tocico 2010 conference case study finding & testing a solution to shortages ... ·...

TOCICO 2010 ConferenceTOCICO 2010 ConferenceTOCICO 2010 ConferenceTOCICO 2010 Conference

CASE STUDYCASE STUDYCASE STUDYCASE STUDYFinding & Testing a solution to Finding & Testing a solution to Finding & Testing a solution to Finding & Testing a solution to

1© 2009, Dr Alan Barnard, Goldratt Research Labs. All rights reserved.

Finding & Testing a solution to Finding & Testing a solution to Finding & Testing a solution to Finding & Testing a solution to SHORTAGES & SURPLUSES SHORTAGES & SURPLUSES SHORTAGES & SURPLUSES SHORTAGES & SURPLUSES within Book Publishingwithin Book Publishingwithin Book Publishingwithin Book Publishing

Presented By: Presented By: Dr. Alan Barnard (CEO Goldratt Research Labs, TOCICO Chairman 2003Dr. Alan Barnard (CEO Goldratt Research Labs, TOCICO Chairman 2003--2006)2006)

Date:Date: 2121stst June 2010June 2010


Presentation OutlinePresentation OutlinePresentation OutlinePresentation OutlinePresentation OutlinePresentation OutlinePresentation OutlinePresentation Outline

1.1.1.1. Generic Research ProblemGeneric Research ProblemGeneric Research ProblemGeneric Research Problem1.1.1.1. Extent and Consequences of Shortages & SurplusesExtent and Consequences of Shortages & SurplusesExtent and Consequences of Shortages & SurplusesExtent and Consequences of Shortages & Surpluses

2.2.2.2. Cause(sCause(sCause(sCause(s) & Direction of Solution) & Direction of Solution) & Direction of Solution) & Direction of Solution

2.2.2.2. Case Study: Book Publishing CompanyCase Study: Book Publishing CompanyCase Study: Book Publishing CompanyCase Study: Book Publishing Company1.1.1.1. Publishing Industry Background Publishing Industry Background Publishing Industry Background Publishing Industry Background

2

© 2009, Dr Alan Barnard, Goldratt Research Labs. All rights reserved.

1.1.1.1. Publishing Industry Background Publishing Industry Background Publishing Industry Background Publishing Industry Background

2.2.2.2. Company OverviewCompany OverviewCompany OverviewCompany Overview

3.3.3.3. Phase 1: Quantifying the Extent, Consequences & CausesPhase 1: Quantifying the Extent, Consequences & CausesPhase 1: Quantifying the Extent, Consequences & CausesPhase 1: Quantifying the Extent, Consequences & Causes

4.4.4.4. Phase 2: Finding a SolutionPhase 2: Finding a SolutionPhase 2: Finding a SolutionPhase 2: Finding a Solution

5.5.5.5. Phase 3: Testing the SolutionPhase 3: Testing the SolutionPhase 3: Testing the SolutionPhase 3: Testing the Solution

3.3.3.3. Research FindingsResearch FindingsResearch FindingsResearch Findings

4.4.4.4. Future ResearchFuture ResearchFuture ResearchFuture Research


Research ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemExtent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of SHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGES

1. How many of YOU frequently don’t find what you want at a SHOP? *Either because the retailer was “Out-of-Stock” (OOS) or it decided not to carry the item you wanted?

2. What is YOUR (consumer) response to this SHORTAGE?

− Come back later to same retailer to buy same product?

− Buy a similar product from same retailer and same supplier?

− Buy a similar product from same retailer but different supplier?

3


− Buy a similar product from same retailer but different supplier?

− Go to other retailer to buy same product?

− Do not buy anything?

What is the consequences of this SHORTAGE on:

BANKSUPPLIERCONSUMER SHOP


Consequences of SHORTAGES on Consequences of SHORTAGES on Consequences of SHORTAGES on Consequences of SHORTAGES on ProfitabilityProfitabilityProfitabilityProfitabilityFor Book Publisher and Retailer…For Book Publisher and Retailer…For Book Publisher and Retailer…For Book Publisher and Retailer…Quantifying impact of 1% Lower Sales Volume on Net Profit

4


INSIGHT: 1% Lost Sales = 10% reduction in ProfitsBELIEF: Lost Sales is not significant (2 – 3%) since today, consumers that want

our products can in most cases find it somewhere.FEAR: Is it really worth it to invest in trying to further reduce Shortages?

CHECK: How do we know shortages (out-of-stock) is really “only” 2-3%? Does it match our experience as Consumers?


Results from International GMA Research Study (2002)Title: “Retail Out-of-Stocks: A Worldwide Examination of Extent, Causes and Consumer Responses”Scope: 661 Retail Outlets, 32 Product Categories, 71,000 Consumers Interviewed, 29 Countries

INDUSTRY RESEARCH: Extent, INDUSTRY RESEARCH: Extent, INDUSTRY RESEARCH: Extent, INDUSTRY RESEARCH: Extent, INDUSTRY RESEARCH: Extent, INDUSTRY RESEARCH: Extent, INDUSTRY RESEARCH: Extent, INDUSTRY RESEARCH: Extent, Consequences & Consumer Response to Consequences & Consumer Response to Consequences & Consumer Response to Consequences & Consumer Response to Consequences & Consumer Response to Consequences & Consumer Response to Consequences & Consumer Response to Consequences & Consumer Response to SHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGES

5


What about SURPLUSES?

Retailers Lost Sales8 to 9% OOS x (9+31=40%) Consumer Response = 3 to 4%

Supplier Lost Sales8 to 9% OOS x (9+26=35%) Consumer Response = 3 to 4%

Impact on Lost Sales & Profitability

But at 1:10 Leverage, 3 – 4% Lost Sales = Lost Profitability of 30 to 40%


1. How many of YOU have recently gone into a SHOP and bought something you did not really want / need simply because the shop offered a BIG discount?

2. How frequently does this happen to YOU?− Once a year?

Research ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemExtent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of Extent & Consequences of SURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSES

6


− Once a month?

− Once a week?

What is the consequence of this SURPLUSES on:

BANKSHOP SUPPLIERCONSUMER

?


Consequences of SURPLUSES on ProfitabilityConsequences of SURPLUSES on ProfitabilityConsequences of SURPLUSES on ProfitabilityConsequences of SURPLUSES on ProfitabilityFor Book Publisher and Retailer…For Book Publisher and Retailer…For Book Publisher and Retailer…For Book Publisher and Retailer…

Quantifying impact of 1% Discount (Lower Price) on Net Profit

7


INSIGHT: 1% Discount in Price = 20% reduction in ProfitsBELIEF: Consumers are VERY sensitive to pricing...and discounts is necessary

since lower prices = more salesFEAR: Reducing discount / increase in price WILL reduce sales much more

CHECK: Are consumers REALLY that sensitive to Price?Is it not possible to significantly reduce SURPLUSES (that lead to discounts)?


1. Where is the real Constraint in the Consumer Goods Supply Chain (e.g. for printed books)? − Number of Customers willing to buy (books)…

…and what limits customers to buy more of the available books (OR what prevent retailers to sell more books)?

Research ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemAnother important consequence of Another important consequence of Another important consequence of Another important consequence of Another important consequence of Another important consequence of Another important consequence of Another important consequence of SURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSES

8


− Shortages (Out-of-Stocks) OR

− Shelf Space available in Book Shops to display all available books that would sell if they were available to buy...

2. What is the consequences of SURPLUSES on “Exploiting” the Retailer’s shelf space?

Surpluses is like having BRICKS on the Shelf……and BRICKS = LOST SALES of non-stock items selling elsewhere


• More Sophisticated (and expensive) Forecasting Systems to predict consumer Demand…and more Collaboration efforts to share forecasts and supply problems

• Implementing Central & Regional Distribution Centers (CDC / RDC) to improve availability and responsiveness

Research ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemPrevious attempts to solve the problemPrevious attempts to solve the problemPrevious attempts to solve the problemPrevious attempts to solve the problemPrevious attempts to solve the problemPrevious attempts to solve the problemPrevious attempts to solve the problemPrevious attempts to solve the problem

9


(CDC / RDC) to improve availability and responsiveness

• Bar Coding, High Tech Materials Handling & EDI

What was the result?Significant improvements in availability at CDC and RDC’s (95 – 98%) and in responsiveness (daily deliveries)…

But…did it really improve Shortages and Surpluses at Retail level and if not, WHY?


• What makes reducing Shortages and Surpluses so difficult in Consumer Goods?

− Large number of “Stock-Keeping-Units (SKUs)

− Unpredictable and High Variation in Demand and Supply

− Inter-dependencies between SKUs

Research ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemChallenges in reducing SHORTAGES & SURPLUSESChallenges in reducing SHORTAGES & SURPLUSESChallenges in reducing SHORTAGES & SURPLUSESChallenges in reducing SHORTAGES & SURPLUSESChallenges in reducing SHORTAGES & SURPLUSESChallenges in reducing SHORTAGES & SURPLUSESChallenges in reducing SHORTAGES & SURPLUSESChallenges in reducing SHORTAGES & SURPLUSES

10


• So, off-course, with this complexities, it is a very difficult decision on what to order, when to order and how much?

• This decision determines not only the success of retailer, but also the success of the distributor, manufacturer and material supplier.

So, who do we leave this critical & complex decision to?…and Are these people really in the best position to decide?


Surpluses

Actual Demand

Stock Level based on customers ordering large batches typically monthly (based on inaccurate F/Cast)

Stock Level based on customers ordering 25

100

ROP

Order LT

Supply LT

Order LTSupply LT

Research ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSES

11


Shortages

customers ordering daily or weekly based on with actual consumption

25

Month 1 Month 2 Month 3

The KEY to achieve “profitable availability of more SKU’s” is to get each link to ORDER LESS MORE FREQUENTLYORDER LESS MORE FREQUENTLYORDER LESS MORE FREQUENTLYORDER LESS MORE FREQUENTLY (START)

….rather than the traditional practice of

,,,ORDER MORE LESS FREQUENTLYORDER MORE LESS FREQUENTLYORDER MORE LESS FREQUENTLYORDER MORE LESS FREQUENTLY (STOP)

Yes, BUT…the Cause and Solution has been known for long time, so why don’t we see MORE Supply Chains adopting this…especially BOOK Publishing


Case StudyCase StudyCase StudyCase StudyCase StudyCase StudyCase StudyCase StudyPublishing Industry BackgroundPublishing Industry BackgroundPublishing Industry BackgroundPublishing Industry BackgroundPublishing Industry BackgroundPublishing Industry BackgroundPublishing Industry BackgroundPublishing Industry Background

• The publishing industry, due to slow or evendeclining sales, has been under SEVERE pressureto find ways to improve for many years…

• The book publishing industry think shortages is low but has experienced very high returns

12


low but has experienced very high returns (surpluses) for many years (no-sale-return policy)* A Typical Book Publisher have 30% - 50% returns of all books printed

Pile’em high…. Watch’em fly…”

• Many Book Publishers & Retailers assumed that high returns was simply the “price you pay” to not lost any sales…but most still considered it as an improvement opportunity* A Typical Book Publisher’s Print & Distrib. Costs is only 30% of Selling Price


Case StudyCase StudyCase StudyCase StudyCase StudyCase StudyCase StudyCase StudyXYZ Booking Publishing Co.XYZ Booking Publishing Co.XYZ Booking Publishing Co.XYZ Booking Publishing Co.XYZ Booking Publishing Co.XYZ Booking Publishing Co.XYZ Booking Publishing Co.XYZ Booking Publishing Co.

• In February 2008, Goldratt Research Labs was approachedone of the largest Book Publishing companies in the world(US based) who sell more than 500 million books annually.

• They are considered one of the best in managing returns,and still have 28% of every book printed returned to beshredded.

13


shredded.• There were no reliable data about the level of surpluses

(and or shortages within retailers), and it appeared as ifthe consequences of these were not fully understood.

Could Theory of Constraints help to quantify the extent, consequences and causes of the problem… and help to find a solution?


IMPACT of Reducing Returns on ProfitabilityIMPACT of Reducing Returns on ProfitabilityIMPACT of Reducing Returns on ProfitabilityIMPACT of Reducing Returns on ProfitabilityFor Book Publisher…For Book Publisher…For Book Publisher…For Book Publisher…

Quantifying impact of Reducing Returns from 30% to 15% on Net Profit

14


INSIGHT: 50% reduction in returns = 50% increase in Profits

FEAR: But what if Changes to reduce Returns causes Sales Volume to drop?

Lets use Theory of Constraints to analyze the situation…


Publishing CompanyPublishing CompanyPublishing CompanyPublishing CompanyPublishing CompanyPublishing CompanyPublishing CompanyPublishing CompanyResearch QuestionsResearch QuestionsResearch QuestionsResearch QuestionsResearch QuestionsResearch QuestionsResearch QuestionsResearch Questions

• Is it possible to reduce returns without reducing sales?

• Is “High Returns” the only “cost” of surpluses at retaillevel?

15


• What is the “real level” of unavailability (shortages) of books at retail level?

• Is it possible to do much better…?

… and if so, what changes would be needed in the way the links in the Book Publishing Supply Chain is managed?


Lost Sales (Stocked)

Potential

Surpluses

Shortages

PROFITABILITY

AVAILABILITYProfitabilityGAP

Potential

AvailabilityGAP

Lost Sales (Non-Stocked)

Avoidable Discounts

Cost of Avoidable Returns

Impact of Shortages and Surpluses Impact of Shortages and Surpluses Impact of Shortages and Surpluses Impact of Shortages and Surpluses Impact of Shortages and Surpluses Impact of Shortages and Surpluses Impact of Shortages and Surpluses Impact of Shortages and Surpluses on Publisher and Retailer on Publisher and Retailer on Publisher and Retailer on Publisher and Retailer on Publisher and Retailer on Publisher and Retailer on Publisher and Retailer on Publisher and Retailer ProfitabilityProfitabilityProfitabilityProfitabilityProfitabilityProfitabilityProfitabilityProfitability

Price lower than PoV

16


Current Current

But how do we quantify the impact of Surpluses / Returns (and Shortages) on Profitability?


Applying TOC’s 5 Focusing Steps to the Applying TOC’s 5 Focusing Steps to the Applying TOC’s 5 Focusing Steps to the Applying TOC’s 5 Focusing Steps to the Book Publishing Supply Chain…Book Publishing Supply Chain…Book Publishing Supply Chain…Book Publishing Supply Chain…

Step 1: IDENTIFY the System’s Constraint

Step 2: Decide how to EXPLOIT the System’s Constraint

“Until the consumer has bought, nobody has really sold…”The System Constraint therefore is the No. of Consumers willing to buy

“Exploiting the System Constraint” means “Having the Right Product, at the right place and right time (when consumer is ready to buy).

What conditions block better exploitation?

17


Step 3: SUBORDINATE everything to the above decision

What conditions block better exploitation?1) Shortages of Products already stocked2) Unavailability of Products that sell elsewhere but which is not

stocked due to shelf-space constraints (occupied by Surpluses).Actually Surpluses in a retail shop is like having bricks on the shelf…

Change any Policy, Measurement and or Behaviour that contribute to current high level of both Shortages and Surpluses

YES, BUT, how to we find these and will it really be a win:win to change these…


Project StartConference Call to share real damage & extent of Surpluses & Shortages

Research ProjectsResearch ProjectsResearch ProjectsResearch ProjectsResearch ProjectsResearch ProjectsResearch ProjectsResearch ProjectsProject Timeline Project Timeline Project Timeline Project Timeline Project Timeline Project Timeline Project Timeline Project Timeline

TOC EvaluationShare generic TOC

SimulationDevelop

simulation to validate damage of PUSH and benefits of PULL

Customized S&T

TestTest impact of “Less more Frequently” with 12 Test Shops and withBook Chain data

Analyse Test ResultsAnalyse Test

18


Feb 2008

March 2008

April 2008

June 2008

July 2008

Nov 2008

So, what was the process we used to find and test a “SIMPLE & ROBUST” solution to the problem of

SHORTAGES and SURPLUSES…

Share generic TOC analysis & solution to shortages & surpluses

Customized S&TDr. Goldratt with Exco construct customized S&T and plan Test

Analyse Test Results for 12 Test vs. Control Shops and agree on next steps


Case StudyCase StudyCase StudyCase StudyCase StudyCase StudyCase StudyCase Study

Book Publishing Research Challenge #1What makes quantifying the Extent, Consequences and

Causes of Surpluses & Shortages so difficult?

• Despite excellent “Point-of-Sale” data available from most retailers, Publishers do not have visibility of actual shortages and surpluses at retails.

19


retails.

• Retailers can buy directly from Publishers (to get best price) or from Wholesalers (to get best availability and response).

• Therefore, knowing the availability (or unavailability) at one Publishers and Wholesalers do not give a true picture of unavailability at retail level.

Is there a simple way to quantify the likely level of shortages and surpluses at retail level?


Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for reducing reducing reducing reducing reducing reducing reducing reducing SHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGES & & & & & & & & SURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSES

20


Benefit of “flagging” the stock-outs in red...


Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for Quantifying the Opportunity for reducing reducing reducing reducing reducing reducing reducing reducing SHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGESSHORTAGES & & & & & & & & SURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSESSURPLUSES

Stock-out Lost Sales Surpluses Lost Sales

21


Stock-out Lost Sales = Stock-out Days x Sales Velocity/day= 8%

Surpluses Lost Sales = Surplus Days x Replacement Sales Velocity/day= 7%


Typical Book Chain Store Typical Book Chain Store Typical Book Chain Store Typical Book Chain Store Typical Book Chain Store Typical Book Chain Store Typical Book Chain Store Typical Book Chain Store –––––––– Concentration AnalysisConcentration AnalysisConcentration AnalysisConcentration AnalysisConcentration AnalysisConcentration AnalysisConcentration AnalysisConcentration Analysis

22

© 2009, Dr Alan Barnard, Goldratt Research Labs. All rights reserved. 22

NOTE: Above Data for period of 185 Weeks (1/1/2005 - 7/18/2008)

10% of Titles generates 65% of Total Sales95% of Titles sell at less than 1unit/wk

25% of titles had ZERO sales over the 3 year periodVERY Large opportunity to replace “SURPLUSES”

Where “Surplus” = Zero Sales Titles and Titles with Sales Velocity of <1/month with display of >1unit


Overcoming the challenges to reduce Overcoming the challenges to reduce Overcoming the challenges to reduce Overcoming the challenges to reduce Overcoming the challenges to reduce Overcoming the challenges to reduce Overcoming the challenges to reduce Overcoming the challenges to reduce shortages & surpluses in Book Publishingshortages & surpluses in Book Publishingshortages & surpluses in Book Publishingshortages & surpluses in Book Publishingshortages & surpluses in Book Publishingshortages & surpluses in Book Publishingshortages & surpluses in Book Publishingshortages & surpluses in Book Publishing

Book Publishing Research Challenge #2What makes reducing Surpluses & Shortages so difficult?• Uncertainty of consumer demand

•Weak incentives for retailers & distributors to improve returns…due to an industry policy of “No Sales-Return Any time” creates an incentive to rather order too much than too little..

23


• Distributors & retailers create buffers for the same “end-consumer demand.

• Printing & Binding economies of scale that drive large batches.

• A strong held belief that “Title visibility in the marketplace drives demand (but there is little research to quantify this relationship)

• Supply chain constraints like warehouse proximity and limited rush reprint capacity at printers

The goal is to print & distribute closer to what sells to the end consumer


Surpluses

Actual Demand

Stock Level based on customers ordering large batches typically monthly (based on inaccurate F/Cast)

Stock Level based on customers ordering 25

100

ROP

Order LT

Supply LT

Order LTSupply LT

Research ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemResearch ProblemCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSESCause(s) of SHORTAGES and SURPLUSES

24


Shortages

customers ordering daily or weekly based on with actual consumption

25


The KEY to achieve “profitable availability of more SKU’s” is to get each link to ORDER LESS MORE FREQUENTLYORDER LESS MORE FREQUENTLYORDER LESS MORE FREQUENTLYORDER LESS MORE FREQUENTLY (START)

….rather than the traditional practice of

,,,ORDER MORE LESS FREQUENTLYORDER MORE LESS FREQUENTLYORDER MORE LESS FREQUENTLYORDER MORE LESS FREQUENTLY (STOP)

Yes, BUT…the Cause and Solution has been known for long time, so why don’t we see MORE Supply Chains adopting this…especially BOOK Publishing


PUSHInventory Profile

No. of Days of Inventory

in Supply Chain

OLT = Daily

SLT = 1 to 4 weeks

OLT = Daily

SLT = 1 to 4 days

OLT = Daily

SLT = 1 to 2 days

1-4wks

Change in Inventory Profile in moving from Change in Inventory Profile in moving from Change in Inventory Profile in moving from Change in Inventory Profile in moving from PUSH to PULL (less more frequently)PUSH to PULL (less more frequently)PUSH to PULL (less more frequently)PUSH to PULL (less more frequently)

SKU Target Level = Maximum Demand with Reliable Replenishment Time Where RRt = Order LT + Supply LT)

25


PUBLISHERCDC

PUBLISHERRDCs or

RETAILER CDC

RETAILERS

PULL Inventory Profile

No. of Days of Inventory

in Supply Chain

PRINTER

1 - 4days


Auto Upsize Buffer

Keeping correct inventory levels4:254:254:254:25Sizing Stock Buffers with Uncertainty Sizing Stock Buffers with Uncertainty Sizing Stock Buffers with Uncertainty Sizing Stock Buffers with Uncertainty Sizing Stock Buffers with Uncertainty Sizing Stock Buffers with Uncertainty Sizing Stock Buffers with Uncertainty Sizing Stock Buffers with Uncertainty and variability in demand and supplyand variability in demand and supplyand variability in demand and supplyand variability in demand and supplyand variability in demand and supplyand variability in demand and supplyand variability in demand and supplyand variability in demand and supply

Planning RulePlanning RulePlanning RulePlanning Rule: “Be Paranoid but not Hysterical”Target Stock Level for each Title at each Storage Location = Maximum Demand within Reliable Replenishment Time

Execution Rules: Execution Rules: Execution Rules: Execution Rules: Replenish up to Target level in sequence of buffer status more frequently (e.g. daily)

Too much

Too little

Good Enough

Goal Units

Time / Stock BufferFeedback Rules: Feedback Rules: Feedback Rules: Feedback Rules: Adjust Target Level (Buffer Size) based on Level of Buffer Penetration

26


300


400

200

100

Auto Upsize Buffer based on level of Red-zone penetration

Auto Downsize Buffer based on lack of Yellow zone penetration

Actual Demand


Launch EventStable Sales

Testing Robustness of TOC’s Dynamic Testing Robustness of TOC’s Dynamic Testing Robustness of TOC’s Dynamic Testing Robustness of TOC’s Dynamic Buffering regardless of Demand PatternBuffering regardless of Demand PatternBuffering regardless of Demand PatternBuffering regardless of Demand Pattern

27


Special Event Seasonality Events


• In general, Goldratt Research Labs have found that if a company reports formally a 1-3% “Lost Sales” due to unavailability of product, improving availability to close on 100% (to end consumer) typically will result in increase in sales of 10 to 30%

• The Table below shows the results from actual implementation tests:

Industry Official Lost Sales

Availability before TOC

Availability after TOC

Avg Increase in Sales within 1st year of TOC rollout

Results from Past TOC’s ReplenishResults from Past TOC’s ReplenishResults from Past TOC’s ReplenishResults from Past TOC’s ReplenishResults from Past TOC’s ReplenishResults from Past TOC’s ReplenishResults from Past TOC’s ReplenishResults from Past TOC’s Replenish--------totototototototo--------Consumption (RTC) ImplementationsConsumption (RTC) ImplementationsConsumption (RTC) ImplementationsConsumption (RTC) ImplementationsConsumption (RTC) ImplementationsConsumption (RTC) ImplementationsConsumption (RTC) ImplementationsConsumption (RTC) Implementations

28


Lost Sales before TOC after TOC 1 year of TOC rollout

Fruit Supplier 2-5% 85 -90% >98% 30% (worst 5%, best 200%)

Bread & Flour Supplier

2-5% 80-95% >99% 20% (worst 5%, best 300%)

Cosmetic Supplier

2-5% 90-98% >99% 10% (worst 2.5%, best 50%)

Sportswear Supplier

10-20% 80 – 85% >97%(Total Inv down

60%)

25%(worst 10%, best 100%)

Note: In reality, most “lost sales” are not recorded. The dramatic increase in sales achieved with improved availability verifies this.


Testing the Solution with 12 Test Testing the Solution with 12 Test Testing the Solution with 12 Test Testing the Solution with 12 Test Testing the Solution with 12 Test Testing the Solution with 12 Test Testing the Solution with 12 Test Testing the Solution with 12 Test vs. Control Shopsvs. Control Shopsvs. Control Shopsvs. Control Shopsvs. Control Shopsvs. Control Shopsvs. Control Shopsvs. Control Shops

Research Questions:1. Acceptance Rate?

• % of Shops accepting the offer for the Publisher to “Replenish Daily on Actual Consumption

29


2. Difficulty to setup up RTC system?

• How difficult would it be to set up a system for a shop to share daily sales with the publisher and to receive daily deliveries?

3. Really Win:win (Value = Benefits – Costs)?

• What will be the impact “Less more Frequently” on Shortages (Out-of-Stock) and Surpluses and on Lost Sales…?


Similar level of “Stock-outs” before and after

Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Typical Control Shop Typical Control Shop Typical Control Shop Typical Control Shop Typical Control Shop Typical Control Shop Typical Control Shop Typical Control Shop –––––––– Before vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. After

30


outs” before and after the Launch of Test


Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Impact on Shortages (OOS)Typical Test Shop Typical Test Shop Typical Test Shop Typical Test Shop Typical Test Shop Typical Test Shop Typical Test Shop Typical Test Shop –––––––– Before vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. AfterBefore vs. After

Zero “Stock-outs” after the Launch of

31


after the Launch of Test !


Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Learned so far?Learned so far?Learned so far?Learned so far?Learned so far?Learned so far?Learned so far?Learned so far?

• Importance of knowing how to answer simple question of “By how much has Sales gone up?” due to this change...

• Very high level of acceptance rate of offer to replenish daily based on actual sales (>80%)

• “Replenishing Daily on Actual Consumption” can help significantly reduce Shortages & Surpluse:

32


− Sales Increase by preventing Shortages around 2.5-10%

− Sales increase by replacing Surpluses (if done on wide enough scale) can be 5-20%.

• Implementing Dynamic Buffer Management (with so many SKUs) and frequent bad decisions is expected to increase Sales even more

• Replacing a BRICKS with any Item that sells will increase Sales (BRICKS = More than Needed / Really Slow Runner)

• Major leverage opportunities to reduce SURPLUSES & SHORTAGES are the really HIGH Runners and the LOW Runners (1’s, 2’s & 3’s that should be 0’s,1’s & 2’s)…

32

TOCICO 2010 ConferenceTOCICO 2010 ConferenceTOCICO 2010 ConferenceTOCICO 2010 ConferenceAchieving

Viable Vision

2:1High

Availability

2:5Capitalize on Sales per Shelf

(SPS)

BASE GROWTH ENHANCED GROWTH2:3

Capitalizing on Word-of-Mouth

2:4Resurrecting Dead Horses

2:2Capitalizing on

Digital Opportunity

2:6Pro-active editorial

3:1: 3:1:5 3:1:63:1:3 3:1:43:1:2 3:1:7

Strategy; Strategy; Strategy; Strategy; Book titles are always available at the stores in which market demand exists for those titlesTactics: Tactics: Tactics: Tactics: The Co. provides

Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Results Achieved and Lessons Learned so far?Learned so far?Learned so far?Learned so far?Learned so far?Learned so far?Learned so far?Learned so far?

NEXT STEPNEXT STEPNEXT STEPNEXT STEPNEXT STEPNEXT STEPNEXT STEPNEXT STEP

33


4:11:1Define test sample

4:11:2Launch Tests

4:11:3Analyze the results

3:1:

In-house Test

– Impact on Book Shops

3:1:5

Change Chains & Wholesalers’ order patterns

3:1:6Spread to all Non-Bookshop

Outlets

3:1:3Rollout to directly serviced Shops in

CDC area

3:1:4Spread to all Book Shops

3:1:2

Parallel Test -Impact onBook Chain

3:1:7Achieving Ongoing

Improvement

Strategy:Strategy:Strategy:Strategy: Co. has good enough* estimate of the resulting benefits from providing better availability (“Good Enough”: The reliability of the estimates enables a clear decision)

Tactics:Tactics:Tactics:Tactics: Co. carries out a carefully monitored test of “high availability” on a statistically representative sample

Tactics: Tactics: Tactics: Tactics: The Co. provides replenishment to daily consumption to the shops it services directly and persuades the intermediate carriers* to provide such services its customers

NEXT STEPNEXT STEPNEXT STEPNEXT STEPNEXT STEPNEXT STEPNEXT STEPNEXT STEP


Always Remember…“Your FOCUS (or lack of it) will determine your reality…”

Thank you!

34


For more information….

visit

www.goldrattresearchlabs.com

www.toc-goldratt.com


About Dr Alan BarnardAbout Dr Alan BarnardAbout Dr Alan BarnardAbout Dr Alan BarnardAbout Dr Alan BarnardAbout Dr Alan BarnardAbout Dr Alan BarnardAbout Dr Alan Barnard

•• TOCTOC havehave providedprovided AlanAlan thethe practicalpractical meansmeans totohelphelp achieveachieve hishis personalpersonal goalgoal toto helphelporganizationsorganizations andand individualsindividuals identifyidentify andand unlockunlocktheirtheir inherentinherent potentialpotential

•• AlanAlan isis currentlycurrently CEOCEO ofof GoldrattGoldratt ResearchResearch Labs,Labs,DirectorDirector ofof GoldrattGoldratt GroupGroup Africa,Africa, ChairmanChairman ofofRealizationRealization AfricaAfrica andand ChairmanChairman ofof TheThe OdysseyOdysseyInstituteInstitute..

•• AlanAlan waswas aa foundingfounding boardboard membermember andand chairmanchairman

35


•• AlanAlan waswas aa foundingfounding boardboard membermember andand chairmanchairmanofof TOCICOTOCICO fromfrom 20032003--20052005 andand receivedreceived thetheTOCICOTOCICO LifetimeLifetime MembershipMembership awardaward inin 20062006

•• HaveHave workedworked withwith companiescompanies suchsuch asas ABB,ABB,Cisco,Cisco, Seagate,Seagate, SAP,SAP, RandomRandom House,House, BCBC Rail,Rail,Tata,Tata, LarsenLarsen && Toubro,Toubro, PremierPremier Foods,Foods,Shatterprufe,Shatterprufe, SABMiller,SABMiller, andand withwith UNUN DPDP andandInWentInWent onon applyingapplying TOCTOC toto CityCity CouncilsCouncils inin AfricaAfrica

•• AlanAlan isis marriedmarried toto LauraLaura andand havehave twotwo youngyoungboysboys ChristianChristian andand FrancoisFrancois whowho areare becomingbecomingrealreal TOCTOC practitionerspractitioners asas theythey nevernever stopstop askingaskingWHY!WHY!

tocico 2010 conference case study finding & testing a solution to shortages ... ·...

Documents