The profitability of any business heavily depends on its operational productivity and efficiency. A company may have several customers but still have profitability issues if it delays meeting their needs. To ensure smooth operations in your company, you need to learn about bottlenecks and how they can affect a company’s productivity and finances. Luckily, this article answers the question, “what is a bottleneck in business?”.
It will also explain how a bottleneck can affect a company’s products and give tips to help you properly handle a bottleneck situation.
To learn this, read this article to the end.
Meaning of a Bottleneck in Business – What is a Bottleneck in Business
A straightforward definition of a bottleneck in business is any form of setback or blockage that causes a delay in a business process.
It is any situation where the production capacity is insufficient to meet the request or work volume.
It is also a congestion point in the production line that either significantly slows down or stops production.
When a bottleneck happens, it can not only create delays, but it can also increase production costs.
Bottlenecking is the process that results in a bottleneck, and most companies experience this process when they begin a new production process.
They may start using new equipment or software or just starting a new product production.
The reason is that, at this point, the company has yet to straighten out all the aspects of new production.
Furthermore, they need to identify and correct certain mistakes and issues in the production process to ensure smooth operations.
This is why operations management is essential in production processes.
The operation manager(s) would focus on every aspect of the production process.
They would look for potential bottlenecks, identify them before they happen, and then find the best solutions for the problem.
Why is it Called a Bottleneck – What is a Bottleneck in Business
Knowing why this business challenge is called bottleneck will help you understand the concept better.
This is because it provides the right analogy for the situation.
A bottle’s neck is naturally narrower than the rest of the bottle.
This makes it the most likely point for any form of congestion.
If you were to shove a solid item down a bottle, let’s say a folded piece of tissue, you’d have a hard time passing it through the bottleneck.
But once you pass that point, the tissue will easily slide down the remaining part of the bottle.
The same happens if you try to bring out the tissue from the bottle.
You would have to pull it hard for it to come out of the neck of the bottle.
This is the same thing with the congestion point in any production process.
It becomes harder to carry out production when there is a blockage.
This is why this business problem is called a bottleneck.
It refers to the narrow bottleneck shape with a higher tendency to cause congestion because of its thin nature.
Types of Business Bottlenecks – What is a Bottleneck in Business
There are 2 types of bottlenecks in business.
They are short-term and long-term bottlenecks.
Any business that makes its profit through production or manufacturing may encounter these bottlenecks at one point or another.
With that said, let’s take a quick look at each of them individually.
As the name implies, a short-term bottleneck does not last for too long.
It could last for some weeks at most.
This makes it less damaging than its counterpart long-term bottlenecks.
This is because they do not last long enough to cause too much damage, but they are still dangerous.
Short-term bottlenecks are usually due to temporary situations or events.
For example, if several employees are sick and absent from work simultaneously.
In this case, the bottleneck will be resolved once employees return to work.
A long-term bottleneck would typically last for months.
This kind of bottleneck can be quite detrimental to a company.
It can affect the company’s production, revenue, and finances.
Long-term bottlenecks are typically due to more serious issues and events.
For example, if several pieces of equipment become faulty simultaneously or the company’s machinery is outdated.
Bottlenecks in Manufacturing and Services Industry – What is a Bottleneck in Business
So far in this article, bottlenecks have been spoken of only in terms of production.
Therefore, making it seem like this problem cannot happen in industries that are not into manufacturing.
This, however, isn’t the case.
Bottlenecks can happen in any business.
To explain this possibility, let’s give examples of bottlenecks in manufacturing and the services industry.
Bottleneck in Manufacturing
When it comes to manufacturing, a bottleneck is any situation that slows down or halts the production process.
This issue can typically occur at any stage of production.
Let’s use a furniture manufacturing company for our illustration.
In this company, the stages of production are getting raw materials, assembling furniture, and then moving the completed work to the inventory.
Now, the above stages have sub-stages but let’s focus on the main stages of the production.
A bottleneck can occur in any of these three stages.
For instance, let’s say the bottleneck occurs in the first stage.
The company may not have the transportation means to move the raw materials to the factory for production.
If this happens, the second stage of the production can’t progress.
This means that machines and workers in the second stage would be idle.
This would lead to the underutilization of these resources.
Since workers are being paid regardless of their not working due to this problem, the bottleneck would eventually lead to an increase in production cost.
Bottlenecks in the Services Industry
Bottlenecks are also possible in the services industry.
Once the business cannot meet up with the influx of demand it is getting, then it experiences a bottleneck.
Since many services are human-based, the causes of bottlenecks in the service industry are usually human-related.
And it is common to find bottlenecks in this industry because humans are limited in how fast and efficiently they work.
Let’s use a hairdressing service to illustrate a bottleneck in this industry.
The number of persons one hairstylist can attend to in a day is limited.
This number can significantly drop based on the kind of hairstyle customers want.
Some styles are more complicated than others and would take longer to complete.
Now, if this hairstylist runs a one-person business, they would easily encounter a bottleneck on days when there is an influx of customers.
Customers who come in while the hairstylist is currently working on a customer would have to wait in line, resulting in a backlog.
In a case like this, hiring more hairstylists would be the best way to reduce the bottleneck.
Effects of Bottlenecks – What is a Bottleneck in Business
The following are some common bottlenecks that can affect a company and its production process.
Increased Production Costs and Reduced Profits
A major thing that often indicates the presence of a bottleneck is an increase in production costs and reduced profits.
This effect of bottlenecks causes a company to suffer financial loss when experiencing this problem.
This happens because the company would be putting in more money to ensure it meets its demand.
But sometimes, the bottleneck may persist regardless of how much money is put into production.
This is usually the case, especially if it isn’t identified and tackled accordingly.
Therefore, companies should consider having emergency funds.
This fund would make it easier for them to manage the risks in such situations.
So, whenever production slows down due to a bottleneck, they can use the emergency fund to finance the additional production costs while looking for a solution to the problem.
Could Lead to Excessive Stress and Burnout
In the case where a bottleneck is a result of increased demand, it may lead to employee burnout.
This is because employees may have to take on more tasks or work more hours to ensure the company meets its demand.
If this situation continues for a long time, the employees will suffer from burnout.
Situations like these often lead to employee turnover.
This would intensify the problem further because as workers leave, others will have to step up and fill in their spots.
The best way to handle this effect of bottlenecks is to hire more hands if possible.
But if this isn’t possible, you should offer your employees incentives to make their job less stressful.
For instance, you could offer them extra time off.
So that once things get back to normal, they can take time off to rest and recuperate.
Can Cause Problems with Suppliers
Bottlenecks can significantly affect a company’s finances, and they can also affect its payment process.
This can lead to problems with supplies if the company delay payments.
This friction between the company and suppliers can further cause financial loss for the company.
For instance, they can lose the discounts the supplier offered them.
They could also be unable to get the materials they need from the suppliers to facilitate production, which would only worsen the bottleneck problem.
When a company experiences a bottleneck, it won’t be able to meet its demand as promptly as it should.
This can result in shipping or delivery delays.
Customers may become unsatisfied with the service they are getting from the company.
This can make them stop patronizing the company and switch to competitors.
This will significantly affect the company’s profitability, especially if many customers decide they can no longer cope with the company and its services.
In a case like this, the company’s marketing team has to try to save the situation as best as possible.
They need to devise a great way to communicate the company’s current situation to the customers.
They also need to make them understand that the problem is only temporary and things will return to normal soon enough.
Properly communicating this to the customers will make them understand the situation and stick with the brand through the storm.
This is the major effect of a bottleneck that ends up creating all the other effects listed so far.
When a company experiences a bottleneck, its operation will not be as smooth as it should be.
It does not matter whether it is a manufacturing company or a services company; a bottleneck’s effect on the company’s productivity will be the same.
This is why a bottleneck should be identified and tackled as soon as possible.
Signs of a Bottleneck
It is almost impossible for a bottleneck to go unspotted.
This is because it would surely cause a delay or wrinkle in how the business operates.
However, spotting a bottleneck in its early stages would help you solve it before it causes irreparable damage.
With that being said, below are 3 significant signs that might mean you are experiencing a bottleneck.
Prolonged Wait Times
If you notice that the wait time between stages of production or business processes is becoming longer, then you may have a bottleneck issue at hand.
High Level of Stress
If you or other members of the workforce start feeling a higher stress level at work, then it may be an indication of a bottleneck.
Specifically, if employees have to work overtime or experience anxiety and stress because a particular production stage isn’t fast enough, it may be time to look into things.
Finally, if work gets piled up in one production stage while the next stage does not have enough work, then you may be experiencing a bottleneck.
How to Identify a Bottleneck – What is a Bottleneck in Business
Knowing you have a bottleneck and then identifying exactly where it is coming from is key to tackling the situation.
However, identifying a bottleneck can be quite a task sometimes.
But with the right approach and tips, you should find it easier to do.
Therefore, here are the best ways to identify a business bottleneck.
This approach involves evaluating the entire workflow and determining what is or isn’t working.
Also, the cause of the delay; is it because of the whole process or because of a particular system (equipment/software) or performer (human-based)?
When it comes to process mapping, one of the effective ways to find out more about the business process is via flowcharts.
With flowcharts, you can quickly and easily break down complex business processes to identify the issue.
Also, you could use any software with a great process management tool to break down your business processes.
5 Whys Approach
This is a questioning approach that will enable you and other members of the team/workforce to pinpoint the place of congestion and understand the cause of the congestion.
With this approach, first of all, describe the problem.
After you have done this, ask why this problem is happening.
You would ask why this problem happened and provide an answer.
The 5 whys approach uses questioning of events to get to the issue’s root.
For example, the problem is that raw materials delivery was delayed.
- Why? The raw materials were not ordered early enough.
- Why? Approval for the raw material purchase did not come in early.
- Why? The manager in charge of approval did not sign off on the purchase on time.
- Why? They were on vacation and did not check their work email until they returned.
- Why? There is no backup plan to facilitate approval in situations like these.
And just like that, you would have identified the cause of the bottleneck.
You can then solve the problem accordingly.
How to Handle a Bottleneck – What is a Bottleneck in Business
The following tips will help you handle a bottleneck better when you experience it in your business.
Recognize the Signs of a Bottleneck
Being able to detect a bottleneck is the first step in handling it.
As discussed in the section above, there are so many signs that would indicate this problem.
All you have to do is watch out for these signs.
You can also use tables and boards to monitor the work processes properly.
This way, you can quickly spot any inconsistency that may result in a bottleneck.
Take Immediate Action to Resolve the Situation
Once you notice any sign of a bottleneck, you need to act quickly.
You do not want to leave it, hoping it will resolve itself.
Chances are, it won’t.
Instead, it may end up growing more extensive and causing more damage.
And just like that, a short-term bottleneck can become a long-term bottleneck.
Hire More Employees
If labour is the bottleneck, you can easily solve it by hiring more employees.
This would help speed up production and ensure you meet up with demand.
If the demand spike happens seasonally, for instance, during holidays, you should always hire additional employees during these periods.
Conclusion on What is a Bottleneck in Business
A bottleneck in business is any form of setback or blockage that causes a delay in a business process.
This blockage typically makes it difficult for businesses to meet up with demand.
Bottlenecks can happen in any type of business.
This means that it doesn’t matter if you run a manufacturing company or not.
You would eventually encounter a bottleneck at some point in your business.
Therefore, the best way to prepare against it is to know how to spot, identify, and handle it.