Gilmore: Net profit in four years equal to current sales?

Goldratt: That’s right. Not every company. Right now, I know how to do it with about 80% of them.

Gilmore: What’s the barrier at the other 20%?

Goldratt: I’m stupid – I don’t know enough yet. I am restricting myself now, for example, to physical products. Not hospitals, banks, etc., even though we know in general Theory of Constraints works beautifully there, but we have less data and don’t want to take on too big a risk because all of our contracts are based almost totally on realizing the results.

Gilmore:  When you look at the issues and plans across companies after you do this analysis, what are common themes or opportunities?

Goldratt: Let me give you the truth. In order to minimize risk and best enable my people to execute this, I have eight generic solutions. If it fits one of these eight, we take the project. If it doesn’t, we don’t.

Those eight templates cover 80% of the physical products companies, including manufacturers, retailers, wholesalers, etc.

Gilmore: Can you describe a common template?

Goldratt: Well, to do this in half a page or whatever this will be will probably be mumbo-jumbo, but fine.

Suppose that we are producing manufactured products that are sold through distribution, wholesale and retail, ok?

Then the question the question I am really interested in is “How frequently those channels are ordering from you the same SKU?”  It doesn’t matter to me that in general they order from you once a week. What I want to know is for each specific product how frequently they order. And if the answer is they order once in two weeks or more than two weeks, that’s it -  I have the solution.

Because what happens is that if say they are ordering the same product once a month, that means the total order lead time – from when the sell a unit to when they order a unit – is one month. This is enough to kill them.

It will typically create big problems with excess inventory, along with frequent problems with unavailability. So now, the standard solution shows them how to do this with less than half the inventory, with almost no unavailability.

Do you understand once you are doing that you are taking the market?

A retailer or wholesaler’s key metric is inventory turns, and its main concern unavailability. If you solve both these problems, that’s it, the customer is yours.

Gilmore: Ok, I think the basic issue is well understood. We’ve been trying to solve that with many things, from collaborative planning to RFID and lots of other technologies and strategies.

Goldratt: These are all hard. This solution is so damn simple.

Do you know that I have put in the public domain computer courses? Because I found that in a manager wants to get buy-in from his people, a computer course is far more effective than a book.  Exactly what I have told you about how to do that solution is in one of the computer courses.

Gilmore: Procter & Gamble is among the companies trying to solve this, and is doing so in part by trying to make their factories more flexible to shorten the length of production runs and enable more SKUs to be made each day….

Goldratt: First, so you know, the Procter & Gamble soap and detergents division implemented my distribution solution in 1989! But just that division, as far as I know.

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Article key words: Theory of Constraints, supply chain strategy, supply chain excellence