The All Blacks, Bottlenecks & the Theory of Constraints

Apologies once again for the mix up with Sam Stosur last week, in the end it appears that the “hoop la” of being in her first final was a little too much. Still that’s the great thing about sports; sometimes it’s simply who wants to win the most who makes it, rather than the favourite coming into the match. The All Blacks certainly bear testimony to that “reality check” with their World Cup final performances.

Trying to pick market trends and the direction on the Aussie stock market coming into the financial year end is frankly a casino. No one knows what “tax” motivations exist out there from investors both large and small. However the upside to this is that you would expect the market to be positive in July as people re-establish their positions.

That said, last year was interesting as the Australian All Ord’s dropped by 3.5% in the first two weeks of July only to power up and increase in the last two weeks by 13.2%. Overall this gave a 9.7% return in July 2009. So maybe we should all subscribe to the “random walk” theory and simply consider the stock market to be a longer name for “casino”. CFD’s are already nicknamed “casino for delinquents”. Still, The Wrinkle will consult the “runes” and give you his view on the market in early July.

Today I’d like to talk about something The Wrinkle came across several decades ago (an oldie but a goodie), and is covered off in a book first published in 1984. This is the “Theory of Constraints” and applies to all business activities including service industries. The Theory is quite simple in that business processes and production all have bottlenecks, and while you can increase the pressure going into a bottleneck; ultimately what flows through is determined by the size of the bottleneck. Ergo your total output or productivity will be determined the size of the neck of your bottle.

Bottlenecks aren’t always obvious, and sometimes it takes some lateral thinking to determine where they exist. The goal is simply to go through your business and expand your worst bottleneck, which in turn will create a new “worst” bottleneck and then expand that and so on. Obviously this is similar to the Japanese concept of “kaizen” or continuous improvement in business process, however the use of this simple analogy allows for very quick and effective understanding and implementation.

There has been a lot research and many books written since the first, so feel free to do your own looking around. However it’s been The Wrinkle's experience that headline quotes are sometimes enough to give you a quick understanding and that the original source is often the best.

“The entire bottleneck concept is not geared to decrease operating expense; it’s focused on increasing Throughput” (p294 The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt)

“Throughput is defined as the rate at which the system generates money through sales.” 

The quote and definition make an excellent starting point and are pretty much all you need to know to get underway. So have another look at your business through fresh eyes and get some change underway.

This week we are short, simple, and hopefully powerful in the message. Good luck and for those of us with a holiday on Monday I hope you all have an enjoyable long weekend.