It's Not Luck by Eliyahu M. Goldratt Read Free Book Online

to come out with a new product line every year.”
    “To that extreme?” I ask.
    “That’s on the optimistic side; probably it’s going to get worse. Anyhow, we have huge problems coming out with the products fast enough. Research is much too slow, and very unreliable. On top of it, even when they say that a product is complete, and we start to launch it in production, it turns out that what engineering calls complete is not what production calls complete. We start to produce a new product and a whole myriad of problems is immediately exposed.
    “Currently, engineering spends more time on the production floor than in their labs. You can imagine this leads to some unpleasant surprises when we get to the market. We have huge problems synchronizing advertising the new lines with what the shops are actually offering.”
    “So why did you bother with distribution?” Stacey asks.
    He turns to her. “Stacey, when your finished goods pipeline has more than three months’ inventory, not taking into account what the shops are holding, do you know the meaning of launching a new product that’s replacing an existing one? Do you understand the magnitude of the write-offs?”
    “I can imagine,” she replies. “All the inventory of the replaced product in the pipeline becomes obsolete. You must have a heck of a problem deciding when, and even if, you should launch a new product. Thank God I don’t have this chaotic situation to deal with. My products are relatively stable.”
    “That’s what I claimed all along,” Bob laughs. “I should have gotten the pressure steam division, it’s much more in line with my character.”
    Not just with his character; Bob even looks like a steam locomotive.
    “So, Stacey, want to switch?”
    “Bob, I have my own share of problems. Don’t offer it so casually, I might take you up on it.” We all laugh.
    “I’d like to hear more about your distribution system,” Stacey says, and when I nod, she continues. “On one hand you have added central stocks, but on the other hand you have done this whole thing to reduce the pipeline. I want to understand it a little better.”
    “No problem,” Bob says. “We are supplying a range of about six hundred and fifty different products to thousands of shops all over the country. In the past, we held about three months’ inventory, and it was never enough. Whenever a shop ordered—and remember they don’t order one item but a whole spectrum in one shot—we usually were out of some items. Only about thirty percent of the time could we ship a complete order. You can imagine how much it cost to ship the missing items later.
    “With the new system, we are now able to respond to a shop within one day, with complete orders more than ninety percent of the time. Inventories are dropping fast; we expect to stabilize at roughly six weeks’ stock.”
    “How did you achieve such a miracle?” Stacey is astonished.
    “Simple,” Donovan replies, “we used to hold all the inventory in our regional warehouses.”
    “Why?” I interrupt.
    “The same old syndrome of local optima,” Bob answers.
    “The plants were treated as profit centers. From the point of view of a plant manager, once he shipped the inventory, it left his jurisdiction, and it became distribution’s headache.”
    “I bet the formal measurements reflected it,” Don says.
    “Reflected, and enhanced it,” Bob agrees. “The minute that a product was shipped from the plant, on the books of the plant it was recorded as a sale. You can imagine that the minute the plant finished producing a product, that same day it was shipped to one of the regional warehouses.”
    “Yes, naturally,” Don concurs. “So what are you doing differently?”
    “Now we keep the stock at the plants themselves. At the regional warehouses we plan to have only what we’ve forecasted to sell in the next twenty days. That’s good enough because we now replenish each regional stock every three