After an ordinary day at the office I bumped into a former colleague. We had the usual catch-up about our lives, and soon got to talking about where the world is headed. Is it going downhill, straight to a new economic slowdown, and if so, will the slump happen in Finland, in Europe or globally?
Our discussion centred on the following question: If worst comes to worst and we are about to enter a serious recession, where do we locate new tools to maintain and improve the competitiveness of our country and its businesses?
We began to wonder whether we have depleted all of our reserves during the past couple of years, or whether there’s a hidden treasure somewhere that can repair our trade, industry and economy as a whole. Should we invest in our competitiveness, and if so, where? Investing in technology requires a lot of money, and returns may take too long; there’s a danger of the patient dying before the medicine has taken effect.
After pondering these questions for a while, my friend told me about a recent supply chain management seminar he had attended in Helsinki. The event had highlighted potential ways of succeeding in an unpredictable world. Its keynote speaker was Dr. Lisa Lang of the US who had spent a few years working with Eliyahu M. Goldratt, author of one of the world's best-selling business novels, The Goal. Originally published in 1984, the book introduced the concept of TOC – Theory Of Constraints.
TOC is a management philosophy that has been utilised by many of the most successful companies in the world. My friend wondered why so few Finnish companies were interested in it. Perhaps some are already applying this theory in practice but not sharing their experiences.
One exception has been Nokia, which has applied TOC principles to its business. The company turned its global logistics processes from push-based to pull-based after its executives read The Goal. And voilà, before the end of the ‘90s the mobile phone business had gone from teetering on the edge of bankruptcy to becoming a remarkable success.
TOC focuses on improving company throughput. It helps businesses locate bottlenecks and determine how to live with them, eliminate them or make the best out of them - while at the same time making improvements in customer service, performance and profitability.
My friend had read the book more than 15 years ago. Now he decided to do it again, just to remind himself of the basics. Its approaches are based on common sense, and the book is further made accessible by being structured like a narrative, not like a textbook.
My friend and I concluded that the key to profitability is to run the entire supply chain with as low an inventory level as possible. Companies that adopt this approach are more successful than those with higher inventories and capital tied up.
My friend added that the key thing to remember in TOC is throughput. How does throughput impact inventory levels and profitability? How well are global and Finnish industries doing in this respect, and what metrics should we use to measure their success? Maybe we will be able to cover these questions when we meet next.
For some serious reading over the holidays I warmly recommend The Goal. Buy it for yourself as a present.
former Vice President Global Sales (until May 2012), Finland