Dr Eliyahu Goldratt, Author, The Goal
The celebrated author of the bestseller The Goal and the father of the Theory of Constraints met T Murrali recently in Chennai for a freewheeling interview.
You have been quoted as saying that if any company wants to grow it should create a change. How does this happen?
In my first book The Goal, the companies described are small. It is possible for the management, employees, suppliers and all others to work towards a win-win situation if change is created. If a company gives better service, it is good for clients who will assure good business which is good for shareholders. Companies should also hire more people instead of resorting to firing.
What you mean by governing elements of throughput being mere constraints and leverage points?
The governing elements of throughput dictate company performance. And by doing so, they become constraints! If I want to increase performance, the points to deal with are those that limit growth and these are leverage points. People think that constraints contradict leverage points but the connotation is just the opposite. If you think in terms of causes, and what constraints and leverage points mean, you will eventually know that both are the same. It is, therefore, necessary to look at the cause.
What are the obstacles that companies must learn to avoid?
The real difficulties come from success. People are not used to problems created by success. If you really want to continue, you need to know what exactly you are doing. Otherwise, the very fact that you are successful creates problems that you cannot tackle. This is when real expertise comes in. People try to complicate the simplest problems.
What are India’s biggest strengths?
Management in India is by far the best in the world. You do not have any idea of how good you are. In terms of collaboration and drive, India is in a class of its own too. The average speed of implementation here is twice is fast as anywhere else in the world. This is probably because of the inherent mathematical skills and analytical talent. The thought process in Indians is natural. Encouraging people to think and criticise is probably part of the culture.
What do you have to say about the huge shift to low-cost countries for sourcing components?
The pendulum will swing to the other side soon. Nations in the Far East will eventually stop producing components for Europe and the US because lead time is a bigger issue than costs. Time-to-market is shrinking and if supplies do not happen soon, losses are much larger than actual savings made by sourcing components from low-cost nations. Salaries are going up in India and in the case of China it is twice as much. The advantage of cheap labour is shrinking. In developed markets, it is mind-boggling to look at the number of configurations in terms of colours, trims etc given by the vehicle manufacturer based on individual tastes. Customers get their cars after about 70 days of ordering for them. Most dealers refuse to accept the orders since 40 percent of buyers do not get what they have ordered for. This is due to some error that creeps into the sales process. Dealers prefer to lose sales rather than lose a client. We worked with a carmaker in the US where only two percent of sales came from configured models. The average delivery time was 70 days and when we reduced it to less than two weeks, the number went up to 60 percent. In general, the supply chain between the Tier-1 and OEM in the auto sector is better than other industries. Lead time is, therefore, vital.
You have gone on record to say that one should capitalise on a ‘decisive competitive edge’. Can you explain this?
Let us assume that a company has a huge advantage in terms of reliability but the sales person’s focus is only on selling the products. Obviously, the reliability advantage is not being leveraged and, instead, the sales personnel fritter away the competitive edge. They need to be suitably trained. While some companies do not recognise their competitive edge, others do but never leverage on it and, instead, blame the market for being stupid.
Do you have any interesting experience to narrate on the retail side?
We are working on a major initiative with a car dealer in the US which, till 15 years ago, had 12 dealerships and it was very profitable. Today, it has 64 selling nearly 80,000 cars annually of which half are used cars. It is, by far, one of the best and most profitable dealerships in the US. For instance, the inventory turns, including used cars, is three times more than the industry average in the US. The rate at which the company opens new dealerships is so quick that creating infrastructure has become a constraint. It uses critical chain to build new dealerships and shrinks the time to six months. We began working with them with a project to improve performance four-fold in three years. The challenge is that it is already a performing company.
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