Dr. Alan Barnard is one of the world’s leading Decision Scientist and Theory of Constraints’ experts. Alan, a serial entrepreneur, is the Founder and CEO of Goldratt Research Labs, a company he co-founded in 2008 together with Dr. Eli Goldratt, creator of Theory of Constraints. They were both passionate about applying a robust scientific approach to developing new Thinking & Decision making methods and advanced technologies to help people make better, faster decisions – decisions that move them closer to their goals.
Today, Alan works as a Strategy advisor, Researcher, and Theory of Constraint (TOC) expert and educator, with both Fortune 500 companies as well as NGO’s and Government Agencies. His clients include Microsoft, Cargill, Tata Steel, Nike, ABB, BHP, Cisco, South32, SAP, Intel, Penguin Random House, BC Rail, Larsen & Toubro, Premier Foods, Fujitsu, Habitat for Humanity, UNDP, UNWFP, and Utah Governor’s Office of Management and Budget.
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Dr. Alan Barnard is one of the world’s leading Decision Scientist and Theory of Constraints’ experts. Alan, a serial entrepreneur, is the Founder and CEO of Goldratt Research Labs, a company he co-founded in 2008 together with Dr. Eli Goldratt, creator of Theory of Constraints. They were both passionate about applying a robust scientific approach to developing new Thinking & Decision making methods and advanced technologies to help people make better, faster decisions – decisions that move them closer to their goals.
Today, Alan works as a Strategy advisor, Researcher, and Theory of Constraint (TOC) expert and educator, with both Fortune 500 companies as well as NGO’s and Government Agencies. His clients include Microsoft, Cargill, Tata Steel, Nike, ABB, BHP, Cisco, South32, SAP, Intel, Penguin Random House, BC Rail, Larsen & Toubro, Premier Foods, Fujitsu, Habitat for Humanity, UNDP, UNWFP, and Utah Governor’s Office of Management and Budget.
Discover more details here.
Some of the highlights of the episode:
Follow us on:
Instagram: http://bit.ly/2Wba8v7
Twitter: http://bit.ly/2WeulzX
Linkedin: http://bit.ly/2w9YSQX
Facebook: http://bit.ly/2HtryLd
Hello, and welcome to the leaders in tech and e-commerce podcast. I am your host, Andrew Polamalu, and I am the APEC director for ELCA global executive search. Our mission is to connect the tech and supply chain and e-commerce ecosystem in Asia and globally by bringing forward some of the most interesting stories about success and failure from leaders in the industry. I am happy to have with us today, dr. Ellen Barnard, Ellen is one of the world's leading decision scientists in theory of constraints, expert. He's a serial entrepreneur and he is the founder and CEO of golden research labs, a company he co-found in 2008 together with dr. Elie Goldratt, the creator of theory of constraints. They are also passionate about applying a robust scientific approach to developing new thinking and decision-making methods and advanced technologies to help people make better, faster decisions. The decision that moved them closer to their goals today, Ellen works as a strategy advisor, researcher and theory of constraint, expert and educator with both for fortune 500 companies, as well as NGOs and government agencies from a long list of clients. We can mention Microsoft current Tata steel, Nike app, Cisco SAP, inter, and many others. Ellen has worked with in his capacity as the CEO of gold threat research lands. Hi, Ellen is great to have you on the podcast today.
Speaker 2:Thank you, Andre. Thank you so much for the invitation.
Speaker 1:It's my pleasure. And I did a bit of homework and research and I was impressed by your background, but let's, uh, let's start with a short introduction. Maybe you can tell us more about the main milestones of your career so far, because I know there are some key words, right? Entrepreneur research, scientist, app developer, author, and speaker, but I'm sure you have more stories there.
Speaker 2:Sure. So I started my career in 1992 after graduating as an industrial engineer and joining the largest equipment affection in South Africa. And very soon after joining them in, I read the goal of book that changed my life. And a couple of months later, I had the privilege of meeting the author of the goal daily gold[inaudible] of constraints. And, and I applied, you know, theory of constraints in our own factory. At the moment. At that time, it was producing cookware and we achieved the results that would under normal circumstances could be considered to be impossible. We literally doubled the fruit of our factories without increasing operating expenses. We dramatically reduced our inventories while at the same time, improving dude I performance and availability. And, and that was my introduction into the world of manufacturing and distribution, consumer goods, supply chains that fascinated me. And it was a great start to the rest of my career. Uh, after a couple of years, they, I didn't have an opportunity to decide what to do. And I've met with the adopt daily gold at one evening yet come out to South Africa. And I asked him whether he thinks it's possible to improve any company. And he said, of course, and I said,
Speaker 3:Substantially, not by a little bit, but substantially you said yes. And I said, so of all the companies that you've worked with and you worked with hundreds of different industries around the world, uh, which industry do you think is the most difficult to improve? And he's sick after thinking about, but probably processed industries, you know, in a kind of a job shop environment, you can dramatically improve your performance, similar to what we had done and even production lines by just being very clever at how you plan the work, execute them constantly improve. But with the process industry, you stuck with infrastructure, you know, you've got tanks and vessels and, and big plant units. That's really hard. And in those environment, squeezing a couple of percent more art was a dramatic improvement and he said, but you know, by the way, why are you asking me this questions? And I said, you know, I'm a little bit embarrassed to say so, but I'm kind of bored. You know, I, uh, at that stage and I'd, I'd reached the level of[inaudible] to COO. I was in my early twenties, we had implemented theory of constraints, every aspect of our business. We developed our own ERP system based on fear of constraints. And I was looking for the next big challenge. And after hearing his comments, I decided to join South African breweries that were considered to be one of the leading breweries at that stage in terms of financial performance, but nowhere in terms of size. And it was interesting because for me, the challenge was as you know, improving something that's, that's, that's not great is pretty easy, but improving something that's considered to be almost the best in the world. And especially in a industry that's not totally asleep, difficult to improve was massively challenging. And the first three months I was really kicking myself and thought, what the hell were you think I was surrounded by the brightest people, you know, that I've ever made. And on top of that, I don't even drink beer. Interesting. I had family members from all over the place, contacted me, asking me about what am I planning to do with my quota of beer, but as a, just a short summary, it gave me an opportunity to, to think about what's the process that you would use if you go in into an environment that you essentially have no intuition about. And I, I know intuition about producing beer, making beer and the stupid thing that, and I'm going to give an idea of how good South African breweries were at that time, where we had a couple of people from Germany and the U S to in and lectures about consumer goods, supply chains. And now we're talking about inventory terms of, you know, sort of 24 as, you know, the higher number that you should be striving to. We've already running in the fifties and forties, you know, so having an extremely efficient supply chain, but what I learned from that experience was not only it's, it's almost always possible to do substantially better, but I kind of discovered a process that you could use in any environment. So to the listeners or viewers out there, if you're going into an environment that you have very little intuition about, the first thing you want to do is to see if you can pick up if there's a big difference between the best and the worst or the best in the average. So I'm looking at that, that supply chain. And I asked myself, what's the difference between the best day and the average day and the worst day. And can I understand what will the conditions that were in place under the best scenario and the worst scenario, and essentially, how can I replicate those conditions on a day to day basis? And that could dramatically improve your performance to move it closer towards the best. And that was an extremely valuable lesson. And since then I've applied it into going into mining, know nothing about mining going into house construction in Japan, knowing nothing about it, but the same idea as look for these gaps between the, the, the best, the average and the erased, whether you applied at the, at the manufacturing or distribution or retail level, or even at a human level, right? Like who's the best sales person. They sell 20 houses per month. What's the average person sell about four. Okay. What are the conditions that enable that person to sell so much more or to produce so much more? So that was a big thing. And that gave me a lot of confidence after that. I, you know, I got bored pretty quickly after that, because like I said, I, I don't even drink beer, even though I learned how to taste it. I've always been an entrepreneur since I can remember. I wanted to be in control of the type of products. I developed services like Gregg. So I founded a company with a couple of friends who are engineers, and we created the same, a TOC software services company that we're developing mobile apps, et cetera. And I become quite close to dr. Lee Golder by that time. And in the early two thousands, I started working with him on some really, really big complex projects and probably got a little bit addicted to that adrenaline rush. When you go into the environment, meet people that you've only seen, you know, doing keynotes at international conferences to sometimes only on the news, you know, and you're able to work with these people and you, you trying to help them to solve a wicked problem in the industry. And that gave me a lot of confidence to find out that these skills
Speaker 2:And techniques that are developed over time can work even in those ultra ultra complex environments. And more and more, I started working with dr. Goldberg on these big projects and around 2008, we went out for dinner one night and he said to me, so Alan, what's your dream job. And I explained to him that I've always wanted to have my own research lab. And, you know, I want to be able to choose who I work with, what I work on. I want to build a strong team of very, very bright people that are not overwhelmed by complexity that really deeply care. And that's kind of how Goldwood research lab was founded since then, we've developed a range of award winning apps. I've become an author and speaker and a, the Canada rest is history.
Speaker 4:Mm. I mean, that's a lot to unpack there. And like you said, is it possible to improve any companies starting from there? And then with no intuition, maybe it's better to identify the gaps between the best average and the world. That's very interesting to hear. So your relation with dr. Lee was quite an interesting one, because maybe it was the catalyst in a few important projects in your life, including the goal during the research labs. If I understood. Correct.
Speaker 2:Absolutely. There was a couple of moments that, that, uh, had a real impact on my life. The first one was literally when I read the goal, like most people that get introduced to this and this book is still astounding, you know, listed on Wikipedia is one of the top 150 books of all time, you know, sold more than 10 million copies. And it's still in the top 1000 of books currently selling on Amazon. You know, if you think about how many books there are, but the full word was where I was grabbed already Elliot articulated to me, the scientific method in the simplest form that I'd ever seen. He basically said that if you want to make a breakthrough in field or organization, you're passionate about, you only need to follow two steps. The first one is to have the courage to look for consistencies gaps, essentially, between what you expect to see and what you actually see. Right? Uh, for example, in mining, mines are designed underground. Mines are designed typically to do a blast, right? The ships are designed to do a blog today, you go in there and you find, okay, so you're working, you know, three days a month. How many blasts do we actually do? And you'd be shocked to find out that most do around 15 or 16 or might be 20. And that's a huge number. So, so the next question is, step number two is have the courage to challenge basic assumptions related to this inconsistency. And there's two ways that you can challenge that you can think about this gap, right? So
Speaker 3:One is the assumptions on which you base your expectations, right? So your expectation could be wrong. It could be too, too high or too low, or that the assumptions on which you've based your actions to reach that expectation could be wrong. Unfortunately, the most common way is that people think too, after some time, if they're not meeting their own expectations or the expectations or their company, they start lowering their expectations. And that triggers a self-fulfilling prophecy, right? Where the mining guys would start convincing themselves. That there's very good reasons why probably 20 blasts a month is the best that you can do. And that really grabbed me that, that moment, where I realized, wow, you know, measuring expectation gaps is not where the innovation is required. Yes. It requires a bit of courage to point those out. But where the innovation is required is to come up with simple methods and later apps to help us check what are the assumptions that we need to check and challenge that can close those gaps. So, so that was a really big thing. The second thing that he said that I might sort of touch a little bit like to onwards, you know, I often gotten into big arguments with him and I, I, I couldn't figure out for a long time why, you know, you was giving me quite a bit of attention, this young guy from South Africa. And he, one day said to me, it was because I was challenging him, you know, and was forcing him to articulate more clearly and sometimes even change his mind about things. But during one of these arguments, he sort of paused me. Uh, this was one of our first meetings. And he said to me, young man, what's your goal
Speaker 5:In life? And I,
Speaker 3:I continued to specify, you know, all the milestones as a young, 20 year old guy, you know, you want to drive a nice God, marry a supermodel and, you know, come up with one original idea, right. To the site, the whole spectrum. And he was shaking his head so much. I thought he was going to fall off the chair. Like what? You can't disagree with my goal. You asked me what my goals were. And he said, no, it's clear that you don't have the same definition of a goal then
Speaker 5:I do. And maybe that will help you. So
Speaker 3:I said, what your definition is, there's kind of two definitions. You can pick, which one you want to use is that the most serious one is a goal. A life goal is something that when you achieve it, you really it
Speaker 5:To die. Wow. It's powerful.
Speaker 3:That's deep. And yeah, and it made me think very, very hard. And he said a more softer version of a life's goal is simply a dream taken. Seriously. He said, you have two things to do in life. You need courage to have dreams. It's very easy not to have dreams, but why don't you have a dream from time to time, you should be asking yourself, how are you taking this seriously? Is Institute currently doing? In fact, the people that you are currently with is that helping you make progress towards that dream of yours or not. And if not, then you need to change it. So that was my kind of a meeting. And, and that's those words sort of inspire and horned me every day of my life.
Speaker 4:Powerful. And how would you, maybe this is connected to the next question. That is what is the main mission of golden research labs? But one question is this one, what is the mission of the research labs, but then how would you answer the, the goal for yourself? Or how would you answer the goal question now?
Speaker 3:Yeah, so, you know, I met Eylea again a couple of months later, and one of the things that he left me with was this paradox, right? He said, I understand that you could die every day. Right. And I said, of course you don't like to think about it, but yes, that's true. And he said to me, would you want to die without having achieved your goals? And then that still chokes me up as I think about that. And I said, no. So he said, think about it. And a couple of months later, I met him and literally, you know, one of the things that made him so incredible was this, he had this incredible memory and he literally walked up to me and he said to me, and it's like, what's a, what's the solution to this puzzle. And I said, well, the only way I can resolve it is that I, I must look at a goal as a journey, not a destination, and must able to articulate my goal in a way that I can achieve it every single day. And he said, that's pretty good. So what, what have you come up with? And I shared with him that my passion has always been in helping people make less avoidable decision mistakes, helping them not to just, you know, make better decisions, but to learn every time they do make a decision mistake. I said to my realized in the research that I've done, that it's really easy to make mistakes, decision mistakes, this, this always infinitely more ways to get it wrong than to look right. And it's really hard to learn from your mistakes because of practical things like confirmation bias. I, my goal was to turn that around. I wanted to create simple methods and apps that make it hard for people to make decision mistakes and easy to learn from them. And he then shared with me, you know, that his life goal was to teach the world out to think. And that was his ultimate goal was to apply the mindset and methods of the scientific field to the soft sciences. And we immediately clicked. We realized that there was total alignment in, in our personal goals. So many years later, when you asked me about what my dream job, and I explained to him that I want to run a research lab. He said, well, that's what you had in mind for me that I'd shown with some of the innovations I'd come up with in almost every aspect of fear of constraints by that time, often challenging or improving things that they had done, which he highly respected. In fact, he's lot last words to me before he sadly passed away in 2011 and was, he said, Alan, I expect you not to stand in my shadow. I expect you to stand on my shoulders, right? I want you to continue to challenge what I've come up with and inspire people to do that. So we essentially that evening formulated that the goal of gold research labs to help individuals and organizations make better, faster decisions when it really matters. And the, when it really matters spot, essentially him set the fact that most of the decisions we make on a day to day basis, both in our personal life and in business, actually don't matter in a bigger scheme of things, but a few do matter a lot getting done right or wrong can be the difference between, you know, a meaningful life or, or not, and being successful in your industry or not. And that's essentially what my research lab now focuses on is to develop simple methods and apps to help individuals and organizations make better, faster decisions when it really matters.
Speaker 4:That's, that's some powerful stories right there. And then I appreciate you sharing, I know one, one part of the positive list, harmony decision-maker, and I think there are a few apps there. I would be very curious for you to tell us more about it and how does it connect with the three constraints or is there a connection I'm? Sure,
Speaker 3:Sure. Yeah. So firstly, um, we we've developed over time, we've developed three apps and each of them is designed to help us reduce an avoidable, a specific type of avoidable decision mistake. The first one, which is the one that you're referring to harmony decision-maker is simply designed to help us prevent the mistake where we don't realize to what extent our strong emotions influences our decisions, exaggerated frustrations with our current status quo or expectations where the future can cause us to overreact and make bad changes and exaggerated fear of loss or effort or risk can cause us to procrastinate and making good changes. So the decision by app was designed specifically to do two things as to help somebody discover what those limiting beliefs or assumptions can be, that can cause them to overall underreacting the situation, both in their personal life or in business. And secondly, develop better options, options of more pros and less Scott. So that's what the harmony decision maker app is. We have a change-maker app that is really focused on a second type of mistake, which is okay, we've made a decision to do something right. And that's the connection between the two apps we've made a decision to do something, and then you don't or you do it partially. Why is that? Right? So it's all the type of obstacles we will face when we are making changes in our life or business that that app is addressing. And it's got, you know, five simple models of modules that helps you to design the changes, check and validate the assumptions, build a project plan, monitor the implementation and do audits, et cetera. So that's the second app harmony change maker. And then the last app is, is really a range of apps. We call it how many Chinese simulators and that's trying to address the practical challenge that we have in managing complex systems is that it's extremely difficult to be able to identify causes
Speaker 5:Of a fix. You know,
Speaker 3:If it was true that when you see a big change, a big result, it must be a big change. Right? Then it would be pretty easy. You'd say our performance has gone up by 50% or down by 50% go and look for some big change that can explain this. But when small changes can have big impacts, it becomes practically almost impossible to go backwards
Speaker 5:Maybe then.
Speaker 3:Yeah. So to give a simple example for the, for the viewers and listeners, imagine you're sitting in a management meeting and we've noticed that the profitability of our company went down by 20% last month. What would you be looking for? You looking for some big thing, right? Like what the hell happened last month?
Speaker 5:Yeah. One of the
Speaker 3:Explanations could be that, you know, we have a company with a hundred million dollars in sales and our profit up to that point was$5 million. So 5%, right. And there was a 1% reduction in the average selling price, right? Either because we gave away 1% additional discount or we sold through a distributor rather than to a customer, whatever it is, right. Just the 1% change or what we could changed the product mix that 1% represents$1 million. So essential cells have gone from a hundred to 99. Our variable cost wouldn't have gone down. Our operating expenses wouldn't have gone down. Um, so that whole 1 million went of our bottom line, which was 5 million now, 4 million, that's a 20% reduction in net profit for a 1% change in average selling price. That's not possible for our human mind to comprehend in complex systems, right? So simulations is a fantastic way to model complex systems that has these non-linearities and feedback loops in both to understand potentially what could be causing the current effect with a positive or negative, but also to taste it out different strategies, right? Something happened for example, COVID 19. Some of our customers have approached us and we use our simulation models. We've got ones for supply chains for mines, for project environments, for retailers. And we can use those models to say, if something has happened, like COVID first of all, what is going to be the thing impact on our business, on our supply chain and what would be the best way to respond? And we can stress test many different strategies in a very low cost, low risk way. So that's what the app is. You, you ask the question, what's the connection between theory of constraints and what we do in terms of decision-making. And that was not picked up quite early on is that Herbert Simon, who was one of the pioneers in operations research and AI, he published started publishing papers already in the 1980s, seventies that was sharing his he's sort of insight that more and more we'll have more and more data and more and more information from that data. And that the, the cases resource will not be data information. It will be the ability to process that data and information. And he claimed that the constraint or bottleneck is going to become attention management, something that in the early two thousands, we were starting to do these massive projects. As I mentioned around the world, you know, implementing fear of constraints and big organizations. And we were noticing that they weren't giving us the results that we expected, even though, you know, the solution was, was very valid. We tasted the solution often on a simulation projects, but what we didn't consider was the fact that the ultimate constraint wasn't going to be cash or supply or capacity or demand dosings, you can always get more off, right? Even the biggest company in the world has only a few percent of the, of the world's, you know, market share, right? So it buys at a market that's constraining them. And then I remember this insight from, from Herbert Simon, I started sharing it with Ellie and that changed a lot yet sort of reached that kind of conclusion independently. So when we talked about it one evening, literally the light bulbs went on and said, what if the constraint is management attention, our limited attention. And when you have an insight like that, one of the things that Ellie taught me is not just to focus or Whoa, view insight, is to think about what else will change as a result.
Speaker 5:What was the chain of
Speaker 3:The effect of that change? For example, a simple thing that I immediately did was I said, you know, we use a ratio called return on investment to put decisions about which things we should invest in and which not right. But that ratio is based on a, on an assumption that cash is a constraint.
Speaker 5:What if
Speaker 3:It's not a constraint? What if management attention is? So I created a ratio. We taught comp roadmap return on management attention, right? Which says that I have two opportunities to invest my limited time or tension or budget in both of those could potentially give me a million dollars, which one should I go for? If the one would only require 10 days of my attention and the other one 50 days of my attention becomes an easy decision. And what we had realized from that is that decision mistakes is by far the biggest waster of our limited attention.
Speaker 5:And
Speaker 3:It's not just mistakes, but also delays. If you, in a manufacturing environment right away, there's always this huge ratio between the, the F the total time. It takes us to get something manufactured, right? Select four weeks. You, you order something, I quote you four weeks. What, what's the physical touch style? And it's often like a few hours, like, and that's true for almost any environment you think about applying for new passport, they quote you four weeks. How long does it actually take them to prepare a passport,
Speaker 5:Do
Speaker 3:Hours, maybe even minutes, right? So there's this huge gap. And if we can understand what's causing avoidable delays and flow, that's by far the biggest opportunity for improvement. And I realized that once you understand that attention is a constraint and that we wasted by making decision errors or by delaying good decisions, you realize that the same is true for decision-making think about how long people procrastinate on decisions, or we delight that decision until the next board meeting,
Speaker 5:Correct.
Speaker 3:Actually take to make that decision when you have a full kit of everything that we need and everybody that you need, you know, a few hours, right. Yeah. And I realized, wow, that's by far, the biggest impact that we could make to help organizations is not just to share with them some of the brilliant, simple decision rules that, that fear of constraints have developed over the years to do planning and execution and ongoing improvement, right. Because that's really what all the fear of constraints solutions are. They just a set of really simple, but practical rules for achieving global rather than local Optima. But when you apply it to the decision-making process is let's start paying attention to the mistakes that we make or the delays that's in them. If we can reduce those mistakes and reduce the delays, that's probably by far the biggest value that we can add to our own businesses. And those of our clients
Speaker 4:Talk a bit more about supply chain and because you touched the point and I think it would be great to take an example. I know you have quite a few case studies where we can bring everything together, right. From the management attention part, probably identifying the gaps and a few others. So is there an interesting example from, uh, from your long list of case studies that you can showcase and tell us more how, by just implementing your solution, they had a huge increase in results or efficiency in your work.
Speaker 3:Yeah, there's a couple one that, that, that really stuck with me was an area that I'm really passionate about, which is books. And we were contacted by the largest book publisher in the world. And at that stage, which was the sort of early two thousands, mid two thousands, they were facing a crisis. And I think that many of the listeners and viewers could relate to that. You know, many of our businesses are currently facing a crisis. And what do you do when you, when you face a crisis? Right. At that stage, what they were noticing is that more and more electronic books were starting to become popular. The average selling price was dropping. And I explained, you know, how huge of an impact even small reductions in average selling price can have on your profitability. And on top of that, you know, Amazon was coming out and was really taking, not just Amazon was a customer, but also a competitor. And they realized that the more electronic books they're going to be the easier it will be to copy. And the list that I will sell, right. Sort of double whammy. And I had a CEO that had the courage to commit, not just to protect the level of profitability, but to double it. The reason why I was called in was that I had a wicked problem, which is the type of problems we love working on was that the, the level of returns in book publishing is incredibly high. It's typically between 30 and 40% of every book that's printed comes back for shredding.
Speaker 5:No,
Speaker 3:And they did the calculations. And they said that, you know, that's about$150 million. If I could just Harvard, that would be$75 million. That would be a huge thing. Right. I had an opportunity to meet a CEO and it was supposed to be just to be a simple introduction. And he said to me how he's heard about the project. Is there any thing that I think could be useful to him at his level as a CEO? And I shared with him this insight that we suspect that the real constraint, the real bottleneck is, is you right.
Speaker 5:Yeah.
Speaker 3:Right. And he sort of nervously laughed about that and said, you're probably right. So I said, what, what and who you pay attention to is going to be all the difference makes all the difference. So I asked him, you know, yet committed to double the net profit of his company from 150 to 300 million, when all the other CEOs that were candidates were only willing to commit to, to sort of keep it rather and not prevented from coming down. So I said, how are you going to do that? What's your strategy? And he said, well, it's simple. We will have to figure out a way of doubling sales. And he said, any insights. And I said, well, the first thing is, you know, we use our methodology to find out what these limiting assumptions or beliefs are. And it seemed that the first one that you should consider checking is that you assume that net margins are fixed,
Speaker 5:Right.
Speaker 3:It's not right. Unless you're a trader where all your costs or your net margins aren't fixed. So I S I took him through my sort of a way of focusing. I said, look, if you're sitting with$1.5 billion of sales, and you've got$150 million of net profit, and you want to double net profit considering not just your back, your direct reports management attention is probably the scarcest resource. You want to find the fewest possible changes you could make in your organization that will give you not just that goal, but include some buffer. Right. And he said, absolutely. So I said to him, so quick question, do you think customers care whether I pay$20 or$22 for a book? Is it probably not? They probably not that price sensitive. So I said, well, if you could get an average selling price, increase of 10% over the next two to three years, 10% on$1.5 billion of sales as 150 million, you could double your net profit just by doing that. Now compare that in terms of the level of your attention, and probably budgeted would require compared to finding a way of doubling sales.
Speaker 5:Yeah. There are two big different, I'll never forget.
Speaker 3:You know, he literally, he asked me to do the numbers again at called in his CFO. I did the numbers again, and he went that that's mindblowing, right? How did we miss this? And then I said, even if you couldn't do that, if all the increased profit that you come from selling more, what is your variable cost? And he said, you know, worst case scenario, about 50%, if you add in printing, distribution costs, returns, costs, royalties to offers, et cetera. So I said, so if we need 150 million in net profit and your variable cost is 50%. So that's one 50 over 0.5. So we need 300 million in sales. So that's a 20% increase in sales. If you own your direct reports now, and you asked each of your department heads with a bit of assistance, do you think you could potentially do about 20% more without significantly increasing your operating expenses? And he said, probably they will say yes. He said, that's your second leverage
Speaker 5:Point. And
Speaker 3:That's essentially how I would approach any project is to start with, what is this goal that I trying to achieve? Is it ambitious enough to, to force them to think out of the box? Sometimes we sort of lucky that we get a crisis like that, that cause us to think out of the box, right? We've just lost six months of sales. What the hell are we going to do? But then to think about, what's the one thing that if we could get ourselves to believe that that would be possible, that that could change everything. And then to just think about all the yes, buts, right? What can block us from capitalizing on that new idea? And that's kind of a, I hope that's a good example. You know, we were able to do, to get the returns down to a level that was unheard of in the industry. And what I found so remarkable with this company is not only, they were willing for us to share what we had done, but actually encouraged us to work with other players in the industry, because I realized that that whole industry is fragile, right?
Speaker 5:No
Speaker 3:Part files, everything files, even something like the book retailers and important thing you would like to. And we met with some people from Amazon and it was in their interest to protect brick and mortar retailers. Why, because about a third of all sales are impulse sales. Correct. So people walk into the, the, the book retailer brick and mortar shop. They see a book and they might buy it online. So if you post at all, if you're going to lose a massive amount of sales and that sort of the last spot,
Speaker 2:That's always looking for these, win-wins where, you know, you can take the pie and make it big enough because then everybody wants, rather than just fighting for bigger share of the pie, how can we take that and an increase the size of the pie.
Speaker 4:Mm. And I feel like I, like we can talk for hours and hours friends. We, we have to go back to the last question cause we are running a bit out of time, but, um, I wanted to ask you about supply chain professionals and how maybe a piece of advice that you would give to them. I think it might apply to all professionals or people, but how can maybe supply chain professionals in general improve on their decision-making process in order to make better decision? What would be one piece of advice? I'm sure we could write probably more than one book on it, but you could do it, not me, but what would be an,
Speaker 2:I think the first part is to recognize, as I mentioned, when I started how easy it is to make mistakes and how hard it is to learn from your mistakes. Right? And that when we use technology, like the range of decision, support apps that we've developed, we can turn that around. We can use technology to firstly, slow down our thinking, right. And to help us consider many more options than what we could have considered. And I think that, you know, if I, if I look at a typical engagement and I see somebody that is in the supply chain planet position at the top of the seasons that might come a daily basis, you know, I, I have the privilege of supervising a bunch of PhDs. And I often sort of think to myself that these supply chain planners have, you know, a hundred thousand dollars a year or something like that, they actually are making the decisions that, that you could earn a PhD for, right it's decision outcomes, whether they right or wrong has massive impacts on the business. Right. We did a project with Microsoft and in the same financial year that we started off at Microsoft is really efficient. I have the best people, the best technologies, but in, in, in, in the same financial year that we started, they were able to reduce the inventory spot over quarter of a billion dollars and increase sales by a few hundred million. Right. And we did that by capitalizing on technology, right? Using these decision support apps, to first of all, identify what's causing avoidable shortages and surpluses and delays in their supply chain and then tasting different strategies, like demand driven, theory of constraints, et cetera. And once you've been confident that we had stress tested the heck out of these various strategies, we were then confident enough to implement that within the SAP system. And the technology today is so fast. You know, you could build these simulation models like we do within a couple of days now because I completely self-configurable from platforms. So that could be my advice to supply chain
Speaker 3:Individuals. First of all, make a list of all the decisions you make on a daily, weekly, monthly, annual basis, identify which of those are consequential and which ones are avoidable when you make mistakes, right? Because many of the decisions we, mistakes we make are not avoidable, right? You, you asked to forecast the sale of a specific item at a location. You're going to get it wrong. Are there ways to improve your focus? Yes. So, so do it, but you you're going to be wrong. And if you're wrong, you're going to have shortages and surpluses. Right? So if that's a decision mistake, that's consequential think about what's available to you. And, and I think the last piece of advice I want to share is we should never let a crisis go to waste. There's a great book that Elliot written called. Isn't it obvious, which is like the gold version for supply chains, for distribution and retail. And when, when he was brainstorming this book, you know, you had asked me a question. He said in the goal, what do you think would have happened if Alex Rogo the main character and the goal didn't have these main Tor Jonah that could use the Socratic method to ask him the right questions that would allow him to gain the insights. And we brainstorm that a little bit and said, that would definitely be tough, but there's one thing that, that could have helped is imagine if Alex had a crisis now, how do we get out of a crisis? We break the rules. Right? Many of the listeners and viewers would know what I'm talking about is when COVID-19 hit, suddenly people had to break the rules. You started getting one day's work done in one day, right. Rather than one day work taking 20 days or two months, or, you know, um, you started collaborating much more closely with your customers, even sometimes with competitors to find out where can we source stuff and get it there very, very quickly. The problem is that when the crisis is over, guess what we do, we go back to the old. Yeah. And we'd never think about if these, these new rules were so good to get us out of a crisis. If we could use them on an ongoing basis, wouldn't I prevent us from getting into a crisis in the first place. And I think demand driven is a great example of like that, right? Whether it's a DVM, RP or figurative constraints are all demand driven rules. If supply chains, we're implementing these rules, that gives them, you know, the focus, the fast feedback, the ability to dramatically reduce lead times, improve availability with lower inventories, we could probably prevent future crisises.
Speaker 4:Hm I'm sure we could. Maybe we should do another podcast soon, Alan, because we have so many interesting topics to explore even further. Like I like the driven one and
Speaker 1:I'm fitting the short cost and the theory of constraints has so many Noxon and cracks that we can explore, but I appreciate your sharing. What we will do. It will link up with most resources that you were mentioning in our podcast space. So the listeners and viewers can access everything on that note. I want to thank you very much for the sharing best of luck in achieving that goal. I mean, it's, it's a, it's a big girl and I'm sure much more interesting stories will come out of it. And thank you again.
Speaker 2:Thank you so much, Andre. And I'll share with you the links to my podcast series. Impossible. Unless we, we take, you know, every episode we take some target that people might think is impossible. And we ask unless with a question Mark, what product conditions, and also my, my YouTube channel that has, you know, hundreds of hours of content. So we'll share those resources with the listeners and viewers.
Speaker 1:Super. I appreciate that. Thank you again, Ellen. Thank you, Andre. Thank you for listening to our podcast for all the show notes and information discussed in the episode, please follow ELCA global.com/podcast. Also, if you found this interesting, please subscribe to the podcast on iTunes, Spotify, or Stitcher, or one of the podcast platforms we are looking forward to your feedback.