Theory of Constraints Handbook - James Cox Iii [483]
UDE: We have too many stockouts.
Building the UDE Cloud:
[B]: What need is jeopardized?
[B]: Secure revenues from selling products the market wants to buy from my shop.
We [shop owners] know that we make money by selling products to consumers (the people who come to the shop). Consumers who come to our shop and do not find what they want do not generate any income for the shop. Consumers also may not come back. Hence, availability is important.
[D]: What actions do you have to take to meet the jeopardized need in B?
[D]: Buy the products that are selling well as urgent orders with special deliveries.
[C]: What other important need prevents you from always taking the action in D?
[C]: We [shop] need to control cost per unit bought.
The suppliers charge more for urgent deliveries and for smaller quantities. I [shop] can get significant discounts for buying in large quantities.
[D′]: What actions do you take to meet the need in C?
[D′]: Buy large quantities (even if it is more than we [shop] need for a reasonable period).
[A]: What is the common objective achieved with both B and C?
[A]: Have a successful business.
The Customer UDE Cloud is presented in Fig. 24-8.
Step 4: Check and upgrade.
Let’s do the check of the diagonal from the example of the Customer UDE Cloud.
Is [D] jeopardizing [C]?
In D, the shop owner wants to buy products by using urgent orders. The supplier charges more for such orders and hence the price per unit bought will go up, jeopardizing the need C.
Is [D′] jeopardizing [B]?
D′—buying in large quantities—consumes the cash reserves of the shop owner. Shops hope eventually to sell everything they have bought. However, it is only in the process of sales that it becomes obvious which products sell well and which do not. In addition, the large quantities take long to be sold. Products that are just sitting in stock do not generate money, thus endangering securing the revenues. Moreover, not enough reserves to buy replenishment of products that clients want to buy results in loss of potential revenue, which hurts B even further.
FIGURE 24-8 An example of a “Customer UDE Cloud” (from the perspective of the shop owner and we are the manufacturer).
Step 5: Surface assumptions.
For the Customer UDE Cloud, ensure that you will surface enough supporting assumptions on the B-D arrow. That will help to secure an offer that really brings value to the customer (the shop owner). On the C-D′ arrow, highlight the assumptions that the customer (the shop owner) feels reflect the policies that suppliers (you) use when determining the terms and conditions for supplying, such as minimum order quantities, shipping costs, frequency considerations, etc.
Examining and challenging these policies can provide opportunities for you to give a Mafia Offer11 to your customer. The assumptions and injections are provided in Table 24-8. Pay particular attention to the C-D′ assumptions.
Step 6: Construct the solution.
For the Customer UDE Cloud, we recommend focusing the effort on breaking C-D′. There are two major reasons:
1. It will be easier for the customers to accept the supplier’s offer that will give them what they want—urgent orders (“urgent” meaning whenever they need them and with short delivery times) without paying extra and without demanding a major change or effort from their side.
2. It will be difficult for the competitors to copy because the assumptions under C-D′ reflect the common policies and business practices of the whole industry. Anything to do with mindset, policies, and procedures demands a strong determination of management and a supportive culture. It may take the competitors a long time to observe your offer, recognize