The bottleneck in production is some scarce resource that reduces the production capacity of the whole chain. The bottleneck needs to be efficiently managed to ensure profit maximization and enhanced business efficiency.
It’s called a bottleneck because the neck of the limits the volume of water to be stored in the bottle and the production bottleneck similarly limits the quantity of the units to be produced in the production process.
How does it work?
Businesses usually face some challenges that bring limitations in their capacity to operate and grow. These limitations can be short or long terms in nature. The short-term limitations usually do not present a greater challenge. However, the cumulative effect of the long-term bottleneck is adversely higher on the business growth and efficiency.
An example of a short-term limitation is the skilled employee going on leaves. This might create problems in the production if an adequate replacement is not available within the organization. As it’s going to stall the production since the time he/she resumes the office.
An example of long terms limitation may be the shortage of chemical mixing machines for a company in a dying industry. While there is sufficient labor to work, sufficient production space, sufficient availability of the raw material, and all other facilities.
However, due to higher time consumption in the mixing machine labour have to sit idle and the capacity of other resources cannot be utilized in full. Hence, chemical mixing machine works as a bottleneck in the process of production.
How to deal with production bottleneck?
An ideal approach to deal with production bottleneck is the identification of the bottleneck, evaluating consequences of the bottleneck on production, managing the bottleneck with all the available resources, and increasing production efficiency. Let’s discuss these conceptual aspects to deal with the production bottleneck.
1) Identification of bottleneck
The bottleneck can be identified by looking at the accumulation in the production process. It’s the point where units take greater time to be processed and there are several units in the queue of production.
However. Identification by accumulation does not always work. So, a more reliable approach is to use throughput in the production process. The throughput helps to determine the number of units processed by the machine at a specific time.
If there are different machines in the process of production, a comparison of throughput between each machine can help to identify the machine that produces the lowest units in a specific time.
Hence, the machine with the lowest production is a specific time is a bottleneck that limits the production of the entire production process.
2) Evaluating the consequences
In the second step, the managers need to understand the consequences of an identified bottleneck. The effects of the bottleneck may be severe depending on the nature of the process.
The business needs to identify the consequences of the bottleneck whether it’s stalling the production process and business is delaying the supplies to the customers or any other adverse impact on the operational efficiency of the business.
The bottleneck can actually stall the production as other resources may remain idle in a wait to get input from another machine which is a bottleneck.
The delayed production due to bottleneck may cause inventory to pile up in the warehouses. The company may have to incur additional costs for warehousing due to slow production.
Further, a low rate of production may be a cause of motivation for the employees as their remuneration may be linked with the number of units produced.
Hence, bottleneck resource needs to be managed appropriately to ensure enhanced business efficiency.
3) Managing the bottleneck
The severity of the consequence helps to decide what action should be taken to manage the bottleneck. If the consequences are severely adverse, immediate action can be required.
For instance, if the consequence of bottleneck is an inability to meet the customer orders and impairment in the good will of the company.
The business may need to manage the bottleneck resource immediately even they have to incur the cost. The bottleneck can be managed by addition to the scarce resource, usage optimization, adequate maintenance of the resource, and any efforts that increase output from the resource.
On the contrary, if the impact of bottleneck resource is not much higher, it may be ignored else the cost of resource management may be higher than the benefit obtained.
What causes a production bottleneck?
The production bottleneck can be caused by any process in the chain of processes that takes more time than other processes. It may be actually some resource that is scarce and cannot be purchased easily.
The problem with bottleneck resources is that production cannot be completed without a product passes through/consumers the bottleneck resource.
For instance, three machines A, B, and, C is required to produce a product-A. These machines take 10 minutes, 20 minutes, and 10 minutes to process the product. In working shift of 6 hours 36 units can be processed in the machine A and C.
However, machine B can only process 18 units. Hence, the whole production can only finish 18 units in one shift and machine A and C remain idle for half of the time as machine B takes double time to process the product.
Hence, machine B is a bottleneck that limits the production of the entire chain. In this case, more production time of machine B causes a bottleneck. The bottlenecks can be different in different situations. Hence, business needs to get one more machine B if they want to avoid an idle time of machine A and C.
However, if the business produces different products and it cannot get a new machine it can prepare the production plan that maximizes the profit.
Profit maximization using bottleneck
To maximize the profit with bottleneck the business needs to consider contribution generation concerning usage of the scarce resource. If there are multiple products of the business it needs to identify which product has the highest contribution margin by using per unit of the scarce resource.
Once the contribution margin per unit is calculated for all the products. The individual products are ranked in order with a high to low contribution margin per unit. This approach makes the business get maximum contribution by using bottleneck/scarce resources.