Saturday, May 4, 2013

How NOT to dramatically improve a business: the case of a home goods retail chain

Some years ago, Dr. Eli Goldratt decided to give me a test based on a real case of what had happened in a large home goods retail chain.

Eli: "Executives at ABC retail chain decided to hire consultants to improve their company's performance in terms of inventory turns, and other related measures of performance. They evaluated a number of proposals for the project. In the end, they decided to hire several different companies and divide the work among those companies. Each company was responsible for improving one part of the supply chain. Prior to implementation, the inventory turnover was 2.2."

"Lisa, what do you think the inventory turns were after the implementation?" ...

Lisa: After briefly considering the scenario, I responded, "I don't think the inventory turnover improved much, if at all. As a matter of fact, I would predict that inventory turnover most likely worsened."

Eli: "After months of implementing the changes, the inventory turns had decreased to 1.9! Not surprising, eh?"

Well, if you are wondering why this was the end result of the implementation, feel free to comment in this blog. At some point in the future, I will write another blog to explain what happened and why.

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