www.tocpractice.

com

8th International Conference of the

TOC Practitioners Alliance - TOCPA

26-27 October 2013, Moscow

Practical examples of the

Theory of Constraints
application

Elena Streltsova, Lybimy Kray, Russia

October 2013

8th International Conference of the TOC Practitioners Alliance - TOCPA

Elena Streltsova
General Director of CJSC Lybimy Kray (a
confectionary).
Jelena has been using TOC since beginning
2011. TOC implementation areas:
accounting, inventory management and
development of mafia offers.

E-Streltsova@lkray.ru

8th International Conference of the TOC Practitioners Alliance - TOCPA

Implementation of a pilot project on inventory

management to ensure availability
WWW.ULMART.RU

8th International Conference of the TOC Practitioners Alliance - TOCPA

ULMART
ULMART is a unique store of domestic appliances and
household electronics, which does not have any storefronts,
but there are computer terminals, where the customer
chooses what he or she really needs
Ulmart is the first cyber market that was established in SaintPeterburg in 2008. Currently there are 29 cyber markets and
more than 130 distribution points in more than 60 cities of
the country.

8th International Conference of the TOC Practitioners Alliance - TOCPA

Advantages of ULMART
The main storefront of ULMART is the online catalogue with
more than 35,000 branded SKUs. It is up to the client how to
buy a product. He/she may place an order on the website and
order a delivery "to the door" at a convenient time or delivery
to a place nearest ULMARTs distribution point. Also the client
can come to the 24/7 cyber market and write up an order and
receive the goods within 15 minutes.

8th International Conference of the TOC Practitioners Alliance - TOCPA

Goals of the replenishment system?

Performance:
Ensure high level of availability of each item at
each storage facility;

Efficiency:
Ensure high level of inventory turns.

8th International Conference of the TOC Practitioners Alliance - TOCPA

Project Charter
Goal:
Decision whether expand or not roll the method
out within the company.

Criteria of success:
Level of availability 95%;
Inventory turns 30 days.

Timeline:
from 11.03.13 through 10.06.13.
8th International Conference of the TOC Practitioners Alliance - TOCPA

Project outcomes

Weeks

Conclusions

Availability

Increased but
did not reach 95%

Inventory turns

Increased

On-time project
completion

On time

8th International Conference of the TOC Practitioners Alliance - TOCPA

Assessment of results
Does the achieved result suffice for making a
decision to switch to TOC inventory
management methods?
Is 95% availability level achievable?
Is 14 days inventory turns level achievable?

8th International Conference of the TOC Practitioners Alliance - TOCPA

Assessment of results
Does the achieved
result suffice for making
a decision to switch to
TOC inventory
management methods?

8th International Conference of the TOC Practitioners Alliance - TOCPA

Level of availability as compared to

the same SKU in Moscow (weeks)
Moscow

Saint Petersburg

8th International Conference of the TOC Practitioners Alliance - TOCPA

Weekly availability level (%)

8th International Conference of the TOC Practitioners Alliance - TOCPA

Availability level

The TOC methods

demonstrated the best
results

8th International Conference of the TOC Practitioners Alliance - TOCPA

Inventory turns as compared to

the same SKU in Moscow (weeks)
Moscow

Saint Petersburg

8th International Conference of the TOC Practitioners Alliance - TOCPA

Inventory turns, days

Moscow

St Petersburg

8th International Conference of the TOC Practitioners Alliance - TOCPA

Inventory turns

The TOC methods

demonstrated best
results

8th International Conference of the TOC Practitioners Alliance - TOCPA

Buffer status at the

Central Warehouse

Blue

Red

OK

8th International Conference of the TOC Practitioners Alliance - TOCPA

Buffer status at the

Central Warehouse
There were surpluses on
average of 32 SKUs or
43% of the sample
There were inventory
shortages of 19 SKUs or
26% of the sample
Normal buffer status was
of 23 items or 31% of the
sample

Potential to Increase
inventory turns!
Potential to increase
availability level!
Project results reflect the
effectiveness of the
method for 31%!

8th International Conference of the TOC Practitioners Alliance - TOCPA

What if ?
Facts of 22 weeks:
Average daily balance of the company was ths. RUB.
Average daily sales were ths. RUB
The inventory turns according to TOC was 22.9 days

Dreams:
If the inventory were managed according to TOC (22.9
days), the inventory level would be ... ths. RUB or by 21%
less
And if we reach 14 days inventory turns, the inventory
level would be ths. RUB, that is 52% less
8th International Conference of the TOC Practitioners Alliance - TOCPA

Assessment of results
Does the achieved result suffice for making a
decision to switch to TOC inventory
management methods?

8th International Conference of the TOC Practitioners Alliance - TOCPA

Details

Is 95% availability level

achievable ?

8th International Conference of the TOC Practitioners Alliance - TOCPA

Buffer status at CW

Blue

Red

OK

8th International Conference of the TOC Practitioners Alliance - TOCPA

Inventory shortages
There were inventory
shortages of 19 SKUs or
26% of the sample

Potential to increase
availability level!

8th International Conference of the TOC Practitioners Alliance - TOCPA

Inventory shortages
(potential causes)
At the moment of placing an order the item is out of the
suppliers stock ;
At the moment of placing an order, a customer is unhappy
with the commercial conditions;
The first order of the new SKU was placed unsuccessfully
(demand was higher than expected );
Execution accuracy of assignment for movement that is
especially critical for items with TBL=1 (target buffer level);
Lack of live information on the replenishment systems
requirement changes to ensure availability (SKUs are not
replenished consciously, but continue to be accounted for
as shortages in the calculation of the availability level).
8th International Conference of the TOC Practitioners Alliance - TOCPA

The first order was placed

unsuccessfully

8th International Conference of the TOC Practitioners Alliance - TOCPA

First, the SKUs were over and

then the TBL was zeroed

8th International Conference of the TOC Practitioners Alliance - TOCPA

Details

Is 14 days inventory
turns level achievable?

8th International Conference of the TOC Practitioners Alliance - TOCPA

Buffer status at CW

Blue

Red

OK

8th International Conference of the TOC Practitioners Alliance - TOCPA

Surpluses
There were surpluses on
the average for 32 SKUs
or 43% of the sample

Potential to increase
inventory turns!

8th International Conference of the TOC Practitioners Alliance - TOCPA

Surpluses at CW
(actual causes)

Purchases did not follow the assignment:

More SKUs were ordered than it was required;
Items were ordered, when they were not required at
all.
Movement from Moscow to Saint Petersburg ;

Reserve deallocation;
Purchasing for Moscow without further
movement;
SKUs returned to the CW from cybermarkets;
TBL decreasing (02.04.13 and 24.05.13).
8th International Conference of the TOC Practitioners Alliance - TOCPA

The order volume was higher

than required

Actual on hand

Target
level

2/3 Target
level

1/3 Target
level

8th International Conference of the TOC Practitioners Alliance - TOCPA

Ordered, when it was

not required at all

Actual on hand

Target
level

2/3 Target
level

1/3 Target
level

8th International Conference of the TOC Practitioners Alliance - TOCPA

Inventory turns, days

14,1

13,9

SPb-74

Cybers-74

8th International Conference of the TOC Practitioners Alliance - TOCPA

Summary of causes
Purchases did not follow the assignment :
Shortage (the supplier does not have the SKUs)
Profitable/not profitable commercial conditions
for the supply
Habit

Unpredictable demand (new SKU, campaign)

Recording system (reserve, SKU status for the
replenishment system)

8th International Conference of the TOC Practitioners Alliance - TOCPA

Specific features of the

implementation
Very low Target Buffer Level at the stores
Range of 32,000 SKUs
A lot of SKUs with short life cycles, up to one time
delivery and further transition to a new model
range
SKUs with frequent shortages
Large and rare deliveries to Russia, interim
replenishment is almost impossible.

8th International Conference of the TOC Practitioners Alliance - TOCPA

VALUE OFFER
LUBIMIY KRAY
8th International Conference of the TOC Practitioners Alliance - TOCPA

Project charter
Goal:
Increase on new contracts

Criteria of success:
Reduce time required to sign a new contract from 18 to 4
weeks;
Everybody, who participated in negotiations agree to sign a
contract;
Increase under new contracts by 37 mln. during 2012.

Timeframe:
From 16.01.12 to 17.05.12.

8th International Conference of the TOC Practitioners Alliance - TOCPA

Project results
Before
Time to enter into new
contracts

Results

Assess
ment

Time was reduced,

but did not reach the
target level

+/-

After

18 weeks 10 weeks

Only one of 21 companies that we started negotiations with

refused to sign a contract.

, mln/year
(only regions)
2012/2011

2013/2012

On-time project
completion

48,2

During 16 month
was 48,2 mln.rubles.

187,1

217,9

was 16%, but did not

reach the target level

+/-

174,8

For the first nine

months of 2013 was
11% more

+/-

157,4

On time

8th International Conference of the TOC Practitioners Alliance - TOCPA

8th International Conference of the TOC Practitioners Alliance - TOCPA

Assessment of results
Does the achieved result
reflect the potential of TOC
methodology in terms of
mafia offer development and
implementation?
Is it possible to reduce the
time of contract signing to 4
weeks?

8th International Conference of the TOC Practitioners Alliance - TOCPA