It’s soooo Obvious

Every business is constrained. No business monopolises an entire industry. All businesses are constrained by an internal limitation or some external situation. Assume your business has an internal constraint. It is an entity or resource that limits how much money your business can make.

Assuming you are familiar with your constraint, then there are 2 tactics you might take.

You could buy, rent, lease etc. another resource just like the resource constraint you have. To do this you invest in the resource, and you pay people to run it.?

Depending on the capacity you add, you may end up needing many more sales. Your constraint may move to the sales organisation!

Investment can damage performance for some time – added sales don’t just materialise because you buy equipment. Unless your product is much superior to any of the competitors you need to gain sales from your competitors.

Very often investment is not the right way to go, it is a big jump in investment and a big chunk of capacity to fill with sales.?

It is very likely more prudent to exploit what you have. This means you focus on those few things that can generate more Throughput (gross margin). The consequence is you must make better use of your constraint resource. You must exploit it better.

You ask your people to find ways to better exploit your constraint machine. Many times, even the constraint machine is not used 100% of the time it is available. The constraint machine may produce items other machines could produce too. To find ways to exploit your constraint machine better you should …

• … look for ways to relieve it of work other resources can perform.
• … look for ways to make sure the constraint resource never stops for breaks, shift changes etc.
• … encourage the sales organisation to focus on selling more of those items that consume constraint capacity more effectively.
• … you use improvement methodologies to accelerate the constraint’s process and limit non-productive time.
• … make sure the constraint’s time is not wasted by sending it faulty material or by destroying good quality it has just produced.

Doing these things helps a constraint produce significantly more,?without?adding investment or operating expenses. Whatever constraint capacity you gain is also factory and business capacity. The business can sell more with little or no added investment or added cost. The suggested improvements can be made by existing operators and managers in a factory.

Do this and your business becomes much more profitable. How much more profitable??Do the math – add 10%, 20% and 30% more sales without adding to operating expenses. You will see the arithmetic shows your profit may double or even triple. The table below shows the arithmetic based on a model company.

Are such results impossible? The key to achieving such results is the focus on getting more from the constraint? – not wasting its capacity. It may be difficult to believe that a factory is wasting 30% of its constraint capacity. It should be difficult to believe because it is obvious one should get the most from the constraint resource. But are you getting the most possible from your constraint? Check the following:

• Are you familiar with your constraint? The resource that most frequently blocks producing greater profit.
• If you are familiar with your constraint, how have you decided to exploit its capacity? How are you getting the most possible from it?
• How have you instructed your constraints to behave about your constraint? Are they helping make sure the constraint can produce to its maximum?

If you can answer my 3 questions appropriately you must be experiencing something like the results in my table.?

Now, when you hit a capacity limitation there will likely be much less discussion about the ‘high’ investment for capacity.?

1. Your profit and return on investment will make it easier to justify an expansion.
2. You are unlikely to invest until the existing constraint is exploited to close to its maximum.
3. Properly exploiting your constraint will usually have positive impacts on your lead time and delivery reliability. Both help gain more sales.

Am I a dreamer and a long way from what is possible in reality? Or are my tactics realistic and they must, if followed, lead to a significant improvement to your bottom line?

Tell me!

If you feel like it, contact me – either here on LinkedIn or use my email: [email protected].