New Book Part 21

In my last post I discussed how all three elements of the Ultimate Improvement Cycle work in unison to maximize throughput and profitability.  In today's post, I will discuss the various types of system constraints that must be located before real and lasting improvement to flow and profitability can be achieved.  As a reminder, this material is taken from my newest book, The Focus and Leverage Improvement Book - Locating and Eliminating the Constraining Factor of Your Lean Six Sigma Initiative, published by Routledge/Productivity Press.

Types of Constraints

Until now, we have focused on identifying the physical constraints in a manufacturing process, and how to break them.  But, what if the constraint isn’t located inside the process? What if the constraint is policy related, or a non-physical entity, such as the efficiency metric? Let’s take a look at what this means, in terms of our improvement effort.

[1] Bill Dettmer explains that, “Identifying and breaking constraints, becomes a little easier if there is an orderly way to classify them.” Dettmer tells us that there are seven basic types of constraints as follows:

• Resource/Capacity Constraints
• Market Constraints
• Material Constraints
• Supplier/Vendor Constraints
• Financial Constraints
• Knowledge/Competence Constraints
• Policy Constraints

Let’s take a look at each of these constraints and what they mean to us for our improvement efforts.

• Resource/Capacity Constraints:  This type of constraint exists when the ability to produce or deliver the product is less than the demands of the marketplace. That is, the orders exist, but the company has insufficient capacity to deliver. These types of constraints have been what we have been discussing since we started this chapter and why using the UIC will increase capacity (throughput) to high enough levels. In fact, eliminating this type of constraint, leads directly to the next one.
• Market Constraint: This type of constraint exists when the demand for a product or service, is less than the capacity to produce or deliver the product or service. That is, the company has not developed a competitive edge to realize enough orders for their product or service. Market constraints come about simply because the company is unable to differentiate itself from its competition. So, how can a company differentiate itself? Quite simply, there are four primary factors associated with having, or not having, a competitive edge.  

Quality – In its most basic form, quality is a measure of how well a product conforms to design standards. The secret to becoming quality competitive is first, designing quality into products; second, the complete eradication of special cause variation; and third, developing processes that are both capable and in control. On-Time Delivery – This factor requires that you produce products (or deliver services) to the rate at which customers expect them. This means that you must have product flow within your facility, that is better than that of your competition. As you now know, this involves identifying, focusing on, and improving your constraint. It also involves reducing unnecessary inventory, that both lengthens cycle times and hides defects. Customer Service – This simply means that you are responsive to the needs of your customer base. Customers must feel comfortable that, if their market changes, their supply base will be able to change right along with them, without missing a beat. If the customer has an immediate need for more product, the supplier that can deliver, will become the supplier of choice. Cost – This factor is perhaps the greatest differentiator of all, especially in a down economy. But having said this, low cost, without the other three factors, will not guarantee you more market share. The good news is, if you are improving throughput at a fast-enough rate, the amount you charge a customer for their business can be used to capture it. So, as long as your selling price is greater than your totally variable costs, the net flows to the bottom line.

Let's get back to our discussion on types of constraints.

• Material Constraints: This type of constraint occurs because the company is unable to obtain the essential materials in the quantity or quality needed to satisfy the demand of the marketplace. Material constraints are very real for production managers and over the years they have been such a problem that material replenishment systems like MRP and SAP were developed in an attempt to fix them. However, as you know (or should know) MRP and SAP haven’t delivered the needed fix and as a result companies have spent millions of $’s needlessly, because these systems haven’t addressed the root cause of the shortages.
• Supplier/Vendor Constraints: This type of constraint is closely related to Material Constraints, but the difference is that suppliers are inconsistent because of excessive lead times in responding to orders. The net effect is that because the raw materials are late arriving, products cannot be built and shipped on time.
•  Financial Constraints: This type of constraint exists when a company has inadequate cash flow needed to purchase raw materials for future orders. Under this scenario, companies typically must wait to receive payments for an existing order before taking any new orders. An example of this type of constraint is a weak accounts receivable process whereby companies deliver products, but payments take long times to be received and posted.
• Knowledge/Competence Constraints: This type of constraint exists because the knowledge or skills required to improve business performance or perform at a higher level, is not available within the company. An example of this is a company purchasing robotics, but fails to develop the necessary infrastructure and knowledge to support the new technology. What typically happens is the equipment breaks down and remains down for extended periods of time thus losing needed throughput.
• Policy Constraints: Last, but certainly not least, is the policy constraint, which includes all of the written and unwritten policies, rules, laws or business practices, that get in the way of moving your company closer to your goal of making more money now and in the future. In fact, Dettmer tells us, “In most cases, a policy is most likely behind a constraint from any of the first six categories. For this reason, TOC assigns a very high importance to policy analysis.” The most common examples of policy constraints include the use of performance metrics like operator efficiency or machine utilization where there is a push to maximize metrics in all steps in the process, when in reality maximizing them in the constraint is the only place that matters.

In my next post we will look at what I believe is the most valuable of all tools in the TOC arsenal, The Goal Tree.

Bob Sproull

Post References:

[1] H. William Dettmer, Breaking the Constraints to World Class Performance, (Milwaukee, WI, Quality Press, 1998)