TOC for Retail based on 5 business cases 05.06.pptx

TOCICO 2012 Conference

The path to improve the flow of
goods in Retail.
Based on life implementations within 5
FMCG chains

Presented By: Darius Radkevicius
Date: 12.05. 2012
© 2012TOCICO. All rights reserved. 1

The great minds argue

2
© 2012 TOCICO. All rights reserved.

“I am convinced that He (God) does not
throw dice” - Albert Einstein

Theory of Relativity. Cause – effect. Deterministic philosophy.

Democritus 460-370 BC
Euclid 323 - 283 BC
Isaac Newton 1642 – 1727
Albert Einstein 1879 - 1955
3

Really ???

4

“The mechanism of evolution is based on
throwing dice” - Stephen Hawking

Quantum physics. Random events. Casino Perpetuum philosophy.

Laozi 5th- 4th BC
Niels Bohr 1885 - 1962
Werner Heisenberg 1901 – 1976
Stephen Hawking 1942 - 5

Wise minds know that there is no one truth and
both sides are right

QChaos

Fractal

But for the educational goals, new knowledge
tends to oppose the old.
6

Insights about Retail

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First step: Identify
The clients who come to buy are the main constraint of the system.

8

Second step: Exploit
The right inventory in the right place at the right time.

9

Third step: Subordinate

1.To have the right inventory you need to establish the procedure of getting
the data of daily sales from the selling point and replenishing in accordance.
2. DBM will help you to achieve better financial result than forecast.

10


What
insights
keep
silent?

11


Up to Kurt Gödel’s
“Incompleteness of logic”

12


All systems
depend on
something
outside the
system.
K. Gödel
13

Two philosophical view on system
improvements

Deterministic or Random

14

Richard Branson:

“The business-
school gurus tend to
underplay the luck,
presumably because
the power of chance
undermines the rules
they teach you.”

15

Consumer is final or Global constraint.
What is Local constraint?

Deterministic: “Shelf space is usually
the shop’s constraint for better
availability. A significant amount of
the constraint is captured by
merchandise that were ordered
according to an overly optimistic
forecast.” (STT 2:1)
Random: Local constraint may be the
location of the store. (The main rule
for Retail: Location! Location!
Location!)
16

II step: TOCICO 2012 Conference

Exploiting the system’s constraint is done by
either:
1)Deterministic: having the right inventory in
the right place at the right time (Insight). That
is, work with specific existing SKU (STT 3.1.3)
2)Random: continuous introduction of new
products to meet changing demand over time,
preferences, the influence of fashion and
advertising. That is, work with an assortment.
17

Shelf space
or physical constraint

Deterministic: To establish procedure of getting
from sales point the data of its daily sales and
replenishing in accordance.
Random: To have proper visual display in quantity
and in the right place (merchandising).

18

The possible wise decision: to connect
SM (space management) with DBM

19

Logical conclusion after step 3 “subordinate
everything else to the above decision” by TOC:
(slide 10) TOCICO 2012 Conference

If you convince the
client to provide daily
data and configure the
DBM, then you as a
consultant will help the
client to collect the low
hanging fruits.
Is it really enough?

20

Neither in the STT nor in the Insight the DATA was
not mentioned, just building DBM!

Perhaps there is a hidden
assumption that retailers
have good enough data,
because without them, at
such scale, it is not
possible to control
stores.
Do you remember K. Gödel?

21

Is it possible to operate in Retail
without a reliable data?

Deterministic: No, because
the data is Necessary
condition!
Random: Yes, if Stores do
orders on an "As I see it I
sing”, and shops located in
a prime location.

22

Is it possible to achieve in Retail an improvement
of financial performance without having reliable
data? TOCICO 2012 Conference

Deterministic: No, because
the data is Necessary
condition!
Random: Yes, if fortune
smiles to stores and they
are lucky, and quickly
introduce popular new
items.

23

Is it possible to achieve an improvement of financial
performance from the implementation of DBM
without having reliable data? 2012 Conference
TOCICO

Deterministic: No,
because the data is
Necessary condition
for the correct Buffer
calculation.
Random: Yes, if you're
lucky - both in data and
their exchange the
quantity of error is
small.
24

Our conclusion

Very often for
getting
effectiveness
from the
implementation
of TOC projects
for Retail, the
constraint is
Information flow.
25

Funnel of constraints

Globally: on the market
level - Consumer
Locally: on the Store level -
Shelf space
On project: for receiving a
prize from DBM
implementation (improving
bottom-line) - Flow of
information
26

Flow of information is possible to divide
in two groups TOCICO 2012 Conference

Deterministic: The
process of exchanging
data and accuracy of the
data (a reflection of the
internal environment).
Random: Information on
new products and offers
from suppliers (a
reflection of the external
environment).
27

Meanwhile every business organization has
the following three main flows

1. Flow of information. In a business company, this is akin to the human nervous system. It relays market
needs and the success achieved in serving clients.
2. Flow of goods and services. In a company, this is akin to the circulatory system. Flowing blood, satiated
with nutrients, covers the entire supply and production process, from the acquisition of raw materials to the
delivery of production.
3. Flow of money. This is akin to the respiratory system. It supplies the entire organism with oxygen. If there
is no money in a company, there won’t be anything else either.
28


1.  Goods are stolen;
2.  Employees make mistakes
when entering data;
3.  Suppliers are changing the
minimum package.
Note: The correct order should
be rounded up to min packing
(do not confuse with MOQ, or
EOQ)
29

Daily symptoms

1.  Employees do not
trust the data or
order formula;
2.  Automatic order are
often corrected
manually;
3.  Data have negative
balances (where the
system allows).
30

Symptoms from H. Baptista presentation -
TOCICO 2010

31

Conclusion: The daily data in IT system and the real data in
the store do not match each other to a greater or lesser
degree.

1.  If erroneous information flow,
then flow of goods can not be
correct.
2.  In the Retail every day you
need to take decisions on
thousands of SKU, therefore to
adjust the flow of information
for effective ordering, the
automated order management -
Necessary condition.

32

How to calculate the correct order, if the
data are not reliable?

33

To implement TOC in Retail, i.e.
cause–effect approach and to
centralize the decision-making TOCICO 2012 Conference
process, like ordering, you must
to make data reliable. If not,
you’re allowing to run the
Random Chaos mechanism in the
very roots of the system.
Chaos theory says that behavior
of complex dynamical systems
are highly sensitive to initial
conditions. Small differences in
initial conditions yield widely
diverging outcomes. The
deterministic nature of these
systems does not make them
predictable.
34

5:12:1 5:12:2
9:1121111:1
1 solution
First solution Buffer Expediting
Set up quality A
Експлоатировать,

management control of data
значит, чтобы не ходили не
нужные данные. Т.к. обработка p
exchange
данных требует времени

system
The system must check the quality of the data exchange process:

The system must check the1.
quality oftime? data exchange process:
the
whether the data exchanged during the

1.  Whether the data exchanged on time?
2. ? exchanged in whole

3.
2.  Exchanged in whole scope? Is there double line ?
4. ?
3.  Is there double lines? (Failure in IT systems integration?)
there are no errors in completing the required parameters in the commercial card

• For these purposes, the system was introduced systematic operational reports.

4.  Is there are no errors in completing the required parameters in
the product card? (if the all required fields are filled (especially
Monday, April 30, 12 36

important for new products))
For these purposes, in the system has been introduced systematic
operational reports.
35

3:1:1 3:1:2 3:1:3
Availability Competitive edge
p Build
Ensure Sustain Sustain Build Availability Competitive edge
Build Protect and Improve TPS
Build Sustain Build
Build
3:1:1 SKU 3:1:2 3:1:2 Build 3:1:3
Existing 3:1:1 Improve (Product Sustain
3:1:3 Build

3:1:1
Ensure 3:1:2 and Availability SKU 3:1:2TurnsEnsure ImproveProtect and Improve TPS
Protect 3:1:3Improve3:1:1 (Product3:1:2
EnsureInventory
Ensure
Existing p
3:1:1
Protect and Portfolio) TPS
Improve TPS Portfolio)
Existing SKU
Sustain Improve TPS
Build Protect and
3:1:3
Improve
p
Build
p Build 3:1:3
(Product Sustain
p
Build

Availability Inventory Turns SKU 3:1:2
3:1:1 3:1:3
Availability
EnsureInventory Turns
Protect and Portfolio) TPS
Improve
p
Ensure Protect and Improve TPS
p Existing Improve (Product
Existing SKU ImproveImprove (Product
Existing SKU Improve
Ensure (Product
Protect and Improve TPS
p
Availability Inventory Turns
Availability Inventory Turns SKU
Existing Portfolio)
Portfolio)
Improve (Product
Existing SKU (Product
4:11:1 4:11:2 Availability
4:11:3 Inventory Turns Portfolio)

Availability Inventory Turns Internal4:11:1 Keeping4:11:2 Dealing with
Availability Inventory Turns Portfolio) correct
4:11:1 Portfolio)
pull 4:11:2
Internal pull
4:11:3 TOCICO 2012 Conference
Keeping correct
4:11:3 Dealing with
4:11:1
distributioninventory levelslevels suppliers
distribution 4:11:2
inventory 4:11:3
suppliers
Internal pull pull
Internal Keeping correct
Keeping correct
distribution
4:11:1 Dealing with with
4:11:1 Dealing
4:11:24:11:2 4:11:3
4:11:3
distribution
inventory levels levels suppliers
inventory suppliers
Internal pull pull
Internal Keeping correct Dealing with with
Keeping correct Dealing
distribution inventory levels suppliers
5:112:1
5:12:1 5:12:2 5:12:3
5:112:1 Expediting
Buffer 5:12:1
5:12:1 5:12:2 5:12:2
Adjusting for
5:12:3 5:12:3
4:11:1 4:11:2 4:11:3
management
Buffer Expediting peak demand
Buffer
system 5:12:1
Expediting Adjusting for for
5:12:2 peakAdjusting
5:12:3
management 5:12:1 demand 5:12:2 5:12:3
4:11:1 4:11:2 4:11:3
management
Buffer
system Expediting peak demand
Adjusting for
Expediting
Buffer Adjusting f
Internal pull Keeping correct Dealing with system
system
management 5:12:1
management peak demand 5:12:2 5:
peak dema
system Buffer Expediting Adjus
distribution
Internal pull inventory levels
Keeping correct suppliers with management
Dealing peak
system

5:12:1 5:12:2
9:1121111:1 5:12:3
Buffer Expediting
Set up quality
Adjusting for
control of data
management exchange peak demand
5:12:1
system
36
© 2012 TOCICO. All rights reserved. 5:12:2
9:1121111:1 5:12:3
Monday, May 7, 12 Set up quality

TOC for Retail based on 5 business cases 05.06.pptx

TOC for Retail based on 5 business cases 05.06.pptx

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