Theory of Constraints Handbook - James Cox Iii [215]
FIGURE 11-11 An Inherent Simplicity simulation example. (© 2010 Inherent Simplicity. All rights reserved.)
However, this simulation has a few significant drawbacks that are very important to emphasize. The first two drawbacks are general and apply to most simulations:
1. A simulation is based on certain assumptions (such as the actual replenishment time, frequency of replenishment, etc.); one invalid assumption might cause a very different result in the simulation versus real life.
2. Human behavior cannot be simulated by the computer unless some very specific assumptions are modeled, ones that will not be simple to quantify.
The second drawback is quite large, and could cause the following six misalignments between the simulated state and what would have happened in reality had the TOC solution been implemented. The first three of the six emphasize the focus on T, on which the old environment failed to capitalize; the second three examine the impact on OE.
1. More sales are generated by the TOC solution due to elimination of item shortages in the real-life situation. Since there was no stock, a sale could not occur even though in the simulated state the stock might have existed. Additionally, recognize that these lost sales might be as high as 15 percent! (Reality will have better results than the simulation.)
2. More sales are generated by the TOC solution due to the change in the retailers’ focus from slow- to fast-moving items. (Reality will have better results than the simulation.)
3. In the longer-term, more sales are generated through the TOC solution due to the improvement in the company reputation for short lead times and high due date performance. (Reality will have better results than the simulation.)
4. Less obsolescence (depends on the environment) is achieved by the TOC solution due to the higher inventory turns. This can be calculated roughly based on the difference in inventory turns between the simulated state and the real-life state. (Reality will have better results than the simulation.)
5. Frequently, higher transportation costs are generated by the TOC solution. This can be calculated based on the assumptions on frequency of replenishment, although usually other factors might affect the calculation, such as the rate of acceptance of the suppliers to switch to rapid replenishment. (Reality will have worse results than the simulation.)
6. In the TOC solution, cross-shipments are virtually eliminated. Expediting shipments are also reduced significantly. (Reality will have better results than the simulation.)
Because of these drawbacks, the simulation is only useful in giving a general direction of the solution and for buy-in purposes because it usually underestimates the magnitude of benefits of the TOC solution.
Pilot Project
Running a pilot project on a small part of the business prior to implementing the solution across the business is a valid way to test the solution and its ramifications. For a large organization, starting the solution on a part of the system makes a lot of sense. The following points are important to note while conducting a pilot project.
Design the pilot based on valid test parameters. The pilot and control group test sites should be selected so that the pilot and control group results are meaningful for the current set of conditions (economic, organization, product, etc.). The historical data of results should be similar for these two sites. The distribution/replenishment pilot is then implemented over a sufficient test period (generally three to six months). The test period should be long enough to eliminate