Comments on _The Choice_ by Goldratt, chapter 8

I read and took notes on chapter 8 of _The Choice (Revised Edition)_ by Goldratt.

> CHAPTER 8: Never Say "I Know"

> When coming to evaluate the applicability of our generic solution to a specific case, there is a rule that I am trying to stick to—check and crosscheck if our assumptions about the key data on which our suggested solution is based are valid for the specific case. Recently, I had to face a case where it was apparent that I had deviated from that rule. Of course, the consequences were embarrassing, but that is not the reason I'm now forcing myself to sit down and write this document. I'm not a masochist. The main reason is that the renewed analysis showed me, again, the extent to which there is no end to deeper understanding; we have embarked on a journey that does not have an end, just exciting and rewarding stepping stones.

yeah the applicability of a generic solution depends on context, the particular situation.

The "analysis" was a post-mortem on his mistake of applying a general solution to a situation that it didn't work for.

> But there is no real setup in production of sports apparel, so it should be easy to cut the lead time to less than a week.

If there's no real setup in production, then why is their batch size so high? One reason to have a big batch size is that the cost of switching batches is high. So to reduce the switching-cost per unit, you increase the batch size (units per batch).

So here's where the mistake happened - a false assumption:

> During the preliminary extensive checks with management it turned out that a key data element was wrong—material cost is not 50 percent of sales, rather it is 75 percent. Even when the big brand companies are not dominant clients, they have the power to squeeze low prices from a contractor that is too eager to grow fast. Gross margins that are so small change the entire picture; to bring the company to excellent profits it is not enough just to increase sales, they must significantly increase margins as well. In short, kiss good-bye a vision based on just holding the inventories for the brand companies.

And here's some detail about how the mistake was hidden and then revealed:

> As for the first question, it didn't take long to reveal the source of the mistake. The 50 percent was derived from their financial statements. Therefore, it represents an average over their two channels of sales. Even though the other channel—direct sales through their own shops—is relatively small (just 15 percent), it had a major impact on the average percentage of material. Simply put, for the channel of direct sales, the material represents much, much less than 50 percent of the selling price. (Margins in the direct sales channel are composed of the huge markup of their own brand plus the substantial markup of their own shops.)