Types of Constraints
A constraint limits the output that an entity can produce. Thus, a machine that is only able to produce a certain amount of a crucial part will limit sales of the final products that incorporate that part. When viewing such constraints, the key issue is whether an expansion of the constraint could result in more sales. If so, proper management of the constraint can lead to more profits.
Given the importance of the constraint concept, it is of great importance to understand the types of constraints to which a business may be subjected. Consider the following:
- Marketplace constraint. A company may have worked through all of its constraint issues, in which case obtaining more orders from the market is considered the constraint. This constraint can be overcome by offering better deals to customers in order to spur sales growth.
- Paradigm constraint. When employees hold a belief that causes them to act in a certain way, this is called a paradigm constraint, and can impact a process to such an extent that the belief is considered a constraint. An example of such a constraint is the belief that the only good work station is one humming along at 100% of capacity, even though there is not enough demand to justify so much work. The result could be the divergence of resources away from the true constraint (perhaps a machine) resulting in suboptimal use of the actual constrained resource.
- Physical constraint. A machine that has a large amount of work-in-process in queue in front of it is obviously maxed out, and so could be a constraint.
- Policy constraint. This is a management-imposed guideline for how a process is to be conducted. For example, there may be a rule regarding the minimum batch size that should be run through a machine, or the economic order quantity to be ordered from a supplier, or the quantity of parts that should build up next to a production cell before it is transported to the next production cell. Unless carefully monitored, these policy constraints can interfere with the orderly flow of work through a business. Policy constraints are difficult to find, since you must track backwards to them by observing their effects on the business. It may be equally difficult to eliminate such a constraint, since it may have been used by employees for many years.
- Raw material constraint. When there is not enough of a raw material available to meet all customer orders, the raw material is the constraint. This constraint is most likely to arise when there is excessive demand for a particular raw material, and where there are not enough substitutes available to replace the raw material.
- Sales department constraint. When the sales process is complex, any step in the process that does not have sufficient resources can result in a reduced level of sales. For example, a shortage in sales engineers can result in too few product demonstrations, and therefore in too few sales being completed.
Management may choose to have a constraint in a particular place within the company. This happens when the cost of increasing the selected constraint is so high that managing and working around this constraint is the most cost-effective way to run the business. For example, the cost of adding another paint booth may be so high that management would prefer to concentrate on managing every last minute of its time and outsourcing all remaining work.
A discussion of throughput concepts is available on Episodes 43 through 47 of the Accounting Best Practices podcast.