TOC way with Avenir Management Consultants

Neil Rackham's Suggested Sales Practices During Recession

2009-04-28T20:52:00.003+05:30

Neil Rackham is known throughout the world as a speaker, writer and seminal thinker on sales and marketing issues. Three of his books have been on the New York Times best seller list and his works have been translated into over 50 languages.

Neil first gained international recognition in the 1970s when he led the largest ever research study of successful selling and sales effectiveness. This massive project, supported by major multinationals including Xerox and IBM, involved a team of 30 researchers who studied 35,000 sales calls in over 20 countries. The research took 12 years at a cost, in today’s dollars, of $30 million. From the results of these studies he published the groundbreaking classic SPIN® Selling.

I had the opportunity to attend the latest Neil Rackham's workshop in Mumbai. The workshop is an eye opener for people who are not exposed to value selling. For professionals or consultants who have been working in the area of TOC way of selling, it is very heartning to see the common message coming from one of the Guru's of Sales. However, unlike TOC, SPIN does not assume creation of a Decisive Competitive Edge and relies primarily on intelligent questioning for finding out the pain.

In the workshop, Neil spoke about Sales Strategies for the recessionary times. I am reproducing the key points:

Don't chase business you can't win. Focus ruthlessly on your best and biggest opportunities
Make your prospect feel safe about doing business with you. So build relationships, ask buyers about their concerns and really listen to their issues
Negotiate little and negotiate late. Premature negotiation looses sale
Do not defend your existing business. Treat existing customers as new business opportunities and sell assertively. Attack is the best defence.

Avenir sponsors manufacturing excellence seminar in Doha

2009-04-17T16:04:00.007+05:30

Manufacturing Excellence Forum, Doha

Event Date: 5-6 Apr 2009
Location: Sheraton Doha Resort & Convention Hotel, Qatar

Avenir was invited to talk about TOC in the Manufacturing Excellence Forum organised by Marcus Evans in Doha, Qatar. The forum was attended by senior executives from various industry segments, coming from the Gulf and other parts of Asia. The event also had eminent speakers and practitioners of Lean and Six Sigma methodologies.

While a number of speakers extolled the virtues of Lean manufacturing to improve the operations of organisations, Mr. Sanjay Ghoshal and Mr. Prasun Chowdhury, the founding Directors of Avenir, shared with the audience, in a half day session, the power of Theory of Constraints (TOC) to generate exponential growth for organisations in a very short period of time.

Most of the participating companies already had implemented lean, Six Sigma in some form, but TOC was a new subject for them and therefore added a new dimension to the discussion framework. As opposed to pure Lean methodology, TOC gets both financial and operational results much faster and sometimes in a matter of weeks.

Speakers from Avenir impressed upon the audience that Theory of Constraints serves as a holistic approach to help organisations become ever flourishing; that it serves to focus Lean and Six Sigma initiatives on the Key constraints in the organizational system(s). Both speakers from Avenir shared real life cases where order of magnitude improvements in cycle time of production and delivery, reduction in work in process and finished goods inventory and reliability of supply had been achieved by the application of Theory of Constraints.

The common myth about TOC vs Lean was broken in Six Sigma. It was shared that, in TOC we force companies to use Six Sigma, but it is dependent on the specific nature “of the beast” This applies to companies wherein we use Lean techniques. Sanjay and Prasun related an experiment that was conducted in a large electronics contract manufacturing company in US. In some of the plants only Lean was implemented, some plants only Six Sigma was implemented, in the balance plants TLS i.e. Lean and Six Sigma implemented under the overall philosophy of TOC.

The results were collected over a period of two years and checks were made for statistical relevance. After the experiment, it was clearly established that the third set of plants where TLS was implemented did much better than the other plants.

At the end of the forum, a consensus emerged among the participants that TOC is possibly the most powerful management methodology today and is the evolution over Lean and Six Sigma.

The audience were also exposed to the Project Management vehicle of TOC, Critical Chain Project Management (CCPM) that enables projects to finish within time and very often as much as 33% earlier than time. Given that Qatar and other parts of the gulf is witnessing rapid infrastructure and real estate development, the discussion on CCPM could not have come at a better time.

The session on TOC lasted for the better part of the second day of the seminar and was well appreciated by the knowledgeable audience. A number of companies approached the speakers from Avenir to explore how they could apply TOC in their organisations.

To know more about TOC and how Avenir exponentially increases profits of organisations, visit www.avenirco.com

Prasun Chowdhury

Sanjay Ghoshal

Lean Manufacturing and Theory of Constraints can go hand in hand

2009-04-09T20:55:00.011+05:30

Lean Manufacturing and Theory of Constraints can go hand in hand:

Lean Manufacturing tries to separate value streams so that they use dedicated resources for the same capacity i.e. it makes value flow through the factory. TOC takes this idea further by finding out critical constraints or bottlenecks, it works in such a way that it figure out which are the most overloaded resources that determine maximum flow rate of production, and making value flow through these constraints. In order to meet market demand manufacturers can optimize production through their critical constraint.

Because of these reasons, a TOC production planning solution might be appropriate for manufacturers with make-to-order (MTO) environments, where different product lines take same resources, hence results into bottlenecks. Thus by offering daily production planning, TOC enables business performance improvements in such environments by increasing throughput and sales, cycle time or lead time reductions, service level improvements, and inventory level reductions.

Hence, where lean planning focuses on the flow and the takt (maximum time allowed to produce a product in order to meet demand) of the flow through the factory, TOC optimizes the flow through the factory by focusing on planning the takt of the flow through the bottleneck.

Similarities between TOC and Lean Management:

1) TOC throughput: In TOC lingo, throughput is the rate at which the system generates money through sales, i.e. sales generated by system which converted into money will be counted, hence building inventory is not throughput in TOC terms.

Lean Manufacturing: In this focus is on the customer and customer value adding activities.

2) TOC inventory: In TOC terms Inventory is all the money that the system has invested in purchasing things which it intends to sell such as finished goods, raw materials, work-in-process (WIP) Hence inventory is a liability and not an asset.

Lean Manufacturing: Above statement is consistent with lean manufacturing's focus on eliminating waste.

3) TOC operational: All the money the system spends in order to turn inventory into throughput, such as depreciation, employee time etc., thus increasing throughput, while reducing inventory and lowering operational expenses.

Lean Manufacturing: The TOC accounting system is somewhat similar to activity-based costing (ABC). And as TOC costing is closer to a cash flow concept of income, TOC accounting provides more accurate form of direct costing, subtracting true variable costs.

Hence exploiting constraints to make more money for the firm.

So Avenir helps to maximize throughput on the bottleneck, which is equal to the profit, as we think “an hour lost on the bottleneck is lost forever and an hour saved on a non-bottleneck is a mirage.”

Watch this space for more!!!!

Visit us at: www.avenirco.com

How results come by applying CCPM

2009-04-07T12:18:00.003+05:30

The results come by effectively applying the TOC (Theory of Constraints) principles. CCPM (Critical Chain Project Management) is merely a way to apply these principles in typical projects environments.

Good use of CCPM results in delivery of more projects, faster and reliably. CCPM does not attempt or require any technical innovation. The new way of managing plugs the losses of time & capacity typical in multi-project environments. While we intuitively understand the losses, the magnitude surprises even the most seasoned people.

Some of the examples of losses are:-

Students’ syndrome

A student first fights for a later target date for submission of an assignment so that he can be sure of doing a good job. But, almost never start immediately knowing that he can complete the work in less time. This tendency results in time losses. A very similar phenomenon happens in projects.

Parkinson’s law

Just like a student submits a completed exam paper only after 3 hours, even if he finishes it in 2 hrs, most people report completions only on the due date. Just like the student will confirm & improve the answers again and again till the end of the last minute, people keep “improving” the work till the deadline approaches.” Work Expands to fill the Time Available’.

Bad multi-tasking

A manager of a resource when pressured by many different project managers will generally cave in to the demands of progressing on each of the available tasks. This result in the phenomenon called multi tasking. Each task which could have taken much lesser time, now takes much longer to complete.

The results come by taking active actions to cut the losses. It would be instructive to try & figure out the relative proportion of these in a real environment. Remember that it is better to be approximately right than precisely wrong.We lose tremendous amounts of time due to the interaction of the above phenomenon. While most people intuitive know this, the surprise is the extent of such losses. It tends to be much more than most people realize.

Keep Watching more!!

visit us at www.avenirco.com

Impact of measuring efficiencies

2009-04-06T18:06:00.006+05:30

The belief prevalent in almost all companies is that "a resource standing idle is a waste" and managements strive to utilize all their resources to the maximum possible extent and in doing that they themselves create the undesirable effects (UDEs) which they are grappling with.

You dont believe that this is possible, right.

Well, read on to find how

The major undesirable effects (UDEs) that a lot of companies suffer from
1. Long lead times
2. High inventories in the warehouses
3. Poor due date performance
4. Bad human relationships

Now lets look at how this happens

Since, management is focused on efficiency and hence wants to keep the utilization of its resources in the high 90s (and even 100% if possible), the prevalent syndrome is that "A worker standing idle is a crime and if a worker is found standing idle, find him something to do"

In such a scenario, the prime measurement of people (operators, supervisors, managers, etc) is efficiency, it somebody meets achieves that, nothing else matters. A typical way of measuring efficiency is the no. of parts mfg / per hour.

lets look at what is the impact of this measurement:

The supervisor cannot allow his efficiency numbers to decline, so whenever he faces a dearth of orders, he pulls orders ahead and produces to forecasts (e.g. marketing gave a forecast that they will consume 1500 pcs in the next 3-4 months, so lets produce them now itself since we have capacity, etc) and this ensures that his resource utilization levels don't come down.

Now, in a plant there are setups to be performed, hence, one way of keeping utilization levels high and producing a larger no. of parts per hour is to minimize the no. of setups and as a consequence batch sizes are inflated to that extent.

Having larger batches leads to significant increase in the time a part spends waiting either to be processed or for the other remaining parts in that batch.
In fact, in such traditionally run plants, the actual processing time is less than 1/10 th of the total mfg lead time, hence 90% of the time is spent waiting.

Now, will you agree that having efficiency measurements is the reason for long lead times?

Will explain how efficiency measurements lead to the other UDEs in the next blog.

Keep watching this space for more.

Visit us at www.avenirco.com

Don’t let ripples from market invade your shop-floor

2009-04-05T20:05:00.002+05:30

It's URGENT!!!!.....Its very URGENT!!!.......It's most URGENT!!!

These are typical phrases that float in shop-floor. I am amazed at priority setting - priority over a priority. I am unable to differentiate between urgent and very urgent. In any case, need is immediate. Any delay will lead to late delivery. However, this clearly demonstrates chaos that is prevalent on a shop floor. This is generated due to faulty functioning in both operations and sales. However none of members from these functions will agree to the faulty functioning. For them it's the way business done.

I want a sales/operations guy to ask to his customer, what is delivery/due date performance(DDP) of company. The obvious argument is why to bother a customer, we know it is around 90%. My assessment of DDP is on the basis of first committed date of delivery and not on the last negotiated delivery date. That is why I am asking to ask from customer, who will always surface out the problem of negotiating/extending delivery dates.

Now I want marketing/operations team to take sales data of last one year or more, and analyze %age of total SKUs/items accounting for around 80% sales by volume. It will always be around 20% of total SKUs/items produced during that period. This is nothing but famous Pareto principle. The variation in both the %ages might be in range of 10% (30% of total SKUs might be accounting for 70%of sales volume) but not more than that. Let us call these 20% SKUs that account for 80% of sales, as fast moving items.

At last, I want sales/operations team to visit their finished goods repository and analyze the inventory lying there. Logically if 20% of total SKUs (fast moving items) account for 80%of sales, then 80% of finished goods inventory should be of fast moving items. However, this will never be the case. In all of the cases (exceptions discounted), 80% of finished goods inventory will be of slow moving items.

Theory of Constraints(TOC), understands these problems but with a different paradigm. There two main reasons for above mentioned problems.

One reason is coupling effect between operations and distribution channel. Typically companies work on forecast of orders. Even if orders are firm; when a order is booked, it is sent to planning/operations department. The planning/operations department then collates all sales orders and schedules production orders, while optimizing capacity available simultaneously. Any abrupt change in real-time demand, order or order quantity creates ripples that disturbs the entire production process. Some productions orders are held in mid of process, some jump the Que, and some wait for parts to come. When such a situation happens on shop floor, everything turns out to be URGENT on some day or the other.

Theory of Constraints(TOC), suggests to create a buffer between operations and distribution that can take care of these ripples/variation. The buffer decouples the operations from distribution channel. If fast moving items account for around 80% of sales, we can create a buffer in form of finished goods inventory (based on calculation - Maximum consumption within given replenishment time, taking into account unreliability of supply) for each of fast moving items at Plant Warehouse.

Once buffer is put in place, there is no forecast based order for such items. Any dispatch of material from buffer, will trigger a production order. These production orders will not be batched or jump the que. They will follow a simple priority based on buffer management. We divide the buffer in three parts and assign them color to denote buffer penetration - Red (when finished goods inventory is less than 1/3 of buffer level), Yellow (when finished goods inventory is between 2/3 and 1/3 of buffer level) and Green (when finished goods inventory is greater than 2/3 of buffer level) . The production order (for fast moving items) on the shop floor is assigned a color that correspond to buffer penetration at Plant Warehouse. This entire system of functioning is known as Made to Availability (MTA) in parlance of TOC. At any given point in time, Red orders will be highest on priority and green orders will be lowest on priority. Everyone on the shop floor follows this principle and works Red order first.

The other reason of chos on shop-floor is due to tendency to release as many MTO orders (Made to Order: Production to happen only when firm order is received by customer) on shop floor, as possible. The slow moving items have to be produced only after receipt of firm order; however we need not release them on the shop floor as soon as we receive them. We need to set a priority system for such orders. We take existing lead time of MTO orders (from time sales orders enters the system to time it is dispached) and cut it by half. This is the buffer for MTO orders. We do not assign separate buffers for each SKU. We can assign different buffers to different class of SKUs and if difference between the buffers is 2-3 days, we assign a common buffer. The time of release of production order for MTO orders is decided as Delivery Date - Buffer. The order is not released on shop floor before the derived release date. The is known as Choke the Release in TOC parlance. To put priority system, we divide buffer in three parts and assign them color to denote buffer penetration - Red (when difference between delivery date and actual date is less than 1/3 of buffer), Yellow (when difference between delivery date and actual date is between 1/3 and 2/3 of buffer) and Green (when difference between delivery date and actual date is greater than 2/3 of buffer). The MTO production order on the shop floor is assigned a color that correspond to buffer penetration. At any given point in time, Red orders will be highest on priority and green orders will be lowest on priority. Everyone on the shop floor follows this principle and works Red order first.

If you follow above steps, I assure you that you will be able to insulate your shop-floor from market ripples.

Visit us at www.avenirco.com

Welcome on board

2009-04-02T23:57:00.001+05:30

Dear reader,

It is start of AVENIR blog - TOC way with Avenir Management Consultants. For almost past six years consultants from AVENIR have immersed themselves into the philosophy of TOC. Today we are the largest TOC practicing consulting firm in India. It has been good journey for all of us till now.

When I read newspapers and find phrase "Global/Financial meltdown' pointing to the fact that recession is looming at large and is ready to envelop India, there is always a smile on my face. This is not because I want to mock at columnists or economists. I simply find plethora of opportunities to grow TOC.

Theory of constraints is a philosophy that challenges age old business traditions and brings about a paradigm shift. The concept appears to be elusive to many, but it more than simple to understand. We will consistently post our insights/knowledge/analysis that we gather out of TOC implementation. So stay tuned and keep us posted if you find our posts enticing you towards TOC.

Kind Regards.
AVENIR Team

visit us at www.avenirco.com