Fruit of the Loom Supply Chain by 39Y4e4

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									   TOC Distribution

 A powerful and easy to implement
   Theory of Constraints solution
How to move your company or client
               Blue background       White background
Why?           slides have Meta-
                   knowledge
                                      slides are client
                                         knowledge


 World Prosperity         For blog http://bit.ly/gmn03C

   •   Commercial
   •   Easy
 Focus: TOC Distribution only
   Work with others for
     1. Inside a Manufacturing Plant
     2. Projects
                                           Simon Sinek
                                        http://www.startwithwhy.com/
                                        click on “The Golden Circle”
Roadmap
  Actions to Lead a Client’s Journey
  1. Connecting
  2. Interesting
  3. Proving
  4. Quantifying
  5. Focusing        Willingness
                       to invest
  6. Proving             time       Willingness
                                     to invest
  7. Implementing                     money
1. Connecting

• Start where there is trust
  – Without it, don’t waste your time

                        No   Build Trust
                                           Yes

         Introduce                                 Introduce
          yourself                                  yourself

       Introduce Your          Same              Introduce Your
          Company            Mafia Offer            Company

       Introduce Your                            Introduce Your
           Product                                   Product

            4%           Chance of Success           80%
1. Connecting

• It is easiest to start where there is trust
• Without it, don’t waste your time
• Working with a consultant on their happy
 client speeds selling TOC Distribution
  – There are 1000s of happy CCPM, DBR, LEAN
    and other clients that hold inventories
  – Target companies: $20 to $500 million
2. Interesting

• Unless people ask for information on TOC,
  they won’t devote much time early on
• Just have a chat. (Listen don’t tell. 4:1)
  – “How is your availability?”
  – “How are your turns?”
  – “How much improvement would convince you
    to take action?”
  – “We can verify your opportunity. Interested?”
3. Proving
Simulations on their products
• They pull a year’s worth of transactional data on 25 SKUs
   – 5 big sellers, 5 tough ones and 15 average items
   – To simulate and estimate lost sales, for each item include:
       •   Lead Time
       •   Order Multiple
       •   Minimum Order Quantity
       •   Cost and Price
       •   Ending (and Starting) Inventory
• IDEA runs simulations and summarizes the results
• We come see them with you, to share the results (1/2 day)
           http://www.ideallc.com/resource/File/Technicana/Elucidate%20Simulations.pdf
Proof
                                                                 What you have to do:
                                                                 • Pick 25 representative
                                                                   products
                                                                 • Provide a year’s worth of sales
                                                                   and replenishment data for
                                                                   each
                                                                 Typical time to complete:
                                                                      Wait a minute.
                                                                  2 hours
                                                                         Where’s the
                                                                           proof?
                                                                 Simulations are performed at no
                                                                  charge


              Summary of 25           Actual   Elucidate     Actual Elucidate
              Representative       Days Out    Days Out    Average      Average Inventory % Inventory
              Products              of Stock    of Stock Inventory Inventory Reduction Reduction
                         Totals         410          40 $ 102,261 $ 59,015 $ 43,246              42%
                         Count           20          12    Days of Inventory
                       Duration          21           3         54           31
                    Availability    97.04%       99.71%




        Quantify your opportunity
           without any risk
4. Quantifying

There is no chance that they:
  – fully understand the problem yet
  – can estimate their benefits of TOC Distribution
Without understanding these they:
  – won’t move ahead or
  – won’t properly prioritize, if they do
• Share summary of simulations and
• Deliver the following basics:
The Goal




    A simple desire with two prerequisites
An Obvious Action




                Because of:
        lower carrying costs
            fewer disposals
                        etc.




 In order to spend less, reduce inventory levels
A Conflict




 To protect availability, add stock. How to take
     both actions – must we compromise?
The Less Preferred Option




    There is an upside and a down side …
The Less Preferred Option




   … and we’d spend more in carrying and
  obsolescence costs – definitely a last resort
The Preferred Option




               ?




 If we stock less, how do we get good enough
            availability to sell more?
Reality Intrudes

                               X

                        X




                        X



Demand and resupply fluctuate, making it harder
 to consistently keep either extra profit or cash
The Benefits of a Solution
                                           Shoot, we
                                          We’d really
                                         could of all,
                                        Maybeknock
                                           First sales
                                         out some a
                                         be makingof
                                        we could stop
                                         would finally
                                           difference.
                                            those fires
                                         fighting big
                                          appreciate
                                        We could pay
                                        We’d finally
                                          Employees
                                          projects we
                                         allsome debt
                                              day
                                        offwouldlong,
                                          purchasing
                                           havevicereal
                                          never havebe
                                         just to serve
                                         orand out a
                                              buy
                                             happier.
                                             time for
                                             stability
                                           customers
                                               versa
                                          competitor




 What would it mean to me, if I could have both
   better availability and lower inventory?
  The Benefits of a Solution
                                                           Elucidate
             Current
     (millions)                                               Future
Sales          $200                                            $200
Gross Profit     50                                               50
Expenses         40                                               40
Profit           10                                               10

                                                   What about
                                                    We’d have
                                                    financial
                                                   considerably
                                    +$10 million    benefits?
                                                    better turns




                       Better
Inventory          $30 Turns                                    $20
Turns                5   7.5                                     7.5
% Return          33%                                          50%



       What would it mean to me, if I could have both
         better availability and lower inventory?
  The Benefits of a Solution
                                    In                          Elucidate
             Current
     (millions)                 Stock                              Future
Sales          $200               $12                               $200
                                                                    $212
Gross Profit     50                  3                                 50
                                                                       53
Expenses         40                  0                                 40
Profit           10                  3                                 10
                                                                       13

                                                         We’d sell 6%
                                                          We’d have
                                                         more, if we
                                                        considerably
                                         +$10 million
                                          +$9           just stayed in
                                                         better turns
                                                             stock

                                          +$3 million


                       Better
Inventory          $30 Turns                                         $20
                                                                     $21
Turns                5   7.5                                          7.5
% Return          33%                                               50%
                                                                    61%



       What would it mean to me, if I could have both
         better availability and lower inventory?
  The Benefits of a Solution
                                    In     Less                         Elucidate
             Current
     (millions)                 Stock Discounts                            Future
Sales          $200               $12        $4                             $212
                                                                            $216
Gross Profit     50                  3        4                                53
                                                                               57
Expenses         40                  0        0                                40
Profit           10                  3        4                                13
                                                                               17

                                                                 We’d sell 6%
                                                                    Without
                                                                 more, if we
                                                                surpluses, we
                                                  +$9 million   wouldn’t have
                                                                just stayed in
                                                                     stock
                                                                  to discount

                                                  +$3 million
                                                  +$7


                       Better
Inventory          $30 Turns                                                 $21
Turns                5   7.5                                                  7.5
% Return          33%                                                       61%
                                                                            80%



       What would it mean to me, if I could have both
         better availability and lower inventory?
  The Benefits of a Solution
                                    In     Less    Fewer                          Elucidate
             Current
     (millions)                 Stock Discounts Disposals                            Future
Sales          $200               $12        $4       $0                              $216
Gross Profit     50                  3        4         1                                57
                                                                                         58
Expenses         40                  0        0         0                                40
Profit           10                  3        4         1                                17
                                                                                         18

                                                                            We’d sure
                                                                             Without
                                                                          surpluses, we
                                                                           have fewer
                                                            +$9 million   wouldn’t have
                                                                            inventory
                                                                           to discount
                                                                            disposals

                                                            +$7 million
                                                            +$8


                       Better
Inventory          $30 Turns                                                           $21
Turns                5   7.5                                                            7.5
% Return          33%                                                                 80%
                                                                                      85%



       What would it mean to me, if I could have both
         better availability and lower inventory?
  The Benefits of a Solution
                                    In     Less    Fewer Buying                             Elucidate
             Current
     (millions)                 Stock Discounts Disposals Better                               Future
Sales          $200               $12        $4       $0     $0                                 $216
Gross Profit     50                  3        4         1      2                                   58
                                                                                                   60
Expenses         40                  0        0         0      0                                   40
Profit           10                  3        4         1      2                                   18
                                                                                                   20

                                                                                  If we didn’t have
                                                                                      We’d sure
                                                                                  to beg suppliers
                                                                                     have fewer
                                                                                   to expedite, we
                                                                    +$9 million       inventory
                                                                                  could negotiate
                                                                                      disposals
                                                                                     better costs

                                                                    +$8
                                                                   +$10 million


                       Better
Inventory          $30 Turns                                                                      $21
Turns                5   7.5                                                                       7.5
% Return          33%                                                                            85%
                                                                                                 96%



       What would it mean to me, if I could have both
         better availability and lower inventory?
  The Benefits of a Solution
                                    In     Less    Fewer Buying Winning                    Elucidate
             Current
     (millions)                 Stock Discounts Disposals Better Share                        Future
Sales          $200               $12        $4       $0     $0    $20                         $216
                                                                                               $236
Gross Profit     50                  3        4         1      2      5                           60
                                                                                                  65
Expenses         40                  0        0         0      0      2                           40
                                                                                                  42
Profit           10                  3        4         1      2      3                           20
                                                                                                  23

                                                                                       didn’t have
                                                                                 If we Better
                                                                                 to beg suppliers
                                                                                    availability
                                                                                  to expedite, we
                                                                   +$9 million
                                                                   +$7             ought to be a
                                                                                 could negotiate
                                                                                    huge seller
                                                                                    better costs

                                                                  +$10 million
                                                                  +$13


                       Better
Inventory          $30 Turns                                                                     $21
                                                                                                 $23
Turns                5   7.5                                                                      7.5
% Return          33%                                                                           96%
                                                                                                99%



       What would it mean to me, if I could have both
         better availability and lower inventory?
  The Benefits of a Solution
                                    In     Less    Fewer Buying Winning Reinvest-            Elucidate
             Current
     (millions)                 Stock Discounts Disposals Better Share      ment                Future
Sales          $200               $12        $4       $0     $0    $20       $20                 $236
                                                                                                 $256
Gross Profit     50                  3        4         1      2      5        5                    65
                                                                                                    70
Expenses         40                  0        0         0      0      2        2                    42
                                                                                                    44
Profit           10                  3        4         1      2      3        3                    23
                                                                                                    26

                                                                                         Better
                                                                                    We could add
                                                                                       availability
                                                                                     new product
                                                                    +$7 million
                                                                    +$5              ought to be
                                                                                    lines or buy a
                                                                                      huge seller
                                                                                      competitor

                                                                   +$13 million
                                                                   +$16


                       Better
Inventory          $30 Turns                                                                      $23
                                                                                                  $25
Turns                5   7.5                                                                       7.5
% Return          33%                                                                            99%
                                                                                                105%



       What would it mean to me, if I could have both
         better availability and lower inventory?
  The Benefits of a Solution
                                    In     Less    Fewer Buying Winning Reinvest-             Elucidate
             Current
     (millions)                 Stock Discounts Disposals Better Share      ment                 Future
Sales          $200               $12        $4       $0     $0    $20       $20                  $256
Gross Profit     50                  3        4         1      2      5        5                     70
Expenses         40                  0        0         0      0      2        2                     44
Profit           10                  3        4         1      2      3        3                     26

                                                                                       WOW! More
                                                                                      We could add
                                                                                      What would
                                                                                        stability and
                                                                                       new product
                                                                    +$5 million
                                                                                       have buy a
                                                                                    I lines orto give
                                                                                       performance.
                                                                                            up?
                                                                                          I want it.
                                                                                        competitor

                                                                   +$16 million


                       Better
Inventory          $30 Turns                                                                       $25
Turns                5   7.5                                                                        7.5
% Return          33%                                                                            105%



       What would it mean to me, if I could have both
         better availability and lower inventory?
  Benefits of the Status Quo
                                                          What you have to do:
                                                          • Think clearly
We are working on lots of     If you add them all up,
projects right now            are they as good as this?
I’ve made promises. How can Less firefighting means
                                                                What would
I do this and still meet them? more time, not less
                                                              I have to give
I am comfortable now          Being more competitive               up?
                              is even more comforting
Today, I am an expert in my   You’ll be a cash rich
business                      Elucidate expert in 3 mo




           Good things I’d leave behind if I agree
  Risks of Accepting Elucidate
                                                             What you have to do:
                                                             • Think clearly
IT is already backed up. They Assign them to work on
can’t get anything done soon. the best thing 1st
If we hold less inventory, we   Remember, simulations              I don’t want
could more easily run out       showed 10X less outages            to mess up
                                                                   my company
I’d have to pay IDEA hefty      Every year, you’ll add far
fees for a while                more profit … forever
Managers here have their own Good one. Let’s discuss
priorities. I’d risk more friction how to overcome it
by forcing them.                   thoroughly.




        Bad things that might happen, if I say “Yes”
Gaining Full Buy-in
                                                         What you have to do:

Even a great solution won’t implement itself • Prioritize the Elucidate project
                                               that multiplies profits while
“70% of improvement initiatives fail to achieve           conserving cash

  expected results” - Harvard Business Review            • Inform top management of
                                                                   OK, want
                                                                 I don’t I’m
                                                           Elucidate’s goals and priority

IDEA has done this before. We pick clients               • Set a meeting to fully share
                                                                 crazy not
                                                                 to w/ top management
                                                           Elucidate mess up
  very carefully  100% success rate.                    • Givemy management’s input
                                                                top company
                                                                   to try it
Elucidate Strategies and Tactics Workshop
                                                         Typical time to complete:
• Gain consensus and the team’s                           1 full week off site

  commitment to implement Elucidate                      There is a significant charge for

• We guarantee the team sees value                        revealing the full solution




People easily choose things that are clearly good
  for them. We have something for everybody
5. Focusing

An S&T session to build full consensus
• The client must want it enough to pay a
  significant sum, in advance
• More than the cost, they must decide to
  devote a full week of management’s time
• During the S&T session, bad multitasking is
  explored thoroughly
  – If we are successful, they will devote more
    hours to preparation than to implementation
Proof of Concept
                                                   What you have to do:

1st prove Elucidate live to be extra cautious      • Help us pick a subset of
                                                    products and locations to
• Ensures everything is working                     demonstrate Elucidate
                                                   • Agree on the full engagement
• A chance to practice first on a small scale       details

• Proves Elucidate to get doubters off the fence   Typical time to complete:
                                                    3-6 months
• See results before committing to an engagement
                                                   Pay us a fixed monthly fee
                                                   Terminate the Proof of Concept
                                                    at any time, for any reason
            Proof of
            Concept

                   All Product-Locations



            A live test quantifies the benefits
6. Proving

Proof of Concept
• Not a low value “pilot” – proof of a big deal
• A representative sample of products and
  places, usually 5-10% of the business
• Establishes the baseline for Success Fees
• After results are exciting (~2 months)
  negotiate full engagement details and sign
• Determine Project Leader and team
Solution Overview
                                                     What you have to do:
Elucidate implements in 4 short tasks.
                                                     • Communicate that Elucidate is
None are particularly difficult or time consuming.    the top priority
                                                     • Follow up on progress in daily
Don’t let less important matters slow progress.       5 minute meetings
                                                     • Support the implementers with
                                                      resources, as needed
                                 X
                            X


                            X




                   Elucidate: to enlighten
Solution Overview
                                             What you have to do:
                                             • IT provides historic sales data
           Enough to handle                  • IT automates a daily sales
           •   the heaviest demand and        download
           •   late delivery but
           •   no more.                      Typical time to complete:
                                              2 days

                                         X
                                             • For exceptions where history
                              X               is a poor predictor, Sales
                                              estimates high demand levels
                                X
                       X                     Typical time to complete:
                                              1 day

                                X

                      X




     Decide to improve inventory flow.
       Injection 1: Set initial buffers
Solution Overview
                                                    What you have to do:
                                No more need to     • Cancel some existing orders
                                   raise stocks.
                                                    • Place fewer orders for a while
               Buffers signal     The conflict is
              when NOT to buy           broken.




      Injection 2: Buy up to the buffers
Solution Overview
                                    What you have to do:
                                    • Cancel some existing orders
                                    • Place fewer orders for a while
             Buffers signal
            when NOT to buy




      Injection 2: Breaks the conflict
Solution Overview
                                        What you have to do:
                                        • Order consumption daily
                                        • Batch orders as necessary to
                                         reduce cost or freight




  After a short lull, daily ordering can overload
                     purchasing.
Solution Overview
                                  What you have to do:
                                  • Order consumption daily
                                  • Batch orders as necessary to
                                   reduce cost or freight
                                  • IT automates the upload
                                  Typical time to complete:
                                   1 week




    Injection 3: Automate replenishment
Solution Overview
                                          What you have to do:
                                          • Order consumption daily
                                          • Batch orders as necessary to
                                            reduce cost or freight

                              Usually, the extra load on
                             receiving is not completely
                            offset by smoothing their load




     Injection 2: Has more side effects
Solution Overview
                                       What you have to do:




    What if these changes
    are more than the buffer
    can handle?




    Buffers are sized to protect availability
Solution Overview
                                  What you have to do:




      Protection can erode over time
Solution Overview
                                  What you have to do:
                                  • Nothing




   Injection 4: Dynamic Buffer Management
Solution Overview
                                   What you have to do:
                                   • Add staff in receiving, if
                                    needed
                                   • Enjoy a more stable operation
                                   • Decide how to best use your
                                    new cash and profits – the
                                    larger and more stable the
                                    base, the bigger the next jump


                                    Normally, the interest
                                    on cash (which we
                                    have not counted) is
                                    more than enough to
                                    pay extra salaries here




   This completes Phase I of an Elucidate
               Engagement
Solution Overview
                                          What you have to do:
                                          • Understand and improve our
                                            supplier presentation to sell
                                            them on a new business deal
                                          • Prioritize top suppliers –
                                            usually start with about 20
                                          • Observe us enlist a few
                                            suppliers, followed by review
                                          • We observe you enlist a few
                                            suppliers, followed by review
                                          • You enlist remaining suppliers
                                          Typical time to complete
                                           2 hours/supplier
                              The impact of Phase II is
                              to reliably reduce lead
                              time from suppliers.
                              Elucidate automatically
                              takes advantage of it




     Phase II: Getting suppliers to help
Solution Overview
                                             What you have to do:
                                             • Understand and improve a
                                              customer presentation to sell
                                              them on a new business deal
                                             • Prioritize a list of existing
                                              customers to convert and a list
                                              of prospective customers
                                             • Observe us enlist a few
                                              customers, followed by review
                                             • We observe you enlist a few
                                              customers, followed by review
                                             • You enlist the remaining
                                              customers
                                           Typical time to complete
                                            2 hours/customer
                                 Smoothes demand from
                                 customers
                                 Elucidate automatically
                                 takes advantage of it


 Phase III: Capitalizing on a decisive competitive
                edge in availability
7. Implementing

This is the easy part
• Follow the customized S&T to the letter
• Focus: don’t move ahead until results are in
• Make the auditor aware of “mysteries”,
  good or bad
• Start with weekly client meetings, move to
  monthly and then, bi-monthly
• Get referrals and references
Solution Review
                   Gaining                     Automate         Enlist        Convert          Win new
  Investment by                Provide Data                                                                       Total
                    Buy-in                       Upload      Suppliers      Customers        customers
                  4 people
  Top Mgmt                                                                                                 20 man days
                  x 5 days
                  1 person         1 person 1 person x 5
  IT                                                                                                       12 man days
                  x 5 days           x 2 day       days
                             16 salespeople                                50 meetings     50 meetings
  Sales                                                                                                     2 man days
                                    x 1 hour                                 x 2 hours*      x 2 hours*
                  1 person                                                 20 Meetings     20 Meetings
  Sales manager                       1 day                                                                 6 man days
                  x 5 days                                                   x 2 hours*      x 2 hours*
                  1 person                                 20 suppliers
  Purchasing                                                                                               10 man days
                  x 5 days                                    x 2 hours
                   35 man                                               (Elapsed time 2 (Elapsed time
  Total                         5 man days 5 man days 5 man days                                            50 man days
                      days                                                     months)         2 months)
                                                                * Part of normal job - displaces lower value added work.


       Investment                = $100,000/yr / 250 days/yr X 50 days + IDEA fees
                                 = $20,000 + IDEA fees
       Return                    = 4 years X $16,000,000 change in profit/yr + 5,000,000
                                 = $69,000,000 + Stability


                                       Big investment
                                        Bigger return
IDEA’s Contingency Approach
  • Full engagement
     • Fixed monthly fees and
     • Success fees
                      Enjoy an
          Keep        Enormous      Share a
          What You    Improvement   Piece
          Have Now                  with IDEA
Sharing

How IDEA works with partners:
    Situation                  Your share of revenue
•   You give a lead:           10%, up to $50k
•   Our project, you assist    25%
•   Your project, we assist    50%
•   Your project, our system   75%, when you’re ready
HenryCamp@ideallc.com

								
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