#06 – Maximizing Revenue Under Constraints
How do you maximize revenue when scarcity is the new norm? Harnessing constraints in labor, equipment, and facility capacity is crucial. Host Judson Rollins takes a closer look at how to optimize around resource constraints when planning your capacity, schedule, pricing, and sales strategy.
Goldratt’s Theory of Constraints, traditionally applied to manufacturing and retail, has become highly relevant to cargo and freight transport. There are five key steps to optimize for resource constraints, driving a continuous cycle of maximizing resource efficiency and revenue generation.
What you will learn in this episode:
- How to optimize for resource constraints when planning your capacity, schedule, pricing, and sales strategy
- Goldratt’s five steps: identify, exploit, subordinate, elevate, avoid inertia (and repeat)
- Precision scheduled railroading: a case study in what NOT to do
- Prioritizing short-term network revenue vs. long-term customer revenue when you can’t serve everyone
- Identifying your constrained capacity unit and the importance of knowing your unit revenue
- Ensuring every customer relationship is profitable
- “Don’t allow inertia to become your new constraint. Elevating your previously constrained resource should make it no longer your tightest constraint. This means something else will in turn become your key constraint, which requires you to adapt your service and schedule all over again.” [4:39-4:58]
- “Capacity planning has traditionally started with equipment. But now it has to start with labor availability, especially drivers, pilots, and ship crews. Once you know how many planes, trucks, and ships you can actually staff, you can adjust your fleet size to match.” [7:30-8:03]
- “Short-term network revenue versus long-term customer relationship value is a trade-off you have to make. They’re the commercial factors that should decide which markets and which customers you prioritize in a capacity-constrained environment. Making trade-offs that maximize revenue require you to know your unit revenue. In other words, revenue per unit of capacity.” [9:21-9:43]
Theory of Constraints Institute: https://www.tocinstitute.org/ “The Goal” by Eliyahu Goldratt “It’s Not Luck” by Eliyahu Goldratt