Management Attention

Rami Goldratt, CEO Goldratt Consulting

December 6, 2011

-1-

Goldratt Consulting

Management Attention

December 6, 2011

-2-

Goldratt Consulting

Management Attention
Our management attention is constantly being consumed by challenges across functions, across strategic layers
new a h c Laun duct pro Delay n. ctio u d o r int

Reduce Price Protect margin

Build up stock Control Capital

Introduc e new syst em Stay with current

e Reduc OE t Protec loyalt y

December 6, 2011

Increase capacity Reduce investments

-3-

Make c hanges in proj ect Protec td dates/b ue udget

Goldratt Consulting

A core conflict
Cut back on cost / investments Maximizing efficiency's (get the maximum of current resources) Focus on short term profit (and cash)

Ensure smooth current performance

C

Focus on current operations

D

Successful company

Ensure long term prosperity

Make investments Allow protective capacity Focus on long term profit

Focus on long term health

Management Attention
A root conflict
C Ensure rm long te rity prospe

Growth

Stability

B Ensure smooth c urrent performa nce

One is a condition to the other. But.. Actions for one are in conflict with actions to the other WHY OUR SYSTEMS BEHAVE THIS WAY?
December 6, 2011

-5-

Goldratt Consulting

Management Attention
Dr. Goldratts on the Science of Management

December 6, 2011

-6-

Goldratt Consulting

Management Attention
The real constraint: management attention. The 3 fundamental mechanisms wasting and distorting management attention:
q

The fear of Complexity -> driving to dissect the system to sub-systems and bringing damaging local optima. The fear of Unknown-> driving to finer and finer detail resolution trying to impose certainty on uncertainty. The fear of tug of war -> struggling with unacceptable compromises.
-7 Goldratt Consulting

December 6, 2011

Management Attention
Growth Stability

Management Attention is distorted

Local optima conflict with global optimum Conflicts between sub sections Ineffective reaction to noise Sticking to rules when not applicable Oscillating between the conflict sides Dealing with symptoms other than core conflict

Driving local optima throughout the system

Imposing certainty on uncertainty

Accept conflicts as given.

The common way to manage complex systems is to manage its sub systems.
December 6, 2011

The common way to manage uncertainty is to bring it to higher resolutions of detail. -8-

The common way to manage conflicts is to struggle with compromise.

Goldratt Consulting

Management Attention

December 6, 2011

-9-

Goldratt Consulting

Management Attention
Step 1: Identify the systems constraint(s) Step 2: Decide how to exploit the systems constraint(s) Step 3: Subordinate everything else to the above decision Step 4: Elevate the systems constraint(s) Step 5: If in the previous steps a constraint has been broken, go back to step 1. Warning: Dont allow inertia to cause a system constraint(s)!!!!
December 6, 2011

-10-

Goldratt Consulting

Management Attention
Step 1: Identify the systems constraint(s)

Management Attention
Step 2: Decide how to exploit the systems constraint(s) Focus on bringing ongoing Stability and Growth: - Build the competitive edge - Capitalize on the competitive edge - Sustain the competitive edge

December 6, 2011

-11-

Goldratt Consulting

Management Attention
Step 3: Subordinate everything else to the above decision Remove the mechanisms blocking management attention from building, capitalizing and sustaining a competitive edge:
1. Align local optima to global optimum. 2. Manage buffers dont force certainty on uncertainty. 3. Solve root conflicts without a compromise.

Step 4: Elevate the systems constraint(s) Step 5: If in the previous steps a constraint has been broken, go back to step 1. Warning: Dont allow inertia to cause a system constraint(s)!!!!
December 6, 2011

-12-

Goldratt Consulting

Management Attention

December 6, 2011

-13-

Goldratt Consulting

Management Attention
This is very nice. But HOW???
Producers to manufacturer/ user Producers to resellers Producers of Equipment/ machinery Retailers

Viable Vision Templates

Wholesalers Multi project business

December 6, 2011

TOC Flow applications

-14-

Goldratt Consulting

Management Attention
MTO/MTS selling to manufacturers or users MTO/MTS selling to distributors or retailers Producers of Equipment/ machinery Retailers Wholesalers / Distributors

Viable Vision Templates

Multi project business

December 6, 2011

-15-

Goldratt Consulting

Retail

December 6, 2011

-16-

Goldratt Consulting

Titans Jewelry Division

The only organized national jewelry retailer in India Two Brands 1B$ in Sales (PBT~10%) 150 retail stores across India

December 6, 2011

-17-

Goldratt Consulting

Titans Jewelry Division

The Environment
Need to operate with wide assortments Need to introduce new assortments frequently High priced products High investment stock Most items have relatively low sales rate

What conflicts do they face?

December 6, 2011

-18-

Goldratt Consulting

Titans Jewelry Division

Some insights
Some fast moving items are not available in the store for about 15-20 weeks a year (on average) Much of the products in the universe do not get the chance to develop significant sales level (90% of SKUs contributes 35% sales). There is a long and fat tail by nature (20% of stock is over a year old).

December 6, 2011

-19-

Goldratt Consulting

Titans Jewelry Division

Increasing Turns

Improve Merchandise Effectiveness

The more effective the inventory, the less inventory is needed to support the current level of sales. Increasing Sales The more effective the inventory the better we can exploit the current traffic.

HOW?
December 6, 2011

-20-

Goldratt Consulting

Titans Jewelry Division

Percentage Sold

More SKUs are selling faster A Tail is getting shorter and leaner, and has very little effect on sales Time

Head

Belly

Tail

December 6, 2011

-21-

Goldratt Consulting

Effective Merchandize Management

Protect Availability Control Cost

More Inventory Less Inventory

Inventory

ns

um

pt

ion

Min.

Replenishment time
December 6, 2011 L.T. Order L.T. Production

Supply

Co

Time
-22Transport L.T.
Goldratt Consulting

Titans Jewelry Division

1. Replenishment of Best Sellers (Head)
Identify best sellers and replenish from stock. Inventory should be held based on consumption within the replenishment time factored for variability dont try to be accurate with a forecast! - Frequent replenishment of each SKU remove any artificial batch Dynamic buffer management remove dependency on forecast

Replenishment
Replenishment
Production Factory

Orderin

Consumption report

Store Store Store

Vendor1 Vendor2
December 6, 2011

Central WH

-23-

Goldratt Consulting

Titans Jewelry Division

2. Daily Indenting Process (Belly)
- Use live real data to shift the mix within categories to faster movers. - Make it fast and frequent. -The process is performed at the store every morning considering yesterdays sales as an input: - For each sold variant the best alternative is presented as the default indent - The best alternative is the same variant - if sold fast, otherwise it is the best selling variant on the same category and price band - The store can change the default by selecting an alternative item from a closed list of alternates which are national best selling variants

December 6, 2011

-24-

Goldratt Consulting

3. Rotation of Aged Inventory (Tail)

Channel the aged inventory to stores that have demand for these items. Aged inventory is recalled and is redistributed to the stores that ordered it. The stores that have to give back aged items, indent fresh items for replacement
Sales volume

~1/6 of the tail are items that are in fact best sellers in other stores

# of tail variants Only 1/3 of the tail are items selling less than 5 pieces per annum

December 6, 2011

-25-

Goldratt Consulting

Titans Jewelry Division

Some quantitative Benefits Plain Gold Sales Vs. Stock

December 6, 2011

-26-

Goldratt Consulting

Management Attention
Conventional View
Strategy

TOC view
S T
Strategy Tactic Strategy Tactic

How are they connected?

S T S T

TacticTactic Tactic Tactic Tactic Tactic Tactic Tactic Tactic Tactic

S T

S T

S T

S T

S T

Explains the need for the step Explains why the tactic achieves the strategy Explains the need for more details
December 6, 2011

Necessary Assumptions Strategy Parallel Assumptions Tactic Sufficiency Assumptions

Goldratt Consulting

-27-

Management Attention What for? S Viable Vision T How?

What for? How?

S T
S T
S S S T T T

S T
S T
S S T T
-28-

What for? How?

S T
S S S T T T
December 6, 2011

S T
S S S S S T T T T T

S T
S S T T

S T
S S T T

S T
S S T T

S T
S S S S T T T T

S T
S S T T

Goldratt Consulting

Management Attention What for? S Viable Vision T How?

What for? How? Build

S T
S T
S S S T T T

Decisive Competitive Edge

S T
Capitalize

What for? How? Sustain

Capitalize

Sustain

Build

S T
S S S T T T
December 6, 2011

S T
S S S S S T T T T T

S T
S S T T
-29-

S T
S S T T

S T
S S T T

S T
S S T T

S T
S S S S T T T T

S T
S S T T

Goldratt Consulting

Titans Jewelry Division

Strategy and Tactic Tree

December 6, 2011

-30-

Goldratt Consulting

Manufacturer selling to resellers

(Distributors, Retail, Brand owner)

December 6, 2011

-31-

Goldratt Consulting

Sales URO (UnRefusable Offer Workshop)

Omron Health Care is a $800M Japanese conglomerate. Main product lines are home healthcare electronic devices. They are a major player in most developed countries.

Digital thermometers Blood pressure Monitor Pedometers

December 6, 2011

Low-frequency therapy equipment

Goldratt Consulting

-32-

Sales URO (UnRefusable Offer Workshop)

December 6, 2011

-33-

Goldratt Consulting

Sales URO (UnRefusable Offer Workshop)

(34/48)
December 6, 2011

-34-

Goldratt Consulting

Example of inventory reduction of one of the largest drug chain store

Average stock Before POC (11/1-1/16) After POC (1/17-2/21) MAX stock MIN stock

2,001 865

3,647 1,328

491 190 POC

(35/48)
December 6, 2011

-35-

Goldratt Consulting

Sales increased by demand driven replenishment production

Sales in 2009 Sales in 2010 Sales after

TOC

Sales in 2009 Sales in 2010

Sales after TOC

December 6, 2011

-36-

Goldratt Consulting

Management Attention
Step 1: Identify the systems constraint(s) Step 2: Decide how to exploit the systems constraint(s) Step 3: Subordinate everything else to the above decision Step 4: Elevate the systems constraint(s) Step 5: If in the previous steps a constraint has been broken, go back to step 1. Warning: Dont allow inertia to cause a system constraint(s)!!!!
December 6, 2011

-37-

Goldratt Consulting