“I need you to make a phone call,” I told Corina. She looked puzzled, feeling guilty about something she wasn’t sure of.

“There’s a lesson in this,” I continued. “It’s a counter-intuitive lesson that most people and organizations don’t learn until it’s too late.”

“So, you are talking about the difference between the company’s goal and my goal for the plant?” she asked.

I nodded, “Yes, the difference. There shouldn’t be a difference. But no one sat down and punched through all this, so there could be agreement. In fact, I would bet that you never sat in a meeting to truly clarify the goal for the plant. I would bet you assumed, by all manner of policies and directives, to produce as much as you could as efficiently as you could.”

I was nodding. Corina was nodding. “How much excess inventory is now hiding in that warehouse?” I asked.

Corina smiled, but quickly realized what had seemed to be good news wasn’t after all. “I would have to pull the reports, but I think we have about four weeks of production built up in the warehouse. I mean, we were building to forecast, but we weren’t selling to forecast.”

“Okay, let’s make that phone call.”

“When you look at this inventory problem, where should you be spending your time?” I asked.

Bruce looked down. “You’re right. I walk around the store barking orders about removing this display or re-working that shelf arrangement. I have team members to do that, and I have supervisors to make sure it happens.”

“What should you focus on?” I repeated.

“I need to focus on the system. I mean, I can still walk around the store. It gives me a better sense of reality, but I need to focus on the system. It’s the system that provides the predictability in our inventory management. Everything else is simply rearranging deck chairs.”

“If I had to reduce my inventory by 30 percent by the end of May,” Bruce continued, “I would be able to spend more time analyzing which inventory I wanted to get rid of, adjusting my min/max and re-order points. I would look at inventory turns, lead times and ship frequencies.”

“So, what’s the difference in blowing out 30 percent of your inventory by the end of next week and reducing it by the end of May? You still get your inventory down?” I asked.

Bruce smiled. “If I just blow out my inventory in one week, I will guarantee that within two weeks, my levels would all be back. I might even have more inventory then, because people will be ordering stock outs without any rhyme or reason. In the short term it works, but in the long term, it all comes back.

“By working systematically, I can make permanent changes in stock levels. I will have much more control. We will have the profitable inventory we need, that turns, that makes us money. It gives us more predictability and consistency. It all gets back to the system.”

A little more than one month ago, Dr. Eliyahu M. Goldratt was diagnosed with lung cancer. Dr. Goldratt is the author “The Goal” and many more books based on Theory of Constraints. When I speak about Stratum III systems and Stratum IV integration of systems, this is the foundation. Eli passed away on June 11, 2011.

“Yes, but sometimes, profit erosion occurs by some unforeseen circumstance, some outside force, that’s not part of your system. Profit erosion is not always caused by a broken system,” Jacob explained.

“You’re absolutely right,” I agreed. “That’s why I want to see WHO is in charge of your system. The role, at Stratum III, is not only to create your system, but to monitor your system. And when one of those outside forces, or unforeseen circumstance occurs, I want that Stratum III manager to ask this question, ‘Why didn’t our system anticipate this outside force, or at least mitigate the damage from this unforeseen circumstance?’

“The role at Stratum III is to create the system, monitor the system and constantly improve the system. The role is to adapt our systems to prevent new problems from occurring a second time.”