Types of Constraints

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Overview of Constraints

The theory of constraints is based on the existence of a constraint, so it is useful to delve into the nature of this core concept. A constraint is a resource that limits a company’s total output. For example, the constraint may be a machine that can only produce a specified amount of a key component in a given time period, thereby keeping overall sales from expanding beyond the maximum capacity of that machine. The key determining question to ask in locating this type of constraint is – if we had more of it, could we generate more sales? Physical constraints of this type tend to be easy to locate within a company, because there is usually a large amount of work-in-process piled up in front of it, waiting to be processed.

Policy Constraints

The most common system constraint cannot be seen or touched – it is the operational policy. A policy is a rule that dictates how a system is operated. Examples of policies are batch sizing rules and resource utilization guidelines. For instance, a policy may state that a work station completely fill a pallet with work-in-process before sending it on the next work station, since this makes it more efficient for the materials handling staff to move inventory through the factory. The trouble is that the next work station may be the constrained resource, which has to halt operations while waiting for the pallet to be filled. In this case, the policy should have allowed a more continuous flow of inventory to the constrained resource, which means that much smaller batch sizes would have improved the utilization of the constrained resource.

Policy constraints are usually difficult to find and eliminate. Finding them is difficult because policies are not physical entities that can be readily observed; instead, they must be deduced from the operational flow of the production system. Eliminating them can be even more difficult, since they may be strongly supported by employees, who require considerable convincing before agreeing to change a policy that they may have used for years. Though there may be considerable resistance to a policy change, the actual fix can be extremely inexpensive. Once eliminated, a policy constraint can result in a larger degree of system improvement than the elimination of any physical constraint.

The Paradigm Constraint

A concept impacting the presence of policy constraints is the paradigm constraint. This is a belief that causes employees to follow a policy constraint. A classic paradigm constraint is the belief that every work center must be run at full tilt in order to increase its efficiency, which is a teaching of traditional cost accounting theory. However, this paradigm can result in a policy constraint to create a bonus plan that rewards factory managers for running all equipment at as close to 100% capacity as possible. The result is an excessive investment in inventory, and the divergence of resources away from the constrained resource. Thus, a paradigm constraint can be a powerful roadblock to the elimination of a policy constraint.

The Raw Material Constraint

Another constraint may be a raw material, for which there is not enough to ensure that all orders can be filled. This less common problem tends to arise during bursts of peak industry-wide sales, when materials suppliers are caught with insufficient production capacity to meet all demand (which means that the constraint has now shifted to the supplier!). This type of constraint will be immediately evident to the materials management staff, which cannot schedule jobs for release to the production area until sufficient materials are available.

The Sales Department Constraint

Another possible constraint is the sales staff, for which there are not enough people to bring in all possible customer orders. This constraint is made evident by a large number of sales prospects at the top of the sales funnel or a large potential market size, but very few actual sales being generated.

The Constraint in the Marketplace

A company may so improve its operations that its current capacity can handle all orders currently placed by customers. If so, the constraint has now shifted into the marketplace. The company must now use its higher capacity to offer better pricing deals or service levels to the market in order to increase its share of the market.

The Intentional Constraint

A company can also intentionally position a constraint on a specific resource. This happens when the capacity of a particular resource would be extremely expensive to increase, so managers prefer to focus their attention on maximizing the efficiency of the work center without actually adding capacity to it. It is also useful to avoid positioning the constraint on a resource that requires complex level of management, such as one where employee training or turnover levels are extremely high. Thus, the positioning of the constrained resource should be a management decision, rather than an accident.

Podcast

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