Unblocking Business Bottlenecks: Identifying Your Herbie
Are there issues in your business that slow things down or block progress? If so, do you know where your "Herbie" is?
Eli Goldratt introduces the concept of "Herbie" in his best-selling book, The Goal, as a metaphor for a bottleneck. This book is essential reading for any business leader or aspiring manager.
This month's LEAD™ Masterclass speaker is Graham Clark, who as part of his session on operations and productivity, discusses bottlenecks. Wikipedia defines a bottleneck as a phenomenon where the performance or capacity of an entire system is limited by a single or limited number of components or resources. The term bottleneck comes from the "assets are water" metaphor. As water pours out of a bottle, the outflow rate is limited by the width of the exit conduit — that is, the bottleneck. By increasing the width of the bottleneck, you can increase the outflow rate.
Every business has a bottleneck. But what business leaders often don't realise is that the bottleneck actually determines the company's profitability. It lowers throughput in the most critical value-creating area of your enterprise. As throughput decreases, so does profitability. This insight is a major eye-opener for many.
Organisations can be measured and controlled by variations on three measures:
1. Throughput - the rate at which the system (e.g., the business) generates money through sales.
2. Inventory - all the money that the system has invested in purchasing things which it intends to sell.
3. Operational Expense - all the money that the system spends in order to turn inventory into throughput.
Understanding how to make sound financial decisions based on throughput, inventory, and operating expense is crucial. If you’re not convinced, read The Goal. It will clarify everything.
Spotting Bottlenecks or Constraints
A constraint is anything that prevents the system from achieving more of its goal—in a commercial organization, the goal is to make [more] money. Constraints can manifest in many ways, but fortunately, there are not tens or hundreds of them. There is at least one but at most only a few in any given system.
In a factory, constraints are more observable, often showing up as a lot of material (work-in-progress) in front of the bottleneck. However, in the service sector, they are not as visible. Since 75% of companies in the UK are non-manufacturing, this is a problem for many business leaders. Look for piles of paper, files, or a frustrated worker beavering away while colleagues around them are more relaxed.
Constraints can be internal or external to the system. An external constraint exists when the system can produce more than the market will bear. In this case, the organization should focus on mechanisms to create more demand for its products or services.
An internal constraint is evident when the market demands more from the system than it can deliver. If this is the case, the organization should focus on discovering that constraint. Types of internal constraints to look out for include:
- Equipment: The way equipment is currently used limits the system's ability to produce more saleable goods/services.
- People: Lack of skilled people limits the system. Mental models held by people can cause behavior that becomes a constraint.
- Policy: A written or unwritten policy prevents the system from making more.
Identifying Bottlenecks in Your Processes
At a simpler level, consider if there are bottlenecks in any of your work processes:
- Do you produce things that sit in a colleague's inbox for hours or days before they're processed?
- Do things sit in your inbox for days because you're too busy?
- Do you often wait to receive materials, reports, or pieces of information from colleagues, and do these delays affect your tasks?
- Are you always late sending things to your colleagues?
For each bottleneck situation, identify who — or what — the bottleneck is. Is it you, someone else, or even an automatic process? Then determine if the process would flow better if inputs to the bottleneck step were reduced.
So, what is your bottleneck? What can you do to better manage the constraint?
These are all questions often discussed throughout our leadership and business development program, LEAD™, where we assist business leaders with operational strategies, among other areas. To find out more about the program and how it could benefit you, please contact us here.
Next week we will be sharing more insights from our Masterclass speaker, Graham Clark, so make sure you sign up to our blog below and get it delivered straight to your inbox.
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