How we experimented with the Theory of Constraints in Ukraine
Many of those who read this blog, know that I advocate that the implementation of ERP systems was not solely for the sake of the implementation of ERP systems. This project should bring some economic benefits for the company. And this is possible only if management techniques are being implemented along with the system. Otherwise, the ERP system will simply be an accounting program in which events and documents can be recorded, but no decisions can be made, and the company will not become better . To make the right decisions in the field of management and management methods are needed. Here, for example, at Toyota, certain methods of controlling conveyor production were invented, and this brought a fantastic success to Toyota. And already on these techniques from the top you can put the ERP-system. Then she will bring effect.
If you catch bream with a spinning, it will bring only losses. Costs will be, and the result is zero. Because here, too, need techniques and knowledge, before proceeding. Similarly in business.
A month ago, we launched a project in Ukraine, where we tested our new solutions in the field of the Theory of Constraints (TOC). The Theory of Constraints is also an enterprise management technique, like Toyo's kanban, but TOC is more perfect and, unlike kanban, works well in the case of torn demand, high variability of orders. On some indicators of the effectiveness of this project in the figures slightly below.
And here are two very important points.
First is Ukraine. And I am very glad that common sense has prevailed. In spite of the fact that politicians are strenuously quarreling our peoples, we have fulfilled a wonderful project together with Metrotayl and are in very good relations.
')
Secondly, we tried our new advanced TOC algorithms in Metrotayle, which, according to our idea, should have added efficiency to traditional TOC methods. The task is simple - the maximum satisfaction of demand with minimum inventory.
In 2012, we had the first project to introduce the Theory of Constraints for inventory and procurement management algorithms. Then in 2013 there were projects in production. It became clear that TOC is really very effective and is able to raise the company that introduced these techniques to a new level. Orders are executed on time, stocks are falling, production speed is increasing.
Began to think where to go next, how to improve the methods of TOC. What else can we improve to make the performance even better? It was necessary to think of something to meet the maximum demand with even lower stocks.
We analyzed the current stocks of customers and came to an interesting conclusion: to increase the level of efficiency, we need to get rid of ... reserving goods in warehouses.
We realized that it was necessary to develop techniques that would allow us to raise the level of satisfaction of demand to a maximum (100%), but at the same time, if possible, save the company from having to reserve goods in warehouses.
Of course, the easiest way is to simply put into the warehouse a quantity of goods equal to the sum of all orders. But this will cause an avalanche-like increase in stocks. A dynamic demand management system was needed, which, depending on the situation with stocks, orders, purchases and current production, constantly changes the schedule of purchases and production so that the stocks are minimal and the satisfaction of demand is maximal.
If the main goal of the company is to make money, then the reserve of goods in a warehouse is an entity that completely contradicts this goal.
As soon as you reserved a product, you immediately potentially lowered the company's performance indicators. Turnover, level of satisfaction of demand, cash flow.
Reserved goods - this product is actually frozen, withdrawn from circulation. You can not earn on this product. Working capital you froze, took place in the warehouse. Moreover, tomorrow a client will come to you, ready to buy this product, but it cannot (the goods are in reserve). A customer for whom you have reserved this product, will take it in two weeks. During this time, you will have time to purchase it in reality two more times.
I analyzed the situation with those of our clients who do not use TOC techniques (we do not force anyone). Some customers have reserved up to 50% of the warehouse. That is, half of the stock is simply taken out of circulation. There are reserves that are more than a year old !!!
This is all quite explicable. After all, every sales manager is fighting for their local effectiveness. To ensure that its customers shipped all the goods without delay. For this, he reserves the goods to play it safe. However, if we talk about the company as a whole, then its effectiveness (that is, the profit) only suffers from it.
We launched a special algorithm in Metrotayle that manages reserves exclusively in automatic mode. The manager can not put a reserve in stock. His task is very simple - to place an order and specify the date when the customer wants to receive this product. Everything. Further, the system itself decides when and what to reserve in the warehouse. Which order to reserve, and which to send to the purchase or production, how to build a schedule of purchases and production, so that all orders are shipped on time. The situation changes and the order sent to the purchase can be satisfied in a day (not reserved) with a warehouse, and another order will take its place in the purchases.
Approximately this picture is constantly in the eyes of buyers
And this is in front of the production manager (although there is no production there yet)
After a couple of weeks of operation, General Metrotayla went even further and generally refused the reserves. Now the company has no reserves at all.
November results:
2200 items shipped.
This is about 500 orders.
Some problems with the timeliness of shipment arose only in 4 orders. This is less than 1%.
And, most importantly, the reasons for the failure in these four orders are clear to us - it’s just the human factor associated with the fact that people worked with the new software. We have taken into account these errors and eliminated this human factor. What are the results of the remaining months, I think it is clear))
If you catch bream with a spinning, it will bring only losses. Costs will be, and the result is zero. Because here, too, need techniques and knowledge, before proceeding. Similarly in business.
A month ago, we launched a project in Ukraine, where we tested our new solutions in the field of the Theory of Constraints (TOC). The Theory of Constraints is also an enterprise management technique, like Toyo's kanban, but TOC is more perfect and, unlike kanban, works well in the case of torn demand, high variability of orders. On some indicators of the effectiveness of this project in the figures slightly below.
And here are two very important points.
First is Ukraine. And I am very glad that common sense has prevailed. In spite of the fact that politicians are strenuously quarreling our peoples, we have fulfilled a wonderful project together with Metrotayl and are in very good relations.
')
Secondly, we tried our new advanced TOC algorithms in Metrotayle, which, according to our idea, should have added efficiency to traditional TOC methods. The task is simple - the maximum satisfaction of demand with minimum inventory.
In 2012, we had the first project to introduce the Theory of Constraints for inventory and procurement management algorithms. Then in 2013 there were projects in production. It became clear that TOC is really very effective and is able to raise the company that introduced these techniques to a new level. Orders are executed on time, stocks are falling, production speed is increasing.
Began to think where to go next, how to improve the methods of TOC. What else can we improve to make the performance even better? It was necessary to think of something to meet the maximum demand with even lower stocks.
We analyzed the current stocks of customers and came to an interesting conclusion: to increase the level of efficiency, we need to get rid of ... reserving goods in warehouses.
We realized that it was necessary to develop techniques that would allow us to raise the level of satisfaction of demand to a maximum (100%), but at the same time, if possible, save the company from having to reserve goods in warehouses.
Of course, the easiest way is to simply put into the warehouse a quantity of goods equal to the sum of all orders. But this will cause an avalanche-like increase in stocks. A dynamic demand management system was needed, which, depending on the situation with stocks, orders, purchases and current production, constantly changes the schedule of purchases and production so that the stocks are minimal and the satisfaction of demand is maximal.
If the main goal of the company is to make money, then the reserve of goods in a warehouse is an entity that completely contradicts this goal.
As soon as you reserved a product, you immediately potentially lowered the company's performance indicators. Turnover, level of satisfaction of demand, cash flow.
Reserved goods - this product is actually frozen, withdrawn from circulation. You can not earn on this product. Working capital you froze, took place in the warehouse. Moreover, tomorrow a client will come to you, ready to buy this product, but it cannot (the goods are in reserve). A customer for whom you have reserved this product, will take it in two weeks. During this time, you will have time to purchase it in reality two more times.
I analyzed the situation with those of our clients who do not use TOC techniques (we do not force anyone). Some customers have reserved up to 50% of the warehouse. That is, half of the stock is simply taken out of circulation. There are reserves that are more than a year old !!!
This is all quite explicable. After all, every sales manager is fighting for their local effectiveness. To ensure that its customers shipped all the goods without delay. For this, he reserves the goods to play it safe. However, if we talk about the company as a whole, then its effectiveness (that is, the profit) only suffers from it.
We launched a special algorithm in Metrotayle that manages reserves exclusively in automatic mode. The manager can not put a reserve in stock. His task is very simple - to place an order and specify the date when the customer wants to receive this product. Everything. Further, the system itself decides when and what to reserve in the warehouse. Which order to reserve, and which to send to the purchase or production, how to build a schedule of purchases and production, so that all orders are shipped on time. The situation changes and the order sent to the purchase can be satisfied in a day (not reserved) with a warehouse, and another order will take its place in the purchases.
Approximately this picture is constantly in the eyes of buyers
And this is in front of the production manager (although there is no production there yet)
After a couple of weeks of operation, General Metrotayla went even further and generally refused the reserves. Now the company has no reserves at all.
November results:
2200 items shipped.
This is about 500 orders.
Some problems with the timeliness of shipment arose only in 4 orders. This is less than 1%.
And, most importantly, the reasons for the failure in these four orders are clear to us - it’s just the human factor associated with the fact that people worked with the new software. We have taken into account these errors and eliminated this human factor. What are the results of the remaining months, I think it is clear))
Source: https://habr.com/ru/post/244947/
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