Theory of Constraints Handbook - James Cox Iii [657]
Consumer Goods: produces end products, but does not communicate with the client; sells through distribution networks and retailers to the client. This is a business-to-market type of environment.
Make-to-Order, also known as Reliable Rapid Response (RRR): produces the end item and does communicate directly with its clients; sells to another manufacturer that uses this end item as a part of their product. This is known as business-to-business.
Projects: sells to client and may or may not communicate with them; what is being done is somewhat unique, though, such as a lab producing drugs or a construction company producing houses.
Pay per Click (PPC): sells final products to the client; these products, such as machines, are used by the client.
Each of these five generic S&T trees will be briefly discussed in this chapter. A full discussion of each is not possible because explaining one S&T tree fully would require many pages. Note that the full S&T trees are available in different places.4
The Retailer S&T Tree
We will begin by discussing the Retailer S&T tree because this S&T tree is one to which most people can relate. This S&T tree will be discussed in the most detail for that reason. This discussion will also explain generic S&T tree concepts.
All of the steps in the S&T tree below Level 1 also have an additional assumption: the NA. As noted earlier, this assumption explains why this step is required for achieving the corresponding step in the level above.
Level 2 of the Retailer S&T Tree
The NAs of Step 2.1 are shown in Table 34-2. Each one is read aloud to verify whether it is fact in the particular retailer’s environment. The first NA is read aloud: “Better availability is a consumer’s significant need.” Then we verify that all agree to this. Next, the second NA is read aloud: “Expecting to find an SKU and being disappointed severely erodes the consumer’s impression of good availability.” Then, we can think of an example, such as a woman who finds a dress she wants but not in her size. We refer to this as a shortage. Most retailers have shortages between 5 and 30 percent of the specific products or stock-keeping units (SKUs) that are supposed to be available in the shop. How many sales are lost due to unavailability? Do you realize that the shortages are of the products that are the high runners—the ones that are selling well? In some cases, the customer will buy an alternative product for the one that is unavailable and may be disappointed that they had to buy a substitute. When the item is not on the shelf, sales are being lost. Retailers cannot know how many customers would have bought the SKU of which they were out of stock. Therefore, it is difficult to know how many sales are lost. After reading the third NA aloud, we point out that the forecast is not good. This results in wasting the constraint by having surpluses of SKUs. The shelf space is what limits how many different products are in the portfolio of SKUs to sell. After reading the fourth NA, we point out an additional fact not in the S&T tree, which is that a high percentage of products with a short market life are sold at markdown prices. When we present an S&T tree, we commonly provide additional information and explanation. These facts are not required to be part of the written S&T tree to reach the conclusion that the strategy that will be presented next is needed, but rather just adds to it. This NA does not apply to supermarkets. The DCE we want to achieve is to have all the products that are on the shelves be the ones that the market really wants. After reading the fifth NA, we point out that examples of this are produce, milk products, soap, and fish. Even if these items are available on the shelf, they may not be considered to be available in the mind of the customer when they are close to their expiration date. If the customers do buy ones close to the expiration date, they may decide after using or eating the product that it was not of good quality.
Notice that after reading the five NAs, it becomes