Retail, distribution and production. What’s differentiate Retail from others two?
– The Ocean of data. Many locations with thousands SKU.
Almost everyone agree, that software is necessary condition to manage this ocean of data. Some of them knows, that software is necessary, but not sufficient condition. Only few things, that software is not needed. The fact from life – the biggest parts of shops worldwide do not use software, but somehow survive. How it’s possible?
What is business? Business is just another living style or living philosophy. What is business management? Again – it is philosophy. Are you seeing organization like money making machine or living organism? Are you good boss or bad?
Lets try to understand who has the biggest influence on management science or on our Western style of living. The Great minds argue:
“I am convinced that He (God) does not throw dice” – Albert Einstein (1879 – 1955). He is the biggest Mohican on Cause – effect or Deterministic philosophy.
A deterministic system is a conceptual model of the philosophical doctrine of determinism applied to a system for understanding everything that has and will occur in the system, based on the physical outcomes of causality. In a deterministic system, every action, or cause, produces a reaction, or effect, and every reaction, in turn, becomes the cause of subsequent reactions. The totality of these cascading events can theoretically show exactly how the system will exist at any moment in time.
Almost all business books and all text books for kids and students are written according this conceptual model. For example all cost accounting system use simplified deterministic model. We can call their model – Determinism for dummies. Why? Because he is to narrow, to much fit to laboratories environment, not for open systems. To understand this concept, start with a fairly small everyday system. Visualize a set of three dominoes lined up in a row with each domino less than a domino’s length away from its neighbors, impervious to external environment influences. Once the first domino has toppled, the third domino will topple because the second will topple upon being contacted by the first domino. So, cost accounting think, that cost saving (first domino) will impact Profit line (last domino). Cost saving is very easy to visualize, but are necessarily linked to the rest of reality by an initial cause and/or final effect. The second domino falling might cause something else outside the system to happen. For example – will decrease service level for customer. Worse service level can impact last domino much higher, then cost saving and company will lost, but not increase their profit. To win from cost saving in long perspective – the system itself must be considered in isolation–if external forces such as clients, hurricanes, crises or the hands of nearby people were taken into consideration, the final Profit – domino toppling might not be a predetermined outcome. Complete isolation of a system is unrealistic, but useful for understanding what would normally happen to a system when the possibility of external influences is negligible. But for the knowledge and for most people thinking this simplified model can have very very negative outcome. This example assumes that dominoes toppling into each other behave deterministically. Even the above-mentioned external forces which might interrupt the system are causes which the system did not consider, but which could be explained by cause and effect in a larger deterministic system. The biggest challenge for “normal” business people – how to understand a large deterministic system or how to move focus boundaries from their company to their business environment.
The father of determinism we can call Democritus (460-370) BC. He was an influential pre-Socratic philosopher and pupil of Leucippus, who formulated an atomic theory for the universe. Largely ignored in ancient Athens, Democritus was nevertheless well known to his fellow philosopher Aristotle. Plato is said to have disliked him so much that he wished all his books burned. Many consider Democritus to be the “father of modern science”. He was both strict determinists and thorough materialists, believing everything to be the result of natural laws. Someone can claim, that he was a father of materialism who cause thinking of Marx who cause Communism. Shortly said he was the first communist J.
For the atomists questions should be answered with a mechanistic explanation (“What earlier circumstances caused this event?”), while their opponents search for explanations which, in addition to the material and mechanistic, also included the formal and teleological (“What purpose did this event serve?”). What do you think about business environment? It’s mechanical or teleological?
Although Isaac Newton preferred to credit the obscure Moschus the Phoenician (whom he believed to be the biblical Moses) as the inventor of the idea.
Second Great guy and Pillar for deterministic thinking was Euclid (323 – 283 BC). His Elements is one of the most influential works in the history of mathematics, serving as the main textbook for teaching mathematics (especially geometry) from the time of its publication until the late 19th or early 20th century. The geometrical system described in the Elements was long known simply as geometry, and was considered to be the only geometry possible. Today, however, that system is often referred to as Euclidean geometry to distinguish it from other so-called non-Euclidean geometries that mathematicians discovered in the 19th century.
Next Pillar is Isaac Newton (1642 – 1727) who is widely regarded as one of the most influential scientists of all time and as a key figure in the scientific revolution. His book Philosophiæ Naturalis Principia Mathematica laid the foundations for most of classical mechanics. If you think or you are reading text books on organization or business with mechanistic explanation, know that you are under Newton’s influence.
Do I need to say something on Albert Einstein (1879 – 1955)? I think no, better to ad one guy from China – Confucius (551–479 BCE). The philosophy of Confucius emphasized personal and governmental morality, correctness of social relationships, justice and sincerity. We can claim, that Confucius has the same impact on Management like Newton on physics.
“Really”???!!! – the most famous question from Eli Goldratt on business believes or Osho question on religious believes. That two rebels, both rebels on thinking and on education, one more focused on business other on life style.
“Look around, check changes in environment, rethink all believes and stereotypes”, all rules and postulates like common sense. Common sense not common at all. Look, they are relicts of Aristotle’s thinking. Why do things fall downward? “It’s because their nature determines a downward fall,” Aristotle explained. People considered this claim an irrefutable truth for nearly two thousand years.
On other hand:
“The mechanism of evolution is based on throwing dice” – said Stephen Hawking (1942 – ).
Hawking was the first to set forth a cosmology explained by a union of the general theory of relativity and quantum mechanics. In 1981 at a Vatican conference he presented work suggesting that there might be no boundary—or beginning or ending—to the universe. Up to Stephen – before the Big Bang, time did not exist and the concept of the beginning of the universe is meaningless. The initial singularity of the classical Big Bang models was replaced with a region akin to the North Pole. One cannot travel north of the North Pole, but there is no boundary there—it is simply the point where all north-running lines meet and end. Initially the no-boundary proposal predicted a closed universe which had implications about the existence of God. As Hawking explained “If the universe has no boundaries but is self-contained… then God would not have had any freedom to choose how the universe began. All the evidence shows that God was actually quite a gambler, and the universe is a great casino, where dice are thrown, and roulette wheels spin on every occasion.”
Let’s call this philosophy Casino Perpetuum philosophy. I am sure, that you will like this name more, then non-deterministic system.
The father of this philosophy was Laozi (5th- 4th BC), best known as the author of the Tao Te Ching. Traditionally considered that he is the founder of philosophical Taoism. Some legends elaborate further that the “Old Master” was the teacher of the Siddartha Gautama, better known as the Buddha. Laozi often explains his ideas by way of paradox, analogy, appropriation of ancient sayings, repetition, symmetry, rhyme, and rhythm. This is totally opposite way of logical explanation.
The economist Murray Rothbard suggested that Laozi was the first libertarian, likening Laozi’s ideas on government to F. A. Hayek‘s theory of spontaneous order.
“minimizing the role of government and letting individuals develop spontaneously would best achieve social and economic harmony.” In Peter Kropotkin 1910 article for the Encyclopedia Britannica, he noted that Laozi was among the earliest exponents of essentially anarchist concepts.
Next two Pillars can be Niels Bohr (1885 – 1962) and Werner Heisenberg (1901 – 1976), who introduce Quantum physics and Uncertainty principle.
We can claim that here was the adoption of Taoist forms of mysticism as a justification for the irrational rejection of causality and coherence in the physical sciences.
Kurt Godel (1906 – 1978) introduce incompleteness theorems – If the system is consistent, it cannot be complete.
Benoit B. Mandelbrot (1924 – 2010) one of Chaos theory creators and the father of fractals. He created the Mandelbrot set of intricate, never-ending fractal shapes, named in his honor. Fractals are also found in human pursuits, such as music, painting, architecture, and stock market prices. Mandelbrot believed that fractals, far from being unnatural, were in many ways more intuitive and natural than the artificially smooth objects of traditional Euclidean geometry.
I am claiming that we can found fractals in Retail environment too, not only in stock market prices. If this phenomena is law of Nature, that mean, that we’ll find him everywhere.
That two thinking philosophies look like two American Indian tribes on eternal War path.
But I have a good new – the wise minds know that there is no one truth and both sides are right. For example N. Bohr use In and Yan symbol. Above this symbol, Bohr placed the words: “Contraria sunt complementa”—“Opposites are complementary.”
But, to understand, the main issue is that for the educational goals, new knowledge tends to oppose the old. New methodology is just one of the way. There are other ways too. But its a trap to get you to believe that this new way – the only one.
Let’s ask more philosophical question – what is new knowledge?
Very often is forbidden old knowledge! Therefore you need to be very careful, when you are “ill” with new knowledge or, let’s say when you fall in love with new believe.
Carlos Castaneda describe The Four Enemies of the Man of Knowledge, or the 4 stages of knowledge.
“When a man starts to learn, he is never clear about his objectives. His purpose is faulty; his intent is vague. He hopes for rewards that will never materialize for he knows nothing of the hardships of learning. He slowly begins to learn- bit by bit at first, then in big chunks. And his thoughts soon clash. What he learns is never what he pictured, or imagined, and so he begins to be afraid. Learning is never what one expects. Every step of learning is a new task, and the fear the man is experiencing begins to mount mercilessly, unyieldingly. His purpose becomes a battlefield.
And thus he has stumbled upon the first of his natural enemies: fear!
A terrible enemy – treacherous, and difficult to overcome. It remains concealed at every turn of the way, prowling, waiting. And if the man, terrified in its presence, runs away, his enemy will have put an end to his quest and he will never learn. He will never become a man of knowledge. He will perhaps be a bully, or a harmless, scared man; at any rate, he will be a defeated man.
Once a man has vanquished fear, he is free from it for the rest of his life because, instead of fear, he has acquired clarity- a clarity of mind which erases fear. By then a man knows his desires; he knows how to satisfy those desires. He can anticipate the new steps of learning and a sharp clarity surrounds everything. The man feels that nothing is concealed.
And thus he has encountered his second enemy: Clarity!
That clarity of mind, which is so hard to obtain, dispels fear, but also blinds. It forces the man never to doubt himself. It gives him the assurance he can do anything he pleases, for he sees clearly into everything. And he is courageous because he is clear, and he stops at nothing because he is clear. But all that is a mistake; it is like something incomplete. If the man yields to this make-believe power, he has succumbed to his second enemy and will be patient when he should rush. And he will fumble with learning until he winds up incapable of learning anything more. His second enemy has just stopped him cold from trying to become a man of knowledge. Instead, the man may turn into a buoyant warrior, or a clown. Yet the clarity for which he has paid so dearly will never change to darkness and fear again. He will be clear as long as he lives, but he will no longer learn, or yearn for, anything. He must do what he did with fear: he must defy his clarity and use it only to see, and wait patiently and measure carefully before taking new steps; he must think, above all, that his clarity is almost a mistake. And a moment will come when he will understand that his clarity was only a point before his eyes.”
“But all that is a mistake; it is like something incomplete.” That sentence from mystic book are equal to mathematician Kurt Godel’s evidence about Incompleteness of logic.
Now, I think we have enough philosophical background to move on business issue and to recognize different laws of Nature in Retail environment to make better decision for personal growth and to prepare changes in your business environment.
We are living in continuous motions. Even, when we sleep in our bad, the cosmic ship “Earth” is rotating about 1000 miles an hour. In other hand we are all time travellers. Everyone on Earth is travelling into the future.
But all organizations – large or small, governmental or private, scientific or religious – have identical visions about their non moving structures. The organizational structure is generally drawn from the top down like pyramid using only measurements of space. Albert Einstein proved the existence of a fourth measurement – time. Specifically time distorts the other three measures of space – length, width and height. Scientists have proven that there is no absolute system for a frame of reference. Thus it cannot be claimed that some one frame of reference is correct, because the three measures of space and the one measure of time are not separate. Rather they comprise one four-dimensional continuum of space- time.
A pyramid stands on dry land, and its affiliation to other pyramids is unclear. Every pyramid is engaged in the accumulation of treasures for its own hideaways. In the meantime, all indices assessing the success of an organization serve this same purpose. The way between pyramids is usually rocky and difficult, and sand storms or robbers can hit on the way.
Physics asserts that there are no closed systems in nature. These only exist in some certain, closed-off, experimental, mathematical model. A river separates one shore from another, and an ocean separates an island from a continent. Therefore, when wanting to get to the truth, it is necessary to travel by waterway, because all rivers flow into seas.
Management of waterways, or the navigational system of process flows, was taught by a management genius from the United States, William E. Deming (1900-1993). This man’s greatness comes from teaching Japanese companies how to manage production. Deming’s lectures to the leaders of Japan’s most famous companies did their job. He attested that a hierarchical structure does not reflect the logic of production and services process flows. Thus it is time to change it.
Logically or not, let’s use the same Flow concept not only for your organization, but for whole Supply Chain.
Meanwhile every business organization has the following three, main “flows of water”:
Flow of information. In a business company, this is akin to the human nervous system. It relays market needs and the success achieved in serving clients.
Flow of goods and services. In a company, this is akin to the circulatory system. Flowing blood, satiated with nutrients, covers the entire supply and production process, from the acquisition of raw materials to the delivery of production.
Flow of money. This is akin to the respiratory system. It supplies the entire organism with oxygen. If there is no money in a company, there won’t be anything else either.
Up to TOC (Theory of Constraint) and physics, the flow has only one constraint – the bottleneck. If you want to manage your organization very well, you have to follow certain steps, because only this order of steps gives power.
The first step is to Identify system constraint. Something is blocking your business from achieving its goal of making more money. This something is what Eliyahu M. Goldratt calls a constraint. In Retail you’ll find that “the clients who come to buy are the main constraint of the system. The constraints govern the throughput of the system. More clients who come to buy – more throughput to the system.
Second step up to TOC is decide how to Exploit system constraint. Not being able to satisfy a client who comes to buy is opposite of “exploit”. Exploiting the system’s constraint is done by having the right inventory in the right place at the right time.
Third step is Subordinate everything else to the above decision. The idea of subordination suggests that our use of the constraint itself should not be allowed to be limited by anything else that’s outside of its control, including policies, habits, and assumed requirements of non-constraint. For the subordination in Retail up to TOC you need to establish the procedure of getting the data of daily sales from the selling point and replenishing in accordance. The DBM (Dynamic Buffer Management) tool will help you to achieve better financial result than forecast. The assumption is – that this step will decrease dramatically the sales point shortages while reducing its inventory. Assumptions are the foundation of every perception, idea, belief, commitment, policy, rule, and activity. – Those that work, and those that don’t.
My questions are – it’s sufficient cause to decrease sales point shortages? To make buy–in for changes? Do we take into account all the relevant circumstances?
Up to Kurt Gödel’s “Incompleteness of logic”. Since Gödel we know that a logical system can not liberate. But that doesn’t mean that rules are bad. Rules help create order and understanding. A society based on rules is far better off than a society not based on rules. A clear and present example of the fallacy of logic systems is of course the number sequence itself. From a few simple axioms an infinite sequence is wrought that will never be water tight and new primes must inveterately be added.
The exact same pattern can be found in math and science. New ideas and new rules must continuously be added, and after these new rules have run their stretch, holes appear in the continuity of that which is known. Hence new rules must be added.
And we’ve also established that a system that leans on the stacking of facts and certainties will never reach it. And that means that a system that leans on facts (science, our legal system, philosophy) needs to add a certain component that is not just another fact, to establish some kind of consistency that could pass for truth in order to derive conclusions and verdicts. Science uses the phrase ‘most likely’ to seal the gap. Law uses the phrase ‘beyond reasonable doubt’. In both cases an appeal is made to the trust of the spectators. Trust is needed in any kind of theory in order to breach the gap caused by the inherent incompleteness of any system that uses facts for its bricks.
A logical system is always based on axioms.
A logical system can not prove the consistency of its own axioms and can hence not prove whether itself is true.
No logical system will ever be able to prove everything.
Truth can not be reached by logic.
(source Arie Uittenbogaard http://www.abarim-publications.com)
We need to go one step back and to review two philosophical view on system improvements – Deterministic or Random.
Let’s start with Richard Branson’s sentence: “The business- school gurus tend to underplay the luck, presumably because the power of chance undermines the rules they teach you.” Mostly all teaching systems are build on cause-effect logic. But Sir Richard is finger pointing about opposite! “The power of chance undermines the rules”! Let’s add on top Kurt’s finding – “All systems depend on something outside the system” and you will find amazing conclusion. No matter, that all business textbooks were built on rules and cause-effect logic, the most companies world wide are managing based on Randomness!
Let’s view on events through both point of view and Deterministic and Random.
If consumer is final or external constraint (The Step 1 Identify the system constraint) , what can be the internal physical constraint?
Up to Deterministic point of view: “Shelf space is usually the shop’s constraint for better availability. A significant amount of the constraint is captured by merchandise that were ordered according to an overly optimistic forecast.” (STT (Strategy and Tactic Tree ) 2:1) But up to Random point of view: Local constraint may be the location of the store. The main common rule for Retail: Location! Location! Location!
Now let’s look to step 2 – Exploiting the system’s constraint is done by either:
Deterministic: having the right inventory in the right place at the right time. That is, work with specific existing SKU (STT 3.1.1 Ensure Existing SKU’s Availability) For that you need to establish procedure of getting from sales point the data of its daily sales and replenishing in accordance.
Random: continuous introduction of new products to meet changing demand over time, preferences, the influence of fashion and advertising. That is, hard predictable work with an assortment. For that you need to have proper visual display in quantity and in the right place (merchandising).
Here you can see possible nice and wise decision: to connect SM (space management) with DBM (Dynamic Buffer Management). But let’s continue deeper in to TOC. You can make logical conclusion that after step 3 “Subordinate everything else to the above decision” when you’ll convince the client to provide daily data and configure the DBM tool in their IT system, then you as a consultant will help the client to collect the low hanging fruits. Is it really enough to achieve the results for the company? Neither in the STT nor in the Insight the DATA was not mentioned, just building DBM! Perhaps there is a hidden assumption that retailers have good enough data, because without them, at such scale, it is not possible to control stores. But do you remember K. Gödel? Let’s ask a question – Really? Up to Deterministic point of view – No, because the data is Necessary condition! Up to Random –Yes, it’s possible to operate in Retail without a reliable data, if Stores do orders on an method “As I see it I sing”, and the shops located in a prime location.