Policy constraints

Overview of Policy Constraints

A policy constraint is an internal rule that keeps a business from maximizing the amount of throughput that it generates. Throughput is sales minus all totally variable expenses. An example of a policy that can cause a constraint is when a rule on the production floor mandates that a storage bin be filled before transport to the next workstation for additional processing of units in process. If the next workstation is out of work, waiting for the bin to be filled limits the capacity of the next workstation. Thus, the presence of the policy results in the alternating flooding of the next workstation with work and its complete stoppage.

Types of Policy Constraints

Here are examples of different types of policy constraints:

  • Break rule. Employees are allowed a specific amount of rest time away from their workstations, during which time the machines remain idle.
  • Cost reduction rule. Costs are to be reduced in all parts of the production process, which can negatively impact the ability of a company to support its constrained resource. Instead, more cash should be spent to ensure that the bottleneck operation is fully supported at all times.
  • Discounted cash flow analysis. Fixed assets are only purchased based on their associated discounted cash flows, which ignores their impact on throughput. A more throughput-focused analysis would likely result in fewer fixed asset investments.
  • Minimum production run. All production runs must generate a certain minimum number of units, which supposedly justifies the equipment setup cost. In reality, a larger production run just robs the next job in line of valuable machine time, and may also create excess inventory.
  • Overtime rule. Overtime may not be allowed, in which case there is no one to operate the bottleneck operation after regular work hours or during breaks, which halts production.
  • Production line balance rule. The industrial engineering staff attempts to convert the production process into a production line, where capacity levels are just enough in all areas to match production requirements. This policy falls apart when there is a production snafu, which reduces the input to the constrained resource and causes total throughput from the entire process to decline.
  • Resource maximization rule. All phases of the production facility are to be operated at their maximum capacity levels, which results in excess amounts of inventory being generated. Instead, all workstations should operate at whatever level is needed to support the constrained resource, and no more.

Many of the preceding policy constraints were originally instituted to optimize a specific issue, but without taking into consideration the impact of the throughput of the entire system. Thus, a rule to balance the production line will reduce the amount of capacity needed, but will inevitably result in a throughput reduction when the lack of excess capacity starves the bottleneck operation of materials to process.

Changing a Policy Constraint

It would initially appear easy enough to change a policy constraint and experience an immediate increase in throughput. However, these changes can be surprisingly difficult, since employees are accustomed to using the existing policies. Consequently, the alteration of a policy constraint can encompass employee relations issues, added training, and changes to supporting procedures.

Despite the work involved to alter a policy constraint, there can be a considerable monetary payoff associated with doing so. Consequently, there should be an ongoing effort to spot and correct issues related to policy constraints.