Theory of Constraints Handbook - James Cox Iii [410]
2. Number of opportunities in the various stages of the funnel—the more the better.
3. Number of projects a designer is working on—the more the better.
We need to make sure we are not using measurements or policies that aim to increase local efficiency and by that jeopardize the flow of opportunities in the funnel.
Second guideline: Stop incentivizing to increase the number of open projects in the funnel. Check if there are other local efficiency policies, measures, or behaviors that jeopardize flow.
We applied the first three concepts of supply chain to our sales funnel management approximately 3 months ago (mid-July). We expected that our hit ratio and sales-cycle duration would be improved as better attention would be given to each opportunity. We speculated that the Throughput per order would grow as better projects would be introduced. And, of course, we predicted that sales would grow as the flow of better projects would be dramatically improved.
We would like to be very cautious about concluding the results achieved, as they have been way above what we have expected. The following results (also presented in graph form) achieved in the last three months since we have implemented the choking, are measured on a rolling five weeks average:
Hit ratio increased from 11 to 40 percent (Fig. 21-5).
Sales cycle duration shortened from average of 32 days to 17 days (Fig. 21-6).
Average Throughput per order grew from 52 to 68 percent (Fig. 21-7).
FIGURE 21-5 Hit ratio
FIGURE 21-6 Average sales cycle in days.
FIGURE 21-7 Percent Throughput per order.
What about sales? Here we need more time to assess the effect, not because sales have not grown. On the contrary, we know that sales have grown by much more than 20 percent. However, this growth had its effects on the plant. We have learned the bitter lesson of not contemplating the negative effects of success. In October, we had to postpone many orders to November, we had orders being canceled, and our salespeople’s attention was shifted to dealing with not-so-pleased clients—to say the least (I estimate this has occupied at least 30 percent of their time). It will take us two more months to assess the magnitude of the growth in sales.
These results were achieved by applying the first three concepts of supply chain. The following is a description of the way we are going to apply the fourth concept. It should be read, therefore, as a possible way to apply it, and not as a model that has already been tested and proven.
A Focusing Process Must Be in Place
The fourth concept of supply chain states the following: “A focusing process to balance flow must be in place.” In practice, balancing the flow means to eliminate any major disruption to the flow. In production, disruptions become apparent by the accumulation of WIP inventory. WIP accumulates where there is a disruption to flow. The first rough mechanism to balance flow is to simply identify the points where WIP is accumulating and take measures that would open effective capacity (typically there is much hidden capacity to expose). The ongoing elaborated mechanism, which Goldratt refers to as the process of ongoing improvement (POOGI), involves registering the reasons where work orders do not progress as expected considering the buffer time that was consumed. An analysis of the common reasons reveals where a focused solution will provide the biggest contribution to flow.
Turning to the environment of sales opportunities management, it is apparent we cannot apply the same POOGI mechanism. Looking at where most opportunities (WIP) accumulate does not necessarily indicate a disruption to flow, as it could be a step that simply takes much longer to carry out. Delays are certainly an indicator for disruption to flow and therefore should be an element to consider as part of the POOGI. However, in sales, unlike production, there is a much more critical indicator that should be addressed, on top of delays, for a disruption to flow—dropouts.
When designing the POOGI mechanism for