Types of Constraints Part 3
In my last post we discussed three more of the seven different types of constraints that exists within any company, namely Resource/Capacity Constraints, Material Constraints and Supplier Vendor Constraints. One important take-away from my last posting is that if you are suffering from a resource/capacity constraint, do not rush out to spend money to increase your capacity until you have taken steps to reduce the existing waste and variation that are both stealing valuable capacity from your process. In this posting we will complete our discussion of constraint types.
Types of Constraints
Financial Constraints occur when a company has inadequate cash flow. Financial constraints are not that common, but they are every bit as penalizing as the others when they exist. This type of constraint is often associated with a lack of available cash needed to purchase raw materials for future orders. Under this scenario companies typically must wait to receive payment for an existing order before taking on any new orders. Again, this type of constraint is a subset of a resource/capacity constraint.
An example of this type of constraint is an accounts receivable process. I was part of a team that transformed an accounts receivable process by reducing the billing process time by approximately 60 percent. In doing so, this company’s cash flow rate improved by a proportionate amount.
Knowledge/Competence Constraints exist because the knowledge or skills needed to improve business performance or perform at a higher level is not available within the company. Once again, this type of constraint is a subset of a resource/capacity constraint.
A good example of this type of constraint is when a company purchases a new type of equipment, but fails to develop the infrastructure and knowledge on the equipment itself. Things like the development of a preventive maintenance system and simple breakdown maintenance are needed to overcome this type of constraint. Without this knowledge or competence, the equipment remains down much longer than it should.
Last, but certainly not least, is the policy constraint. A policy constraint includes any written or unwritten policy, law, rule, or business practice that gets in the way of moving you closer to your goal of making more money now and in the future. In fact, my friend Bill Dettmer tells us that in most cases, a policy is most likely behind a constraint from any of the first six categories. For this reason, the Theory of Constraints assigns a very high importance to policy analysis. The most common examples of policy constraints include the use of operator efficiency or machine utilization or purchase price variance to measure and manage performance.
When companies use operator efficiency as a performance metric, typically there is a push to maximize it in all steps of the process. What typically happens as a result of this misguided focus is the production floor becomes loaded with inventory, lead times become lengthened, and throughput is encumbered. In reality, measuring operator efficiency makes sense only in the constraint operation. In spite of this, many companies continue to use operator efficiency as a performance metric in each of the individual process steps.
In my next post we’ll begin a new discussion on another side of the Theory of Constraints, the Logical Thinking Processes and how they can be used to identify and eliminate many of the problems plaguing our companies today. As always, if you have any questions or comments about any of my posts, leave me a message and I will respond.
Until next time.