Identification of Constraints

• When faced with limited resource decisions, the manager must identify the major constraints -- limited resources -- facing the production system. Identifying the constraints is the same as finding the weak link in the production chain. If the weak link is limited skilled labor, the manager will be able to identify ways of maximizing the limited skilled labor. This may be through increasing the working hours or eliminating time-wasting activities in the production chain. Upon identifying the production constraint, the manager is able to plan and control the resources with regard to the major constraint.
  
  

Contribution Margin

• The contribution margin is the profit generated by the sale of every unit or item produced. When faced with limited resources, the manager's goal is to identify which product will bring more profits for the business. After considering the constraint or limited resource, the product with the highest contribution margin per unit of the limited resource is the product that should be produced. For example: Product A has a contribution margin of $100 and takes 50 minutes to produce, and Product B has a contribution margin of $90 and takes 30 minutes to produce; the company has 200 skilled workers. The contribution margin per unit of limited resources for A is $2, while for B it is $3. The manager's goal is to produce product B and abandon product A.
  
  

Reducing Costs

• An essential goal for the manager is reducing the cost of production as much as he can. The cost-benefit decision-making technique is particularly applicable in determining how to reduce the cost of production. Costs are those activities in the chain of operations that incur overhead expenses. Benefits are operations that are profitable to the business. The manager's role is to list the costs and evaluate them against the benefits. If the costs are higher than the benefits, then these costs need to be lowered to take into consideration the limited resources.
  
  

Avoid Overproduction

• Large inventories are not necessarily profitable. A manager faced with limited resources must guard the business from overproducing to cover up for the limited resources. The goal of the manager should be to use the resources he has to meet the prevailing or current demand. This ensures that the business does not waste space due to excessive inventories that do not yet have customers to buy. For example a company with 20 workers may be tempted to produce 2 million shirts a month when it only sells 20,000 shirts a month, to cover for the limited number of employees. But this overproduction does not result to selling all the 2 million shirts that month; profits remain constant, yet labor, material and time were expended.