amazon highlights: Forget the Urgent! / Matias Birrel, Javier Arevalo / 2012

Forget the Urgent!: Rather focus on the important by Matías Birrell, Javier Arévalo

Last annotated on November 19, 2014

The invitation to forget the urgent in our life is not suggesting an irresponsible attitude of neglecting important issues. This book is about very simple principles to manage organizations in a way that allows managers to keep control, avoiding the danger of the urgent driving a continuous improvisation, with a reactive mode of operation instead of a much better proactive one.

If I ignore even one of them, the future consequences will be significantly negative. That is the meaning of important. When the “future” is now or very close, then it is also urgent.

“The urgent has only three sources: poor empowerment, or an important thing was delayed too much, or a surprise caught you unprepared.” “Learn how TOC (Theory of Constraints) can help eliminating the three sources of the urgent! Allow yourself to focus on the important!” “Find out how to discover the root cause to all your urgencies, all of them stem from the same core conflict.”

All the proposals are for WMS software designed for retail distribution centers and huge amount of items.

I don’t want to make the same mistakes that we did with the ERP. Finally, it cost us a fortune, consumed much too much of our time for months to implement it, and I haven’t seen real benefits in the bottom line after three years, in spite of all the benefits that we put together in the last presentation for the board.
I know what shortages are at the points of sale. I believe that I will (strongly) suggest that our sales manager recruits the help of the operations manager, to use our new forecasting system and apply it with our clients. I’m sure they should appreciate such innovative and sophisticated service. Now we could really help them deciding on the quantities per order.

Not even a single client accepted our offer of using our forecasting system to help them with the ordering. Instead, several accepted increasing the orders for a 5% discount.

Anyway, no prophet was well received in his own land, right?”

There is pressure from the big ones to return the excess. They call it excess but I know that these goods will be sold eventually! Perhaps we could negotiate a partial return and only with the real important clients. Besides, if I don’t accept the returns, many of the clients have declared that they will reduce the purchase volume significantly during the next months. I must also take care of the medium and long term.

that a solution is only required when there is a problem.

There are some rules: it is a full sentence in present tense, describing a fact, without any explanation, and without blaming.”

In TOC we call that an undesirable effect or UDE, because we believe it is not an inevitable fact of life but the symptom of something deeper, the cause. And the cause for an UDE is always a conflict, like the cloud that we used before. Now we need to build the cloud to define clearly the conflict that causes this fact to become real for you and give you the ulcer we are treating, right?”
The next step is to answer this question: what is damaged by the fact? In other words, what bothers you is that you need something that you can’t have because of this fact.”
The second step is to answer the question: what action would satisfy that need? What is it that you’d want to do to avoid those interruptions?”
“That leads us to the next step, answering the question: what else is damaged if we take this action permanently?”
The last step is to understand what objective you cannot achieve if either one of the needs B or C is not satisfied. In other words, why is so important for you to satisfy them?”
The objective is to have a prosperous company, this encompasses both the current operation and the future growth.  
“After building the cloud and defining the problem, the next step is to surface the assumptions and see how to invalidate any of them.”
“What defines a problem? I say that a problem exists when there are facts in reality that are undesirable and they are hard to eliminate. These two characteristics, undesirability and difficulty to eliminate, defines a problem. Do you agree?”
“Don’t jump to conclusions yet. I want to stress that this is not a way to define a problem, it is the only way. And the cloud is the tool to define it. You saw the process, it is simple yet not easy.”
“The assumptions are those elements that support the logic of our claims.
“TOC or theory of constraints is about simplicity as you already are experiencing. TOC says that every system has a goal, and it cannot deliver more units of its goal than the most constrained element. It is like a chain that cannot resist more than what its weakest link can.”
“A company is a particular type of system, it is an organization whose goal is to make money, along with two other conditions: satisfying both the employees and the market.”
“Yes, those are temporary bottlenecks for the life of the company. With enough cash you can expand on those. But after many years developing TOC, Goldratt came to the conclusion that the ultimate constraint of any organization is management attention”.
“The amount of management attention is limited. What I say is that as long as the management attention is wasted, the company cannot prosper.”
the assumption is ‘there is a misalignment between responsibility and authority’
we could use the cloud to detect the misalignment every time and look how to invalidate the assumption?” Usually the assumption in these cases of misalignment of authority and responsibility is a policy of the company. You can use this procedure to detect what part of what policy should be changed.” it is always a lack of process. The problem is that many times procedures are designed in such a way that the medicine is worse than the disease.

one of the pillars of TOC is the belief in the inherent simplicity that lies at the bottom of any organization. This means that all of your UDEs, your undesirable effects, are just that, effects stemming from only one root cause.”

All the areas of your company are parts of the same whole. I would say that the surprise should be if the actions in one area didn’t impact another.”
“Yes, but we need to divide the organization in order to manage it. This is obvious, otherwise it would be too complex. And besides, how would I hold accountable each of the managers if there are no frontiers?”
you also agree that you want to manage the whole and not each part.”
“Then, the only prudent way to manage a company is with a holistic approach. Holistic comes from holism, the philosophy that says that the universe is correctly seen in terms of interacting wholes that are more than the mere sum of elementary particles.”
“Let us write the elements in separate lists and try to extract the essential concept underlying to each one.” Bill goes to the board and makes a table with five columns, with the letters A, B, C, D and D’ in the first row.
“The first one is obvious. The generic A is ‘Prosperous company’.” And he writes it in the last row.
“To do the same with the rest we must first see whether a flip exists.” As I look confused, Bill continues. “A flip happens when one cloud has one of the corresponding entities on a side that is in the opposite location in one of the other clouds. It is all about intuition to realize this, but the reason for it to happen is that the point of view of the person building the cloud can be more biased to protect more one need than the other.”

I look at the board and read the B’s:

·         Control our cost

·         Control and limit production cost

·         Maintaining enough cash

“What do you think the essence of all those three is?” Bill waits while I think.

“Would you say these are concerns related to the external environment or the internal?”
I believe that you can formulate it in more practical terms. Think why you would care about using well your resources.”
writes in the last row of the B’s: ‘Protect the current operation’. “Do you agree that this need represents the essence of all the similar needs?”
“The three C’s are related with good service and more sales. I would say that even it is an internal concern, the essence is connected with a growing participation in our markets.”
“I’d say that the essence in this case is ‘Ensure future growth’, that requires more sales and good service.”
Let us try deducing the generic D now.” I look at the board:

·         Not to accept big volumes of returns

·         Reduce inventories

·         Not to allow frequent changes to the programs

‘Take actions to reduce expenses or investments’ as the essence for D?”

Now D’ is the opposite.”
“This is read showing the logic,” Bill says, “from bottom up, where the tail of an arrow starts from a cause and the tip of the arrow arrives to an effect. In this case, these relationships are read like this,” and pointing to each of the elements he starts reading.
“If there is pressure to take actions to increase investments, then sometimes we significantly increase the inventories. Here we could have another assumption to explain that inventories are a type of investment, but it is so obvious that we can omit it.”
“So we don’t need to include everything, only the elements that could be not so obvious.” I start seeing how this is practical.
“Yes, my advice is to include all that you have doubts about. Now, see that we have three arrows that are connected indicating an ‘AND’ connector.”
“So more than one arrow without the connector indicates ‘OR’, it is either cause. But with ‘AND’ you need all of them to have the effect, correct?”
“Perfect, you got it. So now we have the following: if sometimes we significantly increase the inventories and sometimes sales are slower than forecasted and our warehouses have limited space, then sometimes there is not enough room in our warehouses.”
Can you give me another UDE that you don’t see clearly the connection to the conflict?”

So this is one of the recipes, looking at what side bothers you the most.

It is the part that forces us to cut costs to protect the current operation. It is like if this company was founded to save money instead of generating it!”
‘Conditions for a good tactic’, underlines it and writes just below: ‘Throughput must grow faster than operating expenses’, and ‘Not taking real risks.’
In TOC, throughput is defined as the rate of generating units of the goal through sales. In the case of a company, the units of the goal are measured in money.”
why did you write ‘real risks’? Are there of any other kind?
“Oh, yes! There are presumed risks just because there was not enough thinking in the first place. Considering false risks is almost as damaging as not considering the real ones.
the other condition is not to exhaust any resource.”
“The generic tactic is to build a decisive competitive edge, and the capabilities to capitalize on it, in big enough markets, without exhausting the company’s resources and without taking real risks.”

is not easy but it is simple, and this is the key. A simple and elegant solution is the hardest to find, and to imitate. In hindsight everyone says it was obvious, but before that, the idea is hidden to everybody.”

This means that unless you eliminate the conflict, you will be condemned to fight the consequences, the undesirable effects, forever. And you will be caught in the vicious cycle that you don’t like, until you can eliminate the root cause. Even worse, all these consequences erode the human relationships, in your company and with suppliers and clients.”

“We are going to do the same thing that we did with your own undesirables effects, but this time we need your clients’ undesirable effects.”

we can go directly to connect all these UDEs in a logical tree that will show us a significant need of these clients.”
The only thing that we’ll do differently now is that instead of finding the core cloud, we’ll build the logic just until the point where your company comes in.”
“We first take one of the UDEs and try to find an obvious connection with another. Take the first one: ‘Profitability is not satisfactory’, for example. Do you have a pad of post-its?”

“My idea is that you ask ‘why’ a couple of times more. You already had the idea of challenging the fact of tying up cash to inventories and you didn’t like it. Fine, there is another cause here. For now, we don’t know the causes of the surplus, what you’ve just developed are the consequences. First, do you realize that when your clients lose sales, you lose sales?”

They are trying to forecast the future consumption for each product they buy from you. It is not a trend, they try to anticipate single events. How frequently do they buy the same product?”

Do you think that your clients will replenish in an order all the products that were sold since the last order? Do they do it even if they’ve sold only one unit?”

“Of course they don’t. They wait until their inventories are reduced, otherwise the surplus would be worse, wouldn’t it?”

“In other words, the target for the inventory for each item should be the maximum expected consumption within the replenishment time, factored by the variability of the replenishment time, do you agree?”

“Knowing that forecast for an item in a shop is very inaccurate, and knowing that forecast deteriorates over time, then for a long replenishment time, the forecast must be quite inaccurate.”

“If the forecast is inaccurate, many times the quantities ordered for some items are more than the required for the sales, leading to surplus. And for other items, the quantities ordered are less than required, leading to early sold outs.”

“Just imagine what would happen if your clients replenish every day only what was sold that day.”

if your company offers a service that ensures fewer inventories coupled with better availability, automatically you are in a blue ocean. Your clients will adore a service that increases their profitability so directly.

we concluded that all our current issues in all areas are connected to a root conflict. Basically, we are always struggling to protect our current operation with some short term action. We also try to plan for future growth, except often the actions for that contradict the first ones. I understood that as long as we don’t eliminate the conflict, all our issues will continue to appear, no matter how hard we work on them. We solve some for a while just to provoke others to reappear.”

“That is an excellent summary of the problem, which is, by the way, the same for many other companies.
“After realizing that the conflict was the mother of all problems, we tried to invalidate some of the assumptions in the cloud. And we had a brilliant idea of creating a situation where competition is irrelevant, what they called a blue ocean.”   
based on the facts that knowledge is infinite and our knowledge is limited, I conclude that all the knowledge of all mankind together is nothing compared to what it is yet unknown.
brilliant idea for my company was to imagine a service where our clients would increase their turns, with significantly fewer inventories and much better availability. If they sell more, we sell more. And of course, we’d increase our market share by offering such incredible service.
In this case we are not creating a new market but new conditions in the current market that will create blue waters around you.
“To start looking at what to change in production, I want to introduce the principles of flow, because any production is about flow of material through a process.
“Improving flow is a primary objective of operations.

The best way to understand this concept is using a very familiar situation. Have you driven on a clogged street? How would you compare the flow there to when there are half as many cars?”

“More precisely, the biggest obstacle to flow in any situation is the excessive work in progress or WIP.
second principle comes from this fact: This primary objective should be translated into a practical mechanism that guides the operation when not to produce (prevents overproduction).
“The third principle is local efficiencies must be abolished, precisely to avoid these actions that only put pressure to increase the WIP.”
 “You don’t need local incentives or any unit cost to run your company.”

see there the reasons why LEAN doesn’t work in the majority of production environments, and all of them stem from the variability in three aspects: demand, load and processes.”

The last principle is a focusing process to balance flow must be in place. In other words, a mechanism to continuously improve flow is required.”

the MIN/MAX triggers a new order based on the physical level. But the consumption is variable; therefore the order lead time is also variable. Now you have a situation where the MAX is always wrong because it depends on a variable replenishment time.”

inventory level should be the maximum forecasted consumption within the replenishment lead time. If this is variable, whatever level that we choose is wrong!”
we would be sending to our regional warehouses only the items as they are pulled by the market.”
switch from push to pull. But you need to recalculate those maximum levels according to the new replenishment time of three days. In TOC, we call them buffers.”
With that cloud to solve the misalignments between authority and responsibility we solve the poor empowerment; with the cause and effect analysis and finding the root cause, we solve the long list of important issues; and the buffer concept solves being unprepared for the unexpected. This should be taught to all MBAs!
you need fewer inventories at both regional warehouses, you may want to take back a good deal of inventories to the plant warehouse. And you also need to recalculate the buffers at the plant warehouse. If you didn’t have one, you need to get one, either renting or building.”
consider that consumption from the plant warehouse will aggregate all the sales of the company,”
“The fact that you have a plant warehouse is not sufficient to aggregate the sales. As long as your clients continue buying based on their forecasts, you will only receive erroneous information to plan replenishment. Now you have the opportunity to test this new concept with two warehouses that you control.”
it doesn’t make sense to take back all the excess just to replenish some of it the next day. The usual decision in these cases is to take back all the items that exceed more than double of the calculated buffers at the regional warehouses. Even in this case, you may need extra capacity for a while at the plant warehouse.”
“And the buffers at the plant warehouse would be lower as well,”
you need to trigger frequent production orders.  For example, weekly orders, corrected by technical batches.”
“It means that your plant warehouse replenishes your regional warehouses every day and registers each shipment as consumption in the plant warehouse. Once a week, all the weekly consumptions for an item add together, issuing a production order for the item to replenish the plant warehouse. If the quantity of the order is less than the minimum technical batch, you must correct the order to this quantity. Minimum technical batch means that a lesser quantity would do harm to a machine or a specific process couldn’t be performed.”
“On average, the inventory actually using space of the plant warehouse will be between one and two weeks; the rest will be WIP in production. So it is possible that we start packed, but that will be temporary. Besides, our plant will be able to catch up very fast with all the shortages in this period due to the lack of orders for the items already over buffer.”  
“So summarizing, the first step is to replenish actual consumption in the regional warehouses and the plant warehouse. With that we are controlling WIP and improving flow.”
You need to adjust the buffers according to the trends.”
He draws a vertical rectangle and writes the word ‘buffer target’ close to the upper left corner. “For each item at each location we will have a buffer target. The quantities on hand at the location plus the quantities on transit plus the consumption since last order should be equal to this target.”
Just after an order, the quantities on hand plus all the ordered quantities are equal to the buffer. In other words, the replenishment order should complete only the buffer,
“TOC proposes a very simple method to adjust the buffer target when demand shows a growing trend or the opposite. As you said, a growing demand will be manifested in low levels on hand. If we assign the color red to the first third of the buffer, when the buffer is red for too long we can understand that the buffer should be bigger, it is a signal that we are at risk of having a shortage. The method advises to increase the buffer equivalent to one third of the current buffer quantity.”
“When demand decreases, the on hand will be too much to protect availability. The upper third is assigned with the color green, when the on hand is always green during one replenishment time, the method is to reduce the buffer by one third. Of course, the on hand will be over the new green for a while. No replenishment order should be issued while the on hand is over the green. This is the way to reduce inventory when demand decreases.”
When the on hand is zero, the item is stock out, and then the color is black.”
“This method is just like the simplest forecast formula, the moving average, isn’t it?”
“That is correct. When we replenish only the consumption we are assuming that the immediate past will repeat in the immediate future. With buffer adjustments we just follow the trend as in the moving average.”
 “Of course it won’t work in abnormal situations, where the demand fluctuates in huge intervals. There are also other considerations when the buffer target is much smaller than one unit. And of course all the known information should be an input to the system, like for example in Christmas season. But yes, it worked beautifully in all the places that we’ve done it.”

“Look, in production you have two different set of procedures; the procedures to actually do the transformation of material and the procedures to manage the resources. I can help you with the second set and for that I don’t need any details of the first set now.”

“I will remind you of the four principles of flow: improving flow is the primary objective of operations; there must be a mechanism to control work in progress or WIP; local efficiencies must be abolished; and a focusing mechanism must be in place.”
“So buffers at plant warehouse should be calculated as if replenishment time is already half of the current,
production orders are only issued when there is consumption in the plant warehouse. And of course, these orders are corrected by the technical batch size and also by the adjustments decided by the dynamic buffer management mechanism
triggering production orders just to replenish consumption in the plant warehouse is the planning mechanism. To control the right sequence we provide only one instruction to everyone on the floor. Follow the color code system; red is the highest priority, then yellow and green is the lowest.”
“How do we know what orders are red or yellow or green?”
“We set it according to the color of the buffer in the warehouse. When there is more than one order for the same item in production, the first order takes the current color of the buffer, the second takes the color of the buffer as if the first was already delivered, and so on.”
It makes perfect sense. We wouldn’t release more material than the required to replenish the buffers in the warehouse. I complete my thought aloud, “And we are not using our capacity for things that we don’t need.”
our capacity to produce what we don’t need is a real waste. I can change all our productivity measurements right away and I can adapt to abolishing local efficiencies understanding that we want to protect the global efficiency.”
“Fine, you can do that, but I advise you to involve your operations manager in that decision.”

since we sent back to the plant from our regional warehouses everything that exceeded twice the buffers, our plant warehouse and regional warehouses had almost all the buffers full, with much less inventory in the regional warehouses.

We cancelled all the production orders that were not needed and we could stop without any waste, and as we are just replenishing consumption for the few items below green, all the shortages were solved very fast.
For the first time in years, we are serving all the orders from clients in full. There are no more urgencies coming from clients because of our low fill rate.
Now we are dealing with extra orders from clients to cover their shortages. As a result, sales are also growing.
People gained time to think of better ways for many things like setups or methods.
Haven’t you reduced the overtime yet?” “Of course we did, from day one. Some workers were not especially happy about that because they relied on the extra money. We studied the situation with the operations manager and we saw that we could afford to increase salaries now due to the better productivity in the plant and besides we designed a general bonus for everybody just based on throughput increase.
sales grew 10% in the last two weeks.
I also know that 20/80 is just a name; Pareto himself explained that the proportion could vary from one situation to the other.”
the only thing that you need now is to convince your clients of accepting a collaboration deal where they give you their daily sales and you replenish them frequently, while you also adjust their buffers.”
you need to carefully plan four things: how to get appropriate prospects for this offer; designing a good offer; designing a good persuasion process; and applying the principles of flow to the sales process.”

today your throughput is determined by your ability to sell more, but the time will come when you don’t have enough capacity for the new level of sales and you will need to expand it, and then the market will again be the bottleneck. It is a controlled oscillation. The ultimate constraint is always management attention, so now let us focus on the commercial part and later we will discuss the mechanism to prudently expand capacity,

“In operations you changed the way resources are managed, but there were no changes in the way they do the transformation or moving the goods. In sales we need both types of changes: managing resources and how to process the opportunities.”
“I see, workers on the floor only see that we now release less WIP but we didn’t tell them to change what to do with it. Changing habits is way more difficult, isn’t it?”
“It is, and that’s why the changes in the commercial process are harder to be fully adopted. On the bright side, though, it is the difficulty to imitate such changes that solidifies your edge for a longer period of time.”
The same logical persuasion process that we need to teach the salesmen to do, you must use on them first. And we also need to apply the principles of flow to the ‘pipeline management’, like in a pipeline, opportunities flow through it, ending either in a sale or a failure.”
Marketing for TOC is a function that has one objective: generating demand. In other words, it answers two questions; what to offer and to whom.”
what is the objective of sales?”
to convert the generated demand into money.”
We first generate demand and then we turn it into money.
knowing the idea that will create the blue ocean, we can do four things: prospecting, building the offer, designing a persuasion process and instituting a pipeline management procedure.”
“Prospecting is mining information about the market guided only by the degree to which the need that you are satisfying is significant.”
“A blue ocean idea or a decisive competitive edge, as we call it in TOC, is gained when you can satisfy a significant need of enough clients at the extent that no other significant competitor can.”
“A significant need is not the most important one, it is something that today is not satisfied but when it is, the clients really appreciate the created value.”
“In this case increasing turns could even be the most important need of my clients.”
“Then, the whole idea is to provide a service that could increase turns beyond their imagination. Today your clients are struggling to increase their turns by even 20% and we are discussing how to at least double them.”
You need two conditions; perfect availability at your warehouses and control over the inventories of your clients.”
“My perfect availability wouldn’t do much if they continue buying as they do today, correct?”
“That’s right, so you need to convince them to report their daily sales and you replenish frequently, and besides you have to monitor and adjust their inventory levels with the dynamic buffer management system.”
“The first thing to do is to decide how to look for prospects.
if you allow your strategy to bend under any opportunity, you start zigzagging with the risk of turning sharply into a brick wall.
second bullet. “Designing a good offer is key, and here we need two elements: showing and enhancing the benefits for the client and your company; and setting terms and conditions that prevent possible setbacks for both, the client and your company.”
Win-win is only possible when there are two elements: mutual benefit and mutual commitment.”
“Let us review the four elements, benefits and risks for both parties.”
“Well, it is obvious the benefit for the clients; they will get more turns.”
“True and that is the key element in the first presentation where we validate with the prospect the value of the new service. Now, don’t forget your benefit, which is comprised by three elements; more volume, good prices and better cash flow.”
“Do you think that we can reduce payment terms?”
“Why not? After all, your clients will be receiving much smaller quantities each time, obtaining their return much faster. I would say that nobody should have any problem with shorter terms to pay the smaller and more frequent invoices, using the additional cash they will generate.”
I’m sure clients will ask for discounts, don’t you think?” “Of course they will. They are conditioned to do it. But look how a big discount on price, let’s say 10%, compares to doubling turns. Don’t forget that your clients invest their money to get a profit, like an interest rate from an investment fund.”
“Agreed, the benefits are clear. What about the risks?”
“First, you should consider the risks for your clients, like being flooded by inventory. Don’t forget that today your salesmen are still pushing it down the throats of clients.”
“Okay, so we put ourselves in their shoes and think of all the possible risks for them and add elements to the offer that will trim them.
“You should think of all the risks for your company, like for example, the released cash and space not to be used on other goods. And then, when the prospects are excited, there is a meeting to discuss terms and conditions, where your people raise your company’s concerns and let the clients speak. Most of the time clients come up with better solutions than you would have expected.”
“WIP in this case is the number of open opportunities that each sales person has. We could limit this number to an agreed limit, like fifteen. Only when one opportunity is won or lost, another is assigned to that person.”
“The third principle is to abolish local efficiencies.”
Are you suggesting abolishing commissions?”
Never put your company in the situation of depending on a client, or a supplier, or an employee.”
“We need a mechanism to balance the flow, periodic meetings with each sales person to see what is going on with the open opportunities. I bet that these meetings would be much shorter and focused than the ones that we have today.”  

“That’s true. It is also the experience of our clients. Now think of the actual procedures and what positions you need there.”

“Let’s see, we need someone prospecting, who will produce a list of prospects. And we need someone scheduling the time of salesmen, who will assign new opportunities from the list of prospects only when an opportunity is closed. We need people that can assist salesmen with paperwork and some technical visits, because we want them to use their time for nothing but nurturing opportunities, persuading prospects and bringing replenishment deals.”

deep change is a door locked from the inside. Nobody can force that lock, and the only thing we can do is call out from the outside, trying to be heard. Most people are so comfortable where they are that they don’t think of moving to something else, even if you show them a potential treasure at the end of the rainbow. A pot of gold at the end of the rainbow is a fantasy for most of them.”

“You see, what you felt was what we call the ‘crocodile’, a real threat that drives you to change. It is the negative of not changing.”
“I guess there are negatives and positives of changing and not changing.” Bill has this weird smile on his face again and waits.
“Everybody must have good reasons for not changing, their positives, like a warm blanket in their comfort zones.”  
“We call that the ‘mermaid’, a beautiful mermaid that you have now and don’t want to give up.” Bill says.
“And as Eli said, every improvement is a change, but not every change is an improvement. That’s why people study the pluses and minuses of changing or not. There must be a good enough reason to change, either running from the crocodile or, the least, trying to achieve a ‘pot of gold’. The problem is that in any change there are risks, what we call the ‘crutch’.”
you are ignoring a fundamental human behavior. Academia adopts new paradigms only after they are proven for many years and they are part of mainstream. They hate risks. Take for example the Gantt chart used for project management. Henry Gantt started using it for the first time around 1905. It was 1950 until a big project organization adopted it, and it was not popularized and taught in universities until the 70s. This is just another example in addition to the genetic laws and many others.”
“It is taught in more than two hundred business schools that I know of, and most MBA programs give you The Goal as a mandatory reading, usually in operations. That doesn’t mean at all that it is main stream. In all those schools you will find it taught alongside contradictory and even erroneous material, like cost accounting for decision making.”
“Persuasion is a combination of a logical analysis and an emotional presentation, leveraging on our interlocutor’s intuition.”
“We need to use a couple of logical tools to understand our prospect’s environment better than he does, in order to prepare a good presentation. These tools are the four quadrants of a change and the layers of resistance.”
We need to understand what the pot of gold and the crocodile are that would move someone. And besides we need to understand what the mermaid and crutches are that paralyze them. Okay, maybe ‘paralyze’ is an exaggeration, but you understand what I mean.”
we build a matrix with the pluses and minuses of changing and not changing. I think I get it.” “Yes, do that, but from the perspective of your prospects.”
“The primary layers in any change are three: what to change – the problem, what to change to – the solution, and how to cause the change – the actionable plan.”
“Each one of them has more layers. This is like an onion, you must peel off the layers one by one, and when you do, usually someone cries and there is a little stink.”
“The first three layers are: I don’t have a problem; my problem is different; my problem is not under my control.”
“The second layers are: I have a different direction for a solution; the solution doesn’t cover the whole problem; the solution could bring negative effects.”
“The last layers are: there are obstacles to implement the solution; and disagreement with the details of implementation.”
“Summarizing we could say that we need to train our sales people to understand exactly how low turns is a significant need of our clients. Then they need to learn how to show it with good enough images that will trigger frustration for the low turns. Then, we provide hope with our solution, and giving details that are feasible. Many prospects will be open to try it.”
it is much better if I teach you and you train your sales manager. Then accompany him to a couple of visits for him to experience firsthand the process. You must coach him closely until he is confident and becomes a champion of this new way. Only then he will lead the rest of the team, doing the same coaching each one at a time.”

Inventories at our warehouses have never been lower, whilst the sales are growing like weeds. I am a little surprised with the speed at which clients are accepting our proposal. Of course, the bigger ones want a pilot and the cycle with them is slower. One of the biggest, representing fully 10% of our sales, insisted on bargaining our price, but as we had grown a good deal with many others, today they were only 3%. We stood firm on our price.  Although I could tell they wanted the deal, they negotiated themselves into a corner.  Seeing no way out without them losing face, we suggested that they try a competitor for a while to see if they can do everything we promised. Losing it was not a disaster. We have recovered most of the lost business already on more favorable terms. Besides, in three months we will present them our offer again and I bet they will accept it this time. It is good to feel free!

I don’t have a list of pending issues anymore. I stopped receiving calls and complaints from my clients; this has been an important KPI for me to see the improvements. Harmony in the company has shown me that all these changes are congruent, they are the right things to do. From time to time I must take care of some problems that I will not delegate to anyone. But now I really have the time to think and plan the future.
I know that we can only learn or discover something new, building logical bridges from the current knowledge. And many times we must use our intuition and challenge our assumptions, but always building the logic.”
“Sales are growing, inventories are low, and profitability is extremely good –” Bill is not impressed and says, “Congratulations, but I want to know the real results.”
“Yes, we were doing well at that time but I was drowning in the urgent. You are right; those days are gone for me, and also for all the management team. We have a rule now; we turn the lights off at six. Everybody in the company looks happier.” “Now you are talking!” says Bill, “Don’t you see that achieving that, financial results will follow?
Goldratt remarks the fact that as long as the generic cloud is not eliminated, it will continue eroding human relationships in the company,”
helping children with homework or having more time with Marcy is definitely one of the good results of using TOC,”
“Now that I think of it, my family life has improved significantly lately, and I have to give all the credit to these actions that we have been executing guided by TOC.”
“What was the average sales growth during the last three months?” “Average is five percent,” I reply.
“Assuming that you don’t grow any faster than that, how many months do you need to double sales at five per cent per month?” “I guess twenty. Five times twenty is another hundred.” I’m not following.
“People don’t understand the exponential function. At five per cent you will double in fourteen months, three of which are already gone, so you have only eleven months to be ready with more capacity if you don’t want to deteriorate the service. And considering that you need a twenty percent protective capacity because of the fluctuations, now you only have nine more months to get to the eighty percent level.”
“What is different now for you about TOC then?”
“The big difference is that I tried many approaches. And the four pillars and the tools provide a real framework that is generic and applicable to any organization. Now that I experienced it, I understand the inherent simplicity, and how all conflicts can be removed. And of course, ‘never say I know’ is something that opened new horizons for me.”
“What about ‘people are good’”? Bill says, as if checking.
“Even that was a refresher. I don’t blame anyone anymore, that doesn’t mean that everybody behaves aligned with the company. In the last two months we had to let go a few people because they couldn’t adjust. They simply couldn’t. We gave them all the opportunities, the training, the coaching. But we realized that the new way was not for them, and asking them to change put them in a conflict. They will be happier somewhere else, but I don’t doubt that they are good.”
“Yes, we in TOC never said that layoffs are forbidden. We only said that no company should let go anyone just to improve their bottom line.”
loyalty is a two way street.”
fully understand how the clouds were the tools to deal with the fear of tug of war in the company. Even the concept of inherent simplicity was a clear way to deal with the fear of complexity. But I want to understand a little bit better how TOC helps dealing with the fear of uncertainty.”
“Well, that is interesting, such as when you see so many efforts devoted just to somehow reduce uncertainty, like better forecasting systems.” As he drinks some wine I add, “I felt better when we bought that software for better forecasting, and now I see how wrong I was. It was just a mirage.”
“The worst manifestation is the tendency to control everything, and by that interrupting the natural flow of things. For example, how was your production control before and how is it now?” “Before we had the illusion of planning every single machine on the floor, knowing that those plans would change frequently. Now we know that we can’t plan at that level, so the instructions are much simpler; only work when orders come to you and use the colors to decide priorities,”
we only release work to keep our inventory buffers full,”
“You see, those buffers are there to absorb the uncertainty coming from demand fluctuations. Instead of trying to guess sales, TOC proposes to place buffers at the highest aggregation point possible.”
“So instead of trying to be more precise than the noise, we just build buffers to be prepared for the uncertain; inventories, cash and protective capacity.”
“Mostly those, yes. The principle is to build a buffer whenever you are facing uncertainty. This principle was portrayed by Goldratt with the three rules of management: first rule is to be paranoid, second rule is to be paranoid,” I laugh and say, “Third rule is to be paranoid?”
“No, third rule is not to be hysterical!,” Bill laughs and seriously again adds, “Not being hysterical means to build the minimum buffer that gives you peace of mind. Being paranoid means to look at everything that is currently undesirable and find a good solution. But then, before implementing the solution, look at all the foreseeable risks of success, to be prepared and avoid them.”
“I would say that TOC is the practical application of science of management. I like to think of it as a methodology that allows managers to eliminate the sources of the urgent so they can really focus on the important,”
“To sustain and build more on top of what you have now, you need a tool for communication, synchronization and focus. We use for that the strategy and tactic trees, or S&T for short,”
“It is a logical tool, it is used to organize all the knowledge in a hierarchical way, coming from the more general at the top, building the details in the various levels below,”
Strategy is defined as the answer to the question ‘what for?’ and tactic is the answer to the question ‘how?’”
You can answer those questions at every level of detail, so they come in pairs. The first strategy is always the same: to achieve a state where the company is generating more and more value to all its stakeholders; employees, clients and shareholders; in that order. In other words, sustainable and stable growth.”
the tactic when we were discussing our generic conflict. To build a decisive competitive edge, and the capabilities to capitalize on it, on big enough markets, without exhausting the company’s resources and without taking real risks.”

“I guess that not even the sky is the limit,”

“What I have learned in the last six months is that Goldratt Theory is all about people. It is about developing people unleashing their true potential, and it is about improving significantly human relationships in the company.”

“It is, but productivity is a much wider and deeper concept for me now. The meaning of eliminating the internal conflicts is way beyond just creating peace by compromising. It is about creating a situation where suppliers and clients are very satisfied with their relationship with the company, which in turn is only a reflection of much better harmony within the company. In such a situation, financial results will come as a consequence for sure.”
“One thing that causes disharmony is the misalignment between authority and responsibility,”
“Other sources for disharmony are both not knowing how I contribute to the company and not knowing how others contribute to the company.”
as CEOs we don’t realize to what extent, people at the lower levels of the company are in this situation. The fact that we can answer these questions easily doesn’t mean that everybody else can also. But giving them the why’s of the things they do, we start relying more on really empowered people. They grow with TOC as they start thinking more clearly instead of just following instructions.”
“I have seen that by empowering people and focusing everybody on one single big initiative, we, the management team, have released time and have increased our capacity.”
“Inertia is another thing that could be in the way. But now, with people really thinking, we are alert to change procedures when conditions change. And of course, we introduced and are using more and more the thinking tools to evaporate clouds of conflicts.” 

Goldratt found the three variables that need to be managed in any organization: flow, uncertainty and human relationships. Not only that, he found the simple formulation by which the three of them are related…” “… And now, we have the principles to manage any organization in a very simple way!” Bill jumped as if waking up. “What you did in your company is just an application of these simple principles.