Focused Operations Management

Chapter 6. Managing by Constraints When the Market Is the Constraint

A system always has a constraint. In the previous chapter we discussed situations involving scarce resources where the constraints were these resources. There are many situations of excess operational capacity where the market becomes a system constraint. Proper use of the management by constraints methodology in these situations yields improvements in throughput, profits, and the value of the firm.

The steps of management by constraints in a system where the market is the constraint are the same as those where resources are constraints (Pass and Ronen, ):

• Determine the system's goal.

• Establish global performance measures.

• Identify the system constraint.

• Decide how to exploit the constraint and break dummy and policy constraints.

• Subordinate the system to the above decision (the constraint).

• Elevate and break the constraint.

• If a constraint was broken return to step 3. Do not let inertia become the system constraint.

Steps 1 through 3, where the goal and performance measures are defined and the system bottleneck is identified, are common to both resource and market constraints. The essence of steps 4 through 6 in both situations is similar, but the methods and tools for handling market constraints are different from those that are appropriate for a resource constraint. Here too, step 4 (exploiting the constraint) can be implemented immediately. Step 5 is implemented in the intermediate term. Step 6 requires introducing ...