the constraint is anything within the system that is preventing or blocking the system from increasing its profitability.  On the other hand, if the goal of an organization is some intangible thing like improved customer satisfaction, then the constraint must be whatever is preventing the organization from achieving improved customer satisfaction.  Constraints can be physical in nature, such as people, machines, etc. or they can be non-physical, such as policies, regulations, procedures, etc. that are blocking the system from reaching its goal.  In my many years in improvement, I often times see policies that are the true constraints.  And many times these policies actually create physical constraints.

Let’s now talk about the different types of constraints that might exist within a system or organization.  We do so because classifying the different types of constraints, helps when we are trying to locate or identify it.  Remember, the first step in Goldratt’s 5 Focusing Steps, identify the system constraint.  I always start my search for the constraint by answering the question, Is the constraint internal or external.  So how do I do this?  If the demand for your product or service exceeds your ability to meet this demand, then you clearly have an internal constraint.  In other words, an internal constraint implies that if you could deliver more of your product or service than you currently can, you could potentially increase your sales.  On the other hand, if the demand for your product or service is less than your ability to provide your product or service, then you have an external constraint.  In this case, the only way to be able to achieve a higher level of sales would be to become more competitive in things like on-time delivery, price, quality, etc……the competitive edge factors.  To sum up these two types of constraints, the overarching question that must be answered is, with our current capacity to deliver our product or service, can we meet the market demand?  If the answer is no, then the constraint is internal.  Alternatively, if the answer is yes, then the constraint is external.

Once we decide whether the constraint is internal or external, we then turn our attention to the other sub-categories of constraints.  Schragenheim and Dettmer, (Manufacturing at Warp Speed, St. Lucie Press, 2000, Chapter 4, identified the following types of constraints as follows:

  1. Market constraint, where there is not enough demand for your product or service.  This is clearly and external constraint.
  2. Resource constraint, where there are not enough people, equipment, or facilities to satisfy the demand for products or services.  This is clearly an internal constraint.
  3. Material constraint, where there is an inability to obtain required materials in the quantity or quality needed to satisfy the demand for products or services.  This is typically an external constraint, but it could also be an internal constraint.
  4. Supplier/vendor constraint, where there is a significant inconsistency of a supplier or vendor, or excessive lead time in responding to orders.
  5. Financial constraint, where there is jnsufficient cash flow to sustain an operation. For example, a company that can’t produce more until payment has been received for work previously completed, because they might need that revenue to purchase materials for a firm order that’s waiting.  This is an internal constraint.
  6. Knowledge/or competence constraint, where the information or knowledge to improve business performance is not resident within the system or organization.  This is an internal constraint.
  7. Competence constraint, where people don’t have the skills (or skill levels) necessary to perform at higher levels required to remain competitive.
  8. Policy constraint, where any law, regulation, rule, or business practice inhibits progress toward the system’s goal.  This too can be either an internal or external constraint.  If it’s a company policy, it’s internal.  If it’s a regulation or law, it’s an external constraint.


It’s important to note that not all of these constraint types apply to all systems.  For example,  material and supplier/vendor type constraints might not apply to service organizations and  market constraints are generally not applicable to not-for-profit systems, like government agencies or maybe even some religious organizations. But rest assured, all of the other types can and do impact and negatively affect all types of organizations.

Schragenheim and Dettmer, also tell us that Constraint management is based on four key assumptions about how systems function and these assumptions are:

  1. Every system has a goal and a finite set of necessary conditions that must be satisfied in order to achieve that goal. In fact, efforts to improve system performance is really not possible without a clear understanding and consensus about what the goal and necessary conditions are.  Because I am such a proponent of the Intermediate Objectives Map (a.k.a. Goal Tree), I would restate this assumption to say, every system has a goal, a finite set of critical success factors (no more than 3-5 total) and associated necessary conditions that must be in place, and functioning well, for the goal to be achieved.
  2. The sum of a system’s local optima does not equal the global system optimum. In other words, the most effective system does not come from maximizing the efficiency of each system component individually, without regard to its interaction with other components.  This is the hallmark of systems thinking in that, ignoring the constraint and optimizing parts of the system, will not guarantee that the system will be optimized.
  3. Very few variables—maybe only one—limit the performance of a system at any one  time. This is why it is so important to spend time identifying the system constraint.  If the constraint is not found and then exploited, lots of time and effort will be wasted trying to optimize non-constraints.
  4. All systems are subject to logical cause-and-effect. There are natural and logical consequences to any action, decision, or event. For those events that have already occurred, these consequences can be visually mapped to aid in a situation or problem analysis. For those decisions that have yet to occur, or which are contemplated, the outcomes of these actions, decisions or events can be logically projected into the future and visually mapped as well.  What Dettmer and Schragenheim are referring to, when they are discussing logical cause and effect, is the creation of a current reality that links all of the negative symptoms that exists in our current state.  And when they talk about projecting into the future, is the creation of a future reality tree.

For those of you who are regular followers of my blog, you are well aware that I am a proponent of the Intermediate Objectives Map (Goal Tree) which is basically a short cut to the full thinking process analysis.

In my next posting, I’ll dive into the subject of systems thinking in a bit more detail.


Bob Sproull


Anonymous said...

With the internal constraint, in today's society of doing more with less, how do you deal with unrealistic goals of some employers on their employees. Looking in on some companies I see how the goals are causing many employees to leave their organization due to the stress and fear of losing their jobs...then the company has the expense if training new people.This creates such a crazy cycle in staffing.
what are your thoughts?

Bob Sproull said...

Anonymous, first of all, what you have described is typical of companies who have embraced traditional cost accounting and the performance metrics that go with it. Doing more with less is not what I believe in. I believe that by embracing TOC, the best approach to leading a business is to do more with the same. When you focus improvement efforts on the system constraint, you will achieve much higher levels of throughput without having to lay people off. Sadly, most companies haven't embraced this way of running a business. In fact, those companies who believe in laying people off have failed to realize the true assets of their companies....their employees.