What is meant by the constraint lies in the market
Continuing the discussion between Eli Schragenheim and Justin Roff-March
Justin, I like to clarify what you mean by “sales constraintâ€. My understanding is: the capacity of the salespersons, or a specifically skilled group within Sales, is the capacity-constraint-resource of the organization. That means if we expand the number of that group of skilled people we’d certainly make more money – as more sales will be generated that can be handled by Operations.
When I refer to “the constraint lies in the market†I refer to the demand that flows naturally to the organization. This doesn’t mean that there is no potential demand that can be brought in. But, is it clear that all we need to do is to tap this demand and then we have it? If we can, what should be the conditions that the new clients would demand from us? If a client starts buying from me he might demand a commitment to smooth and fast delivery for some time, on top of pricing and quality requirements.
Expanding the stream of incoming sales is always coupled with uncertainty regarding how much more incoming demand can be secured, and how much capacity of salespeople is needed to make it happen. More, if we are concerned whether we have enough operational capacity to deliver the new sales, then we need to consider the negative impact of being highly successful in bringing even more sales than what has been predicted. If this happens we might find ourselves not just with an active internal capacity constraint, but with a true bottleneck, which might take time, and considerable investment, to elevate. We might even need to elevate a few other resources in order not to make them interactive constraints.
A generic obstacle in dealing with more demand and also with more capacity is that the minimum unit of growth is usually not just one piece of a product. If currently I sell 30 units of Q and I like to sell more, it could be that the minimum additional sale of Q is for 25 units, as the client refuses to buy just 3. This non-linear behavior exists for capacity elevations as well. You might not be able to add capacity of 7 minutes a day. You may, or not, increase the capacity by a full hour.
My preference to treat the market demand as the major constraint lies in the recognition that Operations has ALWAYS to subordinate to the market because clients are unforgiving.
More, treating the market as an aggregate flow obscures the realization that usually there are orders that are more (sometimes much more) profitable than others. So, we would like to expand that part of the market, even when it is at the expense of the less profitable part, when we are incapable of doing it then definitely the demand is the constraint. Take the P&Q case, while the Blue is a constraint, being blocked by selling only 100 Ps, is constraining the profit.
The utopia of any business is to maintain a perfect balance between the incoming demand and the capacity of all the required resources, which are the investment that the organization has to pay. We in TOC have reduced the utopia to the weakest-link and the incoming demand. We require protective capacity on all the other resources.
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4 年Increasing the sales force when the constraint lies in the market is making a leap to step 4 in the poogi. Eli Goldratt said that advertising is setting corn out in a field for ducks to eat and sales is shooting at sitting ducks. He then said that marketing is understanding that ducks eat corn and if there are no sitting ducks, don’t blame the sales people. If the constraint lies in the market, the next step in a poogi is to exploit the constraint. i.e. if you have a product or service on which you have increased the throughput, where does it apply in the market? And how can you position it so that the sales people have a market to which they can present? In the case of airlines, are they in the people moving business or are they in the moving business? After the Second World War, there was a huge excess of naval tonnage. Ships were sitting idle all over the world. People like Aristotle Onassis recognized that there was going to be a need to ship goods across the oceans and bought freighters for 10 cents on the dollar. They made a fortune by exploiting the constraint: Shipping.
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4 å¹´Fascinating this topic. How does one know that the market is the constraint? One definition might be: the market is the constraint as long as the acceptance of one more order does not put in jeorpady the current DDP of the company. Personally I prefer to be in a company that has an internal physical constraint. That doesnt mean that continuous improvement is dead. We will have to open more market to elevate more the internal constraint. In that way we are increasing the odds of fullfilling the 3 criteria of a good strategy, with no conflict, that EG put in the 8th session on the GSP. As Bertrand Russell said (not word by word): if i want to help the others i must be selfish first.
Project Manager @ Solutions Metrix - The Agile Accountant - author of Seeing Money Clearly - Leveraging Throughput Accounting for Knowledge Work - Author of Tame Your Workflow and No Bozos Allowed LI Newsletter
4 å¹´And when the market is the constraint, herein lies the purpose of Mafia offers.
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4 å¹´Eli Schragenheim Actually, if predictability or responsiveness are important to the market, you need protective capacity at the constraint too.
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4 å¹´Eli Schragenheim In the current crisis, many companies have seen either the customers growing new purchasing habits, switch to other priorities or (take the case of airways) simply vanish. The result is in all cases the same : the market that was feeding the existing capacity is no more here. For the airways this means that their planes remains on the ground. You cannot add more salesmen and hope to regain what have been lost. You may regain some, but not all. The situation is brand new: you go from managing an internal constraint to living with an external constraint that you don’t control so much.? In this situation, you have to “reinvent†your business, either by introducing a new product that will correspond to the new demand, or by changing your offer (here is where TOC brings “mafia offersâ€). It is not by doing harder what we were doing before (adding more salesmen, making promotions) that the constraint shall be elevated.?