Operations and Quality Management
“Research the Theory of Constraints by Eli Goldratt. How does this theory apply to the company, such as Kroger or Circuit City?”
The Theory of Constraints (TOC) as defined by Eli Goldratt (Bernardi, 2010) has a multitude of uses throughout retailing in general and in food and electronics product distribution specifically. The intent of this analysis is to evaluate how the TOC makes significant contributions to the areas of Supply Chain Management (SCM) for food and grocery distribution in addition to high tech electronics. The emergence of the Internet as a viable supply chain platform and retailing channel is also leading to a complete re-ordering of the grocery and high technology industries based on TOC-based contributions and insights (Hofacker, 2008).
The first and most significant area of contribution is in the area of Supply Chain Management (SCM). The TOC is the basis fo many of the logistics strategies and systems within Kroger and Circuit City and many of the businesses in their industries (International Journal of Physical Distribution & Logistics Management, 2002). For Kroger and food grocery and retailing companies in this industry, the shelf life of many of their most valuable products are dependent on how well they manage replenishment and continual planning of new perishables purchases
(International Journal of Physical Distribution & Logistics Management, 2002). How well a grocery company manages the perishable products it sells at often the highest margins possible will very often dictate the level of profitability achieved over the long-term as well (Bernardi, 2010). For Kroger and other businesses competing in this industry the ability to accurately predict demand with forecasting and automated replenishment systems is in large part predicated on the foundational elements of TOC (Gupta, Boyd, 2008). Getting forecasting and replenishment right for grocery retailers is a continual challenge however as the velocity of sales can change drastically based on customer preferences and seasonality (International Journal of Physical Distribution & Logistics Management, 2002). Being able to manage this aspect of variation and have it reflected back to suppliers, many of them several layers deep into their supply chains, is a continual process of improvement (Bernardi, 2010). Supply chains for perishables underscore the value of TOC in terms of optimizing inventory and mitigating loss due to spoilage brought about by not being in step with market requirements as closely as possible from an operations management standpoint (Gupta, Boyd, 2008). This same dynamic holds true for electronics distributors and retailers, who comprise in large part the most profitable areas of the high tech value chain globally. The need for having a very clear idea of inventory exposure and costs used as the basis of operations management strategies are critical to these companies staying profitable (Gupta, Boyd, 2008). The TOC serves as the theoretical foundation for these and many other industries in getting their operations management strategies to be as effective and profitable as possible.
Supply chains are the greatest competitive advantage any business has today. The two industries of groceries & food retailing, and high tech products are two of the more rapidly changing and quick to adopt new products and services. As a result of how fast perishable products can spoil, potentially costing Kroger and retailers like them millions of dollars a month, the role of TOC for firming up and making more forecasts more accurate is critical (Gupta, Boyd, 2008). The same holds true in high tech electronics, where the lifecycles are often spoken of in terms of months instead of years. The common factor of both of these industries is just how precious time is. Every day the perishable products are aging and getting less and less valuable. In high tech the same is true; a month lost of sales for any highly sophisticated like a new laptop is revenue that is lost forever. The development of effective SCM planning and execution systems is predicated on being able to accurately predict customer demand and react quickly with forecasts back to suppliers in real-time. Both of these industries, grocery & food retailing and high-tech therefore have highly integrated systems to the website level to better understand and predict customer needs (Hofacker, 2008).
The fact that Kroger and Circuit City have such a very low Return on Sales and relatively high cost of capital speak to how these companies and the industries they are part of have to run faster than ever to just earn a profit. The fact that their assets age so quickly doesn’t help. But the real culprit of their problems is the inherent inefficiencies each has in their supply chains, logistics and in the case of high tech electronics, their reverse logistics and services programs. The Eli Goldratt concept of TOC is critically important to these industries as they galvanize them around process and performance efficiency to earn greater profits (International Journal of Physical Distribution & Logistics Management, 2002). The need for having a better approach to managing the processes in the logistics and forecasting areas of supply chain will deliver greater profits for industries that are time-constrained from rapidly changing products (Hofacker, 2008). For Kroger and Circuit City and other companies like them the biggest challenge isn’t necessarily the suppliers and coordinating with them, it is the threat of not being able to make processes efficient enough over the long-term to be competitive with other companies in their industry. The race is on for process performance gains first, and all other benefits of a supply chain flow from that/. The TOC framework anchors these process gains and makes any business more efficient and eventually, if managed well, to profitability (Gupta, Boyd, 2008).
“Research standardization, flexibility and innovation in product/process design. How does this information apply to 3M, an innovative company with a variety of products? You will need to provide proof of 3M’s innovation, flexibility, and/or standardization.”
The history of 3Ms’ development strategies revolve around the use of highly differentiated teams that concentrate on innovation as a process and not just a specific product outcome (Thomke, Sonnack, 1999). The process for creating highly innovative products using multiple inputs as the first step in the process followed by a continual vetting of concepts and ideas is what often follows in the process. During the last decade 3M has also worked to balance research standardization and flexibility through Six Sigma processes on the one hand and the need for non-linear processes on the other (Hindo, 2007). Of the many innovations that 3M is known for, their Post-It notes are among the most well-known as the team-based approach used in conjunction with Six Sigma development (Stevens, 2004). The focus on how to create a higher level of innovation success based on anticipating market needs is secondary to creativity in solving individualized problems of consumers, and in the case of Business-to-Business (B2B) customers, those in businesses (Hindo, 2007). The most profitable innovations continue to be consumable products sold to the general public including Scotch Tape and the entire range of adhesives the company has pioneered the development over time.
During the development of adhesive products first for consumer uses and later for enterprise and medical use, the use of highly collaborative innovation and development processes began to show great potential in the company (Allio, 1993). What has evolved over time is the need for ensuring every member of the development team has a strong sense of ownership for the projects being worked on, being responsible for taking every step possible in making the new technology or innovation commercially successful. By combining all of these factors together, 3M is creating a culture of transformational leadership, further empowering their development teams to take the initiative and create valuable new solutions. The tension between accountability for invested time and the Return on Investment (ROI) in innovative products has becoming more focused in recent years (Hindo, 2007). This tension between results and innovation however has been successfully intermediated with the focus on new adhesive patents and the long-term annuity revenue streams from innovative new systems and processes the company has been able to patent as well. 3M will just as quickly patent a process or innovative new way of manufacturing a product as it will register a product itself. The measurement of ROI on innovation is more long-term in scope and focused on the contribution to branding, potential patent revenue and the spin-off of products for entirely new uses (Shapiro, 2006).
The competition within 3M for funding for new product ideas and innovations is fierce. This is especially true in the area of pharmaceutical products and services, where 3M relies on a process of evaluating new innovations with a very long-term view of creating entirely new markets (Stevens, 2004). As their many competitors have tired to imitate them and rush products to market quickly, 3M has concentrated on a methodology of shared innovation and market intelligence, hoping to create entirely new market spaces in key markets. His approach to innovating makes them unique as they also place a heavy emphasis understanding latent or unspecific needs of consumers, in effect trying to anticipate and mold them (Allio, 1993).
The 3M model is also one that thrives on internal competition between ideas for further funding, the progression to the next stage of the innovation process, and the development of prototypes and finished products. What unifies all of these elements together is the strong focus on innovation that is predicated on team-based assignment and requirements (Allio, 1993). There is also a strong focus on minimizing variation in new products once defined and in production using Six Sigma, a technique for minimize product variations over time (Hindo, 2007).
Bernardi, d. S. (2010). Theory of constraints contributions to outbound logistics. Management Research Review, 33(7), 683-700. Link:
Goodrich, D.F. (2008). The relationship of the theory of constraints implementation to change management integration in professional service organizations. Nova Southeastern University). Link: http://gradworks.umi.com/33/12/3312014.html
Gupta, M.C., & Boyd, L.H. (2008). Theory of constraints: A theory for operations management. International Journal of Operations & Production Management, 28(10), 991-1012. Link: http://www.pinnacle-strategies.com/articles/Improving%20Service%20Quality%20with%20ToC%20short.pdf
Hofacker, C.F. (2008). E-tail constraints and tradeoffs. Journal of Research in Interactive Marketing, 2(3), 129-143. Link: http://myweb.fsu.edu/chofacker/pubs/Hofacker_2008.pdf
The theory of constraints thinking process approach to developing strategies in supply chains. (2002). International Journal of Physical Distribution & Logistics Management, 32(9), 809-828. Link: http://ws.econ.usyd.edu.au/itls/wp-archive/ITLS-WP-02-09.pdf
3M Innovation References
Allio, M.K. (1993). 3Ms sophisticated formula for teamwork. Strategy & Leadership, 21(6), Link: http://deepblue.lib.umich.edu/bitstream/2027.42/31538/1/0000461.pdf
Hindo, B. (2007, Sep 17). 3M: Struggle between efficiency and creativity. Business Week (Online),, 1.
Shapiro, A.R. (2006). Measuring innovation: Beyond revenue from new products. Research Technology Management, 49(6), 42-51. Link: http://www.allbusiness.com/technology/3997709-1.html
Stevens, T. (2004). 3M reinvents its innovation process. Research Technology Management, 47(2), 3-5.
Thomke, S., & Sonnack, M. (1999, Creating breakthroughs at 3M. Harvard Business Review, 77(5), 47-57. Link: http://web.mit.edu/evhippel/www/papers/HBR%2099%20LU%20pub%20version%203M.pdf
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