Where to Invest Into Your Small Business

Investing into your business is essential if you want it to grow. Your company is a living organism and it must be fed, the question is how to feed it. In “Growth Strategy, When to Step Up Capacity” we addressed when to step up capacity, here we address where the focus should be. Throwing money or time into an area that won’t help you grow is a waist, you need to identify where the efforts are required and focus your investment accordingly.

Using the theory of constraints (TOC) as a tool to direct our efforts the first step is to identify the constraint. What is the current bottle neck of the operation that is constraining through put and ultimately the company’s ability to perform? The constraint can be a physical process, a policy, or even the culture that the company has been built upon.

Working on any other aspect of the business may have positive second or third order affects but it will not address the core issue that is currently keeping the business from growing. Growth must be funded and a growing company that cannot support its own growth is a dying company.

Subscribing to the TOC way we assume there is a single fundamental conflict standing in the way and it is our goal to identify it and leverage it to control the business. The five focusing steps are applied.

  1. Identify the constraint
  2. Exploit the constraint
  3. Subordinate to the constraint
  4. Elevate the constraint
  5. Go back to step one

 

This process of ongoing improvement (POOGI) works to gain control of the single factor that is limiting the company as a whole. Steps 1 through 3 should have no additional cost and can increase the throughput of an organization by 60%. Steps 4 and 5 are pursued when more capacity is required.

If you are wondering how all of this is possible allow me to paint you a picture. If your business can be described as a series of 7 processes each with a unique finite capacity it may be illustrated like this.

The flow moves from left to right through the 7 processes and each process is dependant on the one before it. With this senario what would you say is the constraint? If you said process 4 you would be correct. As a whole if process 4 can only complete 4 units a day the business can only complete 4 units a day. The capacity of the other processes mean nothing when looking at the big picture. If you think of the constrint like a valve, once you find it you have the ability to controle the flow of the company.

The next question that I hear you asking is “what if the constraint changes?” Good question. In many environments the constraint can hop around depending on a slew of variables. If this is your environment I would suggest you do your best to minimize the constraints movment as much as possible. This can be done in many cases by simply declairing one element as the constraint and elevating all other processes to a point at which they never serve as a bottle neck.

If you are able to get your organization to a place at which it has a single point of control you will be amazed at the resultes. Due date preformace will go through the roof, lead times will be cut dramatically, and your customers will love you for being so consistant. In manufacturing quality increases as variablilty decreases, we are simply decreasing the variability of the overall production process.

TJ

About TJ

Engineer and Entrepreneur