7/27/2019 rami_eng
1/37
December 6, 2011 Goldratt Consulting-1-
ManagementManagement
AttentionAttentionRamiRamiGoldratt,Goldratt,
CEO Goldratt ConsultingCEO Goldratt Consulting
7/27/2019 rami_eng
2/37
December 6, 2011 Goldratt Consulting-2-
Management Attention
7/27/2019 rami_eng
3/37
December 6, 2011 Goldratt Consulting-3-
Launcha
new
product
Delay
introductio
n.
Management Attention
Our management attention is constantly being consumedby challenges across functions, across strategic layers
Reduce
Price
Protectmargin
Buildupstock
ControlCapital
Introducenewsystem
Staywithcurrent
Makechangesinproject
Protectduedates/budget
Reduce
OE
Protect
loyalty
Increase
capacity
Reduce
investments
7/27/2019 rami_eng
4/37
4
Successful
company
A
Ensure
smooth current
performance
B
Focus on
current
operations
D
Focus on
long term
health
D
Ensure
long term
prosperity
C
Cut back on cost / investments
Maximizing efficiency's (get the maximum of current resources)
Focus on short term profit (and cash)
Make investments
Allow protective capacity
Focus on long term profit
A core conflict
7/27/2019 rami_eng
5/37
December 6, 2011 Goldratt Consulting-5-
Management Attention
GrowthGrowth StabilityStability
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?WHY OUR SYSTEMS BEHAVE THIS WAY?
Ensuresmoothcurrentperformance
B
Ensure
longterm
prosperity
C
A root conflict
7/27/2019 rami_eng
6/37
December 6, 2011 Goldratt Consulting-6-
Management Attention
Dr. Goldratts on the Science ofManagement
http://clip%201%20toc.avi/7/27/2019 rami_eng
7/37
December 6, 2011 Goldratt Consulting-7-
Management Attention
The real constraint: management attention.
The 3 fundamental mechanisms wasting anddistorting management attention:
q The fear of Complexity -> driving to dissect the systemto sub-systems and bringing damaging local optima.
q The fear of Unknown-> driving to finer and finer detailresolution trying to impose certainty on uncertainty.
q The fear of tug of war -> struggling with unacceptablecompromises.
7/27/2019 rami_eng
8/37
December 6, 2011 Goldratt Consulting-8-
Management Attention
GrowthGrowth StabilityStability
The common way tomanage conflicts is to
struggle withcompromise.
The common way tomanage uncertainty is to
bring it to higherresolutions of detail.
The common way tomanage complex
systems is to manageits sub systems.
Management Attention is distorted
Conflictsbetween sub
sections
Local optimaconflict with
global optimum
Driving local optimathroughout the system
Accept conflictsas given.
Oscillatingbetween theconflict sides
Dealing withsymptoms otherthan core conflict
Imposing certaintyon uncertainty
Ineffectivereaction to
noise
Sticking torules when
not applicable
7/27/2019 rami_eng
9/37
December 6, 2011 Goldratt Consulting-9-
Management Attention
7/27/2019 rami_eng
10/37
December 6, 2011 Goldratt Consulting-10-
Management Attention
Step 1:Step 1: Identify the systemIdentify the systemss constraint(sconstraint(s))
Step 2:Step 2: Decide how to exploit the systemDecide how to exploit the systemss constraint(sconstraint(s))
Step 3:Step 3: Subordinate everything else to the above decisionSubordinate everything else to the above decision
Step 4:Step 4: Elevate the systemElevate the systemss constraint(sconstraint(s))
Step 5:Step 5: If in the previous steps a constraint has been broken,If in the previous steps a constraint has been broken,
go back to step 1. Warning: Dongo back to step 1. Warning: Dont allow inertia tot allow inertia to
cause a systemcause a system constraint(sconstraint(s)!!!!)!!!!
7/27/2019 rami_eng
11/37
December 6, 2011 Goldratt Consulting-11-
Management Attention
Step 1:Step 1: Identify the systemIdentify the systemss constraint(sconstraint(s))
Step 2:Step 2: Decide how to exploit the systemDecide how to exploit the systemss constraint(sconstraint(s))
Management AttentionManagement Attention
Focus on bringing ongoingFocus on bringing ongoing StabilityStability andand GrowthGrowth::
-- Build the competitive edgeBuild the competitive edge
-- Capitalize on the competitive edgeCapitalize on the competitive edge
-- Sustain the competitive edgeSustain the competitive edge
7/27/2019 rami_eng
12/37
December 6, 2011 Goldratt Consulting-12-
Management Attention
Step 3:Step 3: Subordinate everything else to the above decisionSubordinate everything else to the above decision
Remove the mechanisms blocking management attention fromRemove the mechanisms blocking management attention from
building, capitalizing and sustaining a competitive edge:building, capitalizing and sustaining a competitive edge:
1.1. Align local optima to global optimum.Align local optima to global optimum.
2.2. Manage buffersManage buffers dondont force certainty on uncertainty.t force certainty on uncertainty.
3.3. Solve root conflicts without a compromise.Solve root conflicts without a compromise.
Step 4: Elevate the systemStep 4: Elevate the systemss constraint(sconstraint(s))
Step 5: If in the previous steps a constraint has been broken,Step 5: If in the previous steps a constraint has been broken,go back to step 1. Warning: Dongo back to step 1. Warning: Dont allow inertia tot allow inertia to
cause a systemcause a system constraint(sconstraint(s)!!!!)!!!!
7/27/2019 rami_eng
13/37
December 6, 2011 Goldratt Consulting-13-
Management Attention
7/27/2019 rami_eng
14/37
December 6, 2011 Goldratt Consulting-14-
This is very nice. But HOW???
Producers
to resellers
Producers to
manufacturer/ user
Producers of
Equipment/
machinery
Retailers
Wholesalers
Multi project
business
TOC Flowapplications
ViableVision
Templates
Management Attention
7/27/2019 rami_eng
15/37
December 6, 2011 Goldratt Consulting-15-
MTO/MTS selling to
distributors or retailers
MTO/MTS selling to
manufacturers or users
Producers of
Equipment/ machinery
Retailers
Wholesalers / Distributors
Multi project business
Management Attention
Viable VisionViable VisionTemplatesTemplates
7/27/2019 rami_eng
16/37
December 6, 2011 Goldratt Consulting-16-
RetailRetail
7/27/2019 rami_eng
17/37
December 6, 2011 Goldratt Consulting-17-
The only organized national jewelry retailer in India
Two Brands
1B$ in Sales (PBT~10%)
150 retail stores across India
Titans Jewelry Division
7/27/2019 rami_eng
18/37
December 6, 2011 Goldratt Consulting-18-
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
The Environment
Titans Jewelry Division
What conflicts do they face?
7/27/2019 rami_eng
19/37
December 6, 2011 Goldratt Consulting-19-
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% ofSKUs contributes 35% sales).
There is a long and fat tail by nature (20% ofstock is over a year old).
Titans Jewelry Division
7/27/2019 rami_eng
20/37
December 6, 2011 Goldratt Consulting-20-
Increasing Turns
The more effective the inventory, the less inventoryis needed to support the current level of sales.
Increasing Sales
The more effective the inventory the better we canexploit the current traffic.
Titans Jewelry Division
HOW?
Improve MerchandiseImprove MerchandiseEffectivenessEffectiveness
7/27/2019 rami_eng
21/37
December 6, 2011 Goldratt Consulting-21-
Percentage
Sold
Time
A
B
More SKUsare selling
faster
Tail is getting shorter andleaner, and has very little
effect on sales
Titans Jewelry Division
Head Belly Tail
7/27/2019 rami_eng
22/37
December 6, 2011 Goldratt Consulting-22-
InventoryInventory
Con
sumption
S
upply
Order L.T. Production L.T. Transport L.T.
TimeTime
Min.Min.
Replenishment timeReplenishment time
MoreInventory
LessInventory
ProtectAvailability
ControlCost
EffectiveMerchandize
Management
7/27/2019 rami_eng
23/37
December 6, 2011 Goldratt Consulting-23-
1. Replenishment of Best Sellers (Head)- Identify best sellers and replenish from stock.- Inventory should be held based on consumption within the replenishmenttime 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
CentralWH
Store
Store
Store
Consumptionreport
Replenishment
Replenishment
ProductionFactory
Vendor1
Vendor2
Titans Jewelry Division
Ordering
7/27/2019 rami_eng
24/37
December 6, 2011 Goldratt Consulting-24-
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 consideringyesterdays sales as an input:
- For each sold variant the best alternative is presented as thedefault indent
- The best alternative is the same variant - if sold fast, otherwise itis 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 sellingvariants
7/27/2019 rami_eng
25/37
December 6, 2011 Goldratt Consulting-25-
3. Rotation of Aged Inventory (Tail)Channel the aged inventory to stores that have demand forthese items. Aged inventory is recalled and is redistributed tothe stores that ordered it. The stores that have to give back
aged items, indent fresh items for replacement
Salesvolume
# of tailvariants
~1/6 of thetail are items
that are infact bestsellers in
other stores
Only 1/3 of the tail are items sellingless than 5 pieces per annum
7/27/2019 rami_eng
26/37
December 6, 2011 Goldratt Consulting-26-
Plain GoldSales Vs. Stock
Titans Jewelry Division
Some quantitative Benefits
7/27/2019 rami_eng
27/37
December 6, 2011 Goldratt Consulting-27-
Conventional View
Management Attention
TOC view
Strategy
Tactic
S
T
ST
ST
ST
ST
ST
ST
ST
Strategy
Tactic
Strategy
TacticTacticTacticTacticTacticTacticTacticTacticTacticTactic
How are they connected?
Strategy
Tactic
Parallel Assumptions
Necessary Assumptions
Sufficiency Assumptions
Explains why the tacticachieves the strategy
Explains the needfor the step
Explains the needfor more details
7/27/2019 rami_eng
28/37
December 6, 2011 Goldratt Consulting-28-
ST
S
T
S
T
S
T
S
T
S
T
ST
S
T
S
T
ST
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
What for?
How?
What for?
How?
What for?
How?
Viable VisionViable Vision
Management Attention
7/27/2019 rami_eng
29/37
December 6, 2011 Goldratt Consulting-29-
ST
S
T
S
T
ST
ST
ST
ST
ST
ST
ST
ST
ST
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
S
T
What for?
How?
What for?
How?
What for?
How?
Viable VisionViable Vision
Decisive Competitive EdgeDecisive Competitive Edge
BuildBuild CapitalizeCapitalize SustainSustain BuildBuild CapitalizeCapitalize SustainSustain
Management Attention
7/27/2019 rami_eng
30/37
December 6, 2011 Goldratt Consulting-30-
Titans Jewelry Division
Strategy and Tactic Tree
http://omron.tocxml/7/27/2019 rami_eng
31/37
December 6, 2011 Goldratt Consulting-31-
Manufacturer selling to resellersManufacturer selling to resellers
(Distributors, Retail, Brand owner)(Distributors, Retail, Brand owner)
7/27/2019 rami_eng
32/37
December 6, 2011 Goldratt Consulting-32-
Sales URO (UnRefusable Offer Workshop)
Low-frequency therapyequipment
Blood pressureMonitor
Digital
thermometers
Pedometers
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.
7/27/2019 rami_eng
33/37
December 6, 2011 Goldratt Consulting-33-
Sales URO (UnRefusable Offer Workshop)
7/27/2019 rami_eng
34/37
December 6, 2011 Goldratt Consulting-34-
(34/48)
Sales URO (UnRefusable Offer Workshop)
7/27/2019 rami_eng
35/37
December 6, 2011 Goldratt Consulting-35-
(35/48)
Example of inventory reduction of
one of the largest drug chain store
Average stock MAX stock MIN stock
Before POC
(11/1-1/16)2,001 3,647 491
After POC
(1/17-2/21)865 1,328 190
POC
7/27/2019 rami_eng
36/37
December 6, 2011 Goldratt Consulting-36-
Sales increased by demand drivenreplenishment production
Sales in 2009 Sales in 2010 Sales in 2009 Sales in 2010Sales after
TOC
Sales after
TOC
7/27/2019 rami_eng
37/37
December 6, 2011 Goldratt Consulting-37-
Management Attention
Step 1: Identify the systemStep 1: Identify the systems constraint(s)s constraint(s)
Step 2: Decide how to exploit the systemStep 2: Decide how to exploit the systems constraint(s)s constraint(s)
Step 3: Subordinate everything else to the above decisionStep 3: Subordinate everything else to the above decision
Step 4:Step 4: Elevate the systemElevate the systems constraint(s)s constraint(s)
Step 5:Step 5: If in the previous steps a constraint has been broken,If in the previous steps a constraint has been broken,
go back to step 1. Warning: Dongo back to step 1. Warning: Dont allow inertia tot allow inertia to
cause a system constraint(s)!!!!cause a system constraint(s)!!!!