2018-03-07 13:44:38 Running a Business English Apply the Theory of Constraints to your manufacturing process to remove the limitations that keep your business from reaching bigger goals.... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2018/03/Small-business-owner-reviews-manufacturing-limitations-and-theory-of-constraints.jpg https://quickbooks.intuit.com/ca/resources/business/manufacturing-limitations-theory-constraints/ Understanding Limitations: Theory of Constraints

Understanding Limitations: Theory of Constraints

3 min read

What’s keeping you from achieving your goals? All companies face limiting factors; that’s the nature of doing business. But you don’t have to live with those bottlenecks. Using the Theory of Constraints helps you spot the inefficiencies and work on improvements.

What Is the Theory of Constraints?

The Theory of Constraints provides a framework for improving your production process from start to finish. Think of your manufacturing process as a chain with each step as a link. You start with the raw materials, manufacture your item, and end up with a finished product. The process involves lots of little steps where things can slow down.

The Theory of Constraints helps you find the weakest links in that chain, so it’s easier to make improvements. By strengthening those weak links, you make your entire process stronger. Removing the bottlenecks helps you improve profits and grow your business.

Types of Constraints

Constraints — or limitations that restrict the choices and actions available to you — typically show up at every stage of your production process in different ways. For example, in your physical manufacturing process, maybe your equipment isn’t as fast as newer, advanced versions. Constraints form bottlenecks, hold you back, slow you down, and keep you from reaching the goals you’ve set. They cut into your profits and limit productivity. If you don’t try to reduce those limitations, you might miss out on opportunities to grow your business. Constraints usually fall into one of the following categories:

  • Physical: Equipment problems, material shortages, workforce shortages, and physical space restrictions
  • Policy: Established procedures, union contracts, government regulations, and informal attitudes about the way things should be done
  • Paradigm: Beliefs and habits that become deeply ingrained
  • Market: Production capacity that exceeds your sales

Look at your entire manufacturing process helps you identify the single biggest weakness or constraint. Then repeat the process to tackle smaller issues or new constraints that pop up as your company grows.

Five Steps in the Theory of Constraints

The Theory of Constraints in manufacturing and other areas of business uses a five-step process. This tool isn’t a one-time fix for your production process. If you adopt the Theory of Constraints, expect to work through the five steps continuously to fix constraints that can keep you from your goals. Scaling often brings up new issues because you’re trying to keep up with increased demand. The basic steps of the process are as follows:

  1. Identify the constraint: Look at each step in your manufacturing process to find the biggest bottleneck.
  2. Exploit the constraint: Try to make improvements around the constraint as much as possible without making huge changes to your process. For example, if you identify a constraint in shipping products on time because you lack the inventory to fill orders, you might create an inventory buffer at that point in the process.
  3. Subordinate and synchronize to the constraint: Make adjustments in other areas of your production process to ensure they are focused on easing the constraint and not contributing to it.
  4. Elevate the constraint: This step applies if you haven’t solved the problem with steps two and three. Now you do everything possible to remove the constraint, including making major changes to your system, such as upgrading equipment or hiring extra employees.
  5. Repeat the process starting back at number one.

For example, perhaps there is a weakness in your supply chain that causes delays at a specific step in your process. First, focus on solving the delay at that particular step, and then review your entire inventory ordering process to ensure it is properly aligned with the entire manufacturing process.

Using the Theory of Constraints helps you work on issues that slow you down. Using this and other helpful tools can help you push your company to success and greater profits. 4.3 million customers use QuickBooks. Join them today to help your business thrive for free.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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