The Goal

the five steps; to figure out the detailed procedures. In The Goal, I introduced the overall concept and, through the detailed procedures for production, proved its valid- ity. In It's Not Luck, I've explained the thinking processes needed to develop the detailed procedures to perform each of the five steps. As teaching examples, I showed how the thinking processes are used to develop the detailed procedures for sales of several different cases of manufacturing organizations. So, as a result, manufacturing organi- zations are not presented only with the approach and the concepts but also with the detailed procedures. Detailed procedures are not available for most types of service organizations. Therefore, in order to implement TOC in a service organization, one has to follow this generic knowledge and first develop the specific procedures. This is, of course, a much bigger task.

DW: So why didn't you write another book for service orga- nizations ?

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EG: As you know, we use the term service organization for a very broad spectrum of totally different types of organizations. Organiza- tions that are different from each other no less than they are different from manufacturing. You are not talking about another book, you are talking more of a library.

DW: Can you give me an example of a TOC implementation in a service industry? Any type of service industry?

EG: Let's start with a company that does not design or manufacture anything, and therefore is called a service organization. Still they deal with physical products; something that you can touch. An office supply company.

DW: A distributor of office supply products?

EG: Correct. But before you go and interview them, let me stress one point. All the TOC detailed procedures for the logistical aspects of distribution had long been developed and tested in many companies. But this particular company still had to use heavily the thinking pro- cesses to properly develop the detailed procedures needed to properly position itself in the market.

Interview with Patrick Hoefsmit, Office Supply

Former managing director, TIM Voor Kantoor, 100-year-old office supply company in the Netherlands .

DW: What was your first exposure to The Goal?

PH: I was one of the owners of a printing company. Pretty big com- pany. Couple of hundred people, 40 presses. I was taking a course from someone who was explaining to me the difference between debit and credit- I'm a technical engineer, so I needed some explanation. And I was such a pain in the ass during the course that he gave me a book, The Goal. He said, 'This is something for you because all the other books are nothing for you.' I read it with great pleasure. I thought finally I have found someone who can explain to me the meaning of business.

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DW: That seems to be a large part of the appeal of The Goal, it's accessibility.

PH: Yes, The Goal doesn't go really deep into the financial difficulties of running a company. As a matter of fact it completely makes it ir- relevant. So for me it was also a great message that I could just ignore all these economist Ph.D. people-if they couldn't explain to me what was going on, then forget about it! So that was my first experience with the Theory of Constraints. Then somebody gave me an article that said Eli Goldratt was in Holland to give a seminar. So I went there. At the seminar Eli told us that he just increased the price for his Jonah courses from $10,000 to $20,000 because otherwise top management wouldn't come; something like that. So I said to him, 'I promise I will come, even at the old price!' He said he had a better deal for me. If I was to do the course, I could do so and I only had to pay him after the results were of such magnitude that the price of the course was irrelevant.

DW: Good deal.

PH: Yeah, it was a perfect deal. So I went to New Haven, to America. He had an institute there. Did the course, couldn't do anything with it. So a year later I went to ajonah upgrade workshop; it was in Spain. Eli has a very good memory, so when he ran into me he said, 'Hey, did you pay for your course yet?' I said, 'No, no, I didn't see any reason why I should.' So he invited me for a private session. Some people warned me about that! On Monday morning I had a private session here in Rotterdam. That was a hefty morning. All my homework and all the things I did were to him completely irrelevant. The point was, I was looking at my own company and looking for a production bottleneck when there was so much excess capacity and the constraint was obviously in the market! But for me that was thinking outside the box. It had never occurred to me that Theory of Constraints would apply also outside the company's walls.

DW: That's understandable, since The Goal describes a produc- tion problem.

PH: Yes. So I was one of those stupid people who couldn't see the whole picture. So then Eli explained the bigger picture and the bigger

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application of it. He slowly forced me to think-sometimes by yelling at me, 'Think!' It was a hefty morning. And this story is described by him in It's Not Luck-the candy wrappers case. We finally made some money over there. Actually, a lot of money. Later I discovered that my nephew, who was the other 50% owner of the company, wasn't doing much and was taking out more money than we had agreed upon, so we decided to split the company in two. I did the split and he chose which part he wanted. I never imagined that he would keep the printing business, which I had been running, and leave me with the office supply business, which had been his responsibility.

DW: Did you know anything about the office supply?

PH: No, nothing at all. The company was pretty big, it was number four or five in the Netherlands. It was making an awful loss. Com- petition was suddenly fierce and only concentrated on price. Other companies were very subtly sending brochures to every small business in the Netherlands with prices on the front cover that I couldn't get for myself as a wholesaler. This was really awful. All our good custom- ers became suddenly more and more interested in price. They said, 'How is it possible that we pay twice as much as what's on the front cover of this brochure?'

DW: It sounds like an impossible situation .

PH: Well, it was, it was really awful. We had something like four or five thousand customers, 20 sales people. The only thing we could think of was to also lower prices, and do it only on items where we had to. That was not a long-term solution but that was what every- body else was doing. So the conventional way of doing business in office supplies was pretty soon completely gone. We got tenders for office supplies-which was unheard of-where you had to fight with three or four competitors. In the past, orders for office supplies were just given to a local good-performing company. Now everybody was focusing on price.

DW: So what did you do?

PH: We started to build, as Eli calls it, the current reality tree. And of course this time I didn't make the mistake of making it about our

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company but I made it about the customers' situation: Why is this customer complaining so heavily about price? After long thought and a lot of discussions with my sales people, the only thing we could come up with is that he's thinking this is the only way that he can decrease the total cost of office supplies; that he can't do anything about the tremendous cost of having to stock supplies, and store them, and the cost of bringing the stuff to the right people in the building. Well, I know what kind of a mess customers can make out of it. In most of- fices