right, we can do this." So we started, and about two weeks later we
began to see some things improve. Lead times were starting to come
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down, our on-time deliveries were starting to go up. At first I thought
it was just a fluke.
DW: What changed your mind?
SW: Well, a month later here comes one of my welders and he says:
"Boss, I think my numbers are wrong. The lead time I've been mea-
suring is now about a day and a half." I said: "How can that be?" We were still running more orders. I had even had to fire a guy in the
meantime, so we were down resources. And we hadn't bought any
new equipment. So I said, "Okay, fine, let me check and I'll let you
know what I find out."
DW: What did you find when you examined the numbers?
SW: I told my welder: "You know what? You're right, the numbers are
wrong. The lead time is less than a day." Same resources, 40% more orders, a fraction of the lead time. Took us two months to do that.
Cost us $500. The company was a hundred years old and they had the
best two quarters that they've ever had. One division that was losing a
million dollars a month was now making a million dollars a month. If
I hadn't seen it with my own eyes, I would never have believed it.
DW: What was the constraint you exploited to make such
a huge difference?
SW: We actually worked through about three of them. One of them
had to do with the fact that we were sending everything out to put a
protective coating on the pipes that held the measuring equipment.
It was a step that had been added at some point by the marketing
department, and it had developed into a constraint. So we had to go
and find one or two more suppliers to handle the load.
DW: And there were others?
SW: One was the saws that cut the pipes. We offloaded some of the
work to another machine that was just sitting there doing nothing. That
saw ran at half the speed of the other saw, no one ever wanted to use
it. But we identified just the right materials to run on it, which built
just enough capacity to eliminate the saw as a constraint. And then the
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paint department was next, we did a couple of things there. At which
point the constraint shifted to engineering. We were waiting for some
new products to come out, and that's kind of where it ended up.
DW: Do you believe that TOC is an infinite process? In other
words, is there always going to be another constraint you can
find and exploit?
SW: Theoretically, it can go on forever. But from what I've seen, it goes through one or two cycles within a facility, and then you've kind
of broken the constraint in the production operation. Then it may
move to, say, engineering. Then you can apply Critical Chain to the
engineering group and eliminate that as a constraint, and then the next
constraint usually is the market, and typically it's the existing market.
Unless you're Coke or GE or whoever, you probably don't have a
dominant position in your market. So you can still find room to grow.
Finally, there are plenty of cases where, using the same capabilities
that you generated using TOC, you can attack new markets that you
never thought you could compete in. At that point, you're probably
doing all you can handle anyway.
Or maybe it goes back to manufacturing again. Could be, yeah, and
you definitely know how to deal with that by then.
DW: Alright So then you moved on?
SW: I actually went to Grant Thornton for two years and worked on
developing other TOC skills and applying what I knew to an ERP
[enterprise resource planning] implementation at a plant in Mexico,
working with Navistar International. I did that for about two years.
Traveled to Mexico a lot, gained about 40 pounds, got no exercise.
But it was kind of fun. Then I went to work for a consulting firm.
Within about a month I was put on my first project, involving TOC,
at a manufacturing facility in Clarksville, Tennessee, where they made
graphite electrodes for the steel industry. It was a big plant, had been
there quite a while, and it was already their best plant of that kind in
the world. They made it a challenge for us, saying, "If you can improve things here, then we'll consider applying your methods elsewhere."
DW: This was a large-scale implementation?
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SW: Huge. The plant covered half of Tennessee, it seemed like, way
out in the middle of nowhere. So we put a small team together. It
was me and another guy and about half a dozen folks at the site, and
we went through the exact same training I had done the first time at
Ohmart/Vega. Was exactly the same concept, exactly the same ideas.
The only thing different was the context. We had software systems we
had to integrate—five different software systems that had the data in it
we needed. We identified the constraint, and did all the usual things,
like making sure there was a buffer in front of it, making sure the
maintenance guys were giving it top priority so if there's any trouble
they could fix things right away. We put a quality check in front of it
so that we weren't wasting time processing any bad electrodes at that
point in the process.
DW: What was the upshot?
SW: No change whatsoever in on-time delivery. The company already
had an excellent record in that regard and by the time we had fin-
ished, it still had an excellent record. But the only reason they could
deliver on time before was because they had more inventory than
they really needed. They just stuffed the shelves full of electrodes,
had them sitting all over the place. So you see, we didn't disrupt their
delivery performance at all, they continued to deliver 100% on-time.
But in the end they did it with about 40% less inventory. And they
were very satisfied with that because that essentially freed up almost
$20 million that they could now use elsewhere to run their business.
Based on those results, the CEO stood up at a big meeting one day
and said that this is what we're going to do worldwide. We brought
representatives from Spain, Brazil, Italy and South Africa to Clarksville
as part of a worldwide implementation team. It's become a classic case
of phenomenal improvement and a very satisfied client.
DW: So this is what you do now? TOC-based consulting gigs?
SW: Yes.
DW: Do you offer TOC as one option among many, or is
this your primary approach to problem-solving?
SW: Maybe there's a third way. If I'm invited to participate in some of
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the initial meetings with the client, I may approach it differently than
some of my colleagues. They'll come in and say
: "We have this line
of services, which one do you want?" What I do is ask questions, like Jonah does in the book. That helps me decide if there is a fit for what
I do. Basically, I try to help clients understand that if you address the
core problems rather than the symptoms so many people focus on,
you can almost promise good results.
Interview with Eli Goldratt continued...
DW: What are the limits of TOC? Can it be applied also to
service-based organizations?
EG: Yes, but... And in our case the "but" is quite big.
Let me start with the "Yes." Yes, any system is based on inherent simplicity, in this sense there is no difference between a manufacturing organization and any other organization, including service orga-
nizations. Yes, the way to capitalize on the inherent simplicity is by
following the five focusing steps; identify the constraint, decide how
to exploit it, etcetera.
The "but" revolves around the fact that it might not be a triviality to figure out how to actually perform each of the five steps; to figure out
the detailed procedures. In The Goal, I introduced the overall concept and, through the detailed procedures for production, proved its validity. In It's Not Luck, I've explained the thinking processes needed to develop the detailed procedures to perform each of the five steps. As
teaching examples, I showed how the thinking processes are used to
develop the detailed procedures for sales of several different cases of
manufacturing organizations. So, as a result, manufacturing organi-
zations are not presented only with the approach and the concepts
but also with the detailed procedures. Detailed procedures are not
available for most types of service organizations. Therefore, in order
to implement TOC in a service organization, one has to follow this
generic knowledge and first develop the specific procedures. This is,
of course, a much bigger task.
DW: So why didn't you write another book for service orga-
nizations?
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EG: As you know, we use the term service organization for a very
broad spectrum of totally different types of organizations. Organiza-
tions that are different from each other no less than they are different
from manufacturing. You are not talking about another book, you are
talking more of a library.
DW: Can you give me an example of a TOC implementation
in a service industry? Any type of service industry?
EG: Let's start with a company that does not design or manufacture
anything, and therefore is called a service organization. Still they
deal with physical products; something that you can touch. An office
supply company.
DW: A distributor of office supply products?
EG: Correct. But before you go and interview them, let me stress one
point. All the TOC detailed procedures for the logistical aspects of
distribution had long been developed and tested in many companies.
But this particular company still had to use heavily the thinking pro-
cesses to properly develop the detailed procedures needed to properly
position itself in the market.
Interview with Patrick Hoefsmit, Office Supply
Former managing director, TIM Voor Kantoor, 100-year-old
office supply company in the Netherlands.
DW: What was your first exposure to The Goal?
PH: I was one of the owners of a printing company. Pretty big com-
pany. Couple of hundred people, 40 presses. I was taking a course
from someone who was explaining to me the difference between debit
and credit-I'm a technical engineer, so I needed some explanation.
And I was such a pain in the ass during the course that he gave me
a book, The Goal. He said, "This is something for you because all the other books are nothing for you." I read it with great pleasure.
I thought finally I have found someone who can explain to me the
meaning of business.
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DW: That seems to be a large part of the appeal of The Goal,
it's accessibility.
PH: Yes, The Goal doesn't go really deep into the financial difficulties of running a company. As a matter of fact it completely makes it irrelevant. So for me it was also a great message that I could just ignore
all these economist Ph.D. people-if they couldn't explain to me what
was going on, then forget about it! So that was my first experience
with the Theory of Constraints. Then somebody gave me an article
that said Eli Goldratt was in Holland to give a seminar. So I went
there. At the seminar Eli told us that he just increased the price for
his Jonah courses from $10,000 to $20,000 because otherwise top
management wouldn't come; something like that. So I said to him, "I
promise I will come, even at the old price!" He said he had a better
deal for me. If I was to do the course, I could do so and I only had
to pay him after the results were of such magnitude that the price of
the course was irrelevant.
DW: Good deal.
PH: Yeah, it was a perfect deal. So I went to New Haven, to America.
He had an institute there. Did the course, couldn't do anything with it.
So a year later I went to ajonah upgrade workshop; it was in Spain. Eli
has a very good memory, so when he ran into me he said, "Hey, did
you pay for your course yet?" I said, "No, no, I didn't see any reason why I should." So he invited me for a private session. Some people
warned me about that! On Monday morning I had a private session
here in Rotterdam. That was a hefty morning. All my homework
and all the things I did were to him completely irrelevant. The point
was, I was looking at my own company and looking for a production
bottleneck when there was so much excess capacity and the constraint
was obviously in the market! But for me that was thinking outside the
box. It had never occurred to me that Theory of Constraints would
apply also outside the company's walls.
DW: That's understandable, since The Goal describes a produc-
tion problem.
PH: Yes. So I was one of those stupid people who couldn't see the
whole picture. So then Eli explained the bigger picture and the bigger
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application of it. He slowly forced me to think-sometimes by yelling
at me, "Think!" It was a hefty morning. And this story is described by him in It's Not Luck—the candy wrappers case. We finally made some money over there. Actually, a lot of money. Later I discovered that
my nephew, who was the other 50% owner of the company, wasn't
doing much and was taking out more money than we had agreed
upon, so we decided to split the company in two. I did the split and
he chose which part he wanted. I never imagined that he would keep
the printing business, which I had been running, and leave me with
the office supply business, which had been his responsibility.
DW: Did you know anything about the office supply?
PH: No, nothing at all. The company was pr
etty big, it was number
four or five in the Netherlands. It was making an awful loss. Competition was suddenly fierce and only concentrated on price. Other
companies were very subtly sending brochures to every small business
in the Netherlands with prices on the front cover that I couldn't get
for myself as a wholesaler. This was really awful. All our good custom-
ers became suddenly more and more interested in price. They said,
"How is it possible that we pay twice as much as what's on the front
cover of this brochure?"
DW: It sounds like an impossible situation.
PH: Well, it was, it was really awful. We had something like four or
five thousand customers, 20 sales people. The only thing we could
think of was to also lower prices, and do it only on items where we
had to. That was not a long-term solution but that was what every-
body else was doing. So the conventional way of doing business in
office supplies was pretty soon completely gone. We got tenders for
office supplies-which was unheard of—where you had to fight with
three or four competitors. In the past, orders for office supplies were
just given to a local good-performing company. Now everybody was
focusing on price.
DW: So what did you do?
PH: We started to build, as Eli calls it, the current reality tree. And
of course this time I didn't make the mistake of making it about our
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company but I made it about the customers' situation: Why is this
customer complaining so heavily about price? After long thought and
a lot of discussions with my sales people, the only thing we could come
up with is that he's thinking this is the only way that he can decrease
the total cost of office supplies; that he can't do anything about the
tremendous cost of having to stock supplies, and store them, and the
cost of bringing the stuff to the right people in the building. Well, I
know what kind of a mess customers can make out of it. In most of-
fices where you open drawers, there's more stock in the office than
anybody can imagine. While at the same time they are screaming for
a specific item which has to be brought to them by taxi in crazy short
delivery times. In Rotterdam we are down to four-hour delivery times!
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