Bottleneck Busters Blog

As I teach the Constraints Management course these days, especially to auto suppliers, I am surprised to hear the same obstacle to TOC brought up again and again. 

Supplier: “We can’t really use TOC, because we are meeting the market demand already.  Besides, all of the forecasts we have show that this segment of the market is in a downturn.  The ability to produce more parts won’t bring us the profits that are big part of the justification of what you are proposing.”

 I find myself asking the same questions over and over.  If the customer is in machining parts for engines and transmissions, for example, the conversation might go something like this:

BB: “How many of the quotes that you submit for the work that you really want do you win?”

Supplier: “Not as much as we like, maybe 10%.”

BB: “Hmm.  And what percentage of the request for quotes do you answer?”

Supplier: “Well, there is some work we don’t think we can do profitability, so I think it’s around 30-40% of the quotes that we get our hands on.”

BB: “But, if you could convince yourself that you could take on this work profitability, would your company bid on it?”

Supplier: “Right, but as I said, our financial folks wouldn’t probably buy in.  They don’t seem to trust us, for some reason.”

BB: “Let’s set the reasons for that aside for a moment, and assume you have proven you CAN do this work profitability.  Wouldn’t the financial people be very supportive of our efforts to get this work?”

Supplier: “Yeah, they probably would.”

BB: “So then, how much of the automotive market in this segment to you really have?”

Supplier: “Probably 10%. No, wait; I see what you are asking.  If we win 10% of the one we bid on, and that’s only 40% of the market, that’s only about 4%.”

BB: “And if we leave automotive and go into machine for other industries – marine engines, lawn mowers, etc. Is there a significant market segment of these types of products that you could bid on?”

Supplier: “Sure, but our VP has made it clear that we are not to go after that work.”

BB: “Why not?”

Supplier: “Well, we tried once and we got our butts kicked – lost a lot of money.  It’s a forbidden topic of discussion right now.  Don’t really have to worry about it - we don’t have the money to invest in machines and resources.”

BB:  “In hindsight, and now after the Constraints Management class, can you come up with logic on why you failed the first time?”

Supplier: “Yeah, I was thinking about it a lot during your class.  We designed the system knowing what the answer was – it HAD to work.  We changed all the efficiencies and speeds, made all the operators have zero variation, etc., etc., until we got the answer the bosses wanted – it would run.”

BB: “Yeow.  No wonder the financial guys don’t trust you. Who ended up being blamed?”

Supplier: “Oh, there was enough blame to go around, but we contracted the simulation work, and by the time the design started production, their contract was done.  So they were the easy group to point at as being responsible.”

BB: “Sounds painfully familiar. Do you think you could design that system now, with what you learned, and make it work?”

Supplier: “Make it work – probably.  Make it work profitability?  No, our efficiencies are way too low.”

BB:  “Recall that we talked about how deceptive the efficiency measure is.  Let’s assume instead you adopted a methodology of some sort that would, say, improve your throughput and your performance on certain key machines.  At some point in time, wouldn’t the improved numbers from that system make it more and more likely that a future design could be more profitable and have a higher ROI?

Supplier: “It’s possible. Plus, it could point out systems that would have to improve in the future.  Some that are performing good enough now, but won’t cut it in a future design.”

BB: “Good! And if you made a significant improvement in your level of performance in your current market, it might change your management perspective of what you could do in new markets.  Plus, the increased performance would generate more profits, right?  Those profits could be used to invest in new machinery and equipment.”

Supplier: “I guess, but it sounds a bit risky for this company.”

BB: “Of course, based upon your current performance, it would be. But if you implement TOC in operations, and improved your performance with little or no impact on investment, wouldn’t that be a good starting point?”

Supplier: “I guess so.”

BB: “Let’s summarize to make sure.  The reason your VP is confining you to this end of the market is not his fault - he’s made that decision based upon your past experiment in a new market, that was designed on an unrealistic level of performance.  The reason that you are not winning more quotes is due to your current level of performance.  The reason you don’t go after more quotes is because your financial guys know the company will lose money – based upon your current level of performance. So what’s preventing you from expanding your market?”

Supplier: “Okay, okay, it’s our level of performance.  But jumping into this process would be a lot easier is our demand was higher – I think the Sales guys need to be doing more to pull in more sales to help make the need more visible.  They should go get the orders, so we can justify TOC.”

BB: (Laughing) I would like to hear that conversation with the Sales and Marketing folks.

Supplier:  “Well, I though you could make that point to them as part of your consulting agreement. Look, what you taught us made sense. Teach it to them, and have them go get the orders.”

BB:  “I certainly think training Sales and Marketing will be part of the future steps, although the training might not be exactly the same.  Even with that, both Sales and Marketing wouldn’t go to customers unless they can look at the numbers and are convinced you can do it.  And their customers are not going to plunk down big dollars until they see the promised performance with you current customers.  Like or not, improving your operations is the first step in the grand scheme of things – not only to improve your area, but to improve the company as a whole, including the marketing and sales area.”

Supplier: “Okay, it makes sense.  I was pretty much bought into the concept, but I need to be able to answer these types of questions.  The logic seems pretty clear to me now.”

To be honest, this is rarely one conversation, but a series of conversations, where the people I am working with have to work through the conflict and slowly adopt the new paradigm.  When they can make the case to others without your input, you know you’re on your way.

Recently, I had a chance to review how Goldratt Consulting is using Strategy and Tactic trees to make some of these points, and I like the method because it not only shows the logic of the current obstacles they are facing, but brings out the obstacles they may face, and goes through the logic of how to address them.  It also seems to give the customers more insight and confidence into the process.  Look for more information and training on these trees in the future.

And, if you find yourself on the Supplier side of this discussion, please make sure you check out www.viablevision.com or www.goldrattconsulting.com.  You may find it worthwhile to find out when Eli Goldratt will be in your part of the world for a Viable Vision session. If you decide to attend, don’t forget to mention Bottleneck Busters!