TOC for Retail based on 5 business cases 05.06.pptx

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Retail, distribution and production. What’s differentiate Retail from others two?
- The Ocean of data. Many locations with thousands SKU.
Where to focus? What is system constraint?
A: The Data (information) flow!
How to exploit it?
A: To clean mistakes from the system and to make data reliable. If not, you’ll allow to run the Random Chaos mechanism in the very roots of the system.
How to subordinate?
A: Through automated POOGI (Process of ongoing improvement) mechanism. And to implement POOGI mechanism is more important than DBM (Dynamic Buffer Management) formula. BUT to implement POOGI is a “mission impossible” without proper IT solutions. This solution must enable automated collection of information about the every single “quanta” of behavior.
How to implement auto POOGI?
How to collect skills and competences for that? I will share our Goodstream experiences during TOCICO presentation in Chicago 2012.

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TOC for Retail based on 5 business cases 05.06.pptx

  1. 1. TOCICO 2012 Conference The path to improve the flow of goods in Retail. Based on life implementations within 5 FMCG chainsPresented By: Darius RadkeviciusDate: 12.05. 2012 © 2012TOCICO. All rights reserved. 1
  2. 2. The great minds argue TOCICO 2012 Conference 2 © 2012 TOCICO. All rights reserved.
  3. 3. “I am convinced that He (God) does not throw dice” - Albert Einstein TOCICO 2012 ConferenceTheory of Relativity. Cause – effect. Deterministic philosophy. Democritus 460-370 BC Euclid 323 - 283 BC Isaac Newton 1642 – 1727 Albert Einstein 1879 - 1955 3 © 2012 TOCICO. All rights reserved.
  4. 4. Really ??? TOCICO 2012 Conference 4 © 2012 TOCICO. All rights reserved.
  5. 5. “The mechanism of evolution is based on throwing dice” - Stephen Hawking TOCICO 2012 ConferenceQuantum physics. Random events. Casino Perpetuum philosophy. Laozi 5th- 4th BC Niels Bohr 1885 - 1962 Werner Heisenberg 1901 – 1976 Stephen Hawking 1942 - 5 © 2012 TOCICO. All rights reserved.
  6. 6. Wise minds know that there is no one truth and both sides are right TOCICO 2012 Conference QChaos Fractal But for the educational goals, new knowledge tends to oppose the old. 6 © 2012 TOCICO. All rights reserved.
  7. 7. Insights about Retail TOCICO 2012 Conference 7 © 2012 TOCICO. All rights reserved.
  8. 8. First step: IdentifyThe clients who come to buy are the main constraint of the system. TOCICO 2012 Conference 8 © 2012 TOCICO. All rights reserved.
  9. 9. Second step: ExploitThe right inventory in the right place at the right time. TOCICO 2012 Conference 9 © 2012 TOCICO. All rights reserved.
  10. 10. Third step: Subordinate TOCICO 2012 Conference 1.To have the right inventory you need to establish the procedure of gettingthe data of daily sales from the selling point and replenishing in accordance. 2. DBM will help you to achieve better financial result than forecast. 10 © 2012 TOCICO. All rights reserved.
  11. 11. TOCICO 2012 ConferenceWhatinsightskeepsilent? 11 © 2012 TOCICO. All rights reserved.
  12. 12. TOCICO 2012 ConferenceUp to Kurt Gödel’s“Incompleteness of logic” 12 © 2012 TOCICO. All rights reserved.
  13. 13. TOCICO 2012 Conference All systems depend on something outside the system. K. Gödel 13© 2012 TOCICO. All rights reserved.
  14. 14. Two philosophical view on system improvements TOCICO 2012 Conference Deterministic or Random 14 © 2012 TOCICO. All rights reserved.
  15. 15. Richard Branson: TOCICO 2012 Conference “The business- school gurus tend to underplay the luck, presumably because the power of chance undermines the rules they teach you.” 15© 2012 TOCICO. All rights reserved.
  16. 16. Consumer is final or Global constraint. What is Local constraint? TOCICO 2012 ConferenceDeterministic: “Shelf space is usuallythe shop’s constraint for betteravailability. A significant amount ofthe constraint is captured bymerchandise that were orderedaccording to an overly optimisticforecast.” (STT 2:1)Random: Local constraint may be thelocation of the store. (The main rulefor Retail: Location! Location!Location!) 16 © 2012 TOCICO. All rights reserved.
  17. 17. II step: TOCICO 2012 ConferenceExploiting the system’s constraint is done byeither:1)Deterministic: having the right inventory inthe right place at the right time (Insight). Thatis, work with specific existing SKU (STT 3.1.3)2)Random: continuous introduction of newproducts to meet changing demand over time,preferences, the influence of fashion andadvertising. That is, work with an assortment. 17 © 2012 TOCICO. All rights reserved.
  18. 18. Shelf space or physical constraint TOCICO 2012 ConferenceDeterministic: To establish procedure of gettingfrom sales point the data of its daily sales andreplenishing in accordance.Random: To have proper visual display in quantityand in the right place (merchandising). 18 © 2012 TOCICO. All rights reserved.
  19. 19. The possible wise decision: to connect SM (space management) with DBM TOCICO 2012 Conference 19 © 2012 TOCICO. All rights reserved.
  20. 20. Logical conclusion after step 3 “subordinateeverything else to the above decision” by TOC: (slide 10) TOCICO 2012 Conference If you convince the client to provide dailydata and configure the DBM, then you as aconsultant will help theclient to collect the low hanging fruits. Is it really enough? 20 © 2012 TOCICO. All rights reserved.
  21. 21. Neither in the STT nor in the Insight the DATA was not mentioned, just building DBM! TOCICO 2012 Conference Perhaps there is a hidden assumption that retailers have good enough data, because without them, at such scale, it is not possible to control stores. Do you remember K. Gödel? 21 © 2012 TOCICO. All rights reserved.
  22. 22. Is it possible to operate in Retail without a reliable data? TOCICO 2012 ConferenceDeterministic: No, becausethe data is Necessarycondition!Random: Yes, if Stores doorders on an "As I see it Ising”, and shops located ina prime location. 22 © 2012 TOCICO. All rights reserved.
  23. 23. Is it possible to achieve in Retail an improvement of financial performance without having reliable data? TOCICO 2012 Conference Deterministic: No, because the data is Necessary condition! Random: Yes, if fortune smiles to stores and they are lucky, and quickly introduce popular new items. 23 © 2012 TOCICO. All rights reserved.
  24. 24. Is it possible to achieve an improvement of financial performance from the implementation of DBM without having reliable data? 2012 Conference TOCICO Deterministic: No, because the data is Necessary condition for the correct Buffer calculation. Random: Yes, if youre lucky - both in data and their exchange the quantity of error is small. 24 © 2012 TOCICO. All rights reserved.
  25. 25. Our conclusion TOCICO 2012 Conference Very often for getting effectiveness from the implementation of TOC projects for Retail, the constraint is Information flow. 25 © 2012 TOCICO. All rights reserved.
  26. 26. Funnel of constraints TOCICO 2012 Conference Globally: on the market level - Consumer Locally: on the Store level - Shelf space On project: for receiving a prize from DBM implementation (improving bottom-line) - Flow of information 26 © 2012 TOCICO. All rights reserved.
  27. 27. Flow of information is possible to divide in two groups TOCICO 2012 ConferenceDeterministic: Theprocess of exchangingdata and accuracy of thedata (a reflection of theinternal environment).Random: Information onnew products and offersfrom suppliers (areflection of the externalenvironment). 27 © 2012 TOCICO. All rights reserved.
  28. 28. Meanwhile every business organization has the following three main flows TOCICO 2012 Conference 1. Flow of information. In a business company, this is akin to the human nervous system. It relays market needs and the success achieved in serving clients. 2. Flow of goods and services. In a company, this is akin to the circulatory system. Flowing blood, satiated with nutrients, covers the entire supply and production process, from the acquisition of raw materials to the delivery of production. 3. Flow of money. This is akin to the respiratory system. It supplies the entire organism with oxygen. If there is no money in a company, there won’t be anything else either. 28 © 2012 TOCICO. All rights reserved.
  29. 29. TOCICO 2012 Conference1.  Goods are stolen;2.  Employees make mistakes when entering data;3.  Suppliers are changing the minimum package.Note: The correct order shouldbe rounded up to min packing(do not confuse with MOQ, orEOQ) 29 © 2012 TOCICO. All rights reserved.
  30. 30. Daily symptoms TOCICO 2012 Conference 1.  Employees do not trust the data or order formula; 2.  Automatic order are often corrected manually; 3.  Data have negative balances (where the system allows). 30 © 2012 TOCICO. All rights reserved.
  31. 31. Symptoms from H. Baptista presentation - TOCICO 2010 TOCICO 2012 Conference 31 © 2012 TOCICO. All rights reserved.
  32. 32. Conclusion: The daily data in IT system and the real data in the store do not match each other to a greater or lesser degree. TOCICO 2012 Conference 1.  If erroneous information flow, then flow of goods can not be correct. 2.  In the Retail every day you need to take decisions on thousands of SKU, therefore to adjust the flow of information for effective ordering, the automated order management - Necessary condition. 32 © 2012 TOCICO. All rights reserved.
  33. 33. How to calculate the correct order, if the data are not reliable? TOCICO 2012 Conference 33 © 2012 TOCICO. All rights reserved.
  34. 34. To implement TOC in Retail, i.e.cause–effect approach and tocentralize the decision-making TOCICO 2012 Conferenceprocess, like ordering, you mustto make data reliable. If not,you’re allowing to run theRandom Chaos mechanism in thevery roots of the system.Chaos theory says that behaviorof complex dynamical systemsare highly sensitive to initialconditions. Small differences ininitial conditions yield widelydiverging outcomes. Thedeterministic nature of thesesystems does not make thempredictable. 34 © 2012 TOCICO. All rights reserved.
  35. 35. 5:12:1 5:12:2 9:1121111:1 1 solution First solution Buffer Expediting Set up quality A TOCICO 2012 Conference Експлоатировать, management control of data значит, чтобы не ходили не нужные данные. Т.к. обработка p exchange данных требует времени system The system must check the quality of the data exchange process:The system must check the1. quality oftime? data exchange process: the whether the data exchanged during the1.  Whether the data exchanged on time? 2. ? exchanged in whole 3.2.  Exchanged in whole scope? Is there double line ? 4. ?3.  Is there double lines? (Failure in IT systems integration?) there are no errors in completing the required parameters in the commercial card • For these purposes, the system was introduced systematic operational reports.4.  Is there are no errors in completing the required parameters in the product card? (if the all required fields are filled (especially Monday, April 30, 12 36 important for new products))For these purposes, in the system has been introduced systematicoperational reports. 35 © 2012 TOCICO. All rights reserved.
  36. 36. 3:1:1 3:1:2 3:1:3 Availability Competitive edge p Build Ensure Sustain Sustain Build Availability Competitive edge Build Protect and Improve TPS Build Sustain Build Build 3:1:1 SKU 3:1:2 3:1:2 Build 3:1:3 Existing 3:1:1 Improve (Product Sustain 3:1:3 Build 3:1:1 Ensure 3:1:2 and Availability SKU 3:1:2TurnsEnsure ImproveProtect and Improve TPS Protect 3:1:3Improve3:1:1 (Product3:1:2 EnsureInventory Ensure Existing p 3:1:1 Protect and Portfolio) TPS Improve TPS Portfolio) Existing SKU Sustain Improve TPS Build Protect and 3:1:3 Improve p Build p Build 3:1:3 (Product Sustain p Build Availability Inventory Turns SKU 3:1:2 3:1:1 3:1:3 Availability EnsureInventory Turns Protect and Portfolio) TPS Improve p Ensure Protect and Improve TPS p Existing Improve (Product Existing SKU ImproveImprove (Product Existing SKU Improve Ensure (Product Protect and Improve TPS p Availability Inventory Turns Availability Inventory Turns SKU Existing Portfolio) Portfolio) Improve (Product Existing SKU (Product 4:11:1 4:11:2 Availability 4:11:3 Inventory Turns Portfolio) Availability Inventory Turns Internal4:11:1 Keeping4:11:2 Dealing with Availability Inventory Turns Portfolio) correct 4:11:1 Portfolio) pull 4:11:2 Internal pull 4:11:3 TOCICO 2012 Conference Keeping correct 4:11:3 Dealing with 4:11:1 distributioninventory levelslevels suppliers distribution 4:11:2 inventory 4:11:3 suppliers Internal pull pull Internal Keeping correct Keeping correct distribution 4:11:1 Dealing with with 4:11:1 Dealing 4:11:24:11:2 4:11:3 4:11:3 distribution inventory levels levels suppliers inventory suppliers Internal pull pull Internal Keeping correct Dealing with with Keeping correct Dealing distribution inventory levels suppliers distribution inventory levels suppliers 5:112:1 5:12:1 5:12:2 5:12:3 5:112:1 Expediting Buffer 5:12:1 5:12:1 5:12:2 5:12:2 Adjusting for 5:12:3 5:12:3 4:11:1 4:11:2 4:11:3 management Buffer Expediting peak demand Buffer system 5:12:1 Expediting Adjusting for for 5:12:2 peakAdjusting 5:12:3 management 5:12:1 demand 5:12:2 5:12:3 4:11:1 4:11:2 4:11:3 management Buffer system Expediting peak demand Adjusting for Expediting Buffer Adjusting f Internal pull Keeping correct Dealing with system system management 5:12:1 management peak demand 5:12:2 5: peak dema system Buffer Expediting Adjus distribution Internal pull inventory levels Keeping correct suppliers with management Dealing peak system distribution inventory levels suppliers 5:12:1 5:12:2 9:1121111:1 5:12:3 Buffer Expediting Set up quality Adjusting for control of data management exchange peak demand 5:12:1 system 36 © 2012 TOCICO. All rights reserved. 5:12:2 9:1121111:1 5:12:3Monday, May 7, 12 Set up quality

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