This website covers knowledge management, personal effectiveness, theory of constraints, amongst other topics. Opinions expressed here are strictly those of the owner, Jack Vinson, and those of the commenters.

Interesting strategy - appeal to self-preservation

You may recall that I mentioned Eli Goldratt's February 2009 article on the Power of Cause and Effect in the context of the danger and power of forecasting.  He now has a take 2 on that discussion.  The Power of Cause and Effect - Part 2 (full article requires a free subscription).

In January 2009, the electronics component industry, facing an unprecedented drop in orders in December 2008 (by 50%) had planned to immediately react with a massive cut of its workforce.

A proper analysis done at that time revealed that this expected reaction was not needed and that it would lead to grave consequences. Unfortunately, most electronics component manufacturers did lay people off - just to face, less than three months later, a surge in demand. All the signs are indicating that these companies are now about to make a similar mistake which will lead to even graver consequences.

The summary of the mistake is that these companies have made these decisions based on forecasts and internal movements in the supply chain - not on actual consumer buying habits.  As a result everyone in the supply chain is hurting from the components manufacturers all the way to the makers of finished goods. 

Since the effects are so widespread, even companies who decided to operate differently are now in danger of being whipped by large price fluctuations.  Goldratt's recommendation: in order to save your own skin, show your competitors how to manage their own piece of the supply chain much better.  Discourage your competitors from making bad decisions, and show them how you have made good decisions.  It will be better for everyone in the long run.  Here is how he concludes this brief article:

Convincing competitors to refrain from investing now in additional capacity should be the number one concern of any component manufacturer.... I urge consumer electronics manufacturers that have done it to reveal their actual achievements: to release into the public domain, and in particularly to their competitors, the details of what they have done, the time that it took to increase production and the magnitude of the increase.

I am assuming here that Goldratt is talking to firms that he knows have used Theory of Constraints to manage their capacity without having to make excessive capital investments.  I've heard over and over in the TOC community that there are companies who have done well for themselves but are afraid to talk about their success for fear that their competitors may catch up.  But now this article turns the tables and suggests that their competitors must know - and if the competition doesn't get this knowledge, the companies that have used TOC may fail due to massive price fluctuations.  I find this an interesting strategy to get the word out about TOC.

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