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Location of the Constraint

How to Locate the Constrained Resource

Throughput accounting is centered on the total optimization of the constrained resource. However, in order to properly manage it, we must first locate this resource. It may not be immediately apparent, especially in a large production environment with many products, routings, and work centers. It is this “noise in the system” that prevents us from easily identifying constraints. Here are some questions to ask that will help locate it:

Where is there a work backlog? If there is an area where work virtually never catches up with demand, where expeditors are constantly hovering, and where there are large quantities of inventory piled up, this is a likely constraint area.
Where do most problems originate? Management usually finds itself hovering around only a small number of work centers whose problems never seem to go away. Continuing problems are common at constrained resources, because they are so heavily utilized that there is never enough time to perform a sufficient level of maintenance, resulting in recurring breakdowns. In addition, there tends to be a fight over work priorities when there is not sufficient capacity, which also means that managers will be regularly called upon to determine these priorities among competing orders.
Where are the expediters? A expediter physically steers a high-priority job through the production process. Because they frequently wait while their assigned jobs are being processed, their presence (especially several of them together) is a good indicator of a bottleneck where they must wait for available production time.
Which work centers have high utilization? Many companies measure the utilization level of their work centers. If so, review the list to determine which ones have a continually high level of utilization over multiple months. If a work center only briefly attains high utilization, it could still be the constraint if the reason for the lower utilization is ongoing maintenance problems or employee absenteeism.
What happens to total throughput when the constraint capacity changes? If we add to the capacity of the suspected constraint, is there a noticeable increase in throughput? Conversely, if we deliberately reduce the capacity of the targeted work center (not recommended as a testing technique!), does overall throughput decline? If throughput does alter as a result of these changes, then we have probably located the constrained resource.

If, after this analysis, a company picks the wrong operation as its constrained resource, the real constraint will soon appear because of changes in the inventory buffers in front of the real and fake constraints. If the real constraint is upstream from the fake constraint, then the inventory buffer in front of the fake constraint will disappear. This happens because management will focus its attention on improving the efficiency of the fake resource, thereby wiping out its backlog of work. The real constraint will be readily apparent, because it still has an inventory backlog. Conversely, if the real constraint is downstream from the fake constraint, then a larger inventory backlog will build in front of it. This happens because the same improvement in efficiency at the fake resource will result in a flood of additional inventory heading downstream, where it will dam up at the real constraint.

Engineering or Sales as the Constraint

If products are engineered to order, then consider the engineering department to be part of the production process. This is important from the perspective of locating the constraint, because the constraint may not be in the traditional production area at all, but rather in the engineering department. Similarly, and for all types of product sales, the constraint may also reside in the sales department, where there may not be enough staff available to convert a large proportion of sales prospects into orders. This constraint is most evident when there are clearly many sales prospects at the top of the sales funnel, but there is a choke point somewhere in the sales conversion process, below which few orders are received. If this is the case, the solution is to enhance staffing for the sales positions specifically needed to improve handling of sales prospects at the choke point in the sales funnel.

Materials as the Constraint

Another constraint can also be raw materials. This problem arises during periods of excessive industry demand, resulting in materials allocations from suppliers. The location of this constraint will be immediately apparent to the materials management staff, which will have to reschedule production based on the shortage. However, this problem tends to be a short-term one, after which the constraint shifts back from the supplier and into the company.

Designating a Work Center as the Constrained Resource

It is also possible to designate a work center as the constrained resource. Taking this proactive approach is most useful when a work center requires a great deal of additional investment or highly skilled staffing to increase its capacity. By requiring that the constraint be focused on this area, management can profitably spend its time ensuring that the work center is fully utilized. It is also useful to avoid positioning the constraint on a resource that requires considerable management to operate properly, such as one where employee training or turnover levels are extremely high. Thus, positioning the constrained resource can be a management decision, rather than an incidental occurrence.

Podcast

A discussion of throughput concepts is available on Episodes 43 through 47 of the Accounting Best Practices podcast.