15th International Conference of the TOC Practitioners Alliance - TOCPA

15TOCPA - 2014 TOC

November 14-15, 2014, China
20141114-15
www.tocpractice.com

Elevating the cash constraint

Nerius Jasinavicius
TOC Sprendimai, Lithuania
14-15 Nov. 2014

 copyright
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15th International Conference of the TOC Practitioners Alliance - TOCPA

Nerius Jasinavicius
www.tocpractice.com

Founder of TOC sprendimai

Founding Member of TOCPA
Consultant for unique clients
TOCICO certified SC, TP
Certified Management
Consultant

nerius@toc.lt

15th International Conference of the TOC Practitioners Alliance - TOCPA

 Abstract
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Producer of wooden pallets looses IKEA as a client. Few

months later due to economic slow down of 2008
company sees bankruptcy of few big clients and is hit by
substantial loss from unpaid invoices.
Company becomes really constrained by cash and they
have to changes fully the way decisions on pricing, orders,
purchasing are made in order to subordinate to cash
contstraint

15th International Conference of the TOC Practitioners Alliance - TOCPA

Agenda
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The company
The problem why did it happen
How to deal with cash constraint
What did company do
Solution
Some obstacles
Results
Conclusion
15th International Conference of the TOC Practitioners Alliance - TOCPA

The company
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Company established in 1993

Became wooden pallets producer in 1997
Started to supply IKEA in 2000
Became the main supplier of wooden pallets to IKEA in
2005, selling more than 1 mln. pallets per year
End of contract with IKEA in 2007
Financial crisis in 2008-2009

15th International Conference of the TOC Practitioners Alliance - TOCPA

The problem why did it

happen
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Loosing IKEA you have to pay attention to what your

biggest customer tells you
Loosing on accounts receivables different clients,
different risks
Reduced credit line what happens when you tell the
bank your problems
Loosing trust of the suppliers
Result:
We have capacity
We have orders
We have no cash to buy RM
15th International Conference of the TOC Practitioners Alliance - TOCPA

How to deal with cash

constraint
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There is Cash Constraint only and only if there are

sufficient orders i.e. OTIF < 95%
manufacturing capacity i.e. OEE<95% for all
equipment
right suppliers, and supplies are suffering as
suppliers are refusing to supply unless paid upfront
Cash shortage does not necessarily imply cash
constraint
From Ravi Gilani
15th International Conference of the TOC Practitioners Alliance - TOCPA

How to deal with cash

constraint
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You have to change your FOCUS and subordinate to

the current constraint

Throughput rate T = ((S/TVC)^(1/n) -1), S= Sales,

TVC = Totally Variable Cost, n = cash to cash
cycle time

From Ravi Gilani

15th International Conference of the TOC Practitioners Alliance - TOCPA

What did company do:

Solution
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Sell everything we dont need in nearest future

Stop buying RM in big quantities just because it
is cheaper
S-DBR to shorten production lead time
Evaluate all clients and orders through new
constraint just T is not the criteria
Focus on shortening cash-to-cash cycle
Aggressive discounts on prepayment
Higher prices for suppliers with postponed
payment
15th International Conference of the TOC Practitioners Alliance - TOCPA

Some obstacles
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Finance Director:
We are selling at a loss
Those orders do not cover our costs

15th International Conference of the TOC Practitioners Alliance - TOCPA

Results
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It took company 16 weeks to get cash-flow on

track
Bank increased credit line (because company
survived)
Time for VMI offer

15th International Conference of the TOC Practitioners Alliance - TOCPA

Conclusion
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Cash constraint is (probably) the worst

constraint
Exploiting and subordinating cash constraint
also elevates cash constraint
When constraint changes you have to change
your rules and policies (Cash Constraint is the
fastest constraint to shift!)
It takes not too long to break cash constraint

15th International Conference of the TOC Practitioners Alliance - TOCPA

Conclusion
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Thank you and good luck !

Dont get cash constrained !

15th International Conference of the TOC Practitioners Alliance - TOCPA