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  Feb. 16 , 2006 - Supply Chain Digest Newsletter
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First Thoughts by Dan Gilmore, Editor

Eli Goldratt - Unplugged

Spending an hour on the phone with Dr. Eli Goldratt, father of the ”Theory of Constraints, author of “The Goal,” and many other books, and one of the smartest people on the planet, is quite an experience. That’s what I did a few weeks ago, Goldratt on a short stay back in Israel, me in Ohio; Supply Chain Digest readers will enjoy the results.

We often reversed positions, with Goldratt questioning me, and covered a broad range of topics. We’ll summarize some of that today, and more later. You’ll also find the first of two parts of a full transcript of our discussion under the News and Views section nearby. Whether your up to speed on Goldratt’s approach, or a newcomer, it’s worth a read.

Some background. In 1984, Goldratt published “The Goal,” a novel that tells the tale of plant manager Alex Rogo and his ultimately successful effort to bring a manufacturing plant back from the brink of closure to one that is highly profitable with great quality and customer satisfaction. It is one of the most influential business and supply chain books of all time.

So how is the improvement at the plant achieved? By applying the Theory of Constraints, with the help of a consultant (and Goldratt stand in) named Jonah, who helps Rogo understand and implement those principles.

In an imperfect summary of what transpires, the change comes from a realization that the traditional view of plant operating issues and metrics – associated with machine up time and machine efficiency (yield) – should give way to a more holistic approach that sees a “chain of resources.” At any given time, this system always has one – and only one - bottleneck process. Solving that bottleneck may give rise to another, but progress ensues rapidly as progressive bottlenecks are relieved.

When I ask Goldratt to summarize the TOC for SCDigest readers, his response was: “There are two pillars. The first is that in all real-life systems there is inherent simplicity. If you can just find that inherent simplicity, you can manage, control and improve the system.” We’ll come back to that point in a second.

“The second pillar,” he continued, “is that people are not stupid!”

We both paused, me waiting for some follow up explanation, him I suppose waiting for some intelligent question/response from me. I finally mumbled something.

“Let me give you an example,” Goldratt went on. “Have you ever heard that people resist change, and that this is a huge barrier to improvement? And the bigger the change, the bigger the resistance? Does that not in essence say that people are stupid?  If someone comes up and suggests a change that is good for you, do you automatically resist it?”

“Most changes may be right for the company, but not right for the majority of the people for whom they are seeking collaboration with the change,” Goldratt continued. “So no wonder there is resistance.”

Goldratt’s answer is at one level a cliché – you must find a “win-win.” But it doesn’t come across that way. When I suggested there were times, like a need for restructuring, where there was not much chance for win-win, he disagreed strongly.

“What you are saying is that you don’t think it’s feasible,” Goldratt said passionately. “What I have tried to demonstrate in my books and hundreds of projects is that it is always possible – always!”

Back to simplicity. When I said that many of the supply chain execs I speak with are trying to simplify their supply chains, his first response was “Good grief!” Why? Because in his opinion, most such efforts in fact really focus on removing just a few of thousands of moving parts, and really don’t accomplish much in the end. Better: find successively the key factors that really impact total system performance. When you do that, you find the “inherent simplicity,” and management and controls becomes relatively easy.

I can’t do any justice to the full conversation here, but I’ll try to capture from the first half of the interview some of the other most provocative points:

  • It is possible to significantly repair even very broken processes and systems, no matter how large, in as little as three months.
  • “The more complex the system is, the less the degrees of freedom, which means that if you can find the few elements that if you touch them then they impact the whole system, you’ve found the key elements of the system.”
  • Companies are under tremendous pressure now because product lifecycles in the market are often now shorter than the product development or supply chain cycles. But too many companies are looking to solve that issue in the wrong places, rather than where the big payback could be.
  • The TOC potential may be hard to believe, but he has hundreds of examples like the U.S. executive who wrote Goldratt to say “The Goal” was no longer a novel but “a documentary” – because his company had achieved similar results.

In reading the interview text, there are now a lot of other questions I wish I would have asked, looking for a few more specifics (if you have some questions, please send then to me – I can probably get them answered). Nonetheless, there is some provocative material here – and each of us would do well to unearth the simplicity of our crazy worlds by identifying what the real drivers of performance are.

What are your thoughts about TOC, and/or our Goldratt interview part 1?  Genius, or too “pie in the sky?” Either way, why? Can we really find the “inherent simplicity” in our supply chain systems and processes?

Let us know your thoughts.

Dan Gilmore

New SCDigest Research Report:

High Volume, Multi-Modal Shipping - What Executives Need to Know

An increasing number of companies must ship across multiple modes, including growing parcel volumes.

We provide insight into how to reduce costs and improve performance.

Click here to download the report.

Report made possible in part by:Irista - An HK Systems Company


The 2006 Supply Chain Risk Map

Guest Speaker:

Bryan Squibb

Manager, Trade Credit Group


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February 24 , 2006
i2 Acquires RiverOne, Highlighting On-Going Supply Chain Software Trends

The trends: consolidation, on-demand, multi-tier, and i2's continued recovery.


February 24 , 2006

Port “Ownership" Controversy Mostly Has It Wrong, but May Be Good for Security in the End

In the end, hub-bub may highlight port security, productivity gaps; Ports World backs off - for now

February 23 , 2006

Eli Goldratt - Full Interview

Read the procative first part of SCDigest editor Dan Gilmore's interview with Theory of Consraints guru



Q.  How fast did China's economy grow in 2005?

A. Click to find the answer below

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Feedback is coming in at a rate greater than we can publish it - thanks for your response.

It's a bit of a catch-up week. Unbelievably, we have still more letters on our review of the University of Arkansas study on the impact of RFID on Wal-Mart out-of-stocks, as letters beget others. We're going to pubish all of these in one place soon. This includes our feedback of the week on this topic from . W also found a few more letters on our piece on the "Worst Ever Supply Chain Disasters," and reaching a few weeks back one more commenting on our Supply Chain Christmas 2005 review.


Keep the dialog going! Give us your thoughts on this week's Supply Chain topics. As always, we’ll keep your name anonymous if required.

Feedback of the week - on the Wal-Mart out-of-stock study

Like you, I too think that RFID has a tremendous future for improving operational efficiency and inventory management, and it is clear that someone has to invest in proving the technology. Thanks to Wal-Mart for that. But, like David Sandoval (letter to the editor, Jan. 12, 2006), I kept asking why most of the process improvements couldn't have been achieved with good business practices and well proven technologies at a much lower cost. Maybe it was the limited amount of information that could be shared in a report like this, but it seemed to be overselling to imply that you needed RFID to achieve the bulk of these benefits.

Randy Arthur
Director of Supply Chain
American Tire Distributors

On the worst ever SCM disasters :

An excellent article on business failures due from technology disasters. As an advisor from by Booz Allen years and watching from the inside of high profile software firms I saw several of these up close.   There are many that you have not mentioned… for example the American Airlines, Hilton Hotel, Hertz Confirm project that failed because no one ever tested the time it would take to dump data from the TPF transactions systems to the reporting systems (instead of minutes it was hours - almost 12) killed the whole project… a lot of $.


The next two articles related to your article would be

  1. Companies that pulled it out and switched gears … (e.g. Dell dumping SAP in 1998 after learning it would kill their business model… very poorly reported on purpose).  I was there involved with positioning new factory scheduling systems.   My teams at Booz Allen in Dallas tried desperately to coach the FoxMeyer team to take a different approach but the tech control was just to strong.
  2. Next set of failure.. the RFID SHEEP.   The list of RFID maniacs that if not checked in your organization will kill many business or worse yet “hand” all your profits to Wal-Mart.   Great feedback this week on RFID.  We have been out saying it for almost 2 years that it is a technology quick fix sale and has little or no economics except for specific high value or closed loop processes.   Vendor fill to a store is not likely a good fit as your reader mentions
  3. Predictions:  A few key firms (most not US based) will get this right - as their cultures are much less tech oriented and more process, people and trade based.   We will continue to see a decline of US business competitiveness vs. many other cultures until we lose this “one button” quick fix technology mindset.


Lastly, Google has set the bar that technology should “best” save real people time… not replace people.  Very few technologists think this way and thus applications that work this way are few and often strategic and very profitable for their sponsors.   The entire supply chain technology industry has yet to make this shift.


By the way AMR Research release a report end of this month on S&OP software that is an early step towards much more to come.   If you don’t have this report yet you might want to be on the lookout for it ? 


Jon Kirkegaard



I would add ConAgra 2005 Consolidation and Systems conversion (SAP) almost at the same time

Gen Klein


It is interesting how many of these horror stories involve attempts at automation on such a grand scale.  Aside from situations like the Denver Airport, WebVan, and -- sadly -- GM, I wonder how much investment was made in the comparatively mundane work of fundamental process design/improvement, workflow analysis and reviews of management practices before work commenced on the Capital Request for the Silver Bullet.


Bruce Moser

Director, Logisitcs Planning & Engineering

Arrow Electronics, Inc

On Supply Chain Christmas 2005

Inventory visibility is becoming even more crucial, particularly at the store-level. I did the same thing you did when shopping for a printer during the holidays. It’s not just the e-tailers, but also the bricks & clicks that can benefit from price transparency. In my case, I ordered the product online, but picked it up on the same day at a nearby store because eliminating shipping charges made it cheaper. I also got instant gratification. I only did this, however, because the online site (BestBuy.com) was synchronized with store-level inventory on the shelf.

I definitely wanted to avoid the inconvenience of traveling to a store during Christmas only to find the product was out of stock. Absent this integration, I might have purchased from a different vendor with a better total price point (product + shipping). So companies that want to compete with online retailers also have to be better at managing supply, but they also have to look for ways to reduce distribution costs – without increasing delivery wait time. This is especially important for retailers, because organizations are often better at waiting than individual consumers are. I’m know I’m not the only one who wants instant gratification.


D. Scott Beaver

Director, Product Marketing




Q.  How fast did China's economy grow in 2005?

A. About 9.5 percent, approximately triple the world average and U.S growth.

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