Understanding Constraints and Bottlenecks

So in this video I'll talk about constraints bottlenecks and using the theory of constraints to overcome bottlenecks. So first what is a constraint? A constraint is simply any resource whose capacity is less than or equal to the demand for that Resource. So we experienced that with the pandemic. When the pandemic initially started, the demand for masks went sky high to where companies could not produce them fast enough to meet demand. Therefore, there was a constraint on the system, specifically a market or demand constraint. So when demand is too high to where companies cannot produce the item fast enough, They have a constraint and that's considered a demand constraint. Another type of constraint is supply. So the opposite end of the of the supply chain holds true as well. So if again, going back using this, sticking with this pandemic example, if we didn't have enough supply in certain instances, we didn't. I think it was cars, the computer chips for new cars. There was a shortage of those. So supply was low. And because supply was low, car manufacturers could not produce new cars fast enough to meet demand. And used car values began to go up because used cars became a high commodity. So supply as well as demand can be constraints on a system. And the last constraint I like to talk about is a process constraint. or what we call throughput. So throughput is the maximum amount achievable relative to output or the maximum output achievable specific to production in this case. So if you over an eight hour workday, a company can produce 100 units, then their throughput would be 100 units over that eight hour workday. And a process constraint would be anything that prevents that company from producing those 100 units. And that leads me into the next point of bottlenecks. So a bottleneck is just the biggest or largest constraint on a system or most limiting constraint on a system. And there are several types of bottlenecks that I'm going to discuss, but specifically, I'm going to talk about a process bottleneck. relative to the theory of constraints. So in the rest of this video, I want you to think about a process constraint. And we'll be looking at bottlenecks from a process constraint perspective. And I'll use bottleneck and constraint interchangeably, but basically I'm referring to the most limiting constraint on a system, because that's what a bottleneck is. So a bottleneck in a supply chain occurs at the point. in the process that requires either the longest time or has the slowest rate of production. So, for example, if you have a product that has to go through three departments to be completed, Department A takes 20 minutes, Department B takes 10 and Department C takes 50. Because Department C takes 50 minutes, that is where your bottleneck lies. because it is the longest time. Now let's say Department C gets a new machine, and now they can reduce that time from 50 to 15 minutes, and your bottleneck will then shift to Department A, because now Department A has the longest amount of time in the process at 20 minutes. Now we can look at this same example and look at it from a unit perspective. Let's say... Department A produced 20 units, Department B 30 units, and Department C 5 units. Because Department C, again, is producing the least amount of units, there lies your bottleneck. So it's either the longest time or the slowest rate of production. So one thing you can do when it comes to bottlenecks is first. What takes the longest? Anytime there's a time stamp involved in the process, that's the first thing you want to ask yourself. What department or what task in the process takes the longest? Because there lies your bottleneck. Now, there are instances where there are no time stamps involved and you have to determine where your bottleneck is or you have to identify a specific type of bottleneck. And that is where the different types of bottlenecks come into play. So first, we have a regulatory bottleneck. Now, a regulatory bottleneck is just that. These are more government-driven bottlenecks. For example, import-export control. If laws change related to importing and exporting product, and that is something that your company does often, then that could create a bottleneck for... your business. So regulatory bottlenecks can definitely cause problems for organizations. The next bottleneck is a technology bottleneck. There are several companies, almost every company today use some type of software system to help with order fulfillment and things of that nature. If that software crashes, they have a problem on their hand because they may not be able to print what they need to print as far as shipping products to customers, or if the system crashes, then they may lose access to information. That can create a bottleneck and delays and cause customer issues if things aren't delivered on time, right? So another type of bottleneck is a technology bottleneck, and that doesn't have to be specific to software. That can be specific to any type of technology that impacts the business in a negative way. Another type of bottleneck is labor bottleneck. Now, a labor bottleneck is when there's a lack of either talent or people to accomplish the goal. And this can be something as simple as someone on your production team taking two weeks off for vacation. And they can be very essential to production. And because they're taken off and you don't have a replacement, production slows down drastically. and you can't get your products produced fast enough. That is essentially a labor bottleneck. And that brings up another point. You can also look at bottlenecks from a short term perspective, which is what I just explained, or a long term perspective. So we have short term bottlenecks. Again, an employee taking a vacation and then long term bottlenecks that could be related to, let's say, government regulation going back to that import. and export control. So you can also look at bottlenecks from a long-term and short-term perspective. The next bottleneck I like to discuss is what we call a financial bottleneck. And that's pretty straightforward, right? If a company wants to have the capacity to produce 300 additional units a week, but what they need is a new machine that costs $1.5 million, and they don't have that capital right now, and they have to raise the money. or get investors, however they decide to do it, they have a financial bottleneck. So to overcome that bottleneck, they have to come up with the money. But yes, finances can definitely cause problems for organizations, especially startup organizations and things of that sort. Another bottleneck is what we call a physical bottleneck. Now, physical bottlenecks are exactly that. I live in the Atlanta metro area. Traffic. Traffic has been a bottleneck for me several times because, again, you want to get to your destination and you plan to get there by a certain time. There's an accident on the expressway. All lanes blocked for like 20, 30 minutes. And there is your bottleneck. Right. The weather could also be a type of physical bottleneck when it comes to physical bottlenecks. These are things that are usually outside of human control. Like you can't do anything about it. Right. You wish traffic would just speed up, but you're in the middle of the interstate in the middle lane and there's nothing you can do. It's a physical bottleneck. It's just like a thunderstorm. If it's raining and just pouring down and you have a landscaping business and it's raining for three weeks and you just can't get your work done like you normally do, there's nothing you can do about it. You have a physical bottleneck. And the last type of bottleneck I like to discuss is what we call decision making bottlenecks. Indecision or being indecisive that can definitely be a bottleneck, whether it's you or someone in the company that's holding up a process because of the inability to decide that, too, can be a bottleneck. I experience it all the time when it comes to dinner time. What are we having for dinner? I don't know. And nothing gets done until we decide what dinner is. Right. So you have a decision making bottleneck. So now I want to talk about the theory of constraints and how we can use the theory of constraints to overcome these bottlenecks when we talk about a process constraint or process bottleneck. So what is the theory of constraints? It is simply a five-step process that organizations can use to identify and overcome bottlenecks within a given process. So first in that process is identifying the system's constraint. So going back to the example I used earlier, let's say your company has the capacity to produce 100 units a day, but you're only producing 50. Used to produce 100. Something happened. There's a bottleneck somewhere. So there is your opportunity to produce 50 additional units because you have the capacity to do so. So what you have to do now is exploit the system's constraint. And by definition, exploit means to make full use of. So this is where we ensure that we are producing at 100 percent capacity utilization, that we are utilizing all of our capacity, because if we're not utilizing all of our capacity, then we shouldn't be producing 100 units. So we verify to make sure that, yes, we are at full capacity and. if we're not and we can produce 100 units, then what we thought was a problem, it's not a problem at all. So if we're at full capacity and we verify we're at full capacity and we're still only producing 50 units, then we move to step three, which is subordinate everything to the system's constraint. So and what that means is this is where we begin to work cross-functionally to determine what resources we have available to support this bottleneck or this constraint. A lot of communication takes place during the subordination period. We move things around to make sure that we can increase capacity to overcome the bottleneck. And that leads us to step four, in which we elevate the system's constraint. And in the elevation period, this is where we... collaborate to determine how can we increase capacity so that we can produce those 100 units, again, overcome that bottleneck, whatever that issue may be. How can we overcome that? Again, it could be a labor bottleneck. Maybe we had more, some people that were, that quit, that we didn't take into consideration how they would impact production. And now, we're not producing as many units because we don't have as much man or woman power, right? So that could actually be a labor bottleneck within the process. And then step five, don't allow inertia to cause another system's constraint. And this is just saying that the theory of constraints is a continuous process. We know that once we overcome one bottleneck, there's another bottleneck waiting for us. And that's how we consistently improve in organizations. So, key takeaways. Remember a constraint is simply a resource whose capacity is less than or equal to the demand for that resource. There are three types of constraints that are usually on a system. We have a market demand constraint, product supply constraint, or a process or throughput constraint. And then... there are several different types of bottlenecks that we talked about in the video which I won't bore you with again but the bottleneck is just the most limiting constraint on a system. However, within the supply chain a bottleneck is either the longest time in a process or the department that has the slowest rate of production. And when it comes to the theory of constraints remember you have to identify exploit, subordinate, Elevate and then do not allow inertia to cause a systems constraint.

So we experienced that with the pandemic. When the pandemic initially started, the demand for masks went sky high to where companies could not produce them fast enough to meet demand. Therefore, there was a constraint on the system, specifically a market or demand constraint.

So when demand is too high to where companies cannot produce the item fast enough, They have a constraint and that's considered a demand constraint. Another type of constraint is supply. So the opposite end of the of the supply chain holds true as well. So if again, going back using this, sticking with this pandemic example, if we didn't have enough supply in certain instances, we didn't.

I think it was cars, the computer chips for new cars. There was a shortage of those. So supply was low.

And because supply was low, car manufacturers could not produce new cars fast enough to meet demand. And used car values began to go up because used cars became a high commodity. So supply as well as demand can be constraints on a system. And the last constraint I like to talk about is a process constraint. or what we call throughput.

So throughput is the maximum amount achievable relative to output or the maximum output achievable specific to production in this case. So if you over an eight hour workday, a company can produce 100 units, then their throughput would be 100 units over that eight hour workday. And a process constraint would be anything that prevents that company from producing those 100 units. And that leads me into the next point of bottlenecks. So a bottleneck is just the biggest or largest constraint on a system or most limiting constraint on a system.

And there are several types of bottlenecks that I'm going to discuss, but specifically, I'm going to talk about a process bottleneck. relative to the theory of constraints. So in the rest of this video, I want you to think about a process constraint.

And we'll be looking at bottlenecks from a process constraint perspective. And I'll use bottleneck and constraint interchangeably, but basically I'm referring to the most limiting constraint on a system, because that's what a bottleneck is. So a bottleneck in a supply chain occurs at the point. in the process that requires either the longest time or has the slowest rate of production. So, for example, if you have a product that has to go through three departments to be completed, Department A takes 20 minutes, Department B takes 10 and Department C takes 50. Because Department C takes 50 minutes, that is where your bottleneck lies.

because it is the longest time. Now let's say Department C gets a new machine, and now they can reduce that time from 50 to 15 minutes, and your bottleneck will then shift to Department A, because now Department A has the longest amount of time in the process at 20 minutes. Now we can look at this same example and look at it from a unit perspective.

Let's say... Department A produced 20 units, Department B 30 units, and Department C 5 units. Because Department C, again, is producing the least amount of units, there lies your bottleneck. So it's either the longest time or the slowest rate of production.

So one thing you can do when it comes to bottlenecks is first. What takes the longest? Anytime there's a time stamp involved in the process, that's the first thing you want to ask yourself. What department or what task in the process takes the longest? Because there lies your bottleneck.

Now, there are instances where there are no time stamps involved and you have to determine where your bottleneck is or you have to identify a specific type of bottleneck. And that is where the different types of bottlenecks come into play. So first, we have a regulatory bottleneck. Now, a regulatory bottleneck is just that. These are more government-driven bottlenecks.

For example, import-export control. If laws change related to importing and exporting product, and that is something that your company does often, then that could create a bottleneck for... your business. So regulatory bottlenecks can definitely cause problems for organizations. The next bottleneck is a technology bottleneck.

There are several companies, almost every company today use some type of software system to help with order fulfillment and things of that nature. If that software crashes, they have a problem on their hand because they may not be able to print what they need to print as far as shipping products to customers, or if the system crashes, then they may lose access to information. That can create a bottleneck and delays and cause customer issues if things aren't delivered on time, right? So another type of bottleneck is a technology bottleneck, and that doesn't have to be specific to software. That can be specific to any type of technology that impacts the business in a negative way.

Another type of bottleneck is labor bottleneck. Now, a labor bottleneck is when there's a lack of either talent or people to accomplish the goal. And this can be something as simple as someone on your production team taking two weeks off for vacation. And they can be very essential to production. And because they're taken off and you don't have a replacement, production slows down drastically.

and you can't get your products produced fast enough. That is essentially a labor bottleneck. And that brings up another point. You can also look at bottlenecks from a short term perspective, which is what I just explained, or a long term perspective.

So we have short term bottlenecks. Again, an employee taking a vacation and then long term bottlenecks that could be related to, let's say, government regulation going back to that import. and export control.

So you can also look at bottlenecks from a long-term and short-term perspective. The next bottleneck I like to discuss is what we call a financial bottleneck. And that's pretty straightforward, right? If a company wants to have the capacity to produce 300 additional units a week, but what they need is a new machine that costs $1.5 million, and they don't have that capital right now, and they have to raise the money. or get investors, however they decide to do it, they have a financial bottleneck.

So to overcome that bottleneck, they have to come up with the money. But yes, finances can definitely cause problems for organizations, especially startup organizations and things of that sort. Another bottleneck is what we call a physical bottleneck. Now, physical bottlenecks are exactly that.

I live in the Atlanta metro area. Traffic. Traffic has been a bottleneck for me several times because, again, you want to get to your destination and you plan to get there by a certain time. There's an accident on the expressway. All lanes blocked for like 20, 30 minutes.

And there is your bottleneck. Right. The weather could also be a type of physical bottleneck when it comes to physical bottlenecks. These are things that are usually outside of human control.

Like you can't do anything about it. Right. You wish traffic would just speed up, but you're in the middle of the interstate in the middle lane and there's nothing you can do. It's a physical bottleneck.

It's just like a thunderstorm. If it's raining and just pouring down and you have a landscaping business and it's raining for three weeks and you just can't get your work done like you normally do, there's nothing you can do about it. You have a physical bottleneck. And the last type of bottleneck I like to discuss is what we call decision making bottlenecks. Indecision or being indecisive that can definitely be a bottleneck, whether it's you or someone in the company that's holding up a process because of the inability to decide that, too, can be a bottleneck.

I experience it all the time when it comes to dinner time. What are we having for dinner? I don't know. And nothing gets done until we decide what dinner is. Right.

So you have a decision making bottleneck. So now I want to talk about the theory of constraints and how we can use the theory of constraints to overcome these bottlenecks when we talk about a process constraint or process bottleneck. So what is the theory of constraints?

It is simply a five-step process that organizations can use to identify and overcome bottlenecks within a given process. So first in that process is identifying the system's constraint. So going back to the example I used earlier, let's say your company has the capacity to produce 100 units a day, but you're only producing 50. Used to produce 100. Something happened.

There's a bottleneck somewhere. So there is your opportunity to produce 50 additional units because you have the capacity to do so. So what you have to do now is exploit the system's constraint. And by definition, exploit means to make full use of. So this is where we ensure that we are producing at 100 percent capacity utilization, that we are utilizing all of our capacity, because if we're not utilizing all of our capacity, then we shouldn't be producing 100 units.

So we verify to make sure that, yes, we are at full capacity and. if we're not and we can produce 100 units, then what we thought was a problem, it's not a problem at all. So if we're at full capacity and we verify we're at full capacity and we're still only producing 50 units, then we move to step three, which is subordinate everything to the system's constraint. So and what that means is this is where we begin to work cross-functionally to determine what resources we have available to support this bottleneck or this constraint.

A lot of communication takes place during the subordination period. We move things around to make sure that we can increase capacity to overcome the bottleneck. And that leads us to step four, in which we elevate the system's constraint. And in the elevation period, this is where we...

collaborate to determine how can we increase capacity so that we can produce those 100 units, again, overcome that bottleneck, whatever that issue may be. How can we overcome that? Again, it could be a labor bottleneck.

Maybe we had more, some people that were, that quit, that we didn't take into consideration how they would impact production. And now, we're not producing as many units because we don't have as much man or woman power, right? So that could actually be a labor bottleneck within the process. And then step five, don't allow inertia to cause another system's constraint. And this is just saying that the theory of constraints is a continuous process.

We know that once we overcome one bottleneck, there's another bottleneck waiting for us. And that's how we consistently improve in organizations. So, key takeaways. Remember a constraint is simply a resource whose capacity is less than or equal to the demand for that resource. There are three types of constraints that are usually on a system.

We have a market demand constraint, product supply constraint, or a process or throughput constraint. And then... there are several different types of bottlenecks that we talked about in the video which I won't bore you with again but the bottleneck is just the most limiting constraint on a system. However, within the supply chain a bottleneck is either the longest time in a process or the department that has the slowest rate of production.

And when it comes to the theory of constraints remember you have to identify exploit, subordinate, Elevate and then do not allow inertia to cause a systems constraint.

Transcript for:Understanding Constraints and Bottlenecks

Transcript for:
Understanding Constraints and Bottlenecks