When I first encountered the TOC logistic and supply chain management solution I got the impression that the daily replenishment of stock with what was sold, is the driving force of this solution. The solution is based on the idea that the sales outlet should hold minimal stock on hand - just enough to allow you to sell to any patron who may wish to buy the item + enough to support the display.
For the shop I worked in (some background and a disclaimer - I was a sales clerk, this was not a TOC project) the second part was almost negligible, we sold all garments displayed in the shop which were not on the manikins, of which we had only 3. The first part, however, is quite tricky as we have no idea how many patrons may wish to buy a certain item on a certain day. This is why the forecasts aren't good, remember? we had items of which we sold 1 unit, or maybe even nothing at all for weeks and then one day we'd sell 3 or 4. The TOC replenishment solution answers that with a rule of the thumb. You start high, with enough stock to equal 14-20 days of average sales. Then you adjust as you go by tracking end-of-day inventory using 3 zones. Red zone is the bottom third of your target. If for a few days you continually end up having less than one third of your original target then this is a fast runner and the target has to go up. Green zone is the top third, pointing out that this is a slow runner, the target is too high and has to go down. Yellow zone is in between and where we'd like to be.
Well, the store had daily replenishment. Israel is a tiny place, everything is within a few hours drive, there is no sense in replenishing less frequently. The store was also supposed to be replenished according to the last day's sales, with four o'clock as the cutoff time. There was even a general target level of 2-3 units per SKU (that would be model - color - size) at each shop.
Didn't work. As I reported earlier we had surpluses and we had shortages.
The most annoying sensation for me was, after finding myself telling 3-4 different customers that we have run out of the blue dress in most sizes, but was have the black one in all of them and have the customer explain the blue is what she wants and thank you very much, good bye. After all that, the next day we get 3 more of the black dress in a variety of sizes. So the shortage stays and the surplus grows. Now I'm not trashing on the warehouse, they do the best they can. They don't have what we need so, trying to be helpful, they send "the next best thing", something similar, something close enough. But it isn't.
Sometimes it just became macabre. The day after the new manager finished cleaning up the back room and sending some of the surpluses to another branch (took her 3 days), we got at least one of those surplus models again in all colors and all sizes. We were really low on it.....
My point of view now is that daily replenishment is a great way for minimizing inventory, but you can implement TOC replenishment without it, it is not the most important thing. As long as your central stock is out of whack with the market, nothing's going to help in the long run, this should be the most important factor of your supply chain analytics and your supply chain risk analysis. This is felt much more profoundly in a small country like Israel, where there is simply not enough clout for the "big numbers" rule (that's the statistics rule that shows that if you have a big enough sample everything ends up looking like a normal distribution) to take effect.
I spent the month of June working as a sales clerk for a local fashion retailer. Not a very big one, but still respectable enough. During that time no one in the chain was interested in what I know about TOC and the chain was not doing any kind of TOC project. It was an entry level job and I was judged only by my ability to ring up the register, and using that parameter I was no star. I'm OK with that, not everyone has to be great in everything and a smart employer will get the best from each employee, even if it means shifting the person around a bit.
Anyway, I found myself working in one of the bigger stores in the chain, one considered a "flagship" store. Yet we sailed through some very rough waters during that short month, with me joining the ranks after most of the sales force quit and the store manager, who turned out to be the reason for all the turbulence, was removed from her position during my second week. Working the floor was a great opportunity to validate and better understand TOC's supply chain management application, presented in the supply chain management book "Isn't It Obvious".
Before I dive into the TOC point of view, some info about the shop is appropriate. The shop is located in a closed mall, this was one of the first closed malls in the Tel Aviv area, built some 20 years ago. The mall has been updated with a movies mega-plex a few years ago, but I think this was not enough to shake off its outdated image.
As for the shop itself - while this shop is considered large within the chain, it is actually quite small, perhaps even very small if you compare it to shops in the US. The shop has a tiny back room to store any inventory that is not needed for display on the floor. The shop's floor is small in comparison to the variety on hand and not all sizes are put on display, some are only available if you asked a clerk to get them from the back room.
The first things to come up were the fact sales were going hard, even though the shop was either in promotion or sale mode the entire month. The second was that we were constantly telling shoppers that we're sorry but the wished for item, in the wished for color and size, has sold out. We would always offer to check and if it is available at another store - the customer can pay for it and we'll call her after it arrives at the store. Some of them did, which only goes to show the competition isn't any better.
I had befriended the one sales clerk who had managed to survive through the turmoil created by that shop manager, so I checked with him if the theory works. A theory is tested by its ability to predict. I used the TOC theory to "predict" what had happened in the store at the season's start, weeks before I joined. As I "predicted", sales were easy and merchandise was flying of the shelves at full price.
This should come as no surprise. At season's start stocks are full, all the high runners are available at all sizes, so sales are easy - with customers easily finding garments they like at the right size they often convince themselves into buying. The sales force is free to help the customer find more items and "deepen" the sale.
By the time I arrived at the store, though, the negative effects of buying according to forecast, predominant in global logistics and supply chain management, have reared their ugly head. The cream of the crop, the best models, have been totally sold out. The fast runners we did have were running short on their best sizes and we had way to much of some dead weights So even with lowered prices sales were hard and the sales force concentrated on convincing customers they should indeed buy. Sales were "shallow" with most customers buying only one item.
If you want more details about the damages of working to forecast and the TOC approach to replenishment, here are a couple of links to the "Big Brand" case study:
First is Dr. Goldratt's report on the process (which can also be found in "The Choice", the best book on supply chain management) can be obtained here (just fill in the details and you'll get the PDF in your mail)
Second is the IDEA report on the project, this one includes graphs showing the progress made.
Theory of Constraint talks a lot about avoiding local optima, about maximizing the system and not its parts. This leads to road runner ethics, to making sure we are not trying to be more accurate than the noise in the system and so forth. The Theory of Constraints solutions tell us what to do at a good enough granularity. The rules are simple. Don't protect every step, protect the system by protecting the constraint, maintain flow. The tools are there. DBR and sDBR, CCPM, Logistics. So what's the problem?
The problem is there is still a void, although it seems to be just a verbal one. If we are not optimizing, if we are not "doing the best we can", than what are we doing? We can't just brush this off as being "just a verbal thing, just definitions", definitions are the starting point of clear thinking, as Dr Goldtratt taught us repeatedly.
There is another reason that makes this important. While the human logic can accept fuzziness, our subconsciousness can't, and that's where it counts the most, since most of our decision making is actually done there, at the most instinctive level. There are no voids in the subconscious mind and there are no gray areas. Like Master Yoda said in one of the Star War movies: "Do, or do not, there is not try". That's your subconscious mind for you.
So, for our subconscious mind not "doing the best we can" is, actually "not doing the best we can" or, if we'll put English grammar aside for a second, "doing NOT the best we can". Which sounds bad, doesn't it?
So, we really need a good name for not optimizing. That name, to me, should be "satisficing", a term I first heard during my MBA from Prof. Boaz Ronen, a TOC disciple in the academic world.
Satisficing means being good enough, not perfect. It has lots of merits. It reduces "analysis paralysis" and stress levels, allows for better flow through faster outputs (I demonstrated this while discussing the hiring process here) and it sounds good.
What do you think?
Edited to add: Following the replies I got here and on LinkedIn, I guess satisficing needs a bit more elaboration. Here's an easy example - say I have to prepare a birthday bash for a 6 years old and my goal is to make that 6 years old as happy as possible. I know I'll make a chocolate cake, cover it with chocolate cream and decorate it. Once the cake is ready I can make this cake: decorated with M&Ms and a sugar paste "Happy Birthday". Time invested is about 1 hr and child is very happy.
On the other hand, I can make this cake: covered with sugar paste and decorated with sugar paste designs. Time invested 4-5 hrs (at least) and child is very happy, perhaps a bit more than with the first cake but not significantly so.
Both cakes are eaten up at about the same rate.
(yep, I made both of these cakes, and other "optimizer" cakes you can see here.There is room for hobbies in this wold, IMHO)
What we see is that I can go for a satisfactory cake or an optimal cake. The result, in goal units of child happiness, will not vary substantially, the only difference is the effort I put in. The first cake demonstrates satisficing - doing the necessary, the sufficient and nothing over that. The second cake demonstrates optimizing - doing the necessary, the sufficient and everything else, trying to be perfect.
One last thought (Thanks Henry for bringing it up) - whatever you do, it has to move you in the right direction. It is not enough to "do it right", you have to "do the right thing right"