Ever-Flourishing Companies and a Decisive Competitive Edge

Successful companies make more money now and in the future. Such companies continuously increase value for customers, employees, suppliers and owners. Through a process of ongoing improvement, such companies transform into ever-flourishing ones.

For a company to be Ever-Flourishing, it must build a Decisive Competitive Edge in sufficiently large markets, without exhausting its resources and without taking on significant risks. A Decisive Competitive Edge must be capitalised on and sustained. A Decisive Competitive Edge is a window of time that makes it possible to operate in a market free of competition.

The common approach to defining competitive advantage

We review the strengths and advantages of our products and our company, choose one of them and build our story around it. We try to convince customers that this is the most important thing for them, and we hope for the best — while everyone else is doing exactly the same.

What does the typical competitive field look like?

None of the competing companies A, B or C has a Decisive Competitive Edge.

The Theory of Constraints approach

A Decisive Competitive Edge is built when we satisfy a significant customer need to a degree that no significant competitor can match.

Our focus is outward: What problems do our customers have? What consequences do these problems have for their business?

We identify needs and then find what we have to change in order to satisfy them.

A Decisive Competitive Edge for make-to-order manufacturing companies

Most companies in this category have high levels of work-in-process and, at the same time, resource productivity is poor. Deliveries are usually later than what was originally promised to the customer, and production lead times are long. When customers frequently suffer from late orders and experience negative consequences from those delays, then RELIABILITY is their significant need. A Decisive Competitive Edge is built when we satisfy the customers' significant need:

In such a case we make a "Reliability" offer:

With such an offer, if orders are late it can lead to bankruptcy. The MTO solution from the Theory of Constraints is a complete system for managing make-to-order production and provides clear priorities, a significant reduction in lead time, increased capacity, on-time delivery and less pressure on the team.

See also: "Make-to-Order — improvement in 3 steps"

A Decisive Competitive Edge for make-to-stock manufacturing companies

The company has a diverse range of products and maintains a finished-goods warehouse. Its customers are trading companies. Goods are often "pushed" along the supply chain: "Buy more and you'll get a bigger discount." The main mechanisms for setting stock levels are forecasts and some form of min./max. system. One thing can be said about forecasts: they are always wrong. As a result, sales are lost because some items are out of stock, while at the same time there are significant quantities of other items on hand. An additional factor that makes the situation worse is the "end-of-month" syndrome — salespeople push large quantities of goods at the end of the period in which they have to hit their targets. On the one hand this overloads production, and on the other, customers have so much stock that even when some items have run out, they do not order.

1.1 trillion dollars is the amount that retailers worldwide lose from their turnover due to zero stock (Out-of-stock) and due to discounts caused by excess stock (Overstock).

57% — Out of stock (lost sales)

43% — Overstock (excess stock)

Source: IHL Group, global research, June 2015

Trading companies lose on average 7.5% of their turnover due to lost sales resulting from some items being out of stock and from price reductions on other items because of excessive stock.

For trading companies, 1% more or less turnover can mean 10% more or less net profit:

Trading companies must improve availability while at the same time reducing their total inventory level. Their significant need is to improve inventory turns. A Decisive Competitive Edge is built when we satisfy this need:

The Theory of Constraints MTA solution includes elements such as: pull replenishment, frequent deliveries, inventory aggregation, and dynamic buffer management based on actual consumption. The MTA solution ensures the right availability of every item at every point in the supply chain. This increases sales and, at the same time, significantly reduces the total inventory level.

See also: "Until the end customer has bought, no one in the chain has sold"

A Decisive Competitive Edge for project companies

A significant proportion of projects do not finish on time, go over budget, or fail to deliver something. Often all three problems occur together. In such an environment, on-time or earlier delivery is a significant customer need. For example, if the building of a ship is delayed, the shipowner misses out on revenue, which reduces its return on investment. A delay in the maintenance and repair of an aircraft likewise leads to significant negative effects.

We build a Decisive Competitive Edge and win more business through on-time delivery and a significant penalty for every delay. For example: if we are a shipbuilding company and fail to hand over the ship on time, for every day of delay we will pay more than the shipowner earns when the ship is in operation.

CCPM — project management by the Critical Chain method — reduces project lead times by 25% on average, while keeping to budget / reducing costs, and delivers higher quality.

See also: "Project Management by the Critical Chain Method — CCPM"

Capitalising on the Decisive Competitive Edge

Building a Decisive Competitive Edge is not easy — and it is not enough. It has to be capitalised on — turned into more revenue.

A significant change in the sales process is required. Salespeople must move from Traditional selling to selling the Competitive Edge. This requires a change of mindset and significant training. The main differences between the two approaches are described in the table:

About the Theory of Constraints

The Theory of Constraints (TOC) is a management methodology based on the understanding that the results of any organisation depend on only a few elements. Finding and appropriately managing the system's constraints leads to rapid results and harmony throughout the whole system.

The Theory of Constraints was created by Dr. Eliyahu Goldratt. He is known to millions of people around the world as a scientist, mentor and business guru. TOC is applied with outstanding success in almost every field of human activity — from industry and healthcare to public administration and education.

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Author: Valentin Borisov, Progressive Flow Bulgaria.