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33rd International Conference of the
TOC Practitioners Alliance ‐ TOCPA
www.tocpractice.com 18 ‐ 19 October 2017, Cape Town, South Africa
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
www.tocpractice.com
Maarten de Pater
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
www.tocpractice.com
Konrad Bartel
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
www.tocpractice.com
“From the Brink to Viable Vision
Dreams”
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
www.tocpractice.com
Content
• Introduction & TOC Project
• Cash Constraint – the approach
• “URO” to Suppliers
• TOC Application Implementation
Acknowledgement:
Ravi Gilani – For his work on Cash Constraints
and for us he is famous for:
Job not Done + Reasonable Excuse = Job not Done
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
www.tocpractice.com
Introduction
• Biodelta manufactures Complimentary and Alternative Medicines,
specialising in turnkey product solutions supplied to Ascendis,
Clicks, Dis‐Chem, Nativa and many more domestic and international
customers.
• Own print & finishing factory based in Epping, Cape Town and
therefore manages all packaging components for its customers.
• ISO 22000 and Organic certified.
• Biodelta can therefore: formulate, design, print, produce, pack,
warehouse and ship with full traceability of the product.
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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On the Brink
• Procured the factory and 20ha land in 2010
• Struggling with cash flow ‐> 2 IDC loans
• Record turnover July’14 (R3m) – but R650k loss Aug’14
• Business rescue (ABSA) end 2014 due to operating losses
• 25% of staff retrenched to cut expenses
• Filled for liquidation by short term lender
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Viable Vision and Beyond
Viable vision (4 Year Project):
Turnover FY15: R22m
Results:
Net profit FY19: R22m
Net profit FY15: (R2.5m)
Net profit FY16: (R820k)
Net profit FY17: R565k
Net profit YTD: R900k
Old cash cycle 90 days
New cash cycle
40 day
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Project implementation
1. Acknowledge Cash as the system constraint
2. Implement Throughput accounting principles
3. Control point measurements (throughput graphs)
4. Balancing flow through the factory (DBR)
5. Implement Dynamic Buffer Management
6. Implementation TOC solution for Sales
7. Adopt Critical Chain Project Management
8. Develop a UnRefusal Offer (Short leadtime, DBM & shared TP)
9. Adopt Managing and Inspiring people S&T
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Exploiting a Constraint
2 3 1
Raw Material Internal Market
Supply Resource
4 Truly Variable Cost =
Cash
Cash
Costs with direct relationship to
Sales
1: Market Constraint = Maximize Throughput, •Prioritize
Materialon Buffer Management
• SR% Discounts
Cost
• LD Transport
2: Raw Material Constraint = Maximize Throughput per Raw material
Volume
unit, Throughput/ton Raw Material
Throughput is defined as:
Sales Revenue – Truly Variable Cost
3: Internal Constraint = Maximize Throughput per Constraint minute,
Throughput/Constraint Resource Minute
Throughput = Contribution created by the company
4: Cash Constraint = Maximize Throughput Rate, Protect Cash Buffer
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Identify the Constraint
• Cash Constraint: If and only if you have orders,
manufacturing capacity and raw material
supply, but you do not have cash to pay
suppliers, and they will supply only if they
receive cash upfront!
• A Cash shortage does not necessarily imply a
cash constraint.
• If a cash shortage is not managed in time, the
business will get into a cash constraint sooner
than later!
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Cash Non‐linear Effect
Parameter Time 1 2 3 4 5 6 Parameter Time 1 2 3 4 5 6
Money available 100 90 80 60 20 0 Money available 100 110 120 140 180 200
OE 50 50 50 50 50 50 50 OE 50 50 50 50 50 50 50
Money available Money available
for material for material
purchase 50 40 30 10 0 0 purchase 50 60 70 90 130 150
Possible sales Possible sales
(TVC = 50% 100 80 60 20 0 0 (TVC = 50% 100 120 140 180 260 300
Money available in 100 80 60 20 0 0 Money available in 100 120 140 180 260 300
next month ‐10 next month 10
Capacity utilization 200 0% 45% 40% 30% 10% 0% Capacity utilization 200 0% 55% 60% 70% 90% 100%
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Cash Constraint Environment
• High level of infighting
• Top management busy in managing crisis
after crisis
• Low employee morale
• High employee attrition rate
• Race against time
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Cash Draining Practices
Examples “Local Efficiency” Objectives:
– Purchase more raw materials than immediate
requirement to take advantage of quantity
discount.
– Procure full containers or shipment loads to get
freight advantage.
– Produce more than immediate requirement for
better capacity utilization.
– Maintain Product Margin ‐ Not selling obsolete
material below purchase price/book value.
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Implementation Steps
Layer of Resistance Actions
1 There is no problem Owners / Manager unaware of Cash Constraint
existence and its effect
2 Disagreeing on the Build a cash flow model and graph the available cash
problem trend
Get the REAL picture; Debtors ≠ Collectable;
Creditors ≠ Payable
3 The problem is out Develop an understanding of the non‐linear effect of
of my control a Cash Constraint. Apply to the Business Cash Flow
4 Disagreeing on the Develop the Turnaround plan and measurement
direction of the dashboard. Report all critical parameters
solution
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Implementation Steps
Layer of Resistance Actions
5 Disagreeing on the Develop the detailed implementation and POOGI
details of solution actions. Create a sense of urgency – daily / weekly cash
action meetings; War room. Know what measurements
and actions to STOP
6 “Yes but…” the Identify all possibilities of things that can go wrong –
solution has negative specifically payment arrangements that must be met.
ramifications Cash flow model balance must be positive
7 “Yes but…” we can’t Identify mismatches and correct between ERP & Reality.
implement the Inventory,
solution
8 Disagreement on the Use T – Throughput Rate Calculation to evaluate every
details of the transaction in order to prioritize cash allocation.
implementation
9 You know the
solution holds risk
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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An “URO” to Banks
and
An URO to Suppliers
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Cash to Cash Cycle
Inventory
Inventory shipped
arrives
Stock holding 75 days 5
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Content
• Introduction
• Challenges faced
• Requirements for success
• Ongoing plan
• New alignment
• Our goal and request to you
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Introduction
• Biodelta embarked on a well structured turn‐around
• Engaged the services of a turn‐around specialist
– Theory of Constraints expert and Business Coach
– Many years experience in Business Management
• Revisited our strategic approach and focus
• Brought in measurements and control points
• Company Constraint is CASH and everything
subordinate to creating a cash buffer
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Challenges faced
• Cashflow: Loan
repayment; Refinancing
delay; Suppliers closing
accounts • Admin: Debtors book 10%
not collectible
• Margin: Discounts for
cash • Stock: Incorrect stock
valuation
• Sales: Out of stock
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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“Selling more with less risk”
• Increase sales
• Supply on time
• Payment on time
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Cause and Effect
Biodelta cannot achieve its
Biodelta will be out of
topline growth projection
stock / late delivery on 40%
of the products
Biodelta cannot
build sufficient The repeat orders
Biodelta cannot cash buffer
buy all stock are not growing
required for the
order book
The consumer
switches to
competitors product Customers will not
Creditors block Creditors give us any of their
the account accounts will other products to
when payment is not be paid on produce
overdue time The supply chain
runs out of stock
Biodelta has insufficient
cash buffers for a 90 cash Biodelta will be out of
cycle stock
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Solution Criteria
• Adherence to agreements
• Continuous flow of money on time
• Continuous flow of materials
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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New alignment ‐ Combined growth
• Our flowrate of work • Our reduced lead time
through the business needs to give us the
will increased by 30% ability to deliver work
• Our concern is that any on time
policies, procedures and • Our concern is that our
measurements within suppliers are not able to
the supplier could deliver materials within
hamper throughput 3 working days and
increase block our account
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Benefits of solution
• Not buying more stock • Buying the right amount
than we need and not of stock at the right
paying the bills time
• Increased inventory • Increase purchases
turns (flow rate of across fewer suppliers
scarcity)
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Our Goal: An ever‐flourishing business
Next steps and challenges:
1.Improvement on stock availability
2.Improvement on cash cycle
3.Balanced Flow in the factory ‐ Creating capacity
4.Reduction of lead time ‐ Competitive edge
5.Increase sales
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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New cash cycle
Inventory
Inventory
shipped
arrives
75 to 45 Days 5
Manage at 60 Days Cash
received
Cash Debtors 30 Days
paid
Reduce from 90 to 20 Days
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Biodelta Flow Model
Printing &
Packaging
System Leverage point:
Packaging • Secondary Packing = 1,000/h = 140,000/m
LT = 2 days • Daily view on OE contribution
Order
Manu‐
Procurement Processing Finished Transport
Packaging facturing Goods
& Picking
Finances and Cash Flow Management
Biodelta’s Medicine:
Profit in Rands / Month = Flow
Entire Business Aligned and Focused on DAILY Flow using TA principles
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
www.tocpractice.com
Buffer Management
Buffer Management Principles
Dynamic Buffer – TOO MUCH RED - Increase Dynamic Buffer – TOO MUCH GREEN - Decrease
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Sales Organization
Sales Manager
Market
Exploitation Campaigns Planning
Framework New Business Development
Marketing Selling the DCE
(Opportunity Management)
Lead Business
Promotion Generation Sales Project
Relationship coordinator
Dev. Manager
Relationship Sales
Acquisition
Management Opportunities Manager
Creating the Relationship Meetings
with the Market
Customers
Existing cust. & inbound
opportunity management
Internal
sales
Technical Sourcing,
Specialist Costing &
Inside sales Estimation
Support delivering on the DCE
Customer service Cust. Service
(During & After
production
31
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA
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Measurements
Thank You
Questions ?
33rd International Conference of the TOC Practitioners Alliance ‐ TOCPA