What is the Bottleneck Principle?

The bottleneck principle, or a bottleneck, occurs when a system of production such as facility, machine, or equipment is overwhelmed by production to the extent that it cannot meet demands for more production. When there is congestion or a backup, a bottleneck has occurred. The term "bottleneck" is derived from the narrow neck of a physical bottle. 

How does the Bottleneck Principle Work? 

A sudden rise in demand that overwhelms the capacity of production can lead to a bottleneck. Bottlenecks often result in delays in production, increase in expenses of production, increase in time used for production are traits of bottleneck. 

Another significant impact of bottlenecks is that they affect the ability to project and allocate costs along the manufacturing process. Variance analysis seeks to identify potential bottlenecks and allow for planning of changes in the production processes. It differentiates budgeted results from actual results.