23rd International Conference of the

TOC Practitioners Alliance - TOCPA

www.tocpractice.com

21-22 March, 2016, Tennessee, USA

Decision support in the TOC Way

DSTOC
Combining Intuition with Numerical
Analysis
Eli Schragenheim
www.elischragenheim.com
elischragenheim@gmail.com
March, 2016

Supporting TOC
implementations
worldwide

Eli Schragenheim
Eli Schragenheim stands with both his
feet on the TOC ground
Eli Schragenheim is keen to support
TOC implementations worldwide, by:

guiding those who look for

guidance

Place for the photo of the

presenter

Eli believes the capability of every

manager and consultant can be
significantly improved by learning TOC
This kind of learning can be done from
afar, using the current technology

Contact info

Eli email is:

elischragenheim@gmail.com

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23rd International Conference of the TOC Practitioners Alliance - TOCPA

A decision to be made
ChocoCat is a local producer of chocolate in Masitania
No such country and no such producer, but suppose there is
ChocoCat is doing OK, making just 1.45% profit from the turnover
2.5% from the total T

The VP of Business Development suggests to start exporting to

the neighbor country of Gimil
This move would require investment and operating expenses to maintain
the activity at Gimil
After the investment part has been converted to annual payments plus the
annual operating expenses the total fixed expense per year is 504K Lira

How should ChocoCat make the decision?

What information should ChocoCat look for?
What about information that is impossible to get?
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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Hard data and intuition

It is pretty obvious that we need a certain idea of the expected
demand in the export market
How can we obtain that information?
Suppose we know the overall size of the chocolate market in Gimil
And we know the local competitors and that their quality is only so-so

But, we cannot be certain how many would like to pay the same basic
price we sell in here in Masitania
Our sales managers, who know Gimil from frequent visits, have quite
different estimation of the potential size of the market

The VP of Operations is concerned with capacity issues

The VP of Logistics claims that transport to Gimil plus customs
would cost 3 Lira per package
This reduces the T per unit of every package
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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Current load on Critical Resources

The Packing Line is loaded to almost 98% of the capacity

We should never allow to go beyond 98%

Line 2, one of four lines, each produces a family of products, is

loaded 95%
MaterialA is a key material that is relatively scarce and ChocoCat
can buy only certain quantity per month, but right now
ChocoCat needs only 92% of the available quantity
Three lines have enough excess capacity
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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Some key new concepts

Capacity Buffer
All the means to temporarily and quickly increase capacity for a
certain cost

Critical Resources
The resources that MIGHT run out of available capacity when an idea
to increase sales is considered
Available capacity: the amount of capacity that can be used without extra
cost (delta-OE)

T-generators
While product is any output of operations, the unit of what is sold is
a T-generator
Every T-generator is built from product(s), a price and possibly also
services (like transport or warranty)
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23rd International Conference of the TOC Practitioners Alliance - TOCPA

How to proceed with the decision athand?

Do we know enough to override the suggestion?
Viewing the capacity profile the CEO suggested the following:
Sales would submit a product-mix of 10 products from each of the
lines that have spare capacity as a pilot for the first year of export
Sales would come up with a pessimistic estimation of the annual sales
for every product
Operations would check the possible capacity limitations caused by
the additional demand
If there are capacity limitations then
Either we reduce some of the domestic sales
Or find a way to increase capacity

If the overall predicted financial result would be positive then we start

to export for one year and then decide whether to continue or stop
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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Going through the exercise

using DSTOC

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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Are we sure we know what to do?

Is now the decision clear?
We know that if the pessimistic assessment comes true then
ChocoCat will make somewhat higher profit
The only action required: prepare special additional days of packing
Using the capacity buffer of an old packing line with temp workers
No need to know ahead of time how many special days of packing are
required

The VP of Finance was still concerned

The additional profit is small if the demand will be lower we might lose
And if the demand will be higher then delta-OE might go up more than
the profit

The CEO likes to see what happens when an optimistic

assessment is carefully checked
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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Going through the exercise

using DSTOC

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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Are we sure now?

When both pessimistic and optimistic simulations show
additional profit then a decision to start exporting is reasonable
The details of implementing the decision need further thought:
The optimistic scenario might require reduced sales of products and/or
additional capacity for delta-OE
Should we prepare those actions ahead of time?
We dont really know what the actual capacity requirements are going to be

What if more ideas to improve the financial state would emerge?

We need to check each one of them
And we need to check also ALL the decisions together!!!

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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Combining intuition with hard

analysis
The essence of the solution is fast calculation of the net impact
of any suggestion on the profit
Where the intuitive impact on sales is translated to pessimistic and
optimistic predictions
Capacity calculations coupled with checking whether the protective
capacity is maintained to keep the level of delivery expected
Penetration into the protective capacity leaves two ways to handle:
Reduce sales of products in order to free capacity, while controlling delta(T)
Increase capacity when possible, for delta(OE), making sure delta(T)
delta(OE)>0

Calculations of T and delta(OE) lead to predicted delta(T) delta(OE)

Any intuitive reservations can be quickly checked

Eventually the decision is made by all the managers together

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23rd International Conference of the TOC Practitioners Alliance - TOCPA

Decision Support the TOC Way

This is a link between regular Operations, or regular Sales in
isolation, and achieving as much of the goal in both the short
and long term
Providing direct linkage to Strategy

It is similar to Sales and Operations Planning (S&OP), but with

the right simulation tools to include finance
It includes considerations for uncertainty
It put pressure on both Sales and Operations to look for more
flexible options to increase sales and to use additional capacity
when truly needed

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23rd International Conference of the TOC Practitioners Alliance - TOCPA