Necessary But Not Sufficient
Author: Eliyahu M. Goldratt
This is the first time that I have read a Goldratt’s novel. Trust me, I regretted that I didn’t read it earlier. I was not much of a fan of business novels earlier as I had a feeling that they don’t do justice either as a novel or as a business guide. But I was wrong. This novel was completely engaging and I found myself completing the novel fast, even while investing the rare free time that I get.
The Novel focuses on the journey of a large ERP (Enterprise Resource Planning) software vendor, a fictional company called BGSoft and its implementation partner KPI Solutions. The company’s CEO Scott and the head of Development Lenny are confronted with the approaching market saturation in their target segment of Fortune 1000 clients, and hence their near-future 40 yoy growth becomes questionable. To retain the current pace of growth, the organization has to look for mid size companies. But then, it takes the same efforts and margins would be less. Added to that, the company has to deal with the ever increasing complexity of their Software and has to justify the bottom-line value of their ERP package for their most important client Pierco.
BGSoft now sees a paradigm shift – they need to sell value and not just technology. Technology is necessary but not sufficient is the theme of the book. The book later focuses on selling value and bringing value for money for the BGSoft clients. For that they opt for Theory of Constraints- Drum-Buffer Rope method and Buffer management. This increases the capacity of production, but then they have another problem in hands- The Inventory.
Any ERP system introduced into an organization improves the data flow across the departments and increases the visibility of the operations. Strangely when a new change is implemented, new rules has to be incorporated. If people play the game with the old rules, the impact would be lost. Pierco’s operations show excess inventory, production bottlenecks and fights among various departments who are expected to work towards common goals. Performance measures continue to aim at locally optimal solutions ignoring the final impact on customer service.
As a solution, TOC concept is then extended to distribution and soon across the entire operations of Pierco. Inventory is kept close to the plant and shipments to warehouses are based on replenishment of actual sales. The entire process shifts from “Push” to “Pull” and the results are dramatic. They also buy an Advanced Planning System to target the Mid size companies and to sell value for them. The entire ERP solution is extended to the Pierco’s clients and suppliers, through out the entire value chain with BGSoft as a revenue sharing partner. It creates a win-win situation for all, as Pierco doesn’t have to worry with the software, bugs, upgrades and hassles where as BGSoft gets entry into the mid size market through client referrals.
The book is great if you want to get an insider view of operations involved in a manufacturing industry. It clearly sets goals of CEO’s and discusses the problems inherent in implementing ERP packages. Most of the issues dealt in the book can be observed in real business situations in the current market. I find the book to be a great read!