It's Not Luck - Eliyahu M. Goldratt [82]
“And this,” I follow the arrows, “leads to a substantial reduction in shops’ profitability.”
“Very substantial,” Susan agrees.
“Alex, you’ve got to see the last branch,” Bob is clearly proud of their tree. “You won’t believe how crazy this industry is. Susan show him.”
Susan is not overflowing with enthusiasm. In a dry tone she continues, “As you know ‘Brands are constantly releasing and advertising new product lines.’ ”
“Now more than ever,” I say.
“Yes, definitely,” she confirms. “Combine it with ‘There is considerable mismatch between the shop inventory and actual customers’ demand,’ and the result is obvious: ‘Shops are holding a goodly amount of relatively obsolete products.’ They know that they cannot hold these ‘old’ products for long, and therefore, ‘Shops offer considerable discounts on relatively obsolete products.’ This doesn’t help their profitability.”
“You see, Alex,” Bob explains the obvious, “exactly when we invest a fortune to persuade the consumers to buy the new line, the shops are going out of their way to persuade them to buy the old line. Talk about a mismatch.”
“Let me understand,” I say. “From your tree the core problem is clear. It’s our policy that drives the shops to buy in large quantities. How large is large? I mean, in terms of the shop’s weeks of sales?”
Susan volunteers an answer. “It depends on the size of the shop, but in any event I think that it’s more appropriate to talk in terms of months than weeks. If I judge by the frequency shops are ordering from us, I would say that a big shop orders from us in batches of one to two months. For a small shop . . . about six. The average is somewhere around four months, I guess.”
“I see. That’s good.”
“Why do you say that?” Don is surprised.
“We are a major part of the problem,” I answer. “This means that we can be a major part of the solution. Okay Bob, let’s see your proposed solution.”
Bob turns to Jeff, who until now hasn’t said one word. “Your turn,” he gestures to the flip-chart. Susan can barely hide her sigh of relief. Why are they afraid of me?
Jeff clears his voice. “The solution is quite obvious.” He flips a page. “Basically the Future Reality Tree is a mirror image of the Current Reality Tree. We started with two injections, ‘Discounts are not based on the size of the order, but on the dollar amount the shop orders per year,’ and, ‘The shop is replenished on a daily basis.’ From these two injections, and following the logic outlined in the Current Reality Tree, everything fell in place.” And he sits down.
I scan the Future Reality Tree. No surprises. These two injections lead nicely to the opposites of all the UDEs. Jeff is right, there’s no need to read this tree aloud.
“If you notice,” Bob says, “one of the injections is based on our new distribution system. This will guarantee that our competitors will not be able to offer the same. At least not for a while. Knowing them and the way they operate, it will take them at least two years to copy us.”
“Great work,” Don is beaming. “Our road map does work. You have done a great job.”
“Your road map was excellent,” Bob agrees. “It was a no-brainer.”
There is a problem, I think to myself. There must be a big problem, otherwise why hasn’t Bob revealed this solution to his people? He must suspect that I will not approve it. Why? It looks perfect. I can ask him, but it will be better if I find it myself. Think.
I stand up to refill my cup. This is my standard way to gain time. It doesn’t help. I still don’t have a clue. Before I give up and ask Bob for the pitfall, I turn to Susan, “How much, do you think, will this offer increase our sales?”
“In the long run, a lot. Maybe even thirty percent. Maybe more.”
“And in the short run?”
“It’s hard to tell,” she fudges.
“What’s your guess?” I press.
“Probably sales will drop. But not by much.”
“Sales will