Theory of Constraints POOGI - Part 49

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Do-it- yourself 'Viable Vision' continued ...

Brad: "Most businesses find that their fixed costs increase nearly proportionately when sales increase. How is this avoidable?"

Dr Lisa: "Yes, and some gleefully hit a sales goal only to notice that profits have decreased due to having to increase fixed costs to meet the goal."

Dr. Lisa: "By leveraging the resources they have. There needs to be a monitoring system for the performance of operations. By determining the reasons why due-date commitments are threatened, actions can be taken-using lean and six sigma tools-to improve performance, normally without adding resources."

Brad: "Can a small business owner lead this kind of improvement process?"

Dr. Lisa: "Sure. The companies going through the Velocity Scheduling System Coaching Program are doing that now. They are getting to 100% due date performance in about 2 months WITHOUT a consultant camped in their conference room and at a fraction of the price. Next, those companies will participate similarly in an on-line version of the Mafia Offer Boot Camp. The combination of those 2 programs will get those companies on their way to a Viable Vision."

Dr Lisa: "Actually, having the owner and his/her executive team really drive Viable Vision kind of improvement is the only way to go. They just need a proven process and little coaching so they know how to apply the concepts to their situation along the way."
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If you are a business owner that would like to turn your company's sales level into its profit level in four years or less, please contact Brad Stillahn at Brad@ScienceofBusiness.com with an email that says "I'm interested". We recommend our www.MafiaOfferBootCamp.com to develop your Mafia Offer, and our www.VelocitySchedulingSystem.com to achieve 'perfect' operations

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI - Part 48

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Do-it- yourself 'Viable Vision'

Brad: "If a business owner wanted to grow the bottom-line of their company at the fastest rate possible, what would he or she have to do?"

Dr. Lisa: "Get operations 'perfect', and increase sales without a proportionate increase in fixed costs."

Brad: "And what kind of improvement is possible, say for a machine shop?"

Dr. Lisa: "We call what is possible 'Viable Vision'. It varies for different types of businesses, but the results that are possible are bigger than most business owners dare imagine. One definition of Viable Vision is to 'turn your sales level into your profit level in four years or less'."

Dr. Lisa: "Another definition is to increase the percent return-on-sales to a level that the owner, at the outset, would definitely agree is unrealistic. For example, a business that has hovered around breakeven can easily have a 20% return-on-sales, but the owner probably thinks this is unbelievable. And it doesn't matter how small or large the company is; it's possible. The amount of TVCs a company has, as a percent of sales, will have an impact on how long it will take. But it is possible."

Brad: "So what you're saying is a business with $2 million in sales could have $2 million profit by the middle of 2013. Or $10 million sales into $10 million profit. Have you forgotten about the recession?"

Dr. Lisa: "The recession just highlights the importance of sales. A business with an offer 'too good to refuse', what I call a 'Mafia Offer', will grow sales in any economic conditions. We have experience with companies that traditionally had a 'hit rate' of less than five percent, increasing that to well over 50%, while reducing their sales cycle time."

Brad: "What do you mean by 'perfect' operations?"

Dr. Lisa: "When we develop a Mafia Offer, there is a need for operations to be very reliable. By 'perfect', I mean it must be a rare occurrence for the company to miss a due-date commitment or whatever the offer promises. A Mafia Offer is backed up with a solid guarantee, in the form of a self-imposed penalty for non-performance of the offer, so if we're late, for example, we might be giving the customer the order for free."

Dr. Lisa: "No matter how unreliable a machine shop might be now, they can become 100% on-time in a very short period of time, like two months."

... to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

P.S. If you have an internal constraint (not 100% on time), check out www.VelocitySchedulingSystem.com (based on Golratt Drum Buffer Rope) Group 5 starts November 23, 2009! (for job shops only)

P.P.S. If you have an external constraint, check our our ON-LINE at www.MafiaOfferBootCamp.com ; GROUP and PRIVATE Mafia Offer Boot Camps at www.MafiaOffers.com

P.P.P.S. If you have a cash constraint ACT NOW! Free cash video, click here --> The Fastest Way to Increase Cash Flow.

(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.

Theory of Constraints POOGI - Part 47

We are continuing our series based on The Goal by Eliyahu M Goldratt and the Theory of Constraints. {This series was co-written with Brad Stillahn.}

Do you really think you can do it all yourself? continued

Brad: "So, we agree on the problem. What's the direction of the solution? How can a small business owner get the talent they need to grow profitably?"

Dr. Lisa: "Well, that depends. It is ultimately the business owner's decision. I think it comes down to two choices that are not mutually exclusive:
1. Build an effective management team, and/or
2. Get outside help."

Dr. Lisa: "When small business owners think about getting outside help, they generally think about solving specific problems, not about running the overall business better. They'll get one consultant for one type of improvement, and a different consultant for another type of problem."

Brad: "We're back to affordability. Outside help costs a lot of money. If I have a problem I can't fix myself, I'll get the help I need to fix the problem. Like a plumber, electrician, or a 6S Lean consultant."

Dr. Lisa: "Think bigger. A business should be a money-making machine. There is one overall process that needs to be defined and improved."

Brad: "Well, I can think of a couple of examples of ways to get outside help. One is to belong to and be active in an industry association like NTMA. That's a way to learn from successful peers. Another is to join a CEO membership organization like Vistage. I've been a member for six years and it has provided me value."

Dr. Lisa: "Absolutely, both are important. But I have a recommendation. Get help to specifically improve your business, your money-making machine."

Brad: "I did that. I paid for the best TOC consultants available for four years before I felt I was self-sufficient. But that was expensive. The day-rates were sky-high. We're back to affordability."

Dr. Lisa: "Any good consultant should be willing to get paid if and only if they produce bottom-line results."

Brad: "But we've made the case that a business owner can't know everything. Can a consultant know it all?"

Dr. Lisa: "Well, we like to think so! I recommend a business process improvement team that is involved over a period of time to help the business owner achieve his or her goals. To help them think big, we recommend 'Viable Vision'. Viable Vision is defined as turning your sales level into your profit level in four years or less. It's aggressive but doable. And the value of the business soars with such increased profitability."
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If you are a business owner that would like to turn your company's sales level into its profit level in four years or less, please contact Brad Stillahn at Brad@ScienceofBusiness.com with an email that says "I'm interested". We'll follow up to discuss how it just might be possible for you, and share with you our 100% results-based option where you pay if and only if your bottom-line increases."

Here's to maximizing YOUR profits!

Dr Lisa Lang

P.S. If you have an internal constraint, check out http://rs6.net/tn.jsp?t=ejsoxadab.0.0.vsi4mocab.0&p=http%3A%2F%2Fwww.velocityschedulingsystem.com%2F&id=preview Group 5 starts November 23, 2009! (for job shops only)

P.P.S. If you have an external constraint, check our our ON-LINE at http://rs6.net/tn.jsp?t=ejsoxadab.0.0.vsi4mocab.0&p=http%3A%2F%2Fwww.mafiaofferbootcamp.com%2F&id=preview; GROUP and PRIVATE Mafia Offer Boot Camps at http://rs6.net/tn.jsp?t=ejsoxadab.0.0.vsi4mocab.0&p=http%3A%2F%2Fwww.mafiaoffers.com%2F&id=preview

P.P.P.S. If you have a cash constraint ACT NOW! Free cash video, click here --> The Fastest Way to Increase Cash Flow.

(c)Copyright 2009, Dr Lisa, Inc. All rights reserved.

Free Goldratt Theory of Constraints Videos and Audios

I just completed a redesign of part of my website and added several free videos and audios. To view this new page, go to FREE Stuff and then down to FREE Videos & Audios. You will need to register to view/listen to them, but registration is free and we will protect your email.

You will find videos on the following topics:

• Critical Chain Project Management
• Viable Vision
• Mafia Offers and Mafia Offer Boot Camps
• Success Stories
• Overview of Goldratt's Theory of Constraints
• more to come!

You will also find a list of written articles, success stories, blog posts, etc under the FREE TOC & VV Articles (Theory of Constraints & Viable Vision). I'm in the process of resigning this page so that the articles can be better searched and allow you to see how many times each has been downloaded, as well as, you can enter and read reviews left by readers.

And, if you click on the FREE Stuff tab directly you will find other items that might be of interest, like:

• Theory of Constraints games
• Theory of Constraints software (Thinking Process Software)

Here to maximzing YOUR profits!

Dr Lisa Lang

P.S. We will be continuing with the "Process of On-Going Improvement" series shortly.

A Process Of On-Going Improvement (POOGI) - Part 4

Most companies don’t have processes in place to sell twice what they are selling now, so it is necessary to develop a compelling, un-refusable “Mafia Offer”. A Mafia Offer is an offer so good that your customer can’t refuse it and your competition can’t or won’t offer the same. Developing and implementing a Mafia Offer is not trivial, but having one improves typical closing rates from less than 5% to as much as 80%, so additional sales people aren’t required, but sales funnel management is. (See also http://www.mafiaofferbootcamp.com/)

Let’s check the numbers using an example of a company with $5 million in sales, net profit of $250,000, and raw material costs, outside services and sales commission of 30% (what we call Truly Variable Costs in Goldratt's Theory of Constraints Throughput Accounting). One year after implementing DBR, and developing and implementing a Mafia Offer, the company has twice the capacity to sell, and is selling it at a rate of $8 million per year with no additional fixed costs. The additional raw material, outside services, and sales commisions are $900,000 on the additional $3 million in sales. The difference of $2.1 million drops through to the bottom-line which is now $2,350,000. So, net profit went from 5% to 29%! Incredible! Unbelievable?

What if your results were only half as good? Are you doing anything else with so much potential for sustained increased profit with so little risk?

TOC is a collection of “silver bullets”, and when implemented well in conjunction with Lean and Six Sigma, the result is an ongoing exponential increase in net profit. We believe that it possible for most companies to achieve a Viable Vision. One definition of Viable Vision is to turn your sales level into your net profit level in about four years, and sustain the exponential net profit increases beyond that.

If you haven’t read The Goal, we recommend you read it. If you have read The Goal, we recommend you read it again.

...to be continued.

Here's to maximizing YOUR profits!

Dr Lisa Lang

(c)Copyright 2008, Dr Lisa, Inc. All rights reserved.

Upcoming Theory of Constraints Events

1st Quarter Group Mafia Offer Boot Camp
- January, 30, 31, Feb 1 2008 in Denver
- February 25, 26, 27 2008 in Denver
- March 24, 25, 26 2008 in Denver
- More information at http://www.mafiaoffers.com/

NEW REMOTE (on-line) Mafia Offer Boot Camp
- Done at your own pace and time of your choosing
- One on One support provided by phone conferencing
- More information at http://www.mafiaofferbootcamp.com/

PRIVATE Mafia Offer Boot Camp
- Done at your location and at a mutually convenient time
- More information at http://www.mafiaoffers.com/

NEW Theory of Constraint PRICING Project
- We usually do pricing projects as part of larger results based consulting engagements, but because they have been so successful (typically 10 to 20% return on sales), we have decided to offer stand alone pricing projects.
- If you have not yet gone through “Pricing using Theory of Constraints”, please see: http://drlisamaxprofit.blogspot.com/2007/05/pricing-using-theory-of-constraints.html
- More information at http://www.scienceofbusiness.com/Default.aspx?tabid=144

Goldratt CCPM Webcast starting February 13, 2008
- Watch Goldratt LIVE or rebroadcast.
- Dr Goldratt will be covering, never before released knowledge using the Strategy & Tactics tree.
- There are five 2.5 hour sessions. There are a number of options for viewing the webcast with pricing from $350 to $2500.
- More information at http://www.scienceofbusiness.com/Default.aspx?tabid=140

Executive Access Boot Camp
- Feb 28, 29, and March 1 2008 in Denver
- March 27, 28, 29 2008 in Denver
- More information at http://www.executiveaccessbootcamp.com/

SPECIAL: Free Shipping on the live recorded 3 hr workshop “Achieving a Viable Vision”, send an email to order for $99 (regularly $199). For more information: http://www.scienceofbusiness.com/Default.aspx?tabid=133

Pricing using Theory of Constraints – Q&A

I have not yet finished Blue Ocean Strategy. I will explain why when I post my review.

I have, however, received a pricing question and have written an answer. Enjoy.

Q: What about companies that have a market constraint and use S-DBR?

A: For companies that have a market constraint, I still recommend that they strategically place an internal limiting resource (control point) and use this strategic constraint to determine pricing and product mix.

We find that there is huge variation (+/- 50%) in pricing amongst and between competitors. So determining what is competitive is even a challenge. We use catalogs, industry studies, etc to help with this determination when those are available. Most of the time, we don’t have this information, so we use the technique we were all taught (TVCs + allocated OE + reasonable margin = price). We then ask our prospects/customers by how much did we miss the order or how far off was our closest competitor. Purchasers don’t typically tell us what the other prices were, but they will tell how by what % we missed it or got it.

How/when you modify pricing (in my opinion) depends on the type of offer you have. If you have an offer where you get premium pricing (like the Rapid Response mafia offer) you need to ensure that your standard price (at standard lead-time) is competitive because no one will pay a multiple of a price they perceive to be too high. We have had some situations with this offer where the standard price was not attractive to us (low T/CU) but we needed to offer this product to get the higher T/CU products. In that case we raise the price as much as we can but to still be considered competitive and then we also increase the standard lead-time. So, if we don’t like the price, but it is competitive, we increase the lead-time.

If we are dealing with a VMI type mafia offer than we typically start by matching the current pricing (assuming it is competitive a close to our target T/CU) then getting an increase after proof of concept. We have been successful at getting 2 to 12% increase.

When we consider increasing prices we take into account: T/CU of the product, total $T of the product, weighted average T/CU for the customers buying this product, and total $T for the customers buying this product. If we lose the sales of the product or sales of an entire client we need to understand by how much our T will go down.

Here's to maximizing YOUR profits!
"Dr Lisa" Lang
(c)Copyright 2007, Dr Lisa, Inc. All rights reserved.

P.S The next open to the public Maximizing Profitability event is Aug 28 in Denver, Colorado. This is a no charge half day event. To register go to http://www.viable-vision.com/

P.S.S The next mafia offer boot camp is August 29, 30, 31 in Denver or schedule a private one at your place, on your time frame! http://www.mafiaoffers.com/ We’re coming to New Zealand and Australia for boot camps in December!

P.S.S.S. Check out our new Theory of Constraints Pricing Project! http://www.scienceofbusiness.com/Default.aspx?tabid=144

Mafia Offer Podcast #1: http://www.podcasternews.com/programs/87/better-process-podcast/3574/?A=1

Purchase Dr Lisa’s book, Achieving a Viable Vision: http://www.scienceofbusiness.com/Default.aspx?tabid=133

Excess Capacity for a Viable Vision

Question: How much excess capacity do you need to have to make a Viable Vision viable?

Answer: It depends. Squeezing more capacity out of your existing operation without investment is relatively easy (you read about it in The Goal, Its Not Luck, and Critical Chain). The hard part is selling it. You need an unrefusable market (a “mafia offer”) offer in order to sell all your capacity (you read about this in Its Not Luck). The Viable Vision is the specific strategy and tactics necessary for you to uncover your capacity and the market offer that will bring your company to have a profit level equal to your current sales level.

What percent of sales are your truly variable costs (TVCs)? Remember that we define TVCs as those costs that change when an additional product or service is sold. TVCs include raw material, sales commission, freight, subcontractors, and the like.

The higher your TVC or lower your throughput (T = sales – TVCs), the more excess capacity (or price premium) you will need to make it possible to turn your current sales level into your profit level in 4 years.

Here’s an example: If you currently have $10 million in sales and TVCs at 30% you will need $23 million in sales. This assumes that you could add these sales with your current labor and/or operation expense (OE). And, in many cases this is quite possible.

If you will need to add labor or other OE, then for each million in those costs that you add you will need to sell another $1.43 M (amount OE added divided by throughput). This is typically not a big deal (we have a client right now with about 65% TVCs), it is just something we have to take into consideration.

So, the more you can sell with your existing resources and investments, the quicker you can turn your current sales level into your profit level. And, your specific mafia offer will also play a big role in the amount of excess capacity you will need. If you can get a price premium, then you will need less capacity and less sales.
The smallest company on a Viable Vision right now started at $1.2 M in sales and the largest started at $4 B (billion!).

But this is way more information than you need because we will collect the data for your company, develop your Viable Vision, and spend 2 hours with you discussing your company and your Viable Vision for FREE, no strings. The only catch is that the CEO, President, or business owner must have attended one of my Maximizing Profitability events to be eligible for the free offer.

And if you decide that you would like guidance from us in achieving your Viable Vision, then 100% to 90% of our fees are based on YOUR results. If you don't get the results, you don't pay! And yes there is a 100% results based option!

Here's to maximizing YOUR profits!
"Dr Lisa" Lang

Maximizing Profitability Workshop May 11, 2007 in Denver

If you have never attended one of my Maximizing Profitability events, here's your chance. The next one is May 11, 2007 at the Wellshire Inn in Denver.

Event Description

In this highly interactive presentation, “Dr Lisa” Lang engages the group in discussion and hands-on participation to discover how to LEVERAGE their existing resources using Goldratt's Theory of Constraints to maximize profitability. An approach to developing a “Mafia Offer” and to achieving rapid sustainable growth (a Viable Vision) is discussed, along with:

· How to make management decisions that are aligned with profitability goals
· How to increase profitability by increasing capacity with no corresponding increase in expenses or capital investment
· How to create a “Mafia Offer” that allows this newly created capacity to be sold

Dr Lisa provides a unique, counter-intuitive perspective based on scientific methods, causing participants to challenge their current assumptions and think bigger. Participants will learn to make decisions and strategic plans that are aligned with maximizing profitability.

The value to participants will include:
· Improved understanding of how to leverage their constraint and existing resources to drive profitability
· 4 metrics and 3 decision rules to make day-to-day and mix decisions that maximize profitability
· How to have the biggest and quickest impact with their Lean and Six Sigma efforts
· The guidelines and examples for creating a “Mafia Offer” – an offer that is so good your customers can’t refuse it and your competition can’t or won’t offer the same.

If you are frustrated with your profit level and are tired of playing Whac-A-Mole, then this event is for you! Click here for the fax registration form. It's only $29 and includes lunch.

Here's to maximizing YOUR profits!
"Dr Lisa" Lang