Eli Letters

Letter to members #6

September 1999

To POOGI forum members,

When logic and emotion clash, which one wins?

If your answer is "logic" it is a clear indication that you are not married.

Emotion is by far more powerful than logic. At the same time, using only emotion to guide your actions will not bring you very far. As a matter of fact it is likely to bring you, head first, directly into the nearest wall. The winning combination is emotion and logic pulling in the same direction.

Very few people develop emotion about a problem when they learn and analyze only the generic case. You can study all you want about the tectonic movements of the plates and still not develop any emotion about earthquakes. But emotion is developed when you watch the pictures and read the reports about a specific large earthquake. You would develop very strong emotions if, god forbid, you yourself were caught in a major earthquake.

Why do I mention all of it? Because we also are dealing with a problem that causes a lot of damage. So far we have dealt with it just on the generic level. Maybe it is about time to look at a specific "earthquake."

For 5 long letters I have analyzed the danger and damage of starting with a local implementation of an enterprise-wide approach. I even went so far as to share with you my observation: "Out of nine successful implementations only about one has spread to other sections or functions and about five no longer exist." In this letter I bring (with permission) an e-mail from a POOGIforum member describing his "earthquake". Maybe this letter and my response to it will elevate our sterile discussion to what it is really all about - people. And our logic will be supported - as it should be - by our emotions.

Here is the e-mail:

POOGI forum,

I am no expert in TOC but I believe my recent experiences have impact as to what you are writing about.

About 2 years ago I started on my TOC adventure. Read everything I could get a hold off etc. Tried to get the company interested, etc. In fact, I finally got them interested enough that we had multiple locations participate in the satellite sessions and had enough for three facilitators (myself included). However, I could never get the company to spend for training at AGI. So, in the old air cav fashion, I felt it was up to me to make it happen.

Last year we had real problems with cost, service, high inventory, etc. My plant, I am the plant manager, was being analyzed for a possible shutdown or sell off. We were asking for 17 machines at about $300,000 each due to "lack of capacity" and we were being supplemented by outside producers.

Again, I am not a TOC expert. Basically my exposure has been reading and researching and building computer simulations to understand. But I put on TOC classes for all of my associates (200). I spent 8 hours with each of these associates in multiple classes. We talked about the goal, TIOE, we played the dice game (push, KanBan, DBR) with poker chips, paper clips, and different variations of multiple sided dice and talked about its impact, etc.

Last summer we started development on DBR and a new distribution strategy based on what I have read and researched on TOC. I used Bill Dettmer‘s book to develop trees and the clouds. I check our plan against some presentations last November in Memphis when we attended the TOC symposium there.

We had many in the company who doubted but we stuck our necks out and started at the beginning of this year. And we knew we would not be perfect.

YTD results:
Achieved Company President‘s Award for Safety (First Plant to do so) and the planning was based on things I had read about TOC and techniques on establishing teamwork.
Service is up from high 80 to low 90 percentile to averaging above 98.5%
Costs are under budget for the first time in some years
Total Inventory has decreased over 30% and is still dropping
No Longer being supplemented by outside companies for our production
No longer need additional machines to supply demand
We do need additional business to fill our machines
Plant is no longer being considered for close, in fact production from other
facilities are being transferred in.

The chief concern when we told the big wigs we were going to this, was that the cost of freight would go up because our transfer batch sizes would get small. I told them correct but we would stop shipping product back and forth between distribution centers and repacking of product would be almost non-existant. YTD: Our total freight dollars spent is 10% less than the previous year but they look at $/ lb of freight which has gone up. I know this is wrong, they state they know it is wrong, but it still gets measured and used for evaluations.

Anyway, as we shipped more often but smaller quantities our distribution centers complained that we were costing them too much. I have tried for 9 months to get them to quantify this to me. "If I increase batch size of the transfer how many people will it reduce or how much overtime will it reduce" or any other real incremental cost will it get rid off? The general response is, it is hard to quantify but we know it is there. Maybe their intuition is correct, but maybe it is not.

So finally, I am at my end. The DCs continue to insist that we are driving their costs up with small transfer batch sizes. They have complained greatly to my boss and my bosses boss. I am growing weary of the continual fight, which has cost me and my family so much time and effort. I have chosen togive up. I have grown tired of the comments, "Well it was said in a meeting that the concept did not deliver what we expected." Then I show them the numbers and ask, "What else was expected." The reply, "That is what I heard at the meeting."

Maybe I made a mistake trying to bring TOC to my plant myself. I would have loved to hire a consultant who really knew what they were doing, but any mention of that brought long talks about cost, etc. I hate to give up but my frustration level has impacted my family, which is something I cannot let happen.

In the end, I have decided this week to give them their large transfer batch sizes while I begin to look for somewhere else to go.

I did not mean for this to be a bitch session. But I can not believe the sheer level of frustration on trying to achieve buy in, even when:
1) Prior to going to our concept we had meetings with our leadership where I presented the UDES from the previous year, and all agreed,
2) Showed our potential solution, not all agreed but they were willing to try it
3) Now showing the best numbers the plant has ever turned out.
I just cannot understand the skepticism.

And my reply…

Dear [….]

I received your e-mail about two hours before the start of our holy day - Yom Kippur. This day is devoted to soul searching. Throughout the day my mind was on your e-mail. It doesn‘t matter how many times I faced situations like the one you describe, the shock is as great as the first time. What am I doing? What gives me the right to release know-how that puts excellent people like you into such depths of frustration?

First, let me assure you that I do understand your frustration. Here is a group who has done the impossible. Yes, the impossible. I‘m sure that 9 months ago not one of your leaders would have believed that it is possible to do what you and your associates have achieved. At that time, the claim that your plant‘s throughput could be increased to the required level without adding any additional machines would have been met with disbelief. To do more than that, to eliminate at the same time the outside producers support, to take additional work and still meet the same level of due-date performance would have been considered unrealistic. But what your plant has accomplished was much more than that. You didn‘t just maintain the same level of due-date performance, you have reduced late shipments from about 10% to 1.5%, almost an order of magnitude improvement. And that was not at the expense of anything, on the contrary, at the same time you put cost under control, you decreased inventory, you reduced freight expenses and you improved safety. That is what I call, doing the impossible.

And the result? The result is that you have now to face what seems to be illogical opposition. How can someone fight back against claims like: We fee l that our operating expense went up, or "Well it was said in a meeting that…"

Some people might say that, with all due respect, your reaction is too extreme. They would claim that what really counts, is that you got the most important recognition: your "plant is no longer being considered for close, in fact production from other facilities are being transferred in." As for the demand to increase the batch-size, they would recommend being a little more flexible. Suggesting that you can do it without changing the way you are using Drum-Buffer-Rope, but simply hold the small finished batches until they accumulate to large enough batches to be sent to a distribution center.

I do understand why such remarks just add to your frustration, why all your instincts are screaming against it, why you refer to accepting such a suggestion as to "give-up". And you are absolutely right. It is not giving up on an ego trip, it is actually giving up on a major opportunity for your company and dooming your plant to stagnation.

How come?

Switching back to large batches will guarantee that the end customer will almost not benefit from the improved performance of production. Therefore, there is no reason to expect that, as the result of future improvement in the plant‘s performance, sales will go up. In other words, the plant can no longer help to significantly increase the throughput of the company. Since the plant doesn‘t want to "improve" by laying off-people (in the plant itself or in sister plants) POOGI comes to a grinding halt. The benefits are limited to one-shot savings of about five million dollars in machines, and the ongoing savings on the carrying cost of about 40% of the inventory. Not even chicken-feed compared to the lost opportunity.

Is there a practical alternative? I think so. But to unearth it we‘ll have to examine the reason for the demand of distribution to increase the batch sizes.

Why are the DCs so adamant about bringing the batch sizes back to their original size? Why do they go out of their way (to your boss and your boss‘s boss) to reverse the change? Can it be that reducing the batch size significantly increased their operating expenses? Can it be that the resulting increase (if it exists at all) is so much bigger than the savings resulting from the avoidance of many cross-shipments and repackaging? My broad experience with distribution centers tells me that it cannot possibly be the case. So why?

It must be that the change that your plant has implemented has caused the distribution performance to deteriorate. To significantly deteriorate. And they feel it but they cannot pin-point it. Simply because the deterioration is not connected directly to the change they see; to your batch sizes becoming smaller. The deterioration is not in cost but in another not-less-important measurement - inventory turns (for most distribution centers in the world, inventory turns is a prime measurement).

Distribution Centers issue orders to your plant. The orders are generated according to some desired inventory levels the DC finds by experience they have to hold. Most probably, this process is long mechanized. In the past you were the bottleneck, which means that your response time to DC orders was not very fast. And on top of it you were quite unreliable. No wonder that experience indicated to the DC that if they wanted to give their clients reasonable service they had to aim to have quite hefty inventory levels of your products. I bet that since you improved your performance, nobody has re-examined the desired level of inventories that should be held in the Distribution Centers.

Now that you have revealed so much capacity, and the desired inventory levels in the DCs have not been modified, what must have happened to the actual levels of inventory the distribution holds? They must have gone up. Previously, the gap between the desired levels and actual inventory was so great that distribution centers even ran out of some of your products. My estimate is that, on average they had about half of the desired inventory levels. Now, I believe, that on average they have about 80% and it‘s still climbing. Since sales stayed about the same, it means that on your products the distribution centers‘ inventory turns took a nose dive. The Distribution Centers are hurting.

I think that you can ask them to verify it. Ask to see the plot of their actual inventory for some representative products of yours for a period of the last two years. This plot will tell you not just how much their inventory turns have deteriorated, but also it will highlight that in the last six months or so, no distribution center ever had less than half the desired inventory level, and that the desired inventory levels are much too high relative to your current service (I guess that the picture will be not much better than that because I assume that the distribution centers do not issue orders on a daily basis but rather batch their ordering process to be about once a month).

You see, your plant actually improved two different things, it improved its response time and it increased its effective capacity. The increase in the actual inventory levels the distribution is holding is a result of the increase of your effective capacity and it will not be effected by changing back to larger batch sizes. The only impact that larger batches will have is to reduce the opportunity distribution now has to drastically improve on their inventory levels.

So what should you do now (other than giving-up that is)? You were talking to distribution, but if you want them to listen you should start to use their language. No I do not recommend you become an expert in distribution; you know how much time and effort it required from you to become an expert in production (judging objectively by your performance, you are an expert in production).

The alternative is to use the tool I‘ve developed for exactly such cases; for inter-discipline communication. Yes, I do refer to the video-tapes of the satellite program. If you want to remove the negative pressure currently exerted by distribution, if you want to turn it into a positive pressure to take the next jump in performance, it is imperative that the DC will understand the cause and effect relationships between production and distribution. And the best place to start is session 4 - Distribution.
Then you‘ll have to take them back to session 1, not in order that they will appreciate what you have done, but in order for them to implement DBR in the operation of the distribution centers themselves. Distribution centers are actually small plants and DBR will improve their internal operation not less than it improved yours. It is particularly important since they have already developed resentment against smaller batches.

You have succeeded to persuade your company to invest in the live satellite program for over 100 people. You can persuade your company to invest an additional $5000 which will enable these over 100 people to have unlimited viewing rights to all the tapes. Moreover it also entitles your company to an additional 14 new viewers. Use it to put the key distribution people into the loop. Start with session 4. Get going the effort to construct and implement a cross-discipline program that will utilize improvements in production and distribution to more than triple the distribution inventory turns while drastically increasing customer service.

Once it‘s implemented you‘ll both go into another frustrating period, this time because of marketing and sales. If you want to avoid this, once distribution is willing to start contemplating a TOC solution, involve your boss and boss‘s boss. This time, really involve them. Push for the 4x4; the baton must be passed to the executives.

That was my answer and now two questions for ALL of you:

1. Do you find such articles, which are based on a specific case, of value?

2. Are you willing to write to me about what currently is blocking you? In the case that you are, the above letter is an excellent example of how many details are needed and sufficient.

Let me remind you again that the POOGIforum is a two-way street and that I intend to drop from the list members who consistently do not answer my questions.