Delivering Enterprise Value Through: Lean Manufacturing, Theory Of Constraints and Supply Chain Optimization

Experience Driven Consulting

The Theory of Constraints (TOC) is a holistic approach to growing the business based on focused improvement and leverage of key capabilities. This frequently runs somewhat counter to many conventional performance improvement approaches that advocate "improving everywhere". 

Profit-Chain embraces TOC concepts to transform how a company defines sales strategies, customer service, operations and performance measures. This graphic emphases that TOC starts with the approach to the market (Marketing) and the remaining applications follow:

Does this mean most companies do not have good marketing and sales organizations? Obviously not. But many organizations are primarily equipped to sell the latest product innovations, service policies (terms, etc) or special pricing. Truly distinctive innovation is rare and price is easily duplicated by competitors, leaving limited basis for differentiation.

1. Many companies attempt to find the best COMPROMISES to maximize sales and profitability:

Each of these compromises brings a downside: for example, we make assumptions about the forecast to optimize inventory. The forecast turns out to be wrong (is that a surprise?) and our inventory ends up not being optimized. When decisions are made based on assumptions, then the probability for successful optimization dims.

2. Many companies attempt to solve SYMPTOMS of problems with SPECIFIC SOLUTIONS (software or business process):

3. Companies strive to measure numerous metrics to improve performance. By the fact that something is measured, it will receive increased attention. This may seem good, but improving each measure in a business may not necessarily optimize the entire business. Consider freight costs: reducing freight can be at odds with increased sales levels, customer preferences and other components of cost. There are many aspects to consider in improving most measures, which can limit the effectiveness of individual measures.

What direction can you take?

With TOC, you can initiate change based on HOW you most effectively compete. A couple of examples might help best explain:

1. A manufacturer splits their production between rapid response small quantity prototyping business and production run quantity orders. When the economy is good, they focus more on production run business. As the economy turns south, they compete for more prototype orders. They changed their model to do both and grow 400% without capital expenditures!

2. A high volume manufacturer faced with the prospect of investing large additional sums to upgrade equipment to remain competitive, re-assesses their basis of competition. Rather than further investing to make even larger lots at lower cost, they decide to take another tact. They decide to make smaller lots with higher service levels with their existing equipment. The approach works and they grow sales and profit over 2x.

3. Company builds processing equipment for small retail businesses. Customers must risk significant capital and time to get the equipment built and installed prior to receiving sales. The company developed a better way thru TOC to reduce the risk for the customer in order to shorten the time and risk for the revenue, enabling more customers to purchase equipment.

In each of these cases, the approach was no "quick fix", but a fundamental and lasting approach to the market with a different value formula than competitors were offering. Dramatic growth and profitability came in each case as the TOC practices were put in place across R&D, Logistics, Production and Measures.

How can Profit-Chain help you? If you are willing to consider significant change for dramatic improvements in sales and profit, then we can help get you started. Our approach is to tie our activities and fees to you accomplishing each step of the process: we are in this together! If you are ready for this teaming approach, give us a call.