Theory of Constraints Handbook - James Cox Iii [660]
Now we will briefly describe Level 3 of the left side of the S&T tree. Recall that Step 2.1 was focused on changing to a consumption-driven mode of operation and that the steps in Level 3 need to explain how to build and sustain this DCE. Step 3.1.1, as shown in Table 34-4, explains how to build the DCE.
After reading part 1 of the PA, we point out that it is a huge mistake to push inventory into the shops. The result is shortages of some SKUs and surpluses of other SKUs. After reading part 2 of the PA, we point out that holding the inventory back in the supply chain is more effective because the forecast is much more accurate at the distribution center (DC). Keeping more of the inventory at the DC would result in fewer cross-shipments such as between regional DCs (RDCs). Part 3 is about placing daily orders with the suppliers. Most retail executives would point out that the suppliers would not agree to this. In reality, most suppliers are struggling with handling huge orders and spikes in demand. Daily orders and frequent replenishment is a win-win solution for both the retailer and its suppliers.5 After reading part 5 of the PA, we point out that inventory targets should be adjusted frequently because market conditions change often.
When more than one tactic is listed, they are listed in the order in which they are implemented. These tactics need to be implemented in order to achieve Step 2.1, but they are not sufficient. How to achieve Step 3.1.1 is explained in the three steps (4.11.1, 4.11.2, and 4.11.3) that are below it in the S&T tree. The SA in this step points out a reality regarding getting stakeholder buy-in and support of a new initiative. We have to ensure that the first step in the next level of the S&T tree results in a significant and quick impact on the performance of the company in order to get this buy-in and support. The three steps below 3.1.1 are focused on implementing internal pull distribution (Step 4.11.1), the TOC solution for replenishment, keeping correct inventory levels (Step 4.11.2), and dealing with suppliers (Step 4.11.3).
Step 3.1.1 is focused on building the DCE by ensuring existing SKU availability. Step 3.1.2 is focused on sustaining this edge by further protecting and improving inventory turns. The last step under 2.1, Step 3.1.3, is focused on continuing to build the DCE by improving TPS by changing the product portfolio.
TABLE 34-4 Step 3.1.1 of the Retailer VV S&T tree (© E. M. Goldratt used by permission, all rights reserved. Source: E. M. Goldratt, 2008).
General Overview of the VV S&T Tree Structure
Let us now discuss the S&T tree generically to Level 3. The Level 1 strategy was focused on achieving both growth and stability. Level 2 has steps for achieving both base and enhanced growth. In the Retailer S&T tree, the SA of Step 2.1 focused on building the DCE and sustaining it. In other VV S&T trees, the SA of Step 2.1 is slightly different from the one in the Retailer S&T tree in that it also addresses the need to capitalize on the DCE. This component was not needed in the Retailer S&T tree because it is enough for the customers to know that availability is now remarkable. In the other S&T trees, actions are typically needed to market and/or sell more effectively in order to capitalize on the DCE that has been built. Thus, Level 3 of each VV S&T tree consists of steps that are focused on building, capitalizing on, or sustaining the DCE.
Levels 4 and 5 of the Retailer S&T Tree
Next, we will look at the first step of Levels 4 and 5 of the Retailer S&T tree in order to understand an S&T tree better. Step 4.11.1, as shown in Table 34-5, explains how to improve the inventory turns through the implementation of the pull distribution solution of TOC.
Notice that the number of PAs tends to increase, the lower we are in the S&T tree. It is important to note that the PAs are not written as a bullet list, but rather as a presentation of cause-and-effect logic. The SA in this step also reinforces the SA of Step 3.1.1.
TABLE 34-5 Step 4.11.1