The Chain Analogy
Need improvement? Focus on the constraint
The bottom line of any organizational strategy is the choice of what to change and what to change to. Therefore, the essence of any company’s strategy is the choice of what to do and, more importantly, what NOT to do. The quality of decision-making process that goes into such choices is a cornerstone for the quality and success of a company’s strategy and associated tactics.
When a company tries to make improvements in order to achieve its goals, it tends to try to improve everything at once. However, it is proven to be a very utopian approach as not all the changes will affect overall improvement of the organization. As a matter of fact, most of them – will not. Thus, it is essential to focus on making the constraint the target for any kind of improvements.
An Analogy of a Physical Chain
The weight of the chain
To demonstrate this concept, I will use an analogy of physical chain. There are two ways to measure a physical chain that corresponds to characteristics of an organization: the first is by measuring the weight, and the second – by measuring the strength. The weight of a chain can be determined by adding the weight of each individual link to determine the overall weight of the chain. On the other hand, the strength of the chain is determined by the weakest link, the link with the least amount of capacity in the chain.
Each link in the chain represents departments or functions within the organization, and the weight of each link represents the cost to operate each department in the organization. The operating cost of an organization can be determined by adding the cost of each individual department to determine the overall operating expense of the organization. Therefore, costs, like the weight, follow the additive rule.
However, the strength of the chain acts like resource capacity or departmental capacity within an organization, which defines the ability to generate throughput, or meet the customers’ demand. Where the weight acts like cost and follows the additive rule, the capacity of the organization does not follow the additive rule. The capacity of the system is defined by the weakest link (or constraint), the resource with the least amount of capacity of the system.
Make the chain stronger
The goal of any organization is to make the chain stronger, not lighter. This is a very important concept to understand. By this statement, the main purpose is not to reduce cost (making the chain lighter), but to increase throughput (make the chain stronger). There are only three ways to increase the throughput of the organization:
- by improving the utilization of the constraint resource to produce more throughput;
- by increasing the throughput (value added) for each unit that is processed through the constraint;
- Or by doing BOTH of them together.
All these methods will have the same impact of making the chain stronger or, in any case, make the performance of the whole organization stronger.
On the other hand, cost reduction “improvements” will make the chain lighter; thus, could affect the organization in a negative way. Here are some of the examples:
- removing a link — such as outsourcing work to another organization;
- reducing the capacity of the links, making each link lighter — such as laying off employees;
- replacing a link with newer, lightweight material — such as bringing in new technology.
Again, these methods might look like a great way to make the chain lighter, or reduce the overall operating expense of the company, the results could bring the company to the more unfortunate position it was before it started the “improvements.”
Cost reduction: no primary goal
Furthermore, it is important to remember that cost reduction should not be the primary goal of the organization. But that does not mean that it is not important. Although it should not be the primary goal, it is still vital to address it by minimizing the cost. However, it should not be done at the expense of reducing constraint capacity or the necessary protective capacity of the non-constraints that is requisite to maintain a stable and capable operating system. From our extensive experience, very often cost reductions comes as a side benefit of improving the flow (strengthening the chain).
Subscribe to our blog
Subscribe for your bi-weekly blogs and receive our valuable articles on several topics related to operational excellence, business optimization and the process of ‘change’.