This article: Isn't it Obvious?
|TOC: The unlimited organization|
Why even obvious solutions are not always accepted at once
By Dr Jaap van Ede, editor-in-chief business-improvement.eu
Maybe it is time to substitute TOC (Theory of Constraints) by TOCE: Theory of Cause and Effect. Nowadays, the TOC is much more than a theory which says that you should maximally exploit resources of limited capacity, read: constraints or bottlenecks. A better definition is, according to me: TOC is a method which maps causes and effects, with the idea to find hidden constraints (which can also be erroneous assumptions or even mental blockages) and thus ground breaking business opportunities.
This broader definition of the TOC also paves the way to combine strategy & tactics trees with other improvement approaches on an operational level, especially Lean manufacturing. In my opinion, the demand driven replenishment solution for retail described in the newest book of Eliyahu Goldratt is a clear example of that!
Some parts of the story must be based on real people and places; otherwise this book could not have been so true to life. But there is also another explanation why this book is so cinematic: Ilan Eshkoli and Joe BrownLeer, co-authors of the book, are professional writers of TV and film scripts.
That idea in itself is not new: managers I interviewed often say that they deliberately created a so-called burning platform, which means that there is no alternative then to move, otherwise you burn your feet. Goldratt however goes a step further: he sees everything, also problems you didn’t ask for, as an opportunity to experiment and learn!
Title: Isn’t it obvious?
Author: Eliyahu M. Goldratt
Co-authors (script writers): Ilan Eshkoli and Joe BrownLeer
Publisher: TOCSA Consultants, 164 pages (2010)
In Isn’t it Obvious, Paul White is store manager of a shop within a large retail chain. He sells textiles like towels, table cloths and placemats. In the beginning, like most other managers, Paul still thinks that the only way to operate is to have huge amounts of inventory. That popular articles still will be sold-out when late customers want them, is simply a fact of life. Paul wished he had a crystal ball to predict the behavior of his customers.
Case: The chain-wide buffer replenishment system of Liberty Shoes
The Indian company Liberty Shoes, a large leather footwear manufacturer, has implemented Goldratt’s TOC for retail solution. This is described by Mahesh Gupta and James Cox in their article ‘built to buffer’, published at apics.org.
Liberty Shoes exploits the fact that an aggregated forecast at a central warehouse is much more accurate than the forecasts of individual shops. The inventory in the central warehouse is communicated daily to the five factories. Next, these factories replenish the shoes in the warehouse up to certain buffer levels. Shoes of which the stock buffer in the warehouse is in the red zone, meaning a high risk of stockout in the shops, are produced first.
In the shops relatively little stock per item is maintained. Per item only just enough to be able to replenish it in time when needed. To this end, the stock levels in the shops are communicated daily to the central warehouse.
If the buffer levels for a certain item are almost continuously in the red, the shoe concerned is identified as a ‘fashion winner’. In that case the buffer targets for that shoe are increased. With the suppliers of raw materials a similar buffer replenishment system was set up.
As a result of this new approach, the overall inventories of Liberty Shoes are down by 50%, overall sales are up with 20%, and the inventory turns tripled.
In the past, Liberty Shoes had a two season planning, pushing the shoes as close to customers as possible. This means producing a lot, and hoping to sell those shoes. Now, new products are introduced eight times a year in small quantities. Only after a new shoe has been proven to be popular, the production of that item is raised. So, essentially this is a market-pull system!
> read the entire article on the website of APICS
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