What Is a Bottleneck in Business? Definition and Examples

When you’re organizing complex business operations, some steps are bound to be more challenging than others. The key to effective logistics management is ensuring those steps don’t slow down the whole process.

Bottlenecks can present serious issues for supply chains, reducing productivity and hampering profits. But what is a bottleneck in business? And how can you remove them from your organization's processes?

What is a bottleneck?

A bottleneck is a point of congestion in a system that slows the entire process down. A bottleneck in business may impact your organization’s profits by increasing production costs or reducing throughput.

Bottlenecks are prevalent in manufacturing. For an example of the bottleneck effect, imagine a production line. It can assemble certain components rapidly, but a later stage in the manufacturing process takes longer, creating a backlog of unprocessed parts. In this instance, the bottleneck can be addressed by hiring more people to work on the troublesome stage or increasing the machinery and space devoted to it.

Another common issue that may create a bottleneck in manufacturing is a delay in the delivery of materials. Short-term, unexpected bottlenecks may arise if bad weather or customs delays make it harder to source materials from overseas. Unforeseen bottlenecks are inherently challenging, but business leaders would be wise to consider contingency plans.

Types of bottlenecks

More specific examples of what could cause bottlenecks depend on your industry and circumstances. Here are some of the most common kinds of bottlenecks to look out for:

Process bottlenecks

A process bottleneck may occur if there's poor communication and project management. For example, an issue with one area of development may hold up the entire project, or unhappy stakeholders may request last-minute changes.

Resource bottlenecks

Not all bottlenecks originate on the factory floor; some arise from inefficiencies in the procure-to-pay process. A hold-up due to a lack of resources is known as a resource bottleneck.

These are common in the hospitality, food, and beverage industries. For example, the popular U.K. restaurant Nandos, whose primary product is spicy chicken, was forced to close nearly 50 locations in 2021 after supply chain issues caused it to run out of chicken.

Capacity bottlenecks

In a manufacturing scenario, a capacity bottleneck may occur if one part of your production line is slower than others. For example, you may be processing bulk dry solids with a sorting mechanism that can handle a given volume of product per hour. If this rate is slower than the preceding steps, your entire production line is limited by its speed, resulting in a bottleneck in production.

People bottlenecks

Staffing issues often bottleneck small and medium-sized businesses. When decisions from numerous departments must go through just one manager, your business risks being held back. If your employees stand idle because they're waiting for you to sign off on something, consider delegating some decisions to make your business more efficient.

Understanding bottlenecks and production capacity

Bottlenecks are an inevitable consequence of an imperfect world. Be wary of setting throughput standards based on theoretical capacity, a metric that assumes no machine downtime and no staffing issues.

To better understand productivity, examine your practical capacity — the maximum throughput after factoring in real-world constraints — and find the processes that take up the most time. If your practical capacity is inadequate because one stage delays each ensuing step, the slower operation is considered a bottleneck. You could increase your production capacity by improving it.

The effect of bottlenecks on production volume variance

A difference between the budgeted cost of production and the real-world cost is known as a production volume variance. Consistent variances can seriously impact a business’s profits.

Bottlenecks in production slow down throughput, increasing the number of man-hours required per unit. This drives up labor costs, therefore increasing variance. Variance can also occur when materials spoil or experience damage while waiting behind a bottleneck.

Removing bottlenecks can reduce staffing expenses and lower costs associated with wasted materials.

Benefits of identifying and managing bottlenecks

Fixing bottlenecks can benefit more than just your bottom line. These are some other key benefits of minimizing bottlenecks:

Reduced staff burnout and turnover

Morale improves when staff no longer need to work overtime or “crunch time” to complete production and meet deadlines. Reducing bottlenecks prevents burnout and reduces turnover, saving the company money on sick days and the time required to recruit and train new employees.

Better customer relationships

Unforeseen bottlenecks can leave customers hanging and damage your reputation. A reliable production process will improve your customer relationships by reducing the risk of backorders and improving delivery time estimates.

4 tips to prevent business bottlenecks

Some bottlenecks result from complex supply chain interactions or industry-specific issues, but plenty arise out of more universal struggles. Here are ways to minimize common bottlenecks in business:

Monitor and forecast demand

If bottlenecks tend to be seasonal or occur during periods of high demand, such as a sale or promotional offer, try adjusting your demand forecasting models for greater accuracy.

This strategy is particularly beneficial for food and beverage businesses. If you make a product that's popular during the summer months, increase production in the run-up to your busiest times and scale down production or switch over to a different product in the winter.

Look for trends in your data

If you can’t locate the bottlenecks in your current processes, look through your data. Do any workloads exceed their expected capacity? Is there a backlog somewhere you wouldn't expect? Are waiting times longer than usual?

Avoid blaming a late delivery on the person or process that last handled the delivery. Trace the shipment back and find out what caused the very first delay. Use a fishbone diagram to map out potential problem areas so you can accurately diagnose the problem.

Streamline your processes and workflows

Poor communication and overcomplicated workflows often cause bottlenecks. Review your current processes and look for areas requiring improvement.

This approach applies equally to physical production lines, creative industries, and software development. If a machine or person on your team can't work until another process is complete, look for ways to optimize the process or reduce the potential impact of overdue deliveries and breakdowns.

If supply chain issues frequently delay your workflow, invest in better supply chain visibility tools to track resource usage, predict demand, and improve order processes.

Invest in weak areas

Sometimes, no amount of changes in planning will increase a process’s efficiency. You may need to hire more staff, devote more space to a specific area, or improve your tools and equipment.

Investing in machines with higher throughput or automation software is often the difference between a significant bottleneck and a seamless production line.

Eliminate communication bottlenecks with Orderful

Bottlenecks are congestion points that impede the efficiency of a production system. Many factors can cause a bottleneck, from short-term labor shortages to problems with machinery to general inefficiencies. Such issues may require complex, long-term solutions.

A common source of bottlenecks is inter-organizational communication. Sending purchase orders, invoices, and other documents over outdated channels can lead to costly delays. Fortunately, there is a simple solution.

Your business needs a modernized electronic data interchange system to overcome these hurdles. To learn more about how cutting-edge EDI can boost your organization's performance, contact Orderful today to speak to one of our EDI experts.