Theory of Constraints Handbook - James Cox Iii [570]
Challenges in the PSTS Sector
Some challenges that are endemic to manufacturing and distribution do not carry the same weight in PSTS. For instance, TOCG strives to minimize inventory because it’s an expensive investment that limits flexibility and all-to-often becomes obsolete before it’s sold. In PSTS, however, there are virtually no inventories. Services are consumed as delivered, so there’s no way to produce them in advance.
In that context, any solution that minimizes physical inventory is a solution in search of a problem. Nevertheless, as will be seen later, the principles underlying TOC apply to services as well as goods-based businesses and, with some adaptations, TOCS can address several challenges facing the PSTS sector.
Some challenges facing PSTS are the same as those facing enterprises in other service sectors:
New entrants have radically different business models.
Work seeks the lowest level worldwide via outsourcing and offshoring.
Legislation, regulation, and intellectual property rights can work for you or against you.
New technology levels the playing field, but old technology is hard to replace.
There are, however, challenges afoot that hit the PSTS sector especially hard:
Knowledge is expanding, which makes expertise harder to attain.
The half-life of information is getting shorter, which makes expertise harder to sustain.
Clients want results, not just advice.
Demand is inherently unpredictable, so clients want to shift that burden.
Clients want their projects completed better, faster, cheaper.
Clients want their processes to accommodate unpredictable swings in demand easily.
Competitors are observant, so competitive advantages tend to be fleeting.
Fortunately, TOC can address several of these challenges.
What TOC Has to Offer
Challenges facing PSTS are formidable enough to motivate some managers to seek alternatives to conventional wisdom. Fortunately, TOC has much to offer PSTS.
First, TOC establishes flexibility instead of pushing for predictability. That is, rather than striving for more accurate forecasts over longer horizons, TOC manages buffers that anticipate predictable changes in demand or supply. When something unpredictable happens, the enterprise is not locked into lengthy commitments. When you are nimble, rogue waves matter less.
Second, TOC speeds up projects and processes. When correctly harnessed, speed not only makes an enterprise nimble, it pleases clients because they can get their services on demand. Delivering services on demand, rather than as capacity is available, creates competitive advantage that’s hard for competitors to match. When you are speedy, everyone else has to play catch-up.
Third, TOC focuses management attention on the constraint. Literally dozens of other concerns can fade into the background when the constraint becomes the center of attention. Moreover, the constraint then becomes a leverage point because relatively modest changes there can generate sizable benefits elsewhere—both for the service provider and its clients. When you manage constraints, noise fades away.
Finally, TOC rearranges management priorities. The top priority for most managers is cost control, but TOC shows how this emphasis is misplaced when it makes growth difficult. In contrast, when managers adopt TOC, their top priority switches to maximizing cash from sales minus truly variable cost, which is called Throughput. When you maximize Throughput, growth comes naturally.
Every TOC implementation has to answer these fundamental questions: (1) What to change?, (2) What to change to?, and (3) How to cause the change? Answers to these questions for TOC in PSTS are provided next.
What to Change
Pain points would seem to be an obvious way to decide what to change. If you ask managers about their pain points, they can easily