Theory of Constraints Handbook - James Cox Iii [377]
The revelation was that when the proper logistics and improvement on production lead times was put in place, the manufacturer could deliver 20 percent of their orders in a quarter of industry standard lead time without extra costs, and some part of the market was willing to pay a handsome premium for the shorter lead time. There is no question that these segments exist. The only question is how big they are within given target markets.
The ultimate in exploiting this strategic segmentation is in a sales strategy where salespeople are dedicated to finding these premium deals. In these cases, the manufacturer can reserve capacity for premium segments, and double or triple their profitability by concentrating on finding those prospects in the market whose perception of value for the premium service is high.
Desirable Effects of a Good Strategy
Within every TOC strategy, there is an explicit set of desired effects (DE) defined. We must achieve these results. Ideally, DEs are measurable, tangible conditions. For purposes of strategy, we want these conditions to perpetuate indefinitely.
In the TOC FRT structure, these are explicitly listed as DEs. Within an S&T structure, these are stated as strategies (what we are striving to achieve) at each level. For example, if you look at the manufacturing S&T, level 4 under the 99 percent DDP, there are three key strategies that you can consider as DEs:
1. The shop floor is populated only with orders that need to be filled within a predefined horizon.
2. The shop floor is governed by a simple yet robust priority system. For example, in one company with several hundred large pieces in WIP at any point in time, red, yellow, and green tags were placed on all pieces. The shop floor operators could choose any one of the pieces of the highest priority color to work on. When following the first principle of limiting WIP, the operator typically had a choice of only one or two pieces. The operators and their supervisors claimed that this simple visual system was the best one under which they had ever worked. Every shift, colors were changed on the few pieces that had moved from one status to another.
3. Orders are shipped on time (>99 percent, for example).
If we achieve these three DEs, and have these conditions existing on an ongoing basis, then we should have the DE shown as strategy in the next higher level 3.1—the company has very high DDP (> 99 percent, for example).
To achieve the three necessary desirable effects of a good strategy—goal units are increasing now and in the future, employee security and satisfaction exist now and in the future, and the organization is satisfying its markets, now and in the future—the following generic DEs are the stepping stones:
1. Every major change effort achieves quick, measurable results (quick implies within 8 to 12 weeks).
2. The company has a decisive competitive edge within many (>5, preferably >10) market segments.
3. The company’s employees are easily shifted between market segments.
4. The market is the constraint. This statement requires some clarification. The assumption has been stated frequently within TOC conferences that there is no real market limit to company growth. The world economy (with exceptions of brief periods over the past 200 years) continues to grow. With billions of new consumers just starting to enter the market with real buying power (e.g., China and India), the world demand for goods and services will grow exponentially. Therefore, market potential is not the constraint. When we declare the market constraint to be a DE, it means that we choose not to be constrained internally. We choose to expand our organization, at our will, based on the rate of growth that we believe is good for our organization.
5. The company has no monopoly in any product or service. This gives the organization the ability to withdraw or decrease service from a market