Types of Constraints
There are two broad categories of constraints that exist in business environments, "internal constraints" and "market constraints". Additionally, within the category of internal constraints lie the sub-categories of "physical constraints and policy constraints". All categories are described further below:
Physical constraints can be broken down further into two categories.The first is that of "capacity (or resource) constraints," which includes the labor, machines, and buildings needed to convert purchased material into an end product. The second category is that of "material constraints", which are the raw goods, work-in-process, etc. that are converted to finish product by the resources of the company.
Policy constraints can be divided into the categories of "mindset constraints," "measures constraints," and "methods constraints." Mindset refers to the thought process or culture of the organization. It is mindset that organizes the company’s thinking and assigns priorities to different courses of action. New measures that contradict the prevailing mindset have little chance of being implemented. Measures constraints may be responsible for creating situations that encourage behaviors that have a negative effect on the performance of a business. Bonuses that have an overall negative impact on the bottom-line of a firm would fall into this category. Methods constraints refer to the procedures and techniques that determine how the day-to-day operation of the organization is carried out.
- Market constraints exist when the demand for a company’s products and services is less than or equal to the capacity of the organization.
Regardless of the type of constraint, the importance of constraints lies in the influence they exert on the performance of any organization.
You can explore the next article in this series for a discussion of principles and processes.