Gilmore: So does TOC work for the VP of Supply Chain or not?

Goldratt: Absolutely yes, because you have to assume his or her boss is not an idiot. They should drag the CEO to one of our seminars and say “Let’s do this right.”

Think about it. Does the VP of Supply Chain have influence on marketing strategies and policies? If that answer is No, then immediately you are working with one of your hands tied behind your back.

For example, in the consumer goods example we had, if I was the VO of Supply Chain and I was making these improvements, but the policy was to still give big reductions for ordering in large quantities, rather than selling in big quantities, then I will fail in achieving results.

Do you understand what that last sentence means? It’s fine to say that as long as you sell 500 a month, you get the reduction in price, but it does not mean you have to order 500 at a time. Because if I still have to order 500, I can kiss away much chance of improving my supply chain.

Gilmore: Can the principles not be applied within a function?

Goldratt: Let’s take R&D or new product development. Let’s say you have used TOC to radically reduce development time. But if the other strategies of the company have not changed, you will not know how to effectively use this stream of new products you can develop, and because of that the end result will be you have too many engineers and you will have to lay some of them off. How would you like to be in the situation where you get buy-in from the engineers to do this in a much better way, and then come back and say as a reward for this effort, we have to lay a bunch of you off? That’s the problem, and why you eventually need a more comprehensive view.

Gilmore: You are talking about radical, almost unbelievable performance improvements. Most companies are happy with and struggle just to achieve continuous, incremental improvement.

Goldratt: Incremental improvement is nothing. This is exactly what I am crying about. Incremental improvement generally does not lead to more and more but to a crash, because one of your competitors is not taking an incremental approach but a breakthrough one, and eventually they crush you.

Gilmore: There really are companies achieving these kinds of results.

Goldratt: Yes!

Gilmore: When you present this, do CXOs want detailed, specific examples?

Goldratt: Sometimes, but not usually. It’s like reading “The Goal.” Does not that make simple, logical sense that you are convinced contains truth? It’s the same way when we explain the principles to a CEO, with their data. Usually the first reaction is “Let’s do it!” Sometimes at an enterprise level, it’s even simpler than it was for Alex Rogo.

Click here to go to the beginning of the interview with Supply Chain Thought Leader Eli Goldratt

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