A Theory of Constraints Business Novel
Volume 19, Number 4 Article by B V Cadambi December, 2007
Necessary but Not Sufficient: A Theory of Constraints Business Novel : By Eliyahu M Goldratt and Jeff Cox, 2006, Productivity and Quality Publishing Private Limited, Chennai, pp 229, Price: Rs 350 :
The basic objective of this book is to highlight the need for firms to utilise new technologies wisely, rather than being guided exclusively by their novelty and obvious promise; and to show that technologies are necessary but not sufficient to enhance business performance. The book describes the experiences of Scott Duncan who turned his software company into a highly successful firm. The firm repositioned itself as a business that guides buyers of their technologies to successfully deploy them and generate value to their businesses, rather than just selling the technologies. The text details the firm’s efforts to introspect on its business during turbulent times, the experiences of some of its customers and of other software providers and their users. The consolidated experiences provided the firm the appropriate directions.
Goldratt had earlier developed the theory of constraints (TOC) or synchronous manufacturing. The importance of keeping TOC in mind during the implementation of Enterprise Resource Planning (ERP) systems in order to fully capitalise on its benefits is a major highlight of this book. TOC explicitly advocates a varied approach to addressing bottleneck and non bottleneck facilities while handling and managing operations. Specifically, schedules should be centred on the bottleneck so as to ensure its capacity utilisation. Schedules at other stages should be synchronised accordingly. Further, the flow of materials rather than the capacities of various facilities should be balanced. Whereas capital intensive facilities have to be held as bottlenecks, surplus capacity could be held at other stages. This helps to ensure continuous and uninterrupted flow to and from bottlenecks. As a result the desired throughput rate could be achieved, without too much capital investment.
The book describes the transformation of BG Soft, a company that produced and marketed software. The company’s ERP software offered many features but without commensurate returns to the clients’ bottom-line. BG Soft therefore decided to analyse its offerings to clients, and the benefits thereof, to ascertain potential ways to improve their services. The experiences of companies like Stein Industries, which reported payoff within a year of implementing ERP, while incorporating the principles of synchronous manufacturing, directed BG Soft to purchase the scheduling software that incorporated the principles of synchronous manufacturing and augment it into their ERP systems. However, BG Soft’s clients realised that operations had to be appropriately reengineered in order to use such a system. For instance, undue emphasis on capacity utilisation of non bottlenecks, in the case of a client who desired to produce large volumes to achieve economies of scale, led to large inventories at the warehouses. The evaluation system was reset so that the plant was evaluated by its ability to meet warehouse requirements.
In fact, in several firms, the middle management and systems experts’ priorities were not aligned to the firm’s bottom line. Middle management usually focused on operational improvements such as increase in productivity. Systems experts evaluated technical features like the language of the configurations, the screens and options. Such operational improvements and technical features which are more easily discernible have to be linked to the bottom line to successfully market the software. BG Soft then recognised the need for appropriate interventions and therefore decided to draw on the services of consultants in the area of TOC.
As BG Soft continued its ERP business with this initiative, it maintained steady profits. However, the future of ERP appeared bleak; some of its competitors decided to exit from the ERP business. This offered an opportunity for BG Soft to assist its clients to implement the software purchased by them so as to generate value to the firm. BG Soft then approached the buyers of its competitors’ products and urged them to utilise its services to implement the software already purchased. Through pilot studies, BG Soft established the quality of its services. Later, it extended its services to the entire supply chains of its clients. This enabled the firm to deal with competition.
The book highlights the need for firms to develop good selling tactics besides technically good products. Customer feedback could provide useful directions to the business. A strong network with other firms is vital as any one firm’s core competence would be limited.
The book clearly emphasises the importance of a strong linkage between information technology and management principles like synchronous manufacturing, supply chain and appraisal systems. IT is clearly an enabler of management principles but is inadequate in itself. Reengineering certainly entails resource commitment in terms of time and capital. The book implicitly illustrates the likelihood of firms underestimating the investments needed to effectively capitalise from new technologies, as well as the payoffs from new technologies. For instance, an example is given of a firm where the increased customer satisfaction accruing from lead time reduction resulted in increased sales. As befits a novel, as opposed to a textbook, these aspects have not been highlighted. The book will serve as a good first reading to understand the important issues in implementing technologies. Hence the book is highly recommended for buyers and sellers of technology. Students of management too, would obtain a useful understanding of the subject.
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