Revolutionizing Supply Chain Management The Theory of Constraints Way A Case Study

International Journal of Production Research
ISSN: 0020-7543 (Print) 1366-588X (Online) Journal homepage: http://www.tandfonline.com/loi/tprs20
Revolutionizing supply chain management the

theory of constraints way: a case study
Kartik Modi, Harshal Lowalekar & N.M.K. Bhatta
To cite this article: Kartik Modi, Harshal Lowalekar & N.M.K. Bhatta (2018): Revolutionizing supply
chain management the theory of constraints way: a case study, International Journal of Production
Research, DOI: 10.1080/00207543.2018.1523579
To link to this article: https://doi.org/10.1080/00207543.2018.1523579
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International Journal of Production Research, 2018
https://doi.org/10.1080/00207543.2018.1523579
Revolutionizing supply chain management the theory of constraints way: a case study
Kartik Modia , Harshal Lowalekarb∗ and N.M.K. Bhattab∗∗
a Godrej & Boyce Mfg Co Ltd, Mumbai, India; b Indian Institute of Management Indore, Indore, India
(Received 30 January 2018; accepted 4 September 2018)
This research describes in detail an application of theory of constraints (TOC) and its resulting benefits on the supply chain
performance of India’s largest lock manufacturing company over a period of seven years. Using TOC’s thinking process,
the core constraints that had limited the company’s performance in the areas of production, distribution, supply group and
projects were identified and eliminated. TOC’s unique approach helped the company achieve a significant reduction in its
finished goods, raw material and work-in-process inventories at various levels across the supply chain. The stock-outs and
excess in the distribution system nearly disappeared. The existing lead times saw a drastic reduction while the availability of
items increased to nearly 100% despite significant decrease in inventory levels in the supply chain. The inventory turns of the
distributors and retailers more than tripled and their profitability increased significantly. The overall sales of the company
grew nearly three times during the six years post TOC implementation. TOC’s holistic approach helped the company to
double its profits and improve its cash position during the Great Recession.
Keywords: TOC; current reality tree; replenishment solution; CCPM
1. Introduction
Theory of constraints (TOC) claims that all real-life systems are inherently simple, not complex (Goldratt and Cox 1984;
Goldratt 1990; Dettmer 1997; Goldratt 2008; Schragenheim, Dettmer, and Patterson 2009; Cox III and Schleier 2010). It
also suggests that most of the so-called problems observed in such systems are not really problems but merely symptoms
which are present due to very few root-causes or constraints (Dettmer 1997, 1998). Moreover, treating such symptoms does
not result in a substantial improvement in performance and the only way to eliminate such symptoms is by addressing the
true constraints of the system (Goldratt 1994; Scheinkopf 1999; Goldratt 2008).
This research shows how TOC’s idea of inherent simplicity is valid even for large supply chains which have been
traditionally considered to be very complex (Lambert, Cooper, and Pagh 1998; Lambert and Cooper 2000). What makes
the task of managing typical supply chains so complicated is the fact that there are a large number of suppliers who supply
a large variety of raw materials to multiple manufacturing sites who then produce a huge variety of products, by different
processes, and ship them, using several methods of transportation, to a vast number of direct customers and OEMs located
all across the world (Davis 1993). The presence of high degree of uncertainty at the level of suppliers, production and
customers further adds to the confusion (Davis 1993). The main contribution of this research is to demonstrate through a
case study that:
(1) Even large supply chains are inherently simple.
(2) Multitude of problems observed in supply chains such as poor responsiveness, low flexibility, high inventory levels,
low availability, limited product variety, slow rate of new product introduction, inferior forecasts, poor coordination,
low profitability are merely symptoms originating from a very few root causes.
(3) Simple solutions do exist for solving seemingly complex supply chain issues and such solutions invariably involve
addressing the root causes. Companies can achieve a real turnaround by focussing only on these core problems
instead of trying to improve multiple aspects of their supply chains independently.
(4) Most of the root causes are in the form of policies which are based on age-old assumptions and companies cannot
achieve real improvement until they rid themselves of such policies.
(5) TOC can provide a powerful way of achieving effective supply chain integration by eliminating impediments in
implementation (see Power 2005) due to its capability to generate win-win solutions for multiple stakeholders.
*Corresponding author. Email: harshal@iimidr.ac.in

**Present address: Xavier Institute of Management & Entrepreneurship, Bengaluru, India.
© 2018 Informa UK Limited, trading as Taylor & Francis Group

2 K. Modi et al.
We take a case of supply chain of India’s largest lock manufacturing company with a strength of nearly 1000 employees
and selling 1200 SKUs through a network of more than 1000 distributors and 20,000 retailers spread across 600 cities in
the country. Until 2008, the company was making small incremental growth in its revenues and profits despite being the
market leader. Domestic and international competitors were closing the gaps in distribution and luring its channel partners.
Production was facing problems of huge work-in-process (WIP), long lead times, poor quality levels and was struggling
to achieve monthly plans. It was unable to cope up with the changing needs of the market. Due to company’s poor due
date performance on its customised orders, the projects of many institutional customers were regularly getting delayed.
Because of a huge variety of SKUs it was also becoming increasingly difficult to manage the distribution business. There
was a significant mismatch between what the market required and what was being supplied. A large variety of SKUs was
not available at most of the distributors and retailers. The distributors and retailers were struggling with the problems of
chronic shortage of some SKUs and huge surplus of others. Their return on investment (ROI) was extremely low and they
were facing serious cash problems due to carrying huge inventories. The company was unable to introduce new products
regularly and its market share was falling.
We show in this research how TOC’s thinking process (TP) tools were used to identify the core constraints that had
limited the performance of supply chain of the case company. Using a rigorous cause and effect analysis, a limited set of
factors which were responsible for a large variety of problems in the supply chain were identified. TOC-based solutions
were implemented over a period of seven years to eliminate the identified set of constraints. TOC’s unique approach led to a
complete turnaround in the supply chain performance of the case company. The alignment of the entire business enterprise
including people, suppliers, distributors and dealers at all levels, functions and geographies with the TOC way of working
helped the company to sustain the performance over a long period of time.
2. Literature review
The development of the TOC methodology is credited to Dr. Eliyahu Goldratt who introduced the basic tenets of TOC
through a business novel titled ‘The Goal’ (see Goldratt and Cox 1984). ‘The Goal’ demonstrated how the throughput of
manufacturing operations was limited due to very few constraints and chasing for local efficiencies in such systems could
lead to disastrous results (Goldratt and Cox 1984). Goldratt gave further details of the TOC methodology in his latter books
where he showed how this methodology was not restricted to manufacturing systems and could be applied to other real-life
systems as well (see Goldratt 1990). He suggested that constraints of physical nature were easier to identify and eliminate
as compared to policy constraints which were quite prevalent for majority of systems (Goldratt 1990). In order to identify
such policy constraints he provided some logical tools which came to be known as the ‘Thinking Process Tools’ in TOC
literature (Dettmer 1998). While the initial applications of TOC were limited to manufacturing, Goldratt showed how TOC
can be applied to distribution (Goldratt 1994), technology management (Goldratt, Schragenheim, and Ptak 2000), projects
(Goldratt 1997), sales and marketing (Goldratt 1994; Goldratt, Eshkoli, and Brownleer 2009), finance (Goldratt 1991),
managing people and developing strategy (Goldratt 1999).
A comprehensive review of the published literature on TOC body of knowledge can be found in Rahman (1998),
Mabin and Balderstone (1999) and Blackstone (2001). Kim, Mabin, and Davies (2008) gives a detailed review of published
literature on TOC thinking processes ( TOCTPs).
Woeppel (2016) explains how TOC should be implemented in manufacturing organisations. Mabin and Balder-
stone (2003) and Noreen, Smith, and Mackey (1995) describe several successful TOC applications in manufacturing
companies. Umble, Umble, and Murakami (2006) and Pegels and Watrous (2005) describe the implementation of TOC
and resulting benefits in two separate manufacturing firms. Boyd and Cox III (1997) demonstrate the usefulness of cause
and effect trees in understanding the effects of in-plant performance measures through a case study of a manufacturing plant.
Scoggin, Segelhorst, and Reid (2003) describe an application of TOCTP in identifying and eliminating core problems in a
manufacturing environment.
TOC has also been applied in the domains of strategy formulation (Boyd, Gupta, and Sussman 2001), project manage-
ment (Rand 2000; Umble and Umble 2000), performance measurement (LockamyIII and Spencer 1998; Noreen, Smith,
and Mackey 1995; Boyd and Cox III 1997; Smith 1999; Wahlers and Cox 1994), enterprise resource planning (Umble and
Umble 2001), services (Siha 1999; Klein and Harowitz 1996; Motwani, Klein, and Harowitz 1996) and supply chain man-
agement (Simatupang, Wright, and Sridharan 2004; Rahman 2002). Some important applications of TP tools have also been
reported in poultry industry (Chaudhari and Mukhopadhyay 2003), blood banking (Lowalekar and Ravi 2017), aerospace
industry (Chou, Lu, and Tang 2012) and healthcare (Breen, Burton-Houle, and Aron 2002). Pacheco Lacerda, Augusto Cas-
sel, and Henrique Rodrigues (2010) show an application of TP tools along with service engineering concepts in improving
processes at a higher education institution. Sadat, Carter, and Golden (2013) develop a TOC-based model for the health
systems funded by public. Spector (2011) discusses the case where a firm’s business model itself is its primary constraint
International Journal of Production Research 3
instead of the internal, external or a strategic constraints. Gupta, Sahi, and Chahal (2013) develop a unique TOC-based
framework to improve a firm’s market orientation for maximising its business performance.
Some of the recent works by Sobreiro and Nagano (2012), Sobreiro, Mariano, and Nagano (2014) and de Souza et al.
(2013) look at the performance of TOC-based best product-mix heuristic and compare it to other established methodologies
such as MILP. Oglethorpe and Heron (2013) identify and categorise major constraints observed in the context of local food
supply chains in the UK through multiple case studies. Tsou (2013) uses time series methods to dynamically adjust the
target inventory levels in supply chains facing continuously changing demand. Costas et al. (2015) show the application of
TOC in reducing the bullwhip effect in supply chains using a multi-agent simulation model. Gupta and Andersen (2012) and
Gupta and Andersen (2018) show using simulation how local measurements of throughput dollar days and inventory dollar
days can significantly improve the entire supply chain performance. A recent stream of papers has focused exclusively on
studying and/or enhancing the performance of the Drum Buffer Rope (DBR) method in high variety job shops and flow
shops (Thürer et al. 2017), pure and general flow shops (Thürer and Stevenson 2018) and shops with shifting bottlenecks
(Thürer et al. 2017; Thürer and Stevenson 2018).
While there are plenty of studies which discuss TOC implementation in different parts of organisations we did not come
across any comprehensive study in the published literature which describes an application of TOCTP and an end-to-end
implementation of TOC solutions in large supply chains. The main contribution of this research is to demonstrate, through
a real-life case study, how to plan for an enterprise-wide implementation of TOC which includes suppliers, production,
engineering, distributors and retailers.
3. Case study background

Godrej Locks (GL), one of the divisions of Godrej and Boyce Manfacturing Company Limited, is the market leader and the
oldest manufacturer of locks and security systems in India. It had a turnover of more than 10 billion Indian Rupees in 2016.
GL primarily caters to two different types of customers:
(1) Retail customers: Retail customers consist of the contractors, carpenters, architects and end users who purchase
locks and security systems from the company’s dealers and retailers. The retail distribution business amounts to
65% of the division’s total revenue.
(2) Institutional Customers: The institutional customers primarily consist of project management consultants, site
engineers, purchase managers and architectural firms who often require customised products and security solutions.
Locks are graded in terms of five levels of security strength. The security strengths 1 to 4 consist of mechanical locks,
which are typically mass customised, while the security strength 5 consists of electronic locks, which are typically made to
order (MTO). The basic lock production system at Godrej Locks is shown in Figure 1. The pins used in a lock are made
by machining while the cylinders, washers, plates, bolts and casings are manufactured using die-casting, press-working and
machining. Some components are also sourced from external suppliers. Godrej also sells some locks which are imported
from other countries.
Figure 1. Production system of locks.

4 K. Modi et al.
In 2008, GL was under tremendous pressure to maintain its profitability and market share. Seventy per cent of the locks
market in India was controlled by unorganised players. The entry of several foreign-based players, depreciation of currency,
slow growth of real estate, increase in labour costs and increased imports from China had further eroded its sales. Driven
by the need to create a win-win relationship for itself, its channel partners and its customers, to raise entry barriers for the
competition and to achieve rapid growth the company decided to go ahead with an enterprise-wide implementation of TOC
in 2008.
4. Identification of the undesirable effects

Before any solution was proposed, it was important to identify various symptoms of unsatisfactory performance that were
observed in the GL supply chain. Such symptoms are known as the undesirable effects (UDEs) in TOC parlance. Based on
a detailed discussion with various stakeholders the following major UDEs were identified.
4.1. Distributors and retailers

(1) Truncated product variety: While Godrej Locks manufactured a huge variety of SKUs, the actual number of SKUs
carried by most of its distributors was quite less ( < 15%). The variety of SKUs carried by retailers was even lower.
This greatly limited the sales of GL.
(2) Shortage and excess of SKUs: Even for the limited SKUs that the distributors carried with them, there was a
chronic shortage of some SKUs and huge surplus of others. It took a huge amount of time for GL to fulfil orders for
specific items from the distributors. The problem of stock-outs and excess was even more magnified at the retailers’
end.
(3) Huge inventories in distribution: The average inventory levels carried by the distributors (3–4 months) and retailers
(2–3 months) were very high and they experienced a significant surge in their stock levels at the end of every
month, quarter and year (also known as the month-end syndrome). The distributors were extremely unhappy with
the practice of dumping unwanted stock by company salespersons on to them and not delivering the products they
really wanted.
(4) Shortage of cash: The distributors were struggling with enormous shortage of cash due to high investment in
inventories. They had to offer considerable discounts and higher credit to the retailers in order to liquidate their
excess stocks every month. The average credit period to the retail was around 70 days. The cash problems worsened
at the end of retailers.
(5) Lack of product knowledge: The retailers lacked sufficient knowledge about Godrej products, their features and
benefits. There was also no strong loyalty towards the Godrej products as some competitors offered higher margins.
(6) Threat of competition: Despite being the largest player in the market, Godrej products were not available with about
30% to 40% of the retailers in the addressable market. Local players were mushrooming due to absence of major
brands and foreign players were gaining grounds due to their superior designs.
(7) Low ROI: The ROI for distributors and retailers on the Godrej products was extremely poor. The division was
under constant pressure from the distributors for reducing prices, increasing margins and providing incentives for
liquidating surplus stocks.
4.2. Sales and marketing

(1) Ineffective marketing: The primary job of the salespersons was to only sell. They had no time left for demand
generation and local area marketing activities. Moreover, due to poor availability of SKUs at the retailers’ end the
business felt it wasteful to spend money on advertising.
(2) Low job satisfaction: Sales people were under tremendous pressure every month to meet their targets. They had to
regularly help distributors in liquidating the excess stocks every month and collect distributors’ money from the
retailers. Their turnover rates were very high.
(3) Inaccurate sales forecasts: The sales forecasts used for raw materials, production and sales planning were extremely
inaccurate. This led to huge mismatches between production and actual demand in distribution.
4.3. Suppliers and production

(1) Unreliable suppliers: Suppliers took a very long time to deliver raw materials. In many cases they were even unable
to deliver all the raw materials required as per the monthly production plan.
(2) Unsatisfied suppliers: Suppliers experienced lot of disruptions in their production schedules and suffered from
poor capacity utilisation due to frequent changes in GL orders. They also ended up with unwanted stocks at the
end of each month. They complained that GL was not ready to increase margins on the raw materials and instead
pressurised them to show year-on-year reduction in costs.
(3) Misalignment of production with the market demand: Marketing complained that the actual production quantities
of various SKUs were not as per the monthly production plan; some SKUs were under produced while others were
over produced. In some cases, raw materials were diverted to produce certain items which had low demand at the
expense of others with high demand.
(4) Huge inventories in production: To maintain high efficiencies items were produced in large batches inside the plant.
The level of raw material and WIP inventories in production was huge.
(5) Unclear priorities between MTO and make to stock (MTS): Higher priority in production was given to MTO over
MTS items. But MTO fetched much lesser margins as institutional customers negotiated hard on the prices.
(6) Conflicts between production and marketing: Production often complained that marketing used to accept cus-
tomised orders without checking the current load on the plant. There were frequent changes in the production
plans during the month and a significant amount of time and capacity was lost in making and breaking set-ups.
Marketing, on the other hand, claimed that production was not flexible enough to meet the changing market
needs.
(7) High production costs: The inventory carrying and maintenance costs were very high. The defect rate in production
was also quite high which led to increased rejection and rework. Numerous cost reduction programmes and kaizens
were initiated in the plant. Several labour intensive operations were outsourced to take advantage of cheaper labour.
GL was also increasing the share of imported goods from China instead of making them in-house. While such
programmes claimed to have reduced costs significantly their true benefits on the bottom line were not visible.
4.4. Institutional customers

(1) Delivery problems: The production lead times for customised orders were very long (6 weeks or more) and
uncertain. GL regularly missed the promised delivery dates despite quoting very large lead times. GL’s delivery
performance was even worse in case of customised orders from institutional customers.
(2) Quality problems: The overall quality of customised orders was below par and short-cuts were often taken in
production to minimise delays. The quality and responsiveness problems were even higher in case of the outsourced
operations.
(3) Poor customer satisfaction: The institutional customers were unhappy about long lead times and delays. Non-
adherence to the due dates by GL resulted in delays in the projects of institutional customers and significant losses
for their end customers.
4.5. New product development, new product introduction andengineered to order projects
(1) Slow pace of new product introduction: Engineering was under tremendous pressure to come up with newer and
better products. Sales and marketing were unable to provide useful inputs to engineering on the real customer
needs. The distributors were not excited about keeping new products. Despite spending large sums of money on
development and advertising new products were not available in several regions.
(2) Lack of resources: New product development (NPD), new product introduction (NPI) and engineered to order
(ETO) projects took more resources, time and budget than planned and still failed on the quality standards. The
scope and priorities of such projects was also frequently changed which created regular conflicts between resource
and project managers.
Many of the UDEs described above are quite commonly observed in other supply chains (see Shah 2009; Jacobs, Chase,
and Lummus 2014; Christopher 2016; Hugos 2018). Applications of TOC to eliminate some of the UDEs in the context
of supply chains have also been reported in literature. For example, (Umble, Umble, and Murakami 2006) report an appli-
cation of TOC in case of a Japanese manufacturing company struggling with the problems of long lead times, poor due
date performance, huge WIP, high inventory levels, over and under production, high operating costs, etc. Goldratt (1994),
Goldratt (2008), Goldratt, Eshkoli, and Brownleer (2009), Schragenheim, Dettmer, and Patterson (2009) and Vector Con-
sulting (2015) use a cause and effect approach to identify and eliminate the root causes behind various supply chain problems
such as large inventory levels, slow rate of new product introduction, poor forecast accuracy, shortage and excess of items,
etc. Schragenheim, Dettmer, and Patterson (2009) and Cox III and Schleier (2010) address the issue of MTO-MTS joint
6 K. Modi et al.
production and vendor reliability. Goldratt (1999) discusses the problems of ineffective marketing and month-end syn-
drome. Goldratt (1997), Newbold (1998), Steyn (2001) and Leach (1999) describe the TOC approach for solving problems
in projects such as high project durations, frequent budget, time and cost overruns.
5. Current reality tree

At the outset it seemed that the operating environment of Godrej Locks was too complex and it was near impossible to
alleviate so many problems. However, TOC’s current reality tree (CRT) successfully revealed only a handful of root causes
(or constraints) which were responsible for the majority of problems in the GL supply chain. A CRT depicted the present
reality of any system through the cause and effect linkages between its various entities (Noreen, Smith, and Mackey 1995).
CRT also helped in identifying the few constraints which were responsible for various systemic problems (Dettmer 1998).
For clarity, the CRT for various stakeholders in the GL supply chain is divided into separate subsections.
A CRT is read starting from the bottom and moving towards the top using ‘If A happens then B happens’ type of
statements (Dettmer 1998). The entity numbers help locating a given entity in the CRT and the arrows depict the cause and
effect relationship; the entity at the tail of an arrow represents the cause while the entity at the head represents its effect.
For example, in Figure 2 one can see that if the Prime measurement in purchasing is minimizing the procurement costs
(101) then Purchasing tries to minimize the procurement costs (102). Presence of a ring between two connectors in a CRT
denotes an ‘AND’ connection where both the preceding entities need to co-exist for the subsequent entity to be observed. For
example, if We place large orders to our suppliers once a month (106) and if Our suppliers have limited capacity (107) then
Our suppliers require large time to produce the desired items (108). Absence of a ring denotes an ‘OR’ connection where
either of the preceding entities can lead to the subsequent entity on their own. For example, if Our suppliers experience a lot
of disruptions in their production schedules (125) or if Our suppliers are stuck with some unwanted stock of raw materials
and finished products every month (126) then The suppliers’ capacity is not utilized properly (127). The entities with thick
borders (outlines) in the CRT are essentially the UDEs or the symptoms which were identified previously in Section 4 while
the shaded entities are the constraints. It is worth noting that the constraints are usually at the bottom of any CRT. It can
be clearly seen from Figures 2 to 8 that the entities numbered (101), (201), (301), (302), (310), (401), (424), (422), (506),
(512), (607), (613) were the true constraints of the entire GL supply chain. Also, the cause and effect relationship shows
that most of the UDEs identified previously would disappear if these constraints could somehow be eliminated.1
Since it is difficult to describe all the CRTs using ‘If . . . then’ logic we follow the approach used by Scoggin, Segelhorst,
and Reid (2003) to explain these trees. Interested readers may refer to the supplementary file to see how a full CRT is actually
read from bottom to top using ‘If . . . then’ logic, for Figures 7 and 8.
5.1. CRT for suppliers

In this subsection we show how the prime measurement of minimizing procurement related costs in purchasing led to the
problems of long replenishment lead times and non-availability of some critical raw materials for production (see Figure 2).
Since purchasing was primarily evaluated on costs (101) it tried to reduce all the procurement related costs (102). As
ordering costs (especially the fixed shipping charges) could be saved by ordering less frequently (103) or by ordering in bulk
to avail quantity discounts (104), purchasing generally placed orders for the raw materials, components and supplies only
once a month (105). As a result, the order sizes placed by GL were quite large (typically equal to one-month’s requirement).
This increased the storage space and manpower requirements in the stores (332).
Because the capacities of the suppliers were limited (107) they required a considerable time to produce such large orders
(108). In most cases, the suppliers did not themselves have all the raw materials required to produce all the items in the
order (112) and needed extra time to procure the same from their suppliers (113). Due to the large batch sizes in suppliers
plants (109) the WIP was very large which increased the production lead times.2 The combined effect of limited capacity,
non-availability of raw materials and high WIP in suppliers’ plants was that the replenishment lead times of majority of the
suppliers were quite long (about 2–3 months) (114). It is interesting to note that despite being geographically closer (only
2–5 days away) most of the suppliers were quite far from the company in terms of the actual replenishment times.
Since the replenishment time from suppliers was very long the division used to place tentative orders, based on highly
erroneous SKU level sales forecasts, few months in advance (115) so that the suppliers could plan or begin their own pro-
duction activities (116). Unfortunately, since the sales forecasts were continuously updated based on the changes in MTS
items consumption (rolling forecasts) and with the acceptance of new customised orders (117), the tentative orders with
the suppliers were also modified continuously (118) till a few days before the start of each month when the monthly pro-
duction plan was finalised (120). Since the suppliers commenced their production activities based on the tentative orders
(116) and did not always have either the capacity or the raw materials to accommodate all the changes in the orders
Figure 2. CRT for suppliers.
(119) they were not able to keep up with the changing orders (121) and could not always deliver all the raw materials
required as per the final plan (123). As procuring raw materials from other suppliers at a short notice was often quite
expensive3 (124) purchasing was generally not keen on buying those items which were in shortage at the last moment
(128). As a result the production did not always receive all the raw materials required as per the final monthly production
plan (129).
8 K. Modi et al.
The other effect of GL changing its orders continuously was that the suppliers used to experience a lot of disruption
in their production schedules (125). Due to its stronghold over the suppliers, the division was able to get away with not
accepting the items which did not figure in the final production order (122) thereby leaving suppliers with some unwanted
stock every month (126). This led to poor overall capacity utilisation at the suppliers (127) and increased their costs. Also
their inability to supply all the raw materials as desired by Godrej (123) despite long replenishment lead times (114) created
an additional pressure.
It is worth noting that the effects of changing orders downstream in the supply chain were worst felt at the suppliers’
end (bullwhip effect) thus making capacity planning extremely difficult. Due to large fluctuations in the order sizes, most of
the suppliers needed to work with temporary employees and could not maintain a stable workforce, which had implications
for quality. They were under constant pressure from purchasing to become exclusive suppliers for the company and to show
year-on-year reduction in their manufacturing costs.
5.2. CRT for production

In this subsection we show how the prime measurement of production value generated during the month and the secondary
measurement of minimizing production costs were together responsible for a large variety of problems in production such
as over and under production of SKUs, high rejection rates, long lead times and poor due date performance (see Figures 3
and 4).
The production was primarily measured on how much value it attained during the month (201). The production value
was defined as the sum total of the value of all the items produced during the month.4 Since the production lead times for
some items was short (203) while for others was long (208) and given that producing any item increased the generated value
(202), production preferred making fast moving items (204) at the expense of slow moving items (209) even if it meant
deviating from the monthly plan. This is known as stealing and it invariably led to some SKUs getting over-produced (210)
and others getting under-produced (218) due to the diversion of raw-materials (221). Similarly, some of the MTS items
which were not even in the monthly plan were produced if their raw materials were available (205) and if they generated
higher value. Furthermore, since every setup reduced the time available for generating production value, production kept
the batch sizes as large as possible to minimise the total number of setups (207).
In those cases where some common raw materials between MTO and MTS items were missing, MTO items were
produced at the expense of MTS items (214). Similarly, when the choice was between producing MTO or MTS in a limited
amount of time the former was given a higher priority. As MTOs usually fetched much lower margins, the existing priority
system reduced the overall profits of the business. In those cases where raw materials for certain MTO items were not
available (215), the production of such items had to wait for a long time before the next order was placed and received from
the suppliers.
The secondary measurement in production was minimising costs (301). As it was widely believed that keeping utilisation
of resources high was important for reducing costs (302), departments in production tried to maximise utilisation. They did
this by keeping the original equipment effectiveness (OEE) levels high which was used as a proxy forutilisation at GL (303).
Again, since setups led to non-production (305) which led to lower OEEs (307), producing in large EOQ sized batches was
considered to be beneficial (207) even from the point of view of controlling costs. Large batch sizes, however, significantly
increased the WIP in production (321).
In order to reduce costs in production some temporary workers were employed (310 and 313). Since such employees
had little or no experience in lock-making the defect rates in production were high (315). The turnover rate among such
employees was also higher due to the nature of their employment (316).
Further reduction in the costs was achieved by outsourcing of some of the labour intensive operations which were
deemed to be expensive when performed in-house (known as Yo-Yo) (317). For some items there were even up to three
Yo-Yos, which meant that such items would go out of the plant and come back in up to three times. It was difficult to
control the quality in Yo-Yos (319). High rejection and rework rates created a blockage in the flow inside the plant (324)
which increased the WIP (325). Additionally, Yo-Yo operations also took more time to complete (319) thereby increasing
the overall production lead times (328) as well as the inventory levels of other components required for the assembly
(320). Yo-Yo operations also increased the amount of the paperwork (331) and the number of legal and commercial
transactions (334).
Large WIP created serious problems for the company. It increased the storage requirements (332) and carrying costs
(335) and lowered the cash availability. It also intensified the quality problems and often created confusion on the shop
floor (329) due to which certain operations were missed on some orders. Large WIP also made the production lead times
in the plant long and uncertain5 (328) due to which customised orders for several items used to get delayed (309). In most
cases, customised orders consisted of not one but a kit of several items (337) and delay in even one item effectively delayed
Figure 3. CRT for production-I.
the entire order (339). Sometimes short cuts were taken to minimise the delays (341) which further affected the quality
(342) and ultimately increased the rework and rejection rates (343). Due to poor due date performance the quoted lead
times at GL for future customised orders kept increasing (340). Because of regular delays in customised orders, the insti-
tutional customers had to suffer heavy losses (345). Added to that the problems of low quality, missed operations and long
quoted lead times meant that the institutional customers were not happy with the current performance of the division (346).
Long lead times also meant higher outstanding amount with the institutional customers (348) and long cash conversion
cycles.
10 K. Modi et al.
Figure 4. CRT for production-II.

The end result of over and under production was that the final production quantities were not in line with the monthly
plans (220). Production complained that delivery issues were because of marketing accepting orders and promising unre-
alistic times without checking current load on the system (349). Marketing, on the other hand, blamed production for not
being fast and flexible enough (347) and for not producing what the market wanted (227). It is ironic that while the pro-
duction was criticised for not meeting the monthly plan, the plan itself was based on SKU level sales forecasts which were
highly inaccurate (224). In fact, in a push based system, it was even inappropriate to call them sales forecasts. They were
production forecasts at best as marketing was essentially forecasting based on the past production. There was no real data
on what the market really wanted as what was not produced could never be sold and hence would not show up in the sales
data. The end result of all this was that the production quantities of different SKUs were completely out of sync with the
actual demand at the distributors’ end (226). It is safe to say that what was being produced by GL had little or no correlation
with the what the end consumer really wanted.
5.3. CRT for distributors

In this subsection we show how the measurement of distributors based on total monthly purchases and measurement of
salespersons based on primary sales were responsible for a multitude of problems in distribution such as limited product
variety, excess and shortage of SKUs, poor cash position, etc. (see Figure 5).
Since the incentives of distributors were based on the total monthly purchases (401) and they did not have any extra
incentive to order early in the month, most of the distributors used to place large orders towards the end of the month to
meet their monthly targets (403). As they had limited cash (404) they were able to order only a limited variety of SKUs.6
In order to complete their targets they were forced to buy what was available with GL at the end of the month (406). Due
to the fact that the quantities of SKUs available with GL were out of sync with the actual demand at the distributors’ end
(226) their stocks were not aligned with the demand from the retailers. The distributors regularly experienced shortage of
some items (410) and excess of others (411) despite carrying large inventories. Since their cash was blocked in the items
that were in excess they could not place the next order until they had sufficient cash (418) required for the next order (413).
Due to insufficient cash they usually did not place the orders even for the items which were in shortage (412) and hence the
shortage with the distributors persisted for a long time.7 (412) Moreover, the cash of the distributors blocked in excess stock
was in turn affecting the sales of the company as they could not even order the items which were fast selling.8
The distributors had to regularly offer significant discounts to the retailers to get rid of the excess items (422). They also
needed to sell the excess stock on credit to the retailers (420). Moreover, different distributors were offering discounts on
different items which created confusion among the retailers regarding the correct prices.
Due to their cash problems the distributors were not interested in taking risks with new products (416) as they were not
sure whether the retail would buy them (415). As a result GL was not able to regularly launch new products. The distributors
were also not interested in selling to more retailers (432) and were growing reluctant to sell on credit to the retailers who
were irregular in their payments (438). They were not keen on increasing number of outlets in different areas. Instead, their
efforts were restricted in selling to select outlets even if it meant giving higher discounts. The distributors were not willing
to take risks with new outlets and have problems in collection of payments. Also, they were not interested (citing reasons of
high costs) in activities that resulted in generating demand, building and nurturing relationship with the retailers, influencers
and end consumers. As a result of all these issues GL’s market share was not growing (439) and local competitors were
mushrooming (440) as there was enough demand in the market.
Because of the shortage of fast selling items and excess of slow selling items the ROI of distributors was extremely poor
on Godrej products (430). Many distributors were paying hefty interest rates on the credit they had taken from the banks
to fund their inventories. Poor ROI meant that banks were not willing to extend further credit to them. The distributors
constantly demanded reduction in prices, higher margins and longer credit periods from GL (431). In order to relieve the
distributors’ cash problems GL also had to regularly extend credit to the distributors (429) thereby weakening its own
cash position. Both the company and the distributors were stuck in an unhealthy relationship where it was impossible for
either to quit.
Salespersons were extremely dissatisfied with the current state of the system. Meeting their sales targets was becoming
increasingly difficult. In the initial three weeks of every month, they had to literally help distributors get rid of their excess
stocks (426) which had piled up during the end of the previous month. They even had to run after the retailers to collect the
distributors’ money (427). This had to be done to ensure that the distributors had enough cash to place next order so that
the salespersons could meet their own monthly sales targets (424). They had little or no time left for any demand generation
or local marketing activities (436). Salespersons felt that the distributors wielded too much power in the current system as
their performance was completely in their hands. Their job satisfaction was very poor (434) and the turnover rates among
the sales staff was very high (435). The lack of experience and time for local marketing among the sales staff meant that the
12 K. Modi et al.
retailers were not fully aware of the features and benefits of Godrej products. The sales team also could not spend time to
understand from the retailers what kind of products the end consumers really wanted. Thus sales was not providing critical
inputs required for developing new products.
5.4. CRT for retailers

In this subsection it is shown how the practice of distributors offering quantity discounts and not accepting the excess items
combined with the low frequency of ordering by retailers led to the problems of limited product variety, shortage and excess
of SKUs and poor profitability at the retailers’ end (see Figure 6).
The frequency of orders from the retailers to the distributors was very low. Most of the retailers used to delay their
orders in the anticipation of additional discounts from the distributors towards the end of the month (501). In some cases
they would order in large quantities to avail bulk discounts from the distributors. Also, as the distributors were trying to
control the delivery costs they were not interested in frequent shipments. Because of the infrequent deliveries and their cash
and space limitations (507 and 508) the retailers bought very limited variety of SKUs. As they were ordering SKUs based
on their own forecasts, which were highly inaccurate, they were left with either shortages9 (516) or excesses (511). In fact,
the problem of shortages and excesses was more magnified at the retailers’ end.
Since the retailers’ cash was blocked in excess inventory (513) and the distributors were not interested in taking back
the slow moving items (512) they had to wait for the existing slow moving stocks to sell before they could place the next
order (520). On the other hand, since the deliveries were infrequent the shortage persisted with the retailers for a long time
(518). Because they were afraid of being stuck with excess inventory they were generally not very interested in keeping new
products (523). They preferred keeping the regular selling SKUs (524) and not the ones with highly variable demand which
invariably fetched much higher margins than the regular SKUs (525). The distributors and GL were losing opportunity to
make significant profits because of this conservatism of the retailers. Also, the retailers had very limited knowledge of the
Godrej products, their features and benefits. This was hurting GL’s chances of making a sale when the end customer had
multiple options to choose from.
5.5. CRT for NPD, NPI and ETO projects

Figures 7 and 8 show how insistence on completing all activities in the projects on time and assigning resources to multiple
projects simultaneously (multitasking) were the core constraints in NPD, NPI and ETO projects.
6. TOC implementation
TOC’s TP clearly showed that a limited set of constraints10 were responsible for poor performance of the entire GL supply
chain. In fact, most of these constraints were traditional company policies and practices which were based on some age-old
beliefs (Figure 9). It was obvious from the CRTs that if GL had to show radical improvement it was necessary to find ways
to eliminate these constraints. Also, any action that did not address these constraints was not likely to make any significant
impact.
In order to eliminate the identified constraints the company implemented TOC’s solutions in the areas of finance
and measurements (Throughput Accounting), production (Drum-Buffer-Rope), distribution (Replenishment Solution) and
projects (Critical Chain). The details of these solutions are provided in the next four subsections.
6.1. New measurements (throughput accounting)

The complex system of numerous financial and operational measurements at GL was replaced with TOC-based mea-
surements in order to align the goals of various stakeholders with the goal of the division. Moreover, the periodicity of
measurements was changed from monthly to weekly basis in order to eliminate the month-end syndrome and to induce a
sense of dynamism.
The performance of system under TOC was measured in terms of Throughput (T), Operating Expenses (OE) and Invest-
ment (I). The performance of sub-systems was measured on Throughput Rupee Days (TRD) Loss, Inventory Rupee Days
(IRD) and Rupee Receivable Days (RRD). TRD Loss for the MTA items was defined as the throughput in rupees lost due
to non-availability of an item at a stocking node. TRD for MTO items was calculated on the basis of lateness from the
customer delivery date. IRD was defined as the average number of days inventory, measured on its original raw material
Figure 5. CRT for distributors.

14 K. Modi et al.
Figure 6. CRT for retailers.
cost in rupees, waited in any part of the system. RRD indicated the magnitude of the total outstanding amount, in rupee days,
with the external partners. The new set of measurements for various people in the company are summarised in Table 1.
Based on their throughput-volume (T-volume) values the existing SKUs werecategorised into four buckets (see
Figure 10). For the low and medium T-volume SKUs a strategy of product rationalisation was adopted because of their
low contribution to the profit. The SKUs with high and very high T-volume were given the highest priority. Efforts were
made by marketing to maximise the sales of such SKUs.
6.2. TOC for production ( DBR)

The second TOC-based solution implemented at GL was the DBR system for managing production. The objective of the
DBR system was to synchronise the entire production according to the slowest stage in the system (known as constraint
or drum) which effectively controlled the rate at which the entire system generated throughput (Goldratt and Cox 1984;
Dettmer 1998; Umble, Umble, and Murakami 2006; Woeppel 2016). The constraint could be inside the production (internal),
which means that the demand was higher than the effective capacity of the plant, or in the market (external), which means
that the effective capacity of the plant was higher than the demand (Schragenheim and Dettmer 2000; Schragenheim,
Dettmer, and Patterson 2009). For both the MTO as well as MTA items the constraint was in the market.11 The essential idea
of DBR was to release work in to the production only at the rate which matched the capacity of the constraint (Schragenheim
and Ronen 1990; Cox III and Schleier 2010). Releasing work on the shop floor at a rate faster than the constraint’s capacity,
Figure 7. CRT for NPD, NPI and ETO projects-I.

16 K. Modi et al.
Figure 8. CRT for NPD, NPI and ETO projects-II.

just to keep efficiencies high at all stages in production, would only lead to build up of either WIP (in case the constraint
is internal) or finished goods inventory (in case the constraint is in the market), without actually increasing the throughput
of the system (Goldratt and Cox 1984; Schragenheim and Ronen 1990; Noreen, Smith, and Mackey 1995; Mabin and
Balderstone 1999).
Before implementing DBR, GL took few steps to bring down the existing production lead times by simplifying the
existing system. Production was segregated into components production and assembly plants and two separate warehouses
were constructed: (1) Components Finished Goods (CFG) warehouse to store the components and (2) Finished Goods (FG)
Figure 9. Common myths.
Table 1. Measurements under TOC.

People Measurement
Divisional Management Committee T, Profit (π ) and cash flow
Senior members of Sales & Marketing T
Senior members of: TRD loss
1. Manufacturing & Production Planning
2. Purchase
3. Quality Assurance
4. Design & Engineering
Members of other functions % of reds & blacks in various warehouses
Sales team members Secondary sales, RRD
Supply Chain IRD
Distributors Secondary sales
Figure 10. Throughput bucket (source: company documents).

18 K. Modi et al.
warehouse to store the assembled locks. De-linking the two stages was also useful in terms of aggregating demand at the
components level. The CFG warehouse also made it possible to provide single and explicit priorities for the components
production. The mode of production of all the items (MTA or MTO) inside the two plants was then changed to the DBR
system, the details of which are presented in next two subsections.
6.2.1. Production of MTA items

In case of MTA items, the objective of the DBR system was to ensure maximum availability of products in the finished
goods warehouse in order to fully exploit the market constraint (Blackstone 2001; Goldratt 1994, 1999; Schragenheim,
Dettmer, and Patterson 2009). This meant that GL had sufficient stock in the finished goods warehouse to meet the demand
from the market at all times (Goldratt 1994; Schragenheim and Dettmer 2000). This was achieved using appropriate stock
buffers in the finished goods warehouse.
Since the rate of the drum was essentially the rate at which the market consumed products from the FG warehouse,
the production in the assembly plant began only when there was a reduction in the stock buffer due to demand in the FG
warehouse. The production of any SKU was triggered to replenish the stock of that SKU consumed from its buffer in the
FG warehouse. Correspondingly, production orders in the components plant were triggered to replenish the quantities of
the different components consumed from their respective buffers in the CFG warehouse. Implementing DBR successfully
necessitated 100% availability of the components and the raw materials in their respective warehouses.
The buffer level for any item (either a component or an SKU) was a function of the maximum possible consumption in
the average time required to replenish the item (Goldratt, Eshkoli, and Brownleer 2009; Schragenheim and Dettmer 2000;
Schragenheim, Dettmer, and Patterson 2009). The replenishment time was nothing but the production lead time for the CFG
warehouse, and assembly time for the FG warehouse.
The buffer level of any MTA item in a warehouse was divided into three equal zones. The top one-third of the buffer
level was known as the green (G) zone, the middle one-third portion as the yellow (Y) zone (alert zone) and the bottom one-
third as the red (R) zone (alarming zone)12 (Goldratt 1999; Schragenheim and Ronen 1991). The IT system was configured
to create production orders to bring the inventory of components back to green. The priority colour of the production order
was of the same colour as the buffer of that component in the CFG warehouse. Similar formulae were used for creating
production orders for an SKU. It was advisable to execute orders in the green zone and to not delay the orders in the yellow
zone to prevent the expediting costs. For the orders in the red zone it was imperative to expedite even at additional costs to
prevent a potential stock-out situation.
The component manufacturing was more complex as it required multiple operations and had a multi-level bill of mate-
rials. GL developed a child item report in order to extend the same three colour priority system to all work stations involved
in component manufacturing. This report added up the requirements of a common child component and gave the colour and
the quantities depending on the colour status and quantity of the parent component in the CFG warehouse.
The buffer levels in CFG and FG warehouses were continuously monitored and adjusted when needed (known as
Dynamic Buffer Management or DBM)(see Schragenheim, Dettmer, and Patterson 2009). If, in a duration of two replenish-
ment cycles the stock was continuously in the red (green) zone then the buffer level was increased (decreased) by one-third.
GL developed a programme in its ERP system which automatically ran the DBM process and gave recommendations to the
user.
All the imported traded items were also managed in the MTA mode and a spreadsheetprogramme was developed for
their DBM.
6.2.2. Production of MTO items

The objective of the DBR system in case of MTO items was to ensure the delivery of the order before the promised due
date and to reduce the overall manufacturing lead time by controlling WIP inside the plant (Dettmer 1998; Goldratt and
Cox 1984; Goldratt and Fox 1986). This was achieved by choking the release of work on to the shop floor as per the
rate of the slowest stage in production, known as the CCR(Schragenheim and Dettmer 2000; Woeppel 2016). Only those
orders were released which had to be fulfilled within a pre-decided time horizon. This controlled the excessive WIP in
the system, thereby substantially reducing the lead time and improving the responsiveness to the changing demand. To
protect the delivery date promised to the customer against any uncertainties, scheduling was done in such a way that orders
arrived at the CCR, a certain time (known as time buffer13 ) before the CCR was ideally supposed to work on them (Goldratt
and Cox 1984; Goldratt 1999). The size of the time buffer was directly dependent on the excess capacity (known as the
protective capacity) available in the system; the higher the protective capacity the smaller the size of time buffer and
smaller the manufacturing lead time (Goldratt and Cox 1984; Goldratt 1999; Stein 2003). Similar to MTA, a three-colour
code system was used to determine the priority of MTO orders on the shop floor. The production buffer time was divided in
three zones and the orders running in the red zone were expedited to avoid missing the committed due dates.
About one-third of the total plant capacity was reserved exclusively for MTO. The internal CCRs were found and effec-
tively elevated to have at least 20% protective capacity. It was estimated that more than 20% of protective capacity was
required when dealing with the new clients. The work centre reports were also utilized to locate the most loaded stations.
Whenever a centre showed a work load of more than three days measures were taken to decrease its load such as over-
time, running on sundays, changes in shifts, transferring work to other centre if possible, etc. Whenever the protective
capacity dropped below 20% an alarm was raised and when it dropped below 10% any increase in sales was frozen to safe-
guard the current commitments. Delivery commitment for MTO was purely given on the basis of then available protective
capacity.
6.2.3. Other changes in production

Apart from the new mode of the production for MTA and MTO items there were quite a few changes in production at Godrej
Locks which are worth noting:
• Instead of keeping non-constraints busy at all times the employees were now engaged in improvement and training
programmes during the lean periods.
• The regular production-related meetings were replaced by daily buffer management meetings where the recovery
actions for the items in the black and red zones in the two warehouses were planned and discussed among the
production supervisors.
• The old practice of ordering raw materials once a month was replaced with daily or weekly supply based on the
buffer status of raw materials in the RM warehouse. A web-based procurement system (WBPS) was developed
which sent alerts to the suppliers based on the colour status of RM buffers. For suppliers located within 200 km
radius of the factory a ‘Milk Run Logistics’ system was developed.
• The buffer management reports also helped in guiding the new improvement programmes. The areas which were
identified as being responsible for the maximum TRD loss were taken up for improvement next, instead of the old
practice of starting improvement programmes everywhere in the plant.
• Before TOC many labour intensive operations were outsourced citing reasons of cost. Once it became clear that
the majority of the operations were being performed on the non-constraints, where utilisation did not matter much,
and therefore it did not cost as much as estimated by the previous methods, GL began to take long term initiatives
to reduce Yo-Yo for all components.
• Once it was apparent that the constraint was in the market for the MTA items and that saving set-up times on
the non-constraints by using large batches was actually detrimental to the company the batch sizes were cut sig-
nificantly for all the MTA items. EOQ sized batches were abandoned. Further, projects were taken to implement
poka-yoke, set up time reduction, variability reduction and OEE improvement at the CCRs.
6.3. TOC for distribution (Replenishment Solution)

GL realised that the traditional system of pushing primary sales, i.e. sales from the company to the distributors, combined
with the dependence on erroneous forecasts had created a havoc in the entire distribution system. The solution therefore
necessitated aligning the distributors’ inventory with the actual secondary sales. TOC’s replenishment solution achieved pre-
cisely that through pull-based frequent replenishment (Goldratt 1994, 1999; Schragenheim, Dettmer, and Patterson 2009).
Under this system GL, and not the distributors, decided the stock levels of different SKUs to be maintained in the distrib-
utor warehouses. The stock levels of all the SKUs in the distributor warehouses were sufficient to meet all the demand
from retail during one replenishment cycle. The distributors were not allowed to determine their order sizes. Instead, at
the start of every replenishment cycle the distributors were replenished from the branch warehouses the exact amount they
had sold during the previous replenishment cycle (see Goldratt 1994, 1999, Goldratt 2008, Cox III and Schleier 2010).
Moreover, the distributors were asked to pay to GL only when they sold any item and not at the time of buying. In order
to ensure that stock levels maintained at the distributor warehouses were not very large, the frequency of replenishment
from the branch warehouse was kept very high (once every day or two days). The branch warehouses maintained suffi-
cient stocks to meet the demand from all the distributors they catered to in the region. Similarly, the branch warehouses
were frequently replenished from the plant warehouse which maintained adequate stocks to meet the demand from all
branch warehouses. A DBR system operated in the factory and replenished the stocks in the FG warehouse as per the
actual consumption. The basic idea of the TOC solution was to cut down the lead times drastically between two con-
secutive stocking points using appropriate inventory buffers thereby reducing the overall inventory in the supply chain
20 K. Modi et al.
while increasing the overall throughput (Goldratt 1994; Schragenheim, Dettmer, and Patterson 2009; Schragenheim and
Dettmer 2000).
In order to get the buy-in from the distributors for the new TOC way of working Godrej Locks prepared an offer
document which explained in detail (similar to Section 5.3) how the challenges faced by the distributors were because of
the policies and actions of the company and its personnel. Some of the major changes proposed in the offer document were:
• GL salespersons targets would be changed from primary sales to secondary sales.
• Monthly target would be replaced by weekly targets (for secondary sales) in order to smoothen the sales, purchases
and hence the cash flow. Moreover, instead of lump-sum growth over the previous year, the aim would be to get
1% growth in sales week-on-week (WoW).
• Stock levels would be fixed by GL for every SKU kept in the distributor warehouse and no supply would be made
beyond this level.
• The distributors would provide information about the sales of different SKUs every day to GL so that they could
be replenished with the same quantity the next day.
• For any bulk or customised SKUs, distributors would place a separate order which would be treated as
an MTO.
The offer itself was titled ‘Inventory Turns Mafia Offer’ since it was aimed at increasing the distributor inventory turns
thereby increasing their ROI (see Goldratt 1994 and Cox III and Schleier 2010 for further details on mafia offers).
In the first phase the replenishment solution was implemented only till the level of the distributors with an objective of
ensuring 100% availability of SKUs in the distributor warehouses. In order to do so GL arranged for proper warehouse space
at the factory, branch and distributor levels in the specified regions (see Figure 11). To obtain the information of their daily
sales of various SKUs from the distributors, a simple but highly effective web-based system, known as dealer replenishment
system (DRS), was developed. DRS also provided reports on the secondary sales, closing inventory and buffer colour status
for SKUs at distributor warehouses.
The buffer level for any item in the distributor warehouse was determined based on the maximum possible consumption
in the average time required to replenish the item from the branch warehouse. The replenishment time was simply equal
to the transportation time from the branch warehouse to the distributor warehouse because of the 100% availability at the
branch warehouse. Similar formula was used to set the buffer levels in the branch warehouses. Accordingly, production or
purchase orders (for the traded items) and stock transfer orders for shipment from one stocking point to another immediate
stocking point downstream were generated in the ERP system. These orders were modified to incorporate the minimum
batch size, standard packing size and full truck load considerations.
The inventory levels at various warehouses were continuously monitored and suitably adjusted by DRS once in every
two to four weeks. A dynamic buffer management (DBM) system was employed to continuously monitor and adjust the
buffer levels in the various warehouses and for expediting related decisions.
The implementation began with a pilot of few selected distributors from different regions to ascertain the benefits of the
new system and to eliminate any lingering concerns from everyone’s mind. Once the pilot was successful GL went ahead
Figure 11. Replenishment solution at Godrej Locks.

with a blitzkrieg nation-wide implementation within two weeks covering majority of the distributors based on their sales
value. These distributors were then presented a detailed ‘Inventory Turns’ offer. The success stories from the pilot were
cited as examples for reinforcement.
In the second phase of the implementation, the replenishment solution was rolled out to the retailers. Here, a major
challenge was to get the daily sales data from the retailers. This was overcome with the help of a simple mobile application
that made capturing the retailer sales data possible. Measurements in the system were further changed from secondary sales
to the tertiary sales from the retail outlets. The underlying philosophy behind this change was that unless and until an end
user bought a product, no one in the supply chain made any sale. Motivated by its overwhelming success, the replenishment
offer was eventually extended even to the international markets.
6.4. TOC for projects ( critical chain projectmanagement)

GL implemented critical chain project management (CCPM) for its NPD, NPI and ETO projects. CCPM worked on the
principle that the project duration was determined by the longest chain of dependent tasks, known as critical chain, and
therefore tasks on the critical chain should not be delayed (Goldratt 1997; Rand 2000; Steyn 2001). Bad multitasking,
which was identified as a primary reason for delays, was minimised by starting fewer projects simultaneously and allocating
resources on the basis of the nature of tasks (critical or non-critical) (Goldratt 1999; Newbold 1998; Steyn 2002; Cox III
and Schleier 2010). The release of new projects was choked based on the workload on designers who acted as the drum.
The issue of ‘safety’ in individual tasks was also handled differently in CCPM (see Goldratt 1997, Leach 1999). The
safety from individual tasks was removed and provided to the project as a whole, known as the project buffer. The task
durations were based on 50% time estimates and were not considered as commitments (see Goldratt 1997, Umble and
Umble 2000). Thus, the next activity was expected to start work as soon as the previous one was finished. The resources
wereprioritised based on the protection ratio (PR) which was defined as the ratio of the project buffer consumed to the
critical chain completed (Goldratt 1999; Newbold 1998). PR was used to describe the priority status of various projects –
green or safe zone (PR < 33%), yellow or alert zone (33% ≤ PR < 67%) and red or alarming zone (PR ≥ 67%). PR was
also used to allocate resources whenever there was a resource conflict between multiple projects (see Cohen, Mandelbaum,
and Shtub 2004).
7. TOC results
Under the frequent replenishment system for raw materials with adequate stock-based buffers the shortage of raw materials
nearly disappeared and the inventory levels maintained in the stores reduced. The effective capacity of the plant increased
due to DBR since it was no longer producing items for future consumption at the expense of the ones required in the
immediate future. Because of choking the release of orders as per the capacity of the constraint and reduction in batch sizes,
the WIP in production fell sharply. Due to reduction in WIP and increased raw material availability, the manufacturing lead
times decreased significantly. The reduction in Yo-Yo operations reduced the lead times further and improved the quality
levels. As a result, the quoted lead times for MTO items decreased significantly and the on-time delivery for customised
orders improved greatly. Due to the frequent replenishment from plant and adequate stock buffers the availability of the MTA
items in finished goods warehouses increased to nearly 100%. Managing the production of MTO and MTA items became
simpler due to the common priority system based on buffer colour status. Due to the elimination of monthly production
value as the primary measurement, the tendency to ‘produce whatever is available’ in production disappeared. As the plant
only produced what was pulled from the finished goods warehouse and not based on erroneous monthly level forecasts, the
misalignment between the production and the actual demand from the distributors was minimised.
As a result of tremendous shrinkage in the lead times coupled with full availability of MTA items in its warehouses it
became possible for GL to promise a one stop solution for reliable delivery of customised orders. GL developed a mafia
offer for its institutional customers which promised them ‘reliability and speed of supplies from a single source’. This was
a remarkable offer as the institutional customers could never get a full kit of customised solutions from a single supplier in
the past. It also allowed GL to charge higher premium. Another mafia offer called as the ‘Vendor Managed Inventory’ offer
was developed for OEMs who were promised 100% availability of the critical SKUs in their warehouses at all times.
As the practice of the distributors deciding their order quantities gave way to automatic replenishment, their tendency
of ordering in bulk quantities towards the end of the month disappeared. Since the entire system worked on simple replen-
ishment the dependency on sophisticated forecasting algorithms was eliminated (Goldratt 1999). Due to the removal of
erroneous forecasts the resulting misalignment between the distributors’ stocks and the secondary sales was eliminated. As
the distributors’ stocks were replenished daily the inventory levels of different SKU held by the distributors reduced while
their availability increased significantly. Moreover, since the distributors were charged only for the items they sold and not
22 K. Modi et al.
Figure 12. TOC implementation results-I (source: company documents).
for what they purchased, they were no more constrained by the cash blocked in huge piles of inventory. The release of
enormous amount of shelf space and cash allowed GL to stock more variety of SKUs at the distributor warehouses without
any additional risk for the distributors. A similar phenomenon was observed at the retailers who were also replenished on a
frequent basis. Due to the disappearance of excess stocks with the distributors and retailers their tendency of offering huge
discounts also vanished thereby improving the throughput from the existing products. Since the distributors and the retailers
did not struggle with cash problems, the credit collection period and the receivables reduced significantly (Figure 12(h)) and
the cash position of the division improved substantially (Figure 12(d)). The average inventory turns at the distributors more
than tripled thereby increasing their ROI. Moreover, stocking new higher throughput items further boosted their profits (and
that of everyone else in the supply chain). Their aversion to stocking newer SKUs and catering to more number of retailers
also vanished. The overall acceptance of new products by the retail increased. Because of the small replenishment lead times
between any two consecutive stocking points in the system GL became much closer to the end consumer (Goldratt 1999).
Due to less overall inventory in the supply chain it was possible to respond more quickly to the real market demand. The
rate of new product introduction became faster. The contribution of new products introduced in last three years (rolling) in
the total sales, also known as the New Product Vitality, increased (Figure 12(i)). The number of distributors and retailers
with GL itself increased significantly (Figure 13(e,f)). More than 800 distributors in 400 + cities joined the TOC way of
working (Figure 13(d)). The share of such distributors went up from 76% to 97%.
The division was able to eliminate the month-end syndrome by eliminating the monthly targets. The focus in sales and
marketing shifted from only selling to new ‘local area marketing and customer awareness initiatives’. The salespersons
did not have to run around to liquidate the excess stocks with the distributors and were able to actively participate in
demand generation activities. Specialized training programmes were designed for the influencers such as carpenters (through
carpenter clubs) and retailer salespersons. The number of carpenters in Godrej Locks Carpenter Club increased by 5 times
since 2008 and the growth in sales from such members increased by 55% from 2012 to 2014. The salespersons also imparted
training to the retailers on the features and usage of different products and were able to provide valuable feedback to
engineering for creating new line of products. The number of retailer salesmen trained by the company increased four-fold
since 2011. Moreover, the focus of the sales team shifted to promoting those products which gave higher throughput. The
sales of Hi-End locks (in the security strength of 3, 4, 5) more than doubled due to the product prioritisation initiatives.
Figure 13. TOC implementation results-II (source: company documents).
Another major advantage of the pull-based system was that the inventories reduced as one moved from the factory ware-
house to the distributors. Pulling inventory upstream in the supply chain was advantageous as forecast error was minimal
upstream and the benefits of demand aggregation further lowered the inventory requirements in the chain (Goldratt 1994).
As a result the production planning at the plant and the suppliers14 became very smooth. The tendency to locally optimise
at all levels also reduced under the pull-based replenishment and new set of measurements. This helped the Godrej supply
chain to effectively counter the phenomenon of bullwhip effect.
The sales from customised solutions grew at a steady growth (Figure 13(h)). The sales from key accounts grew at
a CAGR (compounded annual growth rate) of 52%. The number of real estate developers with the company increased
2.5 times. The domestic retail and institutional sales grew by more than 200% (Figure 13(b,c)). The overall sales of GL
grew at 25%, twice the rate of the industry itself (12.5%) and it was able to double its profits within two years of TOC
implementation. Godrej Locks’ market share increased by nearly 35% and the gap with the nearest competitor widened
further. The major results from TOC implementation are summarised in Table 2.
8. Implementation challenges and future directions

Some of the major challenges faced by the company in implementing TOC are briefly mentioned below:
(1) GL successfully implemented TOC’s replenishment solution for 90% of SKUs and 95% of distributors and dealers.
For the balance, it has not been able to find a suitable solution thus requiring regular manual intervention so as to
not disturb the flow.
(2) GL found it quite difficult to convince several retailers to follow the system of frequent replenishment from the
distributors. It was quite common for the retailers to get customers who came with bulk requirements and some
retailers preferred keeping higher stock levels rather than waiting for supply from the distributor.
(3) In case of some small hardware retail outlets, which were mostly run by proprietors, the retailer replenishment
system (RRS) faced several difficulties and did not stabilise. Such outlets did not have proper systems for taking
orders, sales, billing and delivery. It was difficult to capture sale of each SKU in RRS using mobile handsets at such
outlets during peak hours when there was a constant flow of end users, carpenters and contractors. This activity was
costing the retailers their sales and hence they were reluctant to operate the handsets. GL tried to explore an option
24 K. Modi et al.
Table 2. TOC results: a summary (source: company documents).

Measure Results
Inventory levels FG inventory reduced by 40%, WIP reduced by 33% within three years
Lead Time Reduced by 75% within four years
Lead Time (Traded items) Reduced by more than 81% within six years (Figure 13(a))
Inventory Turns (Distributors) Increased by more than 3 times within two years (Figure 12(f))
TRD loss MTA Reduced to 0.64% in 2014-15 implying 99.36% availability (Figure 12(e))
TRD loss MTO Reduced to 1.1% in 2014-15 implying 98.9% reliability On Time In Full or
‘OTIF’ (Figure 12(e))
Primary sales Grew at CAGR of 150% higher than the industry average during 2009-14
Secondary Sales Increased by 0.6% on weekly basis for 325 + weeks (see Figure 12(b,c))
Tertiary Sales Increased by 24% from 2008 to 2010 and then increased at 20% CAGR for next
five years
Net Business Volume (NBV) Increased by more than 2.5 times since 2008
Throughput (T) Increased by 33% from 2008 to 2010 and then increased at 20% CAGR for next
five years
T/OE Increased by 10% from 2008 to 2010, sustained for next three years and
increased by 4% for next two years
Satisfaction Score (Suppliers) Increased by 10%; 6% higher than the industry benchmark
Satisfaction Score (Distributors) Increased from 79% to 87%; 7% higher than the industry benchmark
Satisfaction Score (Retailers) Increased from 77% to 89%; 6% higher than the industry benchmark
Satisfaction Score (Institutional Customers) 8% higher than the industry benchmark
Working Capital Turns Increased from 6 in 2008–2009 to 8.5 in 2014–2015 (Figure 12(g))
Net Operating Surplus (NOS or π ) More than doubled between 2008-10, increased by nearly 7% over the next
year, dipped by 31% in 2011-12, increased by more than 34% for two years
in a row (12(a))
of recording the sales of SKUs only at the end of the day. But since most of the records were kept manually this
proved to be very difficult. Another method was tried by recording the stock levels at such outlets only once in 2 to
3 days. This also did not work well as it caused frequent interference at the retail outlets and, at the same time, the
company needed to employ extra persons just to get the stock details.
(4) To grow sales and throughput the company decided to develop and grow adjacencies in architectural hardware
products. This resulted in a sudden increase in the range of products and put pressure on the entire supply chain to
work as per the TOC principles. It took few months to stabilise the system. During this period, however, there was a
lot of confusion and it required a huge effort in terms of recalibrating of the existing systems, regular communication
across all levels and educating the people in the entire value chain.
(5) Due to a slowdown in the real estate marker over the past few years, the developers have been demanding standard
and cheaper products. This has increased the pressure on maintaining the throughput.
9. Conclusion
This research provides a roadmap for implementing TOC in large supply chains. The case study shows how TOC can help
such supply chains in identifying few faulty policies which are limiting their growth. Most of the times such policies are
formulated on the basis of some age-old assumptions which are no longer valid and they can be truly disastrous as they
promote the behaviour of local optimisation. Such traditional policies can be found at all levels in supply chains including
production, distribution, marketing, sales, finance and projects. Moreover, because traditional policies are most difficult for
anyorganisation to change, companies can gain a true competitive advantage by successfully eliminating such constraints
(Goldratt 1999). As TOC presents a holistic approach of looking at large systems it can be extremely useful for the supply
chain managers in designing suitable policies which can align multiple stakeholders in the direction of the common goal.
One of the main contributions of this work is to show that simple solutions do exist, even for seemingly complex supply
chains, and that companies can eliminate a large variety of problems commonly observed in such supply chains and achieve
remarkable results in shorter time frames by focusing their attention only on a few constraints instead of trying to improve
in a piecemeal fashion all parts of their supply chains.
Notes
1. It is explained in Section 6 in detail how Godrej eliminated just these constraints and in the process eliminated most of the UDEs.
2. Large batch sizes was especially a problem with those suppliers who were supplying to multiple companies like Godrej. The lead
times of such suppliers could be really large because of huge WIP.
3. In some cases it was not even possible to get materials at short notice or in short quantities as many suppliers have a minimum order
size policy.
4. Quite clearly it was an accounting invention where an item produced during the month was recorded as an asset on the company
balance sheet. Since the asset was recorded at a value higher than the raw material costs after incorporating the ‘conversion costs’, it
was possible to make accounting profits just by producing items and storing them even if there was no immediate demand for such
items.
5. Because of the Little’s Law.
6. Since the distributors were ordering about one month worth of stock for a given SKU at a time they were able to order only a limited
variety of SKUs due to the cash constraint.
7. In most cases the next order was placed only at the start of the next month. Thus the items that ran out of stock in the first week
continued to be missing for the rest of month. Moreover, any shortage with distributors invariably resulted in a shortage in the entire
region as retailers could not get the desired supply for a long time.
8. The extent of lost sales at GL was directly dependent on the amount of time the fast selling SKUs were out of stock multiplied by the
throughput of such SKUs. While it was not easy to measure the extent of lost sales, the company estimated that it could be as high
as the current profits or even more. For similar problems involving assessing the impact of lost sales on the system performance the
readers may refer to (Goldratt 2008) and (Goldratt, Eshkoli, and Brownleer 2009).
9. A shortage invariably meant a lost-sales for the company as the retailer would push for a competitor’s product.
10. Entities numbered (101), (201), (301), (302), (310), (401), (422), (424), (506), (512), (607), (613) in Figures 2–8.
11. GL implemented the simplified version of DBR, also known as S-DBR, in which the market was assumed to be the ultimate constraint
(Schragenheim and Dettmer 2000). The plant did not have bottlenecks under S-DBR and operated with a capacity constrained
resource (CCR) with protective capacity and planned load (Schragenheim, Dettmer, and Patterson 2009).
12. Two more colours were commonly used: (1) black (B) to represent stock-outs and (2) white (W) to represent buffer exceeding green).
13. The time buffer for each product family was set equal to the half of the present lead time.
14. The number of suppliers covered under the milk-run system had been increasing steadily since 2008 (Figure 13(g)).
Disclosure statement
No potential conflict of interest was reported by the authors.
Supplemental data
Supplemental data for this article can be accessed here https://doi.org/10.1080/00207543.2018.1523579.
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ISSN: 0020-7543 (Print) 1366-588X (Online) Journal homepage: http://www.tandfonline.com/loi/tprs20

Revolutionizing supply chain management the

Kartik Modi, Harshal Lowalekar & N.M.K. Bhatta

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3. Case study background

Figure 1. Production system of locks.

4. Identification of the undesirable effects

4.1. Distributors and retailers

4.2. Sales and marketing

4.3. Suppliers and production

4.4. Institutional customers

5. Current reality tree

5.1. CRT for suppliers

Figure 2. CRT for suppliers.

5.2. CRT for production

Figure 3. CRT for production-I.

Figure 4. CRT for production-II.

5.3. CRT for distributors

5.4. CRT for retailers

5.5. CRT for NPD, NPI and ETO projects

6.1. New measurements (throughput accounting)

Figure 5. CRT for distributors.

Figure 6. CRT for retailers.

6.2. TOC for production ( DBR)

Figure 7. CRT for NPD, NPI and ETO projects-I.

Figure 8. CRT for NPD, NPI and ETO projects-II.

Figure 9. Common myths.

Table 1. Measurements under TOC.

Figure 10. Throughput bucket (source: company documents).

6.2.1. Production of MTA items

6.2.2. Production of MTO items

6.2.3. Other changes in production

6.3. TOC for distribution (Replenishment Solution)

Figure 11. Replenishment solution at Godrej Locks.

6.4. TOC for projects ( critical chain projectmanagement)

Figure 12. TOC implementation results-I (source: company documents).

Figure 13. TOC implementation results-II (source: company documents).

8. Implementation challenges and future directions

Table 2. TOC results: a summary (source: company documents).

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