Theory of Constraints Handbook - James Cox Iii [374]
5. Faster replenishment during out-of-stock situations means that there will be much less opportunity for a buyer to have to resort to a competitor’s product.
6. The faster reaction to changes in consumer demand leads to fewer and shorter times of being out of stock of any given item.
In summary, many distributors fight hard with their manufacturers to carry smaller quantities of inventory on better terms. At the same time, the manufacturers are often trying to do the opposite—push larger amounts of inventory to distributors and retailers with more aggressive terms. Each link tries to push their inventory as quickly as possible to the next link in the supply chain. This creates huge gluts of inventory at the retail level. As retailers try to predict, months in advance, what their consumers will demand and order accordingly, it’s 100 percent certain that retailers will have too much of some products and not enough of others during this long time period.
TOC changes this nonsense from a push system to a pull system. Inventory is kept where it makes sense (less at the retail level,11 more at the manufacturer’s and regional warehouses). This is entirely feasible when the time to replenish goods at the retail level is significantly decreased. With these changes, total inventory in the supply chain decreases by two-thirds, while customer service increases.
Four Generic Prerequisites/“Injections” for a Lasting Competitive Edge
There are four prerequisite conditions to achieving any good strategy quickly:
1. A common, correct frame of reference for all management, including a global measurement system that induces and encourages holistic behavior across the supply chain. The TOC framework is driven by holistic measurements (Throughput, Investment, and Operating Expenses) combined with the 5FS.
2. Stable and predictable operations logistics that allow the organization to “turn on a dime.” An organization must be able to meet their customer due date and lead time expectations. Further, as demand increases by large amounts, the organization must be able to respond quickly. If a company responds to a large increase in demand by temporarily extending lead times by a short factor, most customers will find this acceptable. By contrast, if a company extends lead times by more than 15 percent for more than a few weeks, it’s predictable that many customers will start to look for another source, unless the phenomenon is industry-wide. To prevent extending lead times by a large percentage for a long time requires a focus on one or two variables—the leverage points in the operation that must be adjusted quickly. For example, within a forging operation consisting of dozens of production departments, the two leverage points might be in the heat treat ovens and at the forging press. In a labor-intensive operation such as building custom kitchen cabinets, the two leverage points may be in the spray booths, where it’s difficult to train and retain labor, and in the hiring process. A logistics solution that includes quick capacity elevation preparation must be in place and in alignment with the valve to the market.
3. Correct and sufficient marketing. There must be recognition that scarce marketing resources must consciously focus on the few target markets where the company can excel. The implication of scarce sales resources is that lead generation and sales cycle management is a must in a value sale.
4. The ability to implement change quickly and predictably. This means superior project management execution. TOC’s Critical Chain Multi-Project methodology provides the means to drastically cut project durations and increase predictability of successful completion. Critical Chain is not optional—it’s a prerequisite to achieve a VV.
Once an organization has implemented these conditions,