In the book “The Goal” by Dr. Eliyahu M. Goldratt, he defines a throughput as the amount of money generated by a system through sales while he defines inventory as the total amount of money which is spent on purchases. He further defines customer respond time as the amount of time a customer takes before placing orders in a factory (Dettmer, 1997).
In “The Goal” the cash flow of a factory was affected by the delay of throughput. The factory’s sales were taking longer time to be realized, the factory had suffered a cash flow problem making the factory to be illiquid. Throughput was one of the sources of cash inflows in the factory. Cash flow level of any factory is very important as it will improve the working capital ratios. The high rate of cash flow in a factory will enable the factory to be in a position to meet its obligation at the right time. For example, incase of pressing creditors the factory will pay them without having to sell the stocks (Dettmer, 1997).
The cash flow of this factory was also affected by the inventory. The factory had manufactured excess inventory without considering the level of demand in the market. As a result of this, the factory ended up producing excess spare parts which could not be sold immediately. This affected the cash flow of the factory since a high amount of cash was used in the production process.
Customers respond time was another factor which affected the cash flow of Rogo’s factory. The movement of inventory in this factory was very slow. This is because the factory had accumulated stock therefore causing backlog of orders. This was dangerous as it had caused the tardiness of the deliveries in the factory which discouraged customers making them to prefer competitors of the Rogo’s factory (Dettmer, 1997).
The factory had risked by doing such a business practice because they would easily lose its market share and customers to its competitors. In addition to this, the image of the factory will be perceived negatively by the customers making them to loose them. The factory would only improve its cash flow position by adopting new marketing skills so that they can market their products effectively in the market.
Rogo, after carrying out a research on the causes of poor cash flow in his factory, improved the throughput rate of his factory. Moreover, he reduced the amount of inventory which was overstocked (Dettmer, 1997). He did this by making sure that only those products which had been ordered were manufactured. He also designed bottlenecks and non-bottlenecks which were attractive to customers and made them to be available. He implemented a strategy which involved seeking customers’ response so that he could identify the weaknesses of the factory. He took this chance of contacting customers to cross sell new products in the market. Lastly, he changed the brand name of the spare parts so that the consumers could differentiate them from those of its competitors. All these strategies had worked well because all the managers in the factory had cooperated during the implementation period (Dettmer, 1997).
In conclusion, the factory’s competitiveness would be regained by carrying out market research so that they can identify what the customers expect in the market. Rogo should also carry out SWOT analysis to identify their weaknesses, strengths, threats and opportunities. Apart from carrying out SWOT analysis, the factory should implement the use of customer service. This will not only help in building positive relationship with customers but also enjoy the chances of serving other customers who are referred by the loyal customer.
Dettmer, H. W. (1997). Goldratt’s theory of constraints: a systems approach to
Continuous improvement. American Society for Qualit.