A BOOK REVIEW ON

THE GOAL-A PROCESS OF ONGOING IMPROVEMENT

BY

ELIYAHU M. GOLDRATT AND JEFF COX

SUBMITTED BY:-

NOEL P (1020913)

SUJEETH REDDY (1020922)

TONY K JOHN (1020923)

SURIA UNNIKRISHNAN (1020948)

SWATI JAIN (1020951)

EXECUTIVE SUMMARY

The Goal written by Eliyahu Goldratt and Jeff Cox. The 40-chapter book is actually a

business book written in the form of a novel that makes it interesting to read unlike other

business textbook. As a novel, the book is entertaining but at the same time, very informative

for management or accounting students as well as for the real-life company managers and

CEOs who wanted to apply different managerial practices. This report summarizes the novel

and makes analyses in relation to Operations Management.

The story takes place at a fictitious town called Bearington where the Uniware

manufacturing plant of the UniCo company is situated. Whatever products the plant

manufactures was not mentioned in the novel. The plant is headed by the 38-year old plant

manager Alex Rogo who is also the lead character of the novel. Alex is a dedicated and

workaholic employee as described in the novel. His dedication to his work posed some

family problems: losing time for his wife aside from her not being used to living at his

hometown where there is a big difference form the city life his wife is used to.

Mr. Bill Peach is the other character who can be considered as the protagonist who

confronted Alex about the overdue order at the beginning of the story. Mr.Peach is the

Division Vice President of the company. Jonah plays the role of an “angel in disguise” to

Alex life. He was Alex’s college Physics professor. They happened to come across each other

at the airport during Alex’s business trip. Jonah was the one who made Alex realized the

problems confronting Alex and the plant. Jonah played as a business consultant and adviser

as it seems like he knows how to run a manufacturing plant. He made Alex realized the real

goal of the company and the things that should be accomplished to be able to achieve that

goal.

Other characters in the story are the people who comprise Alex team: Lou, from the

accounting department, Bob from the production department, Stacey from inventory control,

and Ralph who has a good background in computer and the one who did the schedule for the

production and release for bottleneck parts. Herbie, the slow kid in the hiking who serves as

the bottleneck is also worth mentioning.

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The story progresses through Alex’s struggles at home and in the plant. Just as in everyday

life, there are several victories followed by setbacks. However, through hard work and with

the use of a skilled team and Jonah’s help, Alex is able to make the plant the most productive

one within the UniWare division. Alex is promoted to lead the UniWare division as president

and is entrusted with implementing Jonah’s business model throughout the entire division.

Alex’s marital life also improves because he and his spouse resolve their conflicts.

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TABLE OF CONTENTS

Title Page No

1. Author Profile …………………………………………………….. 42. Audience of the Book ………………….…………………………. 53. Book Detail.……………………………………………………….. 54. Chapter Wise Summary …………………………………………... 65. Description of the Theories ………………………………………. 156. Applications in Real Time ………………………………………... 197. Critique ………………………………...………………………….. 218. Personal Learning ….……………………………………………… 229. Conclusion ………………………………………………………… 2210. Readings ………………………………………………………….. 23

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ABOUT THE AUTHOR

Eliyahu Moshe Goldratt (born March 31, 1948) is an Israeli physicist who became a business

management guru. He is the originator of the Optimized Production Technology, the Theory

of Constraints (TOC), the Thinking Processes, Drum-Buffer-Rope, Critical Chain Project

Management (CCPM) and other TOC derived tools. He has authored several business novels

and non-fiction works, mainly on the Theory of Constraints.

Life: Born in Israel into a rabbinic family Goldratt went on to become a physicist. He

obtained his Bachelor of Science degree from Tel Aviv University, and his Masters of

Science and Doctorate of Philosophy degrees from Bar-Ilan University.

Known for: Theory of Constraints, Cause and Effect thinking, Slayer of Paradigms

Fields: Theory of Constraints, Operations Research, Organizational Psychology,

Management Science.

Jeff Cox, a writer for the past 25 years, works in concert with the business executives and

consultants to create fiction that brings to life the concepts in organizational improvement. He

has published eight works of fiction ,published as either novels or parables. He has been

working as a writer since 1981. His latest work is Velocity, which is about combining Lean

operations, Six Sigma and Theory Of Constraints to achieve breakthrough in performance.

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AUDIENCE OF THE BOOK

If you are in production, accounting, or organizational part of business, this book is a must

read. Simple logic works in any business field, and Eliyahu is a business genius who can

shape simple logic into advanced tools to solve major problems.

Highly recommend this book to all entrepreneurs, and managers in corporate environment.

After reading “The Goal” we will look at business as system, and will have a greater

perspective of solving problems in businesses.

BOOK DETAILS

Price: 933

Availability: e-book in pdf format is available.

Publisher: North River Press

Edition: Paperback Anniversary

Language: English

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CHAPTER WISE SUMMARY OF THE BOOK

Chapter One

The first chapter gets the reader acquainted with Mr. Alex Rogo and his apparent problems

with his production plant. This is shown through a confrontation between Mr. Rogo and his

boss Mr. Peach, the Division Vice President. The dispute is over an overdue order #41427.

Through their conversation it’s learned that Mr. Peach will not settle for anything less than

the order being shipped today, and since the plant is neither productive nor profitable, Alex

has three months to show an improvement or the plant will be shut down.

Chapter Two

This chapter gives insight to Alex’s home life. Since moving back to his hometown six

months ago, it seems adjustment isn’t going well for his family.It’s great for Alex, but it’s a

big change from the city life that his wife is used to. You also experience Mr. Rogo’s

background through his reflections back on his travels to eventually find himself back where

he started. "He’s now 38 years old and a crummy plant manager".Meanwhile, the order

#41427 does get shipped, but not very efficiently. All hands in the plant are working on one

order with forbidden overtime to boot.

Chapter Three

Mr. Peach calls a meeting at headquarters for all plant managers and his staff. At the meeting

everybody finds out how bad things are and are given goals to achieve for the next quarter.

Through the grapevine, Mr. Rogo finds out perhaps why Mr. Peach has been acting so erratic

lately, the Division has one year to improve or it’s going to be sold, along with Mr. Peach.

Chapter Four

While at this meeting, Alex thinks back on a recent business trip where he ran into an old

physics professor, Jonah, at the airport. Jonah puzzles Alex with how well he knows how

Alex’s plant is doing. Jonah has no knowledge of where Alex is employed. Johan predicts

the problems of high inventories and not meeting shipping dates. He also states that there is

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only one goal for all companies, and anything that brings you closer to achieving it is

productive and all other things are not productive.

Chapter Five

Alex decides to leave the meeting at the break. He has no particular place he would like to

go; he just knows this meeting isn’t for him, not today. He needs to understand what the

"goal" is. After a pizza and a six pack of beer it hits him, money. The "goal" is to make

money and anything that brings us closer to it is productive and anything that doesn’t isn’t.

Chapter Six

Mr. Rogo sits down with one of his accountants and together they define what is needed in

terms of achieving the goal. Net profit needs to increase along with simultaneously increasing

return on investment and cash flow. Now all that is needed is to put his specific operations in

those terms.

Chapter Seven

Alex makes the decision to stay with the company for the last three months and try to make a

change. Then he decides he needs to find Jonah.

Chapter Eight

Alex finally speaks to Jonah. He is given three terms that will help him run his plant,

throughput, inventory, and operational expense. Jonah states that everything in the plant can

be classified under these three terms. "Throughput is the rate at which the system generates

money through sales." "Inventory is all the money that the system has invested in purchasing

things which it intends to sell." "Operational expense is all the money the system spends in

order to turn inventory into throughput." Alex needs more explanation.

Chapter Nine

Alex fresh off his talk with Jonah gets word that the head of the company wants to come

down for a photo opportunity with one of Alex’s robots. This gets Alex thinking of the

efficiency of these robots. With the help of the accountant, inventory control woman, and the

production manager, Alex discovers the robots increased costs, operational expenses, and

therefore were less productive. Implementing the robots increased costs by not reducing

others, like direct labour. The labour was shifted to other parts of the plant.

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Chapter Ten

After explaining everything, Alex and his staff (Bob from production, Lou from accounting

and Stacey from inventory control) hammered out the meaning of throughput, inventory and

operational expense until satisfied. Lou, states the relationships as follows. "Throughput is

money coming in. Inventory is the money currently inside the system. And operational

expense is the money we have to pay out to make throughput happen." Bob is skeptical that

everything can be accounted for with three measurements. Lou explains that tooling,

machines, the building, the whole plant are all inventory. The whole plant is an investment

that can be sold. Stacey says, "So investment is the same thing as inventory."Then they

decide that something drastic is needed to be done with the machines. But how can they do

that without lowering efficiencies? Another call to Jonah is placed and Alex is off to New

York that night.

Chapter Eleven

The meeting with Jonah is brief. Alex tells Jonah of the problems at the plant and the three

months in which to fix them. Jonah says they can be fixed in that time and then they go over

the problems the plant has. First, Jonah tells Alex to forget about the robots. He also tells

Alex that "A plant in which everyone is working all the time is very inefficient." Jonah

suggest that Alex question how he is managing the capacity in the plant and consider the

concept of a balanced plant. According to Jonah, this "is a plant where the capacity of each

and every resource is balanced exactly with demand from the market." Alex thinks a balanced

plant is a good idea. Jonah says no, "the closer you come to a balanced plant, the closer you

are to bankruptcy." Then Jonah leaves Alex with another riddle, what does the combination

of "dependent events" and "statistical fluctuations" have to do with your plant? Both of those

seem harmless and should work themselves out down the production line.

Chapter Twelve

This short chapter tries to capture the essence of the problems the job is causing at home with

the extra workload. The marriage is very strained because of the devotion Alex needs to give

to the plant.

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Chapter Thirteen

Stuck for the weekend as troop master, Alex discovers the importance of "dependent events"

in relation to "statistical fluctuations". Through the analogy between a single file hike through

the wilderness and a manufacturing plant, Alex sees that there are normally limits to making

up the downside of the fluctuations with the following "dependent events". Even if there were

no limits, the last event must make up for all the others for all of them to average out.

Chapter Fourteen

Finally, through the dice game or match bowl experiment, it becomes clear that with a

balanced plant and because of "statistical fluctuations" and "dependent events" throughput

goes down and inventory along with operating expenses goes up. A balanced plant is not the

answer.

Chapter Fifteen

Fully understanding the "dependent events", Alex puts the slowest kid in the front of the hike

and he relieves him of extra weight he has been carrying in his backpack. This balances the

fluctuations and increases the kid’s productivity, which increased the throughput of the team.

Chapter Sixteen

Well, after the camping trip the boys arrive home to find the mother has disappeared. All the

stress of his job was too much for her so she left. Now the kids and the job are all Alex’s

responsibility. This was supposed to be a weekend for Alex and his wife, but when the hike

came up it seemed to be the last straw for her.

Chapter Seventeen

Alex tries to portray his new revelation to his team at the plant. Nobody seems interested. But

the walk in the woods becomes apparent when it is put to the test for an overdue order in the

plant. Now even the production supervisor agrees.

Chapter Eighteen

In this chapter Jonah introduces Alex to the concept of bottlenecks and non-bottlenecks.

Jonah defines these terms as follows. "A bottleneck is any resource whose capacity is equal

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to or less than the demand placed upon it. "A non-bottleneck is any resource whose capacity

is greater than the demand placed on it." Jonah explains that Alex should not try to balance

capacity with demand, but instead balance the flow of product through the plant. Later, Alex

and his team recognize the bottlenecks, the areas where capacity doesn’t equal demand, like

the slow kid Herbie on the hike. With this discovery goes the ideas related to reorganizing the

plant like Alex did with the hike. Production is a process and it cannot be moved around so

easily. Many processes rely on the previous one to be able to complete the next. Alex would

need more machines, which takes more capital, and division is not going to go for that.

Chapter Nineteen

Well, Jonah makes a visit to the plant. Jonah tells Alex that a plant without bottlenecks would

have enormous excess capacity. Every plant should have bottlenecks. Alex is confused. What

is needed is to increase the capacity of the plant? The answer is more capacity at the

bottlenecks. More machines to do the bottleneck operations might help, but how about

making them run more effectively. Jonah tells them that they have hidden capacity because

some of their thinking is incorrect. Some ways to increase capacity at the bottlenecks are not

to have any down time within the bottlenecks, make sure they are only working on quality

products so not to waste time, and relieve the workload by farming some work out to

vendors. Jonah wants to know how much it cost when the bottlenecks (X and heat treat)

machines are down. Lou says $32 per hour for the X machine and $21 per hour for heat treat.

How much when the whole plant is down? Around $1.6 million. How many hours are

available per month? About 585. After a calculation, Jonah explains that when the

bottlenecks are down for an hour, the true cost is around $2,735, the cost of the entire system.

Every minute of downtime at a bottleneck translates into thousands of dollars of loss

throughput, because without the parts from the bottleneck, you can’t sell the product.

Therefore, you cannot generate throughput.

Chapter Twenty

Alex organizes the bottlenecks to work on only overdue orders from the most overdue to the

least. He then finds his wife. She is at her parent’s house. Through their conversation it is

learned that she still needs to be away from everybody, even the kids.

Chapter Twenty-One

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The crew works out some of the details for keeping the bottlenecks constantly busy. In the

process they find that they need another system to inform the workers what materials have

priority at non-bottlenecks. Red and green tags are the answer. Red for bottleneck parts to be

worked on first as to not hold up the bottleneck machine, and green for the non-bottleneck

parts. That concludes another week. The true test will be next week.

Chapter Twenty-Two

Twelve orders were shipped. Alex is pleased, but he definitely needs more. He puts his

production manager on it. His production manager rounds up some old machines to

complement what one of the bottlenecks does. Things are looking up.

Chapter Twenty-Three

They are becoming more and more efficient, but lag time arouse with the two bottlenecks

because of workers being loaned out to other areas and not being at the bottlenecks when

needed to process another order. It seems there was nothing to do while waiting for the

bottleneck machine to finish the batch. Therefore, in keeping with the notion that everybody

needs to stay busy, workers were at other areas between batches. Alex decides to dedicate a

foreman at each location all the time. Then one of those dedicated foreman, the night

foreman, discovers a way to process more parts by mixing and matching orders by priority,

increasing efficiency by ten percent. Finally, one process being sent through a bottleneck

could be accomplished through another older way and therefore free up time on the

bottleneck.

Chapter Twenty-Four

Now that the new priority system is in place for all parts going through the bottlenecks,

inventory is decreasing. But lower inventory revealed more bottlenecks. This intrigues Jonah

so he’s coming to take a look.

Chapter Twenty-Five

"There aren’t any new bottlenecks", says Jonah. What actually has happened is a result of

some old thinking. Working non-bottlenecks to maximum capacity on bottleneck parts has

caused the problem. All parts are stacked up in front of the bottlenecks and others are

awaiting non-bottleneck parts for final assembly. There needs to be balance. The red and

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green tags need to be modified. It seems as if the bottlenecks will again control the flow, by

only sending them exactly what they need and when they need it.

Chapter Twenty-Six

Ralf, the computer wiz, says he can come up with a schedule for bottleneck parts and when

they should be released. This will alleviate any excess inventory in front of the bottlenecks,

but what about the non-bottlenecks? Jonah says with the same data out of the bottlenecks to

final assembly, you should be able to predict non-bottleneck parts as well. This will make

some time, but there are enough parts in front of the bottlenecks to stay busy for a month.

Chapter Twenty-Seven

There is another corporate meeting. Mr. Peach doesn’t praise Alex like Alex thinks he

should. Alex decides to talk with him in private. Mr. Peach agrees to keep the plant open if

Alex gives him a fifteen percent improvement next month. That will be hard because that

relies heavily on demand from the marketplace.

Chapter Twenty-Eight

Fifteen Percent!! Fifteen Percent!! Just then Jonah called to let Alex know that he will not be

available to speak with in the next few weeks. Alex informs him of the new problem of more

inventories and less throughput. Jonah suggests reducing batch sizes by half. Of course, this

will take some doing with vendors, but if it can be done, nearly all costs are cut in half. Also,

they get quicker response times and less lead times for orders. Sounds good.

Chapter Twenty-Nine

Alex is propositioned with a test. They can greatly increase sales, current and future, if they

can ship a thousand products in two weeks. Impossible without committing the plant to

nothing but the new order? That is a wrong decision. How about smaller batch sizes. Cut

them in half again. Then promise to ship 250 each week for four weeks starting in two weeks.

The customer loved it.

Chapter Thirty

Seventeen percent!! That was great, but it’s not derived from the old cost accounting model.

The auditors sent down to the plant from Division find just 12.8% improvement. Most of it

accounts from the new order. Which by the way, the owner of the company that placed the

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order came down personally to shake everybody’s hand in the plant and to give a contract to

them for not a thousand parts but ten thousand. Anyway, tomorrow is the day of reckoning at

division.

Chapter Thirty-One

Well the meeting at Division started out rough. Alex thought he would be meeting with Mr.

Peach and other top executives. Instead, he met with their underlings. He decides to try and

convince them it doesn’t work. Just before leaving he decides to see Mr. Peach. It’s a good

thing he did, because he just got promoted to Mr. Peach’s position. Now Alex has to manage

three plants as the whole division. He calls Jonah desperately and asks for help. Jonah

declines until he has specific questions.

Chapter Thirty-Two

Alex decides to ask Jonah how he can get other people to understand these techniques that his

team has discovered without being condescending.

Chapter Thirty-Three

Now is the time to assemble Alex’s team for Division. Surprisingly the accountant with two

years to retirement is on board, but the production manager isn’t. He wants to be plant

manager to continue their efforts. Everything is totally into place at the plant but more is

needed for division.

Chapter Thirty-Four

Alex is firmly engrossed with the problems of taking over the division. With advice from his

wife he decides to enlist the help of his team at the plant. Every afternoon they will meet to

solve the problem. After the first day it is obvious , they will need them all.

Chapter Thirty-Five

The second day they are led in a discussion about the periodic table of elements, and how the

scientists actually got a table of any sort. Maybe that is how they will solve the massive

problems of division, by understanding how the scientists started with nothing and achieved

order. A way to define them by their intensive order is needed.

Chapter Thirty-Six

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The team finally comes up with the process:

Step one – identify the system’s bottlenecks

Step two- decide how to exploit those bottlenecks

Step three- subordinate everything else to step two decisions

Step four- evaluate the systems bottlenecks

Step five- if, in a previous step, a bottleneck has been broken, go to step one. It seems so

simple, just different.

Chapter Thirty-Seven

The team decides to revise the steps:

Step one – identify the systems constraints

Step two – decide how to exploit the systems constraints.

Step three – subordinate everything else to step two decisions.

Step four – evaluate the systems constraints.

Step five- warning!!! If in the previous steps a constraint has been broken, go back to step

one, but don’t allow inertia to cause a system constraint.

It also has been discovered that they have been using the bottlenecks to produce fictitious

orders in an effort to keep the bottlenecks busy. That will free up twenty percent capacity,

which translates in to market share.

Chapter Thirty-Eight

Talking with the head of sales. Alex finds out that there is a market order to fill the capacity.

It’s in Europe, so selling for less there will not affect domestic clients. If it can be done, will

open a whole new market. Then Alex ponders Jonah’s question, to determine what

management techniques should be utilized. Alex determines how a physicist approaches a

problem. Maybe this will lead to an answer.

Chapter Thirty-Nine

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Alex experiences a problem at the plant. It seems all the new orders have created new

bottlenecks. After analyzing the problem, they agreed to increase inventory in front of the

bottlenecks an tell sales to not promise new order deliveries for four weeks, twice as much as

before. This will hurt the new relationship between sales and production, but it is needed.

Production is an ongoing process of improvement, and when new problems arise they need to

be dealt with accordingly.

Chapter Forty

Finally, struggling with the answer to Jonah’s question, Alex comes up with some questions

on his own: What to change? What to change to? How to cause the change? Answering these

questions are the keys to management, and the skills needed to answer them are the keys to a

good manager and ultimately the answer to Jonah’s question.

DESCRIPTION ABOUT THE THEORIES AND ISSUES DEALT IN THE BOOK

The Goal is an interesting and informative business book that covers many of the issues

facing businesses today. These issues include bottlenecks, activating versus utilizing

resources, small batch sizes, work in progress, the concept of a "Balanced Plant", "the real

goals" of an organization, and the Theory of Constraints. In this novel, Al Rogo learns there

are three things that a manager must be able to do in order to manage and that is to learn what

to change, what to change to, and how to cause the change.

The real goal of any organization is to make money. No company exists to lose money or

to produce a product out of the goodness of their heart. Therefore, the real goal is to make

money. There are three measurements which "express the goal of making money perfectly

well, but which also permit (development of) operational rules for running (a) plant. These

measurements are throughput, inventory and operational expense. According to Goldratt,

these are defined as follows.

"Throughput is the rate at which the system generates money through sales.

"Inventory is all the money that the system has invested in purchasing things which it intends

to sell.

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"Operational expense is all the money the system spends in order to turn inventory into

throughput.

The balanced plant concept is a mistake that managers have been trying to achieve for

years. Efficiency ratios do not increase sales. There are dependant and statistical variables

that impact the way the plant should be running. The balanced plant concept is based on

balancing capacity with efficiency. By balancing your plant with your capacity, you are

insuring bankruptcy. The reason is due to dependent events and statistical fluctuations. A

dependent event (or series of events) is one that must take place before another can begin; the

subsequent event depends on the prior ones. A statistical fluctuation is an event that may vary

from one instance to the next. Statistical fluctuations average themselves out over time (i.e. a

worker can average 25 pieces per hour but his exact output will likely be more or less than

that number each hour). To balance a plant accurately, you must look at dependent events and

statistical fluctuations together.

The Theory of Constraints is the key concept in the book. The Theory of Constraints (TOC)

consists of three parts: A set of problem-solving tools - called the TOC Thinking Processes

(TP) - to logically and systematically answer the three questions essential to any process of

on-going improvement: "What to change?", "To what to change to?" and "How to cause the

change?”. A set of daily management tools - taken from the TOC Thinking Processes - that

"can be used to significantly improve vital management skills, such as communication,

effecting change, team building and empowerment; and; innovative, proven solutions created

by applying the TOC Thinking Processes to specific application areas, such as Production,

Distribution, Marketing and Sales, Project Management, and Setting The Direction of The

Company.

The Theory of Constraints is composed of views of the short run and the long run. In the

short run most costs are fixed, so we could maximize profit by increasing throughput and

reducing inventories and operating costs. The theory of constraints helps identify methods to

maximize operating profits when faced with a mix of bottleneck, and non-bottleneck

operations. The bottleneck is the resource that is limiting throughput.

In the long run most costs are not fixed and should not be treated as such. However, in the

long run we are all dead. For this topic consider that you are a manager of a plant focused on

the short run and facing a lot of fixed constraints. Faced with these constraints you need to

maximize the contribution margin per unit of the constraining factor. You would aim at

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achieving higher operating income by identifying the bottleneck resource or work-station,

having the bottleneck process at capacity, move resources to the bottleneck, less resources to

other, non-bottleneck stations, eliminating idle time, reducing set-up times, minimizing

defects, only making what you plan to use, and bettering co-ordination of factory processes.

The theory of constraints may be of the most benefit where factory operations have

developed in an ad hoc manner. Becoming aware of a bottleneck allows analysis to improve

operations. These improvements can result in increased production allowing increased sales.

These improvements can result in lower costs to produce the same level of production. These

improvements can result in a higher quality of product because the constraining resource was

adversely impacting quality.

The theory of constraints may be of least value for a factory where operations have been

continually optimized over time. The bottleneck may be a constraint that employees are well

aware of. The bottleneck remains because nobody has come up with a cost-effective method

for removing the constraint, or even increasing throughput through the constraining

operation, or there is a longer term project to replace the operation.

Another logical step in getting to the real goal of the company is the decrease batch sizes.

Then there will only be half that amount of work-in-progress on the floor at a time, thereby

cutting inventories in half. By processing smaller and smaller batches, you can improve

overall efficiency of the plant. By holding back materials, non-bottleneck processes now had

extra capacity, or time when nothing was being run on the machine. With the extra time,

these processes have the time to do extra set-ups, thereby allowing the smaller batches.

Instead of running very large batches of one part, and having parts destined for bottlenecks

waiting behind it, you start doing smaller batches, increasing the number of deliveries

between processes (this amounts to beginning a just-in-time inventory scheme). The extra

set-ups don't cost any extra in labour, because the processes were no longer being run at full

capacity. The plant in The Goal was only running at capacity equal to throughput demand. By

reducing batch sizes, they reduced the time it takes to process a batch, This also means

reduced queue time and wait time, thereby reducing inventory. With less time sitting in piles

waiting, total process time and overall lead-time is shortened. With a shortened lead-time, the

whole production process is able to respond to market demand faster.

In the book, Rogo came to a lot of his decisions simply by paying attention to everyday life.

One of the most important and influential discoveries was learning about bottlenecks. He

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found his bottlenecks in his plant simply by going on a hike with his young son's Boy Scout

troupe. He observed that Herbie, a larger boy who had trouble keeping up with the others.

The other boys walked around him leaving him in the back of the pack. This put the fastest

walkers way out ahead, leaving Herbie (and those behind him) behind. Soon, Rogo gets the

idea of what's happening and decides to unload the extra pressures off Herbie (the excess

weight in his backpack) by spreading the job among the other boys. Then he puts Herbie in

front of the troupe, and tells the other boys that no one is permitted to pass Herbie. At this

point, he realizes that the rest of his plant must follow the bottlenecks or the "Herbies" as they

call them throughout the book. Each "Herbie" has to work to its fullest capacity, while the

rest of the plant's machines work to the capacity of the bottlenecks. This creates a harmony in

the plant, orders start to get out on time, there is less work-in-process, and costs are lowered

because of this.

By following these processes outlined above, the plant was able to save itself from certain

closure. Rogo was able to hold on to his job, and actually gain a promotion giving him

control over all the plants in this division. He would now have to bring this same style of

management to the entire division.

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A REAL TIME EXAMPLE BASED ON THE TOC MODEL

Goldratt’s business model is based on two principles. The first principle defines three ways to

measure whether or not businesses are achieving the goal of making money. These three

measurements are interrelated and easy enough to apply to any process. The three

measurements are throughput, inventory and operation expense. The second principle of

Goldratt’s model relates dependent events and statistical fluctuations to the manufacturing

process. Dependent events are processes that must first take place before other ones can

begin. An example would be a car assembly line. Before the engine is put into the car, the

frame must be finished and the steering wheel cannot be attached until the steering column is

put into place, and so on. Statistical fluctuations occur when one is unable to precisely predict

events or quantities. The book presents an excellent example illustrating this principle. Alex

and Jonah sit in a restaurant and Jonah points out that they are able to precisely predict the

capacity of the restaurant by counting the available seats. On the other hand, they are unable

to predict how long the waiter will need to fulfil their order. This uncertainty is referred to as

statistical fluctuations.

.

The business model illustrated in The Goal: A Process of Ongoing Improvement is titled as

Theory of Constraints. It suggests that companies should scale their entire production to the

process within the system with the lowest capacity; the bottlenecks. This will make the

system appear less efficient, because areas in the factory may stay idle if they have a much

higher capacity than bottleneck areas. However, implementing this approach will directly add

to the bottom line. The Theory of Constraints uses dependent events and statistical

fluctuations as its base.

One real time example of a company that improved its efficiency using TOC is i2

technologies. i2 Technologies was founded in 1988 by Sanjiv Sidhu. Prior to founding i2,

Sidhu worked for Texas Instruments and optimized production by creating software

applications based on constraints of the production cycle. Texas Instruments was not

interested in commercialising Sidhu’s software, which prompted him to establish i2

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Technologies. i2 Technologies offers supply chain optimization to its customers. i2

Technologies creates systems that optimize how companies react to changes in supply and

demand, and integrates these systems within the entire workflow of the company.

One of the foremost principles of i2 Technologies is to reduce inventories. Goldratt’s TOC

states clearly that excess inventory indicates two things: (1) the overall system has not scaled

production to the system with lowest capacity, and (2) the system wastes money by stocking

excess inventory that is not immediately converted to throughput, yet raises operational

expense.

One solution i2 Technologies developed was called RHYTHM. RHYTHM was a software

application that helped companies connect with suppliers and customers over the

Internet. It helped customers respond to market changes and gather intelligence. This

software was completely based on TOC and minimized the inventories that companies held at

any given time. It also decreased operational expenses by eliminating costly department

overhead needed to communicate effectively with suppliers and customers using traditional

communication channels, such as telephone and postal mail. Although RHYTHM has been

obsolete for 3 years, other such programs are still being developed and deployed by i2

Technologies.

The software applications that i2 Technologies develop add directly to the bottom line of a

company. Because of this, i2 is often listed as a TOC consultant. The most notable principle

used by i2 Technologies is called Closed-Loop Supply Chain Management. Closed-Loop

Supply Chain Management provides companies with tools to effectively identify the

constraints of their supply chain. Constraints within supply chains directly impact the ability

of a company to increase throughput. Closed-Loop Supply Chain Management is a closed-

loop system because it provides immediate feedback, which in turn adjusts critical aspects of

the supply chain, including synchronization of goals, measurements, and communications

across groups (i2 Technologies, 2005). Having an effective supply chain that reacts to a

changing market and customer demands will increase the ability of companies to reduce

operational expense, inventory, and ultimately increase sales, which directly affects the

company’s profit potential.

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i2 Technologies has shown that the Theory of Constraints can effectively help any company

work more efficiently and increase the bottom line. i2 Technologies has embraced TOC and

used it to write software that enables a business to operate according to TOC. Using this

customer-oriented approach, i2 Technologies was ranked 8 among the top 100 fastest

growing companies in 2000 according to Fortune Magazine. i2 Technologies is valued at $7

billion and maintained a 3-year revenue growth of 7%.

A survey was conducted on implementation of TOC in industries by Steven J. Balderstone

and Victoria J. Mabin, School of Business and Public Management,Victoria University of

Wellington, New Zealand. In the survey of over 100 cases, no failures or disappointing results

were reported. The following are the changes that took place :

Lead-Times: Mean Reduction 69%

Due-Date-Performance: Mean Improvement 60%

Cycle-Times: Mean Reduction 66%

Inventory Levels: Mean Reduction 50%

Revenue / Throughput: Mean Increase 68% (outlier exclusive)

Some substantial improvements in operational variables as well as financial variables were

reported. On average, inventories were reduced by 50%, production times (measured by lead-

times, cycle times or due date performance) improved by over 60%, and financial measures

improved by over 80%. In addition, inventory reductions were accompanied by lead-time

reductions.

CRITIQUE

Overall the book was excellent and easy read. This book would be ideal for anyone interested

in simplifying ways to improving any process - whether it is manufacturing or service

oriented

What we enjoyed about this book most of all, was the layout. The layout consisted of telling a

story about Alex in a novel form, which included dialog, plot, etc. After all, Alex represents

the average person - job going down the tube and marriage shortly following it. The source of

the problem the whole time was following the rules that were and are continuously engraved

into everyone each day.

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PERSONAL LEARNING: The Importance of Continuous Improvement

The most important personal learning for all of us is to always strive for continuous

improvement. Competitive forces in our economy compel firms constantly to seek new ways

to improve performance. Improvements in quality have not satisfied customers' demand for

quality, but instead have led to even higher demands for quality. The same is true of product

features, product diversity, on-time delivery, lead times and many other aspects of business

performance.

CONCLUSION

“The Goal” portrays an understandable and practical approach to analyze and solve a

problem. The details within the book are presented in such a simple and clear way, the

context of them are transparent to other lines of business and not limited to the operations of

a manufacturing plant. The first person narrative style emphasizes the thought processes of

examining such a problem and gives the reader a chance to follow the same thought process

even while reading the story.

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