Theory of constraints
Eli Goldratt in his novel " The Goal " Practically turned me into a bookworm. Chomping away merrily ignoring my wife and son for 2 days until it was over. Now the lovestory did not bother me much, a manager that cannot sort out his life will end up to be a very frustrated man indeed. I would really feel sorry for someone like that. Yet most of the Novels challenge me to predict the end and that controls the anxiety and adrenalin for me.
Anyway, As a lesson in best practices, i expected the Character to get things right and be rewarded for it. He lived up to that promise.
To summarize the lesson.
1. Clearly define the goal and purpose of the organization. Then establish a cause and effect relationship between policies and measurements with respect to the goal.
2. Try to understand and document as many assumptions as you possibly can. This serves as the data to build on further
3. Simplify the model to clearly establish causality.
4. Examine model and assumptions for inconsistencies. This will give you the starting point for problem solving.
Now that i have the framework, Here is how the book documents the lessons learnt
1. Identify the systems constraints
2. Decide how to exploit the systems constraints
3. Subordinate everything else to the above decision ( #2)
4. Elevate the systems constrainits
5. WARNING!! If in a previous steps a constraint has been broken, go back to step 1, but do not allow inertia to cause a systems constraint.
I guess, i will be posting more insights as we go along the class.
:-)

3 Comments:
At 2:00 PM,
Ashvin Naik said…
Yield Management
Yield management helps maximize profitability by balancing supply and demand through price management and capacity allocation.
"The process of allocating the right type of capacity, to the right kind of customer, at the right price and time, to maximize
revenue or yield...”
-- “The Art of Managing Yield”
Procedure
Step 1: forecast demand-to-come
• for each category of demand
• for each resource
Step 2: using the forecasts, determine
• the best allocation of remaining capacity to the forecasted demand categories.
Step 3: using the resulting estimate of future optimal allocation
• calculate the displacement costs
• evaluate accept/deny decisions as demand unfolds
At 2:02 PM,
Ashvin Naik said…
Dynamic Pricing
What if customer segmentation is difficult?
What is product differentiation (e.g. tickets with different restrictions) is difficult?
For a single product, set price dynamically over time, and set one price for all the customers.
Segmentation
• Time of purchase/usage
• Advanced/spot purchase
• Day-of-week/season
• Purchase restrictions
• Cancellation options
• “Arbitrary” (Saturday night stay)
• Purchase volume (individual vs. group)
• Duration of usage (single night, weekly rate)
• Customer affiliation (corporate, contract user)
• Product differentiation
• Others?
At 2:03 PM,
Ashvin Naik said…
Considerations before implementing Dynamic pricing or yield management
• Data availability, data clarity
• Enforcement
• Fairness
• Customer alienation
• Multiplier effect
• Loss of focus
• Employee morale
• Perceived quality and image
• Cost of communicating price to customers
• Competition
• Others?
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