1. GENESIS OF ‘THE GOAL’1. GENESIS OF ‘THE GOAL’

The Goal is about science and education. The author believes that these two words have been

abused to the extent that their original meanings have been lost in a fog of too much respect

and mystery. Science for him is not about the secrets of nature or even about truths. Science

is simply the method to try and postulate a minimum set of assumptions that can explain,

through a straightforward logical derivation, the existence of many phenomena of nature. For

example the Law of Conservation of Energy of physics is not truth. It is just an assumption

that is valid in explaining a tremendous amount of natural phenomena. Such an assumption

can never be proven since even though an infinite number of phenomena that can be

explained by it. On the other hand, it can be disproved by just a single phenomenon that

cannot be explained by the assumption. This disproving does not detract from the validity of

the assumption. It just highlights the need or even the existence of another assumption that is

more valid. This is the case with the assumption of the conservation of energy, which was

replaced by Einstein's global-more valid -postulation of the conservation of energy and mass.

Einstein's assumption is not true to the same extent that the previous one was not "true".

The author believes that we have restricted the connotation of science to a very selective,

limited assemblage of natural phenomena. We refer to science when we deal with physics,

chemistry or biology.

This book is an attempt to show that we can postulate a very small number of assumptions

and utilise them to explain a very large spectrum of industrial phenomena.

What the author has attempted to show with this book is that no exceptional brainpower is

needed to construct a new science or to expand on an existing one. What is needed is just the

courage to face inconsistencies and to avoid running away from them just because "that's the

way it was always done". The author has also dared to interweave into the book a family life

struggle, which he assumes is quite familiar to any manager who is to some extent obsessed

with his work.

The author has also attempted to show in the book the meaning of education. The author

sincerely believes that the only way we can learn is through our deductive process.

Presenting us with final conclusions is not a way that we learn. At best it is a way that we are

trained. That's why he has tried to deliver the message contained in the book in the Socratic

way. The author believes that our textbooks should not present us with a series of end results

but rather a plot that enables the reader to go through the deduction process himself.

2

2. INTRODUCTION TO ‘THE GOAL’2. INTRODUCTION TO ‘THE GOAL’

The Goal is about new global principles of manufacturing. It’s about people trying to

understand what makes their world tick so that they can make it better. As they think

logically and consistently about their problems they are able to determine “cause and effect “

relationship between their actions and results. In the process they deduce some basic

principles, which they use to save their plant and make it successful.

In today's manufacturing society production management is one of the most crucial ideals to

stay competitive in the market place. In our competitive manufacturing industry if a plant

does not satisfy customer's wants and needs their sales and profits will suffer and

management may end up pulling the plug if sales continue to decrease.

The book covers the following topics in great detail:

Communication;

Inventory; Bottlenecks;

Efficiency; and

Capacity Planning.

There are several reasons why the author chose a novel to explain his understanding of

manufacturing – how it works and why it works that way in reality. Firstly, he wants to make

the global principles of manufacturing more understandable and show how they can bring

order to the chaos that so often exists in our plants. Secondly, he wanted to illustrate the

power of this understanding and the benefits it can bring. The results achieved by the

exercise are not fantasy - they have been and are being achieved in real plants. The author

hopes that the readers would see the validity and the value of these principles in other

organizations such as banks, hospitals, insurance companies and our families. He believes

that the same potential for growth and improvement exists in all organizations. Finally and

most importantly the author wanted to show that we can all be an outstanding scientist. The

secret of being a good scientist lies not in brainpower but simply the need to look at reality

and think logically and precisely about what we see. The key ingredient is to have courage to

face inconsistencies between what we see and deduce and the way things are done. This

3

challenging of basic assumption is essential to break through. For example almost everyone

who has worked in a plant is uneasy about the use of cost accounting efficiencies to control

our actions. Yet few have challenged this sacred cow directly.

The basic story is built around the dilemmas facing Alex Rogo, a plant manager in charge of

an injection moulding plant a division at Bearington of his company UniCo. Alex Rogo is a

harried plant manager working ever more desperately to try and improve performance. His

factory is rapidly heading for disaster and so is his marriage. He has ninety days to save his

plant or it will be closed by the corporate HQ resulting in hundreds of job losses. The plant

can't seem to ship its orders on time and it's losing money. Alex is at a loss for what to do

until he pulls out a cigar that Jonah, a physicist from Israel, had recently given him. That

cigar reminds him to contact Jonah for possible help. From there, the path to recovery begins.

3. ABOUT THE AUTHOR3. ABOUT THE AUTHOR

Eli Goldratt`s ten year old crusade to change manufacturing from an art to a science is

bearing fruit. Eli’s reputation as a slaughterer of sacred cows began in 1979 when the

introduction of his computerized scheduling system disproved that myth that finite

scheduling doesn’t work. Its seems appropriate that Eli who is a man characterized as

unconventional but also full of common sense should disguise The Goal; a manufacturing

textbook as a novel. Its also fitting that it should become an underground best seller in

boardrooms, universities and on factory floors. However it was not anticipated that the Goal

would be passed along to and avidly read by spouses. Nor was it anticipated that people in

more than a dozen different countries would claim that the book was written about their plant

and their families.

4

4. CHARACTERS IN ‘THE GOAL’4. CHARACTERS IN ‘THE GOAL’

NAME OF CHARACTER ROLE IN THE BOOK

Alex Rogo Plant Manager – Uni Ware Co. at Bearington

Julie Rogo Alex Rogo`s wife

Dave and Sharon His Children

Jonah Physicist/Consultant

Bill Peach VP at UniCo (Alex Rogo’s Boss)

Lou Accountant at Bearington Factory

Bob Donovan Production Manager at Bearington Factory

Stacey Potazenik Inventory Controller at Bearington Factory

Ralph Nakamura System Analyst at Bearington Factory

Herbie & Ron Boys on the trek

5

5. CHAPTER I 5. CHAPTER I

THE BAD NEWS

The first chapter of this book describes the difficult situation Alex`s plant is in. Everything in

the plant is late. Orders are never shipped on time. In fact based on his observation Alex has

categorised all the orders that are behind schedule as being either Do It Now, Red hot, Very

hot or Hot depending upon their priority for dispatch.

During this period Alex's superior Bill Peach comes to the plant to make sure the operation

are running smoothly as planned and to check on an important order for a client which

happens to be UniCo. biggest customer. The order has been considerably delayed upsetting

the client. In an attempt to retain the client Bill promises to personally look into the status of

the order.

A visibly upset Bill takes Alex to task and asks him the reason as to why orders are getting

delayed. Alex blames the second round of layoffs that the Company carried out to reduce

costs for the delay as they have placed severe constraints on the plant functioning. However

Bill and the management believe that Alex has enough people to build the products on

schedule. According to Bill the plant is no longer the money maker it should be and that he

would have no choice but to close the facility down. Bill gives Alex three months to get the

plant running. Either the plant shapes up or the plant will be closed and everyone will lose

their jobs including Alex.

At the plant for some reason orders have not been on time. They are usually caught up in a

bottleneck somewhere. In fact many orders as of late have been so far behind that now it is a

major problem for the company and the lively hood of the workers. His company that he

works for is losing money. For the past couple of years the company has continued losing

money now it is his turn to change things around.

Thus in the first chapter we are made aware of the difficulties that Alex is facing and the

ultimatum that Bill has delivered to him regarding the future of the plant.

6

6. CHAPTER II6. CHAPTER II

STRESS ON FAMILY LIFE

One of the key features of this book is that the author has very realistically interweaved

family life and professional life. Today most of the managers at all levels of the organization

complain about the amount of hours they need to put into their jobs, just to be secure about

the job. This stress exerts intense pressure on ones family life. Alex being the plant manager

is going through a similar situation.

With all the problems with the plant, Alex hardly finds anytime for his wife and kids. This

situation has escalated to a point where Alex hardly gets to see in kids and is driving his

marriage towards disaster. The situation is further aggravated due to the fact that, Julie hates

the town of Bearington and doesn’t want to stay there. Alex on the other hand is attached to

the town as he was born and raised in Bearington. He feels he is at home and also has a sense

of ownership towards the town.

THE INTROSPECTION

According to Alex the real issue for him today is to save a manufacturing plant on the critical

list within three months before Bill pulls the plug on the factory. This meant that Alex would

have probably two or three monthly reports to change Bill’s mind failing which the plant

would be shut down without giving him time to complete his backlog and 600 people will

head for the unemployment lines. Alex tries to analyse the situation as to why can’t they

consistently deliver a quality product out of the factory on time and at a cost which would

beat the competition inspite having a good plant, the latest technology, the best n/c machines

that money, robots and a computer system. Alex feels that the fierce competition from the

Japanese is the main cause. Earlier the Japanese were beating the Americans on quality and

product design and now they are beating on the basis of price and deliveries. Alex also feels

that he has already done enough of cost reduction and there is nothing left to trim.

Finally Alex reaches a conclusion that the division has to do something about the late orders,

reduce need of expeditors, and stacks and stacks of inventory in the warehouse and most

importantly to stop losing money.

7

7. CHAPTER III7. CHAPTER III

PENNY WISE POUND FOOLISH

“Penny wise Pound Foolish” is an age-old adage. Today companies are so obsessed with cost

cutting in all possible minor ways that sometimes they land up spending a bomb trying to cut

trivial costs. This becomes evident in UniCo when Alex has to go for a meeting to the

Company’s HQ at 8.00 am in the morning. According to Alex the irony of calling an early

morning meeting when the Company is on a cost cutting drive is that half of the people

attending the meeting will have to fly in the night before, which means hotels bills and extra

meals. So in order to inform the divisions that they are not performing well and not making

money, UniCo is going to pay a couple of grand more than they would have to pay if they

begun the meeting an hour or two later.

THE CRISIS

Before the start of the meeting Alex comes to know the real reason for Bill’s sudden outburst

and change in behaviour. Nathan Selwin one of Bills assistant informs him that not just his

factory but also the whole division, which Bill heads would be, shut down in case Bill is

unable to make a turnaround and improve performance before the end of the year. This meant

that if the division went so would Bill’s job.

Bill was Alex’s immediate superior at the time he joined UniCo. It was Bill who recognized

Alex`s potential and promoted him to plant manager of the Bearington Factory. Bill then was

a very different man. He was confident and wasn’t afraid to delegate his responsibility. He

would allow an employee to run his own show as long as the employee contributed to the

bottom line of the company. He tried to be an enlightened manager and was open to new

ideas. But as sales reduced, competition intensified and budgets started becoming more and

more conservative, so did Bill attitude.

Bill started to lose his rationality due to all the crisis that UniCo was facing. He over reacts to

even petty issues and Alex compares Bills current state to that of a general who knows he is

losing the battle, but forgets his strategy in his desperation to win.

8

8. CHAPTER IV8. CHAPTER IV

THE FATEFUL MEETING

Chapter IV of the book is the most crucial and the turning point in the fate of the plant and

Alex. This chapter describes the meeting between Alex and Jonah and how this meeting sets

the ball rolling on the path of recovery.

A cigar in his suit pocket reminds Alex of his fateful meeting with his old time physics

professor Jonah at the O’Hare Airport. Alex who is on his way to Houston to attend a

seminar on “Robotics: Solution for the Eighties to America’s Productivity Crisis” informs

Jonah that his plant also makes use of robots in certain departments which have increased

productivity by thirty six percent in the areas where they are installed.

Jonah however bombards Alex with a serious of fundamental questions such as:

Is his plant now making thirty six percent more money than before?

Was his plant able to ship even one more product per day as a result of increase in

efficiencies in the department where robots are installed?

Did he lay off any people and thereby reducing people’s expenses due to installation of

the robots?

Did the inventories of the plant go down?

Does he ship his products on time meeting all the delivery and shipment dates?

When Alex replies in negative to all the above questions Jonah says that in case the

inventories haven’t done down, employee expenses haven’t reduced and the company isn’t

selling more products or is not meeting shipping dates, then it is wrong for Alex to claim that

the robots have increased the plant’s productivity. Further Jonah claims that Alex is running

a highly inefficient plant and that just like everybody else in the world, he has accepted so

many things without question and that he is not thinking at all.

9

THE TURNING POINT

Alex is stunned at Jonah’s blunt but shockingly true statements. He wants to know how

Jonah could without even knowing or coming to his plant make such accurate judgments

about his plant. Jonah tells Alex that what is happening in his plant is today a universal

phenomenon and inquires why does Alex believe that the robots are such a great

improvement. Alex believes that robots are a great improvement because they have increased

productivity.

Jonah then asks Alex to define productivity in a lay mans terms. Alex rightly defines

productivity as:

“Accomplishing something in terms of goals.”

Jonah further adds that,

“Productivity is the act of bringing a company closer to its goal. Every action that brings a

company closer to its goal is productive and every action that does not bring it closer to its

goal is not productive.”

However productivity is meaningless unless one knows what is his goal and the problem with

Alex is that he doesn’t know what is his goal and until then he is just playing a lot of games

with numbers and words.

Jonah advices Alex to think about what his goal is and gives him a clue that no matter what

the company, there is always only one goal to be achieved.

10

9. CHAPTER V & VI9. CHAPTER V & VI

DISCOVERING THE GOAL

This chapter describes the step-by-step process by which Alex tries to define the goal of his

company accurately. Keeping in mind that Jonah had said that there is only one goal, Alex

tries to identify the goal by considering each of the departments in his plant. He starts with:

PURCHASE

One of the things that a manufacturing organization must do is buy raw materials to produce

the required final products. So is cost effective purchasing of raw materials the goal of the

company? Alex rejects this hypothesis considering the fact that his purchase department is in

the process of renting out more warehouses to stock all the crap that they are buying so cost

effectively which has resulted in a 32 month supply of copper wire, 7 month supply of

stainless steel and millions and millions of money tied up in other stuff and all bought at

terrific prices and all this has not helped the plant in any way.

HUMAN RESOURCES

UniCo. employs people by thousands and people are supposed to be its most important asset.

So is supplying jobs and looking after its employees its goal? However in the last one year

UniCo has ruthlessly laid off a bulk of its staff nor does it provide lifetime employment to

anybody unlike the Japanese companies. Besides the plant isn’t built for the purpose of

paying wages and giving people something to do and so employee’s welfare is not the goal.

QUALITY

Is quality the goal? Because if one doesn’t manufacture a quality product all that one gets at

the end is a bunch of expensive mistakes and before long there would be no business and

clients. However Alex knows that his plant does no compromise on quality and is still

making losses and if quality were truly the goal, then how come a company likes Rolls

Royce very nearly went bankrupt. Hence quality alone cannot be the goal.

11

EFFICIENCY & QUALITY

Alex decides quality alone cannot be the goal because of costs. If low cost production is

essential, then efficiency would be the goal, or rather both hand in hand i.e. the fewer errors

made, the less re-work one has to do would lead to lower costs and thus producing a quality

product efficiently must be the goal. But can this goal keep the plant working? Alex

considers a few examples of companies that were producing low cost quality products but

have now discontinued them such a Volkswagen’s Bugs etc. and so he comes to the

conclusion that turning out a quality product on an efficient basis is not the goal.

TECHNOLOGY

If one has to stay in the business, he has to have the leading edge of technology. But then if

technology is the goal of a manufacturing organization, then how come the most responsible

positions aren’t in research and development. How come R & D is always off to the side in

every organization chart and even if the plant did have the latest technology would it save the

plant. No it wouldn’t and so even though technology is important it isn’t the goal

SALES & MARKET SHARE

Alex then thinks about all the 20 million dollars worth of finished goods inventory in his

inventory, which they haven’t been able to unload yet. Quality products, all produced

efficiently with the most current technology are all piled up in the warehouse waiting for

someone to buy them. So is sales and market share the goal? But Alex remembers the old

line “we are losing money, but we` re going to make it up by volume”. A company will

sometimes sell at a loss or at a marginal profit just to unload inventories. Thus one can have a

big market share, but what is the use is you are losing money in maintaining your share.

MONEY

Then Alex realises that Bill is going to shut Alex`s plant down because his plant is losing

money and the only way he can save his plant is by doing some incredibly brilliant thing and

stemming the losses so as to make profits and through that money. Thus the goal of a

manufacturing organization is to make money. If a company doesn’t make money by

producing and selling products, the company is finished. It will cease to function.

12

Thus if the goal is to make money, then putting it in Jonah`s terms:

An action which moves towards making money is productive and an action that takes away

from making money is non productive.

Alex realizes that in the past one year his plant is moving away from the goal rather than

more towards it. So in order to save the plant, Alex has to make it productive, i.e. he has to

make money for UniCo.

MEASUREMENTS FOR OBTAINING THE GOAL?

We have seen that, making money is the goal of an organization. However in order to know

if one is actually achieving the goal, there is a need for certain measurements against which

the goal can be measured. The author here gives us a set of measurements against which one

can measure the extent to which one has succeeded in achieving the goal.

NET PROFIT (NP):

NP is an absolute measurement. Indeed it would tell us how much excess of income we have

made over expenses. But NP can be sometimes misleading on its own. For example, lets say

we earn a profit of $10 million. On an absolute basis this is a wonderful figure and sounds

like a lot of money, but is it enough when compared to amount of money we invested? If we

started with a million dollars then we have made 10 times more money than we invested and

that’s excellent, but if we have invested a billion dollar then a profit of 10 million dollar

seems pretty lousy. Hence an absolute measurement has to be compared with some other

relative measurement to draw some meaningful interpretation from it

RETURN ON INVESTMENT (ROI)

ROI is a relative measurement, to compare the money made relative to the money invested.

This would solve the above problem, however there are examples of companies having a

good ROI but still going bankrupt. And the basic reason behind this is inadequate or

improper cash management. Bad Cash Management can drive a perfectly healthy company

on the verge of bankruptcy.

13

CASH FLOW ANALYSIS

To support the above two measurements, Cash flow analysis is essential as it tells an

organization how much funds are available to it in liquid cash, what are the requirements for

cash during a given period and what are the sources from where funds are going to flow into

the Company. Cash flow analysis is essential because it is a measure of survival. Stay above

the liquidity margin and an organization is OK and go below it and the organization is dead.

WHAT IS THE GOAL?

Finally Alex after much deliberation with Lou his plant controller defines the Goal as:

“TO MAKE MONEY BY INCREASING NET PROFIT, WHILE SIMULTANEOUSLY

INCREASING RETURN ON INVESTMENT AND INCREASING THE CASH FLOW.”

14

10. CHAPTER VIII10. CHAPTER VIII

THE REFINED GOAL

The measurements that Alex decided to measure the goal are more of accountant’s

measurements and as such they may not be applicable down at the plant level and may not

really tell whether or not the plant is really productive.

To make the measurements more compatible with the scenario on the plant floor the author

gives us 3 different measurements. The goal essentially remains the same; only it is stated in

a different and more compatible manner. The definitions may sound simple but they are

worded very precisely differently than the conventional definitions. The measurements are:

THROUGHPUT

It is the rate at which the system generates money through sales. Normally throughput is

associated with production, however the author rightly argues that even if we produce

something, but are not able to sell it, its doesn’t give any money to the Company and

consequently it is not throughput.

INVENTORY

It is all the money that the system has invested in purchasing things which it intends to

sell.

OPERATIONAL EXPENSE

It is all the money the system spends in order to turn inventory into throughput.

Each of the definitions given by the author contains the word “money”. Throughput is the

money coming in. Inventory is the money currently in the system and operational expense

is the money one has to pay out to make the throughput happen.

One measurement for the incoming money, one for the money still stuck inside and one for

the money going out. The reason why the author decided to define inventory and operational

expense in the above fashion was because he didn’t want to take into account any value

15

added as it eliminates the confusion over whether a dollar spent is an investment or an

expense. For example normally direct labour cost is added to the inventory cost, however the

author has decided to treat it as an operational expense because the time of the employees

isn’t what the plant is selling. The plant buys the time from the employees. Thus all

employee time whether direct or indirect, idle or operating time is operational expense and

still getting accounted for in a simpler way.

Alex tries to correlate the above definitions with his earlier conversation with Jonah

regarding the Robots. Alex realizes that Jonah was using the measurements in a crude form

of simple questions to check whether the robots had really increased productivity.

Jonah`s Basic Questions Questions in terms of measurements

Was his plant able to ship even one more product

per day?

Did the throughput go up or increase?

Did he lay off any people and reduce people’s

expenses?

Did the operational expense go down?

Did the inventories of the plant go down? Did the inventories go down?

So the way to express the goal is:

INCREASE THROUGHPUT WHILE SIMULTANEOUSLY REDUCING BOTH

INVENTORY AND OPERATING EXPENSE.

Which means that if the robots have made the throughput go up and the other two factors to

go down, they have made money for the system.

16

11. CHAPTER IX11. CHAPTER IX

THE DISCUSSION ON ROBOTS

With goal clearly defined Alex decides to find out if the robots had actually increased the

productivity. He studied the impact of the installing of the robots on the 3 measurements

given by Jonah. Alex with his team (Lou, Stacey, Bob and Ralph) discovered that in every

case where a robot came on line, there had been no increase in sales for any product for

which they made parts. The only increase was in the list of overdue shipments.

The work in progress on the parts produced by the robots had also gone up on those parts

since they were installed. Stacey associated the reason of increase in inventories to release of

more materials to the plant floor to keep the robots working so as to increase their utilization

rate. As a result though the efficiencies of the robots did go up, the plant was also ending up

with huge surpluses of inventories. Further the plant wasn’t consuming those inventories, as

it didn’t have any orders that would call for those parts.

Stacey pointed out the irony that in cases where the plant did have orders, it just didn’t seem

to get enough of the parts required. The reason for the above shortage in required parts was

that whenever the utilization rate of the robots falls, everybody drew materials from the

stores against the future forecast to keep the robots busy. And hence the robots had been

producing parts for which there were no orders resulting in an increase in inventories.

Unfortunately the forecast didn’t hold up resulting in surplus inventory.

Thus it could be seen that in order to give more to the robots to do, more materials were

released, which in turn increased inventories and in turn the costs of the plant. Alex

concluded that they had been managing a very inefficient plant and not according to the Goal

and went on to explain his meeting with Jonah to his team.

17

12. CHAPTER XI12. CHAPTER XI

EFFICIENCY – GOOD OR BAD!!!!

Through years we have all come to believe that idle time is not desirable irrespective of

whether it is normal or abnormal. Most managers are also in a constant struggle to eliminate

as much of idle time as possible because we believe that idle time is bad for the company

since it was a waste of money since the company doesn’t pay its employees to be idle. In this

chapter the author had taken a stand that idle time is in fact desirable and essential for the

proper functioning of an organization. In fact he believes that “A PLANT IN WHICH

EVERYONE IS WORKING ALL THE TIME IS VERY INEFFICIENT”

The author adds that that Alex’s plant is the best example of the above statement. The

struggle to keep the robots and the workers busy had resulted in a huge pile of inventories for

which there was no demand. Most of the managers today believe that their plant are so short

of people that the only way they can get products out of the plant is by keeping everyone

working. However the author says that the only way one can have huge excessive inventories

as in case of Alex is by having excessive manpower or by over working people. Machines

don’t set up and run themselves. People are the ones who create inventory. The author

vehemently advices the readers to stop focusing on efficiencies and instead concentrate on

making money, which is the true goal.

Alex tells Jonah about their finding on the robots and admits that their excessive focus on

increasing efficiencies of the robots had resulted in a movement away from the goal.

THE BALANCED PLANT – A MYTH

Here the author has introduced the concept of a balanced plant, to explain the validity of his

above statements. The author defines a balanced plant as:

A plant where the capacity of each and every resource is balanced exactly with the demand

from the market.

Every manager tries to achieve this because if they don’t have enough capacity, they are

depriving themselves out of potential throughput and if they have more capacity they are

wasting money and missing an opportunity to reduce operational expense. The tendency for

18

most managers to achieve this is to trim the capacity wherever they can, so no resource is idle

and everybody has something to work on.

However according to the author nobody ever runs a perfectly balanced plant because the

closer one gets to achieve a balanced plant, the closer he gets to bankruptcy.

This is because the obsession with trimming capacity leads to laying off of people, which

only results in a decrease in operational expenses without a decrease in inventory or increase

in sales. Besides in trimming capacity to balance with market demand managers make a

universal assumption that it wont affect throughput or inventory. Contrary to the assumption

there is a mathematical proof that when capacity is trimmed exactly to marketing demands,

no more and no less, throughput goes down and inventories go through the roof, and because

inventories increase, the carrying cost also increases which is nothing but an operational

expense. And so the one measurement, which is expected to improve by layoff of people,

also increases taking one away from the goal.

The reason for the above result lies in a combination of two phenomenons that are found in

every plant. They are:

DEPENDENT EVENTS

It is an event or a serious of events, which must take place before another can begin. The

subsequent event depends upon the ones prior to it

STATISTICAL FLUCTUATIONS

There are some kinds of information that we cannot precisely predict. Like how long it will

take a waiter to bring a check after every meal or the number of eggs that would be in the

fridge on any given day. These types of information vary from one instance to the next i.e.

they are subject to statistical fluctuations.

In context with the story in the book, Alex however feels that in case of a worker doing the

same job day in and day out, these fluctuations would average out over a period of time.

Jonah however disagrees with him and asks Alex to reflect on these definitions in

combination and no singularly.

19

13. CHAPTERS XIII & IV13. CHAPTERS XIII & IV

THE HIKE

Chapters XIII & IV are the most crucial and one of my favourite chapters of the book. In

these chapters the author has explained the meaning and practical application of all the

technical terms that he has defined till now. Reading these two chapters makes ones concept

really clear and gives a whole new perspective about the book.

The chapters describe how Alex understood the combined application of the dependent

events and statistical fluctuations on a hike which he went to along with his son.

Alex went on a hike as a troop master with his son Dave. The plan for the troop was to hike

through the forest following a blazed trail to someplace called “Devil’s Gulch”. The distance

from the starting point to Devil’s Gulch was 10 miles and the troop had to cover this distance

in a period of 5 hours i.e. at a rate of 2 mils per hour. They started off with Ron who was the

fastest in the lead, followed by the other boys with Herbie who was the fattest and the

slowest at the end. After sometime time Alex noticed that the column of scouts had spread

out to some degree. A couple of gaps had appeared between the columns and he could barely

see the kids at the end of the line.

THE COLUMN OF TROOPS WITH RON IN THE LEAD

Alex commanded Ron to halt until everybody came together. However after sometime the

gaps again started appearing. Looking at the spread out column, Al ex started correlating

20

DEVIL GULCH

START

RON

DAVE

HERBIE

RON

DAVE

HERBIE

RON

DAVE

HERBIE

AFTER 30 MINS

AFTER 90 MINS

what was happening with his conversation with Jonah on dependent event and statistical

fluctuations. It was then that he understood the combined effect of the two phenomenons.

Ron who was the fastest was setting the pace. Every time someone moved slower than Ron,

the line lengthened. If one of the boys took a step that was an inch shorter than the one Ron

took, the length of the whole column increased.

Alex then remembered his earlier argument that the statistical fluctuations were bound to

average out over a period of time. So Alex thought that when someone moved faster than

Ron it would make up for the spreading, averaging out the fluctuations.

However Alex realised that even if he were to walk faster, he could close the gap only

between himself and the kid in front of him. Once the gap was closed he couldn’t go any

faster than the rate at which the kid in front of him was going. And the kid in turn couldn’t go

faster than the kid in front of him and so on up the line to Ron. Which meant that except Ron

each of their speeds depended upon the speed of those in front of them in the line.

Thus the hike was like a set of dependent events, in combinations with statistical fluctuations

in the form of speed of each person. The ability to go faster than the average speed was

restricted by the person in front. So everyone had got limits on how fast he could go. A boy

could go only so fast as those in front of him, but conversely there was no limit on a person’s

ability to slow down or stop. And if anyone slowed or stop the line would extend indefinitely.

Thus what was happening wasn’t an averaging out of the fluctuations in the various speeds

but an accumulation of the fluctuations. And mostly it was an accumulation of the slowness

and that is why the line was spreading.

ANALOGY TO THE PLANT

The author has established a beautiful analogy between the hike and the plant. Even in the

plant there are both dependent event and statistical fluctuations. The troops of boys were

analogous to a manufacturing system, and the troop produced a product in the form of a walk

trial. Ron began production by consuming the unwalked trail before him, which was

equivalent to raw material. So Ron processed the trial first by walking over it, then the other

boys behind him till Herbie who was last. Each of the boys was like an operation that had to

be performed to produce the product in the plant. Only after the last boy i.e. Herbie had

21

walked the trial was the product sold, and thus the throughput would be the rate at which

Herbie walked the trail and not Ron.

The amount of trail between Ron and Herbie would be the inventory and the energy spend by

each kid would be the operational expense. If the distance between Ron and Herbie

increased, it would mean the inventory was increasing. Because Herbie was slowed down by

the fluctuating rates of others, so that the slower than average fluctuations accumulated, the

effect would work back to Herbie. Which meant that inventory grew and the throughput of

the entire system went down.

If inventory went up, so would the carrying cost on inventory that is an operational expense.

In terms of the hike, the operational expense was increasing every time the boys hurried to

catch up, because they spent more energy.

Thus inventory was going up, throughput was going down and operational expense was also

increasing in the hike and which was what was precisely happening to Alex’s plant.

22

14. CHAPTER V14. CHAPTER V

THE SOLUTION

The hike and the column of students made Alex realise the problem that he was facing in his

plant. Now he needed to come out with some solution in order to keep the column of students

together.

Alex realised that the boy who would be moving the slowest at any given moment of time

would determine the throughput of the entire system. That person may be any boy who took

a step shorter or walked slower than Ron. Thus the boy slowing the troop down may not

always be Herbie, but overall, Herbie had the least capacity for walking and so his rate

ultimately was bound to determine the troops rate. Having come to a conclusion that Herbie

was the limiting factor, Alex tried to devise a way to make Herbie go faster and also the keep

the boys together in a single line.

First he removed all the excessive weight from Herbie`s backpack and distributed it between

himself and the other boys. Then he asked all the boys to stop and made them stand in a line

in the position they were currently walking. He made everyone join hands and taking

Herbie`s hand who was standing last, he reversed the whole column of troops, such that

Herbie was now in the lead, followed the other slower guys and the faster boys like Ron were

at the end of the column.

The result of the above two actions was dramatic, Herbie because of the weight on this back,

reduced could now really walk faster and because nobody was allowed to overtake anybody

the column remained compact as the faster boys at the end easily kept up with the slower

boys in the front.

The column of troops was now flying, doing twice the speed they were doing before and they

still managed to stay together. In the author’s language, inventory went down and throughput

increased.

23

THE COLUMN OF TROOPS WITH HERBIE IN THE LEAD

24

DEVIL GULCH

RON DAVE HERBIE

RONDAVEHERBIE

AFTER 120 MINS

AFTER 240 MINS

AFTER 180 MINS

RONDAVEHERBIE

RONDAVEHERBIEAFTER 300 MINS

15. CHAPTER XVII15. CHAPTER XVII

THE PROOF

In this chapter, the author proves the analogy that he had established between the plant and

the hike. When Alex observed that his team was not entirely convinced with his conclusions

from the hike he decided to prove it by taking an actual example from the plant floor. He

selected a Do It Now category job where a particular product had to pass through two

processes i.e. one manual and the other on the robots before it could be shipped. There were

in all 100 units to be processed within 5 hours i.e. at the rate of 25 units to be processed per

hour by each department.

The manual department was supposed to produce at the rate of 25 units per hour. But that

doesn’t mean they would always have 25 units at the end of every hour. Sometimes they

would have a few pieces short and sometimes they will be a few pieces ahead. Thus the

process involved statistical fluctuations. The robot on the other hand was supposed to be

precise in its output. It would be setup for 25 units per hour- no more no less. Thus the

process was a dependent event i.e. the robots depended upon the manual department to

supply them with 25 units per hour in order to begin processing. The planning was that from

12 noon until 4 pm, the manual department would produce 100 units per unit at the rate of 25

units per hour. From 1 pm onwards the robots would begin processing on the first batch of

units send by the manual department thus finishing the job by 5 p.m.

EXPECTED SCHEDULE -

Demand = 100 units, Quota = 25 units per hour [ ] – indicates cumulative production.

12.00 – 1.00 1 .00 – 2.00 2.00 – 3.00 3.00 – 4.00 4.00 – 5.00 5 pm

Manual

Dept.

25

[0]

25

[25]

25

[50]

25

[75]

------------

[100]

-------

Robot -------- 25

[0]

25

[25]

25

[50]

25

[75]

-------

[100]

ACTUAL PRODUCTION SHEET AT 5 PM –

Demand = 100 units, Quota = 25 units per hour

25

[ ] – Indicates cumulative production.

( ) – Indicates cumulative shortfall in production as per target

12.00 – 1.00 1 .00 – 2.00 2.00 – 3.00 3.00 – 4.00 4.00 – 5.00 5 pm

Manual

Dept.

19

[0] (0)

21

[19] (-6)

28

[40] (-10)

32

[68] (-7)

------------

[100] (0)

-------

Robot -------- 19

[0] (0)

21

[19] (-6)

25

[40] (-10)

25

[65] (-10)

-------[90]

(-10)

From the above production sheet we can see that in the first hour, the manual department

processed only 19 units. The robots were capable of doing 25 units, but since the manual

department could deliver only 19 units, the true capacity of the robots became 19 units for

that hour. Same with the second hour, the manual department could deliver only 21 and so

the robots could process only 21 units. Thus every time the manual department lagged behind

target, the effect was passed on to the robots.

However when the manual department delivered 28 units, the robots could process still

process only 25 units, which meant that when the final delivery of the 32 units arrived at 4

pm, the robot still had 3 units to work on from the last batch, so it couldn’t start on the batch

right away. Similarly at 5 pm, the robots still had to process 10 units, which was exactly the

number of units, the manual department ever got behind the schedule.

Thus Alex proved the mathematical principle that the maximum deviation of a preceding

operation would become the starting point of a subsequent operation.

26

16. CHAPTER XVIII16. CHAPTER XVIII

BOTTLENECKS

The author has so far proved that one cannot measure the capacity of a resource in isolation.

Its true productive capacity depended upon where its position was in the plant. In order to

know the position and the importance of a particular resource in an organization, the author,

has classified all resources into 2 categories as follows:

BOTTLENECK RESOURCE:

It is any resource whose capacity is equal to or less than the demand placed upon it.

NON-BOTTLENECK RESOURCE:

A resource, which is not a bottleneck resource, is a non-bottleneck resource.

Having seen the actual demonstration of the effect of dependent events and statistical

fluctuations on the production system, Alex and his staff come to the conclusion that they

had to change the way they thought about production capacity. Jonah advices them not to

balance the plant capacity not according to the market demand, but to balance the flow of the

product through the plant with the demand from the market. Thus the author here gives amn

important rule:

“BALANCE FLOW and NOT CAPACITY”

The idea is to make the flow through the bottleneck equal to demand from the market.

HERBIE’S AT THE PLANT

With the above advice from Jonah, Alex and his team set out to identify the bottlenecks or

Herbie as they decided to call them in the plant. Since they were short of time and the data

available was inadequate and inaccurate, they decided to the identify the bottlenecks using

the help of the expeditors as they would be able to tell them which parts are missing or are in

short supply most of the time and which departments are responsible for the supply of the

parts. The departments where the parts were to come from would invariably posses the

Herbie in the plant. Also just as on the hike one could identify the slower boys by the gaps in

the line and greater the gap, greater would be the inventory, in case of the plant a Herbie

would have a huge pile of work in progress sitting in front of it.

Using the above methodology, Alex and his team identifies the first bottleneck as:

27

BOTTLE NECK # 1: NCX – 10 MACHINE

The reasons why NCX – 10 was classified as a bottleneck was:

The machine had stacks of work in progress inventory in front of it dating back to a

couple of weeks,

The expeditors also confirmed that they were always waiting for parts from this machine,

The machine was installed 2 years earlier to replace 3 different machines, thus reducing

processing time from 14 minutes to 10 minutes, however, earlier there were 3 sets of the

machines whereas the NCX –10 was the only one of its kind. Which meant that though

the processing time reduced, there was no increase in the number of units being

processed annually and,

The employee turnover on the machine was very high as it was in demand in the market

and it took six months to train a new person to operate the machine.

BOTTLE # 2: HEAT – TREATMENT DEPARTMENT

The reasons why HEAT – TREATMENT department was classified as a bottleneck was:

The parts put in the furnace had to remain in it anywhere from 6 hours to 16 hours.

Afterwards, the parts had to go through a cool down to air temperature process outside

the furnace. Thus a lot of time was lost in this process.

The furnaces never operated at full capacity because the batch sizes were either too small

to fill up the furnace capacity and sometimes the batch size was too big, that 2 runs were

required.

Thus Alex and his team had discovered two bottlenecks in their plant. They were holding

everything up and as a result there were piles and piles of inventory stacked up in front of

them. And unlike the boys on the hike, they couldn’t be rearranged at the start of the

operations and were stuck in the middle of the line.

28

17. CHAPTER XIX17. CHAPTER XIX

COST OF A BOTTLENECK

According to the author the main problem in case of bottlenecks was that they were not

maintaining a flow sufficient to meet demand and to make money and so the only solution to

the problem was to find ways to increase their inherent capacity. The essence of the problem

lied in finding enough capacity for the bottlenecks to become more or equal to the market

demand. In most organizations, the bottlenecks always have some hidden capacity because of

the wrong thinking of the managers.

Jonah visited the bottlenecks one by one and discovered a couple of issues regarding the

bottlenecks such as:

The machines were idle.

Bottlenecks were producing units for which there was no immediate demand

The bottlenecks were processing units which were faulty, thus wasting precious time of

scrap

There was no optimum utilization of the limited number of hours available on the

bottlenecks.

Jonah then went on to explain Alex and his team the importance of the bottlenecks and how

precious were the hours available on them. He explained them that every time a bottleneck

finished a part, if facilitated the shipment of a product, which meant an average of a 1000

dollars in sales per unit.

The author here states that calculating the per hour cost of a bottleneck in isolation of the

whole production system was a flaw which most people committed. According to him the

cost of operating the bottlenecks should be calculated taking into consideration the fact that

the capacity of the plant is equal to the capacity of the bottleneck. Thus whatever the

bottlenecks would produce in an hour is equivalent of what the plant produces in an hour, so

an hour lost at a bottleneck was an hour lost for the entire system. And hence the cost per

hour of a bottleneck would be the cost for the entire plant to be idle for one hour.

The cost in case of Alex’s plant could be calculated by dividing the total operating expenses

for a month by the number of hours the bottleneck produced. Which in their case worked out

29

to be $ 2735 per hour as against $ 21 per hour if the cost of the bottleneck is calculated in

isolation.

OPTIMISATION OF BOTTLENECKS

Jonah identified 3 ways in which Alex could optimize the use of bottlenecks.

1. Ensure that time on the bottlenecks was not wasted. The different ways in which time

could be wasted are:

By keeping it idle during lunch breaks

Processing parts which were already defective

Wasting a bottlenecks time on parts, which were not needed immediately for sale.

2. Making the bottlenecks work only on what would contribute to the throughput today and

not in the future.

3. Increase bottleneck capacity by taking off some load and giving it to non-bottlenecks.

30

18. CHAPTER XX – XXIV18. CHAPTER XX – XXIV

CORRECTIVE STEPS

Alex and his team took the following corrective actions after Jonah`s visit to their plant and

its comments on the utilization of the bottlenecks

1. QC BEFORE BOTTLENECKS

Moved the Quality Control inspection points before the bottlenecks in order to inspect the

parts before they could be processed by the bottlenecks. This eliminated about 5 to 7 % of the

parts, which were defective from being processed by the bottleneck, thus gaining additional

throughput.

2. NEGOTIATIONS WITH THE UNION

Negotiated with the union to eliminate bottleneck idle time by asking the workers working on

the bottlenecks to take their breaks only during the hours when the bottlenecks were

operating or busy.

3. NEW PRIORITY SYSTEM

Introduced a new priority system for processing orders. Under this system, all the work in

progress was marked by a tag with a number on it. The tags were of two colours – red and

green. A red tag indicated the work attached to it had first priority and would be put on

materials that required processing on the bottlenecks. When a batch with a red tag arrived the

worker was supposed to start work on it with half an hour after completing the job on hand.

In case of 2 batches with the same colour, the number on the tag had to referred and the

materials with the lowest number had to be worked upon.

4. CHANGE IN CONTROL PROCESSES POST QC

Since QC was installed before the bottlenecks, it was necessary that the parts coming out the

bottlenecks had to be handled with great care in order to avoid any damages. So a system of

yellow tags was introduced. Under this system a yellow tag on the materials indicated it had

31

been processed by the bottlenecks and so the parts had to handled with great care and

caution.

5. ACQUIRE SUBSTITURE MACHINERY

Bob managed to acquire free of cost the machines which the NCX –10 had replaced. The

machines were put into operations and as a result the capacity of the plant increased by those

many number of units.

6. ASSIGNED DEDICATED SETUP CREW

Assigned a dedicated setup crew to the bottlenecks so that, they would be always attended to

and new batches would be loaded immediately once the previous batch was finished being

processed. This further eliminated any idle time on the bottlenecks caused due to non-

attendance of people at the machines when processing stopped.

7. STANDARD OPERATING PROCEDURES FOR HEAT TREATMENT

Formulated standard operating procedures in case of bottlenecks such as filling up the

furnace to its optimum capacity using different parts if the batch of any one order is too small

or big to fill up the furnace.

8. INCENTIVE & REWARDS

Visited the crew at the bottlenecks frequently so as to motivate them and to make them feel

important and also suggested that rewards would be given to anyone who could improve the

output at he bottlenecks.

9. CHANGE IN MFG PROCESS FOR CERTAIN PARTS

Eliminated heat treatment process in case of all those parts in whose case it was not specified

or required by the engineering department, but the management was doing it a part of normal

routine.

32

THE RESULT

A result of all the above improvement steps that Alex and his team took was that, that were

able to set up a new plant record. They were able to ship 57 orders amounting to 3 million

dollars. The work in progress declined by 12 percent and delays had reduced to 15 days from

58 days.

33

19. CHAPTER XV & XVI19. CHAPTER XV & XVI

NEW BOTTLENECKS?

After the initial euphoria of the success of the above factors, Alex and his team suddenly

discovered that shortage of parts was now felt from some of the non bottleneck resources and

also piles and piles of inventory were getting accumulated at the assembly shop and the stock

in front of the bottlenecks started increasing again. Alex thought that perhaps with the

increase in the throughput, they must have loaded the plant to such a level that they must

have run out of capacity on some other resource in addition to those identified earlier.

Making the bottlenecks more productive must have put more demand on other non-

bottleneck work centres. If the demand on the other work centres had gone above 100

percent, then it must have resulted in the creation of a new bottleneck.

At this juncture the author reminds us of one of his earlier statement “A plant in which

everyone is working all the time is very inefficient”; which is what was precisely happening

in Alex’s plant.

The author then goes on to explain some basic relationships between bottlenecks and non-

bottlenecks with the help of 3 diagrams:

DIAGRAM I

He denotes a bottleneck by the alphabet ‘X’ and a non-bottleneck by the alphabet by ‘Y’. In

the above diagram machine Y is feeding parts to bottleneck X. By definition a non-

bottleneck has extra capacity and so Y will be faster in filling demand than X. Both X & Y

would have the same capacity in term of hours per month (say 600 hours). Since X is a

bottleneck, the plant will need all the 600 hours of X to meet the demand. But the plant may

need only 450 hours of Y to equal the demand. In this case Y would be left with a surplus

capacity of 150 hours. If the plant released more materials to keep Y busy, then the parts,

which Y produced in those 150 hours, were bound to get stuck as work in progress inventory

34

Y ---- X

in front of the bottleneck as all the 600 hours of X were already being utilized. Thus pushing

more material than the system can convert into throughput was resulting in excess inventory.

DIAGRAM II

Similarly in a situation where X is feeding Y, only 450 hours of the total capacity of Y can be

used productively. If Y is exclusively depending upon X to feed it with inventory, the

maximum number of hours it can work is determined by the output of X. Thus after working

for 450 hours Y will be starved for inventory, which is quite acceptable.

DIAGRAM III

In this case there are 2 routes. In one route, Y feeds parts directly to the Assembly shop,

which is also a non-bottleneck. On the second route, parts reach the assembly shop after they

have being processed by X. In case both X and Y are kept working continuously for every

available hour, excess inventory from Y will reach the Assembly shop and get piled up there

because 80 percent of the products would require at least one part from X, resulting in piles

of inventory getting accumulated in front of the assembly shop converting it into a

bottleneck.

From the above linear combinations we observe that in no case does Y ever determine the

throughput for the system. Whenever Y is operated at a level above X it results only in

excess of inventory and not throughput.

Thus the author gives us a very simple rule:

“THE LEVEL OF UTILISATION OF A NON BOTTLENECK IS NOT DETERMINED

BY ITS OWN POTENTIAL, BUT BY SOME OTHER CONSTRAINT IN THE SYSTEM.”

35

X ---- Y

Y ---- X ----

ASSEMBLY

In context with Alex’s plant, a major constraint was the NCX – 10 machine. When a non-

bottleneck did more work than the NCX – 10, it did not increase productivity, but did exactly

the opposite i.e. created excess inventory, which was against the goal.

Alex like most other managers was working under the fundamental wrong assumption that,

“ONE MUST MAKE THE WORKERS PRODUCE ONE HUNDRED PERCENT OF

THE TIME, OR ELSE GET RID OF THEM TO ‘SAVE’ MONEY.”

The author here makes a very interesting point that making an employee work and profiting

from that work are two different things. Similarly activating a resource and utilizing a

resource are not synonymous.

“Utilising a resource means making use of the resources in a way that moves the system

toward the goal.”

“ Activating a resource is like pressing a ON switch of a machine, so that it would run

whether or not there is any benefit to be derived from the work its doing.”

Thus really speaking activating a non-bottleneck to its maximum is an act of maximum

stupidity.

The implication of these rules is that we must not seek to optimise every resource in the

system. A system of local optimums is not an optimum system at all, it is a very inefficient

system.

THE DIAGNOSIS

Alex and his team realised that they were releasing materials faster than the bottlenecks could

process them. What happened was that even as throughput increased, they continued loading

the plant with inventory just to keep their workers busy. This increased the load dumped on

the milling machines (non-bottlenecks) and pushed them beyond their capacity. The priority

red tags were processed and the green tags kept piling up. So not only did they create more

inventory at the NCX – 10 machine and the Heat Treatment department, but due to the

volume of the bottleneck parts, they also clogged the flow of another work centre and

prevented non bottleneck parts from reaching the assembly shop, and in the process creating

a new bottleneck.

36

They decided to withhold the materials for the red parts instead of pushing them out as soon

as the first bottleneck had nothing to do. The milling machines would then have time to work

on the green parts and the parts, which were missing, would reach the assembly on time.

Thus they had to find the way to release the material for the red parts according to the rate at

which the bottlenecks needed material. They needed some kind of signal to link the

bottlenecks with the release of material schedule. They also made a system so as to predict

when to release material based on the data kept of the bottlenecks. The system could predict

several weeks in advance what each bottleneck would be working on at a particular time.

Based on what was in the queue and the average setup time along with the process times for

each type of part the system could predict the requirement of materials to about plus/minus a

day or two. This allowed them to keep a three-day stock of work in progress in front of each

bottleneck. They also developed a system to attack the inventory problems in front of the

assembly. Using a schedule for releasing red tag materials based on the bottlenecks the

system could also determine a schedule for the final assembly. Once the data regarding when

the bottleneck parts would reach the final assembly was available the system could calculate

backwards and determine the release of the non-bottleneck materials along each of their

routes. In this way the bottlenecks determined the release of all the materials in the plant.

Alex concluded by saying that its going to produce the same effect as moving the bottlenecks

to the head of production which is what he had intended to do.

37

20. CHAPTER XXVII - XXIX20. CHAPTER XXVII - XXIX

THE NEW CHALLENGE

In these chapters the author has shown how to make the optimum utilization of the idle time

available on the non-bottlenecks, which was available due to scheduling as per the capacity

of the bottlenecks.

Alex approached Bill after three months and told him about the improvements in his plant.

He also informed Bill that there was no need now to shutdown the plant. However Bill said

that he was not convinced that the improvement was just a flash in the pan and he would

consider Alex’s statement if he showed a bigger improvement of 15% or more on the bottom

line than the previous month.

BATCH SIZE MIRACLE

Jonah adviced Alex and his team to cut the batch sizes of the parts in half on non-bottlenecks.

A cut in the batch sizes meant that at any one time they would have half the work in progress

on the plant floor. Thus they would need only half the investment in work and progress to

keep the plant running. By negotiating with the vendors they could cut all the inventories in

half and reduce the amount of cash tied up any one time, which would ease the pressure on

the cash flow and thereby pushing up the profits.

According to the author the total time from the moment the material comes into a plant to the

minute it goes out as finished product could be divided into four elements as follows:

1. SETUP TIME – It is the time the part spends waiting for a resource while the resource is

preparing itself to work on the part.

2. PROCESS TIME – It is the amount of time the part spends being modified into a new

and more valuable form.

3. QUEUE TIME – It is the time the part sends in line for a resource while the resource is

busy working on something else ahead of it.

4. WAIT TIME – It is the time the part waits not for a resource but for another part so they

can be assembled together.

Setup and process times are a small portion of the total elapsed time for any part. But queue

and wait time often consumes large amount of time that the parts spend inside the plant. For

parts going through bottlenecks queue is the dominant portion whereas in case if a non-

38

bottleneck wait is the dominant time because they are waiting in front of assembly for parts

that are coming from there bottle necks. This means that in each case the bottlenecks are

what dictate the total elapsed time. And hence the bottlenecks also dictated inventory as well

as throughput.

A reduction in batch sizes by half would also reduce by half the process time of a batch,

which in turn reduced the queue, and wait time by half as well. This would reduce the total

time spent by the part in the plant and condense the total lead-time. This would result in

faster turnaround on orders and with customers getting a faster response it would serve as an

advantage in the market place ultimately increasing the sales of the parts.

Here it is very normal for a person to assume that due to the reduction of batch sizes in half it

would proportionally increase the set up times and thereby increasing the cost per part.

However the author lays to rest any such fears reminding us that just as an hour lost at a

bottleneck is an hour lost for the entire system, likewise

“An hour saved at a non-bottleneck is a mirage.”

According to the author when we start withholding materials from the plant floor until the

bottlenecks are ready for them, the non-bottlenecks would then have idle time.

Hence it was perfectly okay to have more set ups or non-bottlenecks; because all the extra

setups would consume only the idle time that is inherently available on the non-bottleneck.

Thus saving setups at a non-bottleneck didn’t make the system one bit more productive. The

time and money saved is an illusion.

In case of Alex even if they were to double the number of setups it wouldn’t consume all the

idle time. Jonah further advises Alex to approach the marketing department and convince

them to conduct a new campaign, which would promise customers delivery within six weeks.

This would clearly be a market winning strategy and profits were bound to increase.

21. CHAPTER XXX 21. CHAPTER XXX

THE VICTORY

The results of the above improvements and strategies adopted by Alex and his team were:

39

Inventory levels had fallen and were continuing to fall rapidly.

By withholding materials they were no longer choking on work in progress.

Parts were reaching the bottlenecks when they were supposed to and the flow through the

plant was much smoother that before.

Rate of shipments grew dramatically and efficiencies were on a high.

The best news was that they had completely wiped out their backlog of overdue orders

and had caught up with orders on hand.

Throughput was up.

The plant got plenty of new orders and increased customer loyalty.

The work force was now more occupied productively than before.

The stacks and piles of parts and subassemblies had shrunk to half their former size.

They had shipped the excess inventory as finished product.

The most notable part was that, they hadn’t filled the plant again by dumping new work

in progress on the plant floor. The only work in progress on the plant floor was for the

current demand.

The improvements also helped Alex in regaining orders from Bucky Burnside, their

biggest and most prestigious customer.

The plant recorded a remarkable increase of 21% in the bottom line consistently for a

period of three months.

Finally at end of five months Alex and his team’s efforts were rewarded. Alex was

promoted to Bill’s position at the group level.

40

22. CHAPTER XXXI – XXXX22. CHAPTER XXXI – XXXX

THE SOCRATIC APPROACH

A reading of the book makes us realise that the solutions that Jonah caused Alex and his team

to develop had one thing in common. They all made common sense and at the same time they

went against everything Alex and his team had ever learnt. They wouldn’t have had the

courage to implement them, if it weren’t for the fact that they had to sweat to construct them.

If it weren’t for the conviction and the ownership that they developed during the process,

they wouldn’t have had the guts to put the solutions into practice.

The author says we refer to something as common sense only if it is in line with our own

intuition; i.e. at least intuitively we know it all along.

Then why is there so often the need for an external trigger to help us realise something that

we know intuitively?

According to the author these intuitive conclusions are probably masked by something else

that is not common sense, but thick layers of common practice. Jonah’s way of leading to the

answers through asking questions i.e. his Socratic approach was very effective at peeling

away the thick layers of common practice. Spelling out answers when one is trying to

convince someone who blindly follows such common practices is totally ineffective. It is

amazing how deeply ingrained are things that we have been told and practiced, but never

spent the time to think about on our own.

Thus, the essence of Jonah’s teaching was to persuade other people to peel away the layers of

common practice and overcome their resistance to change.

41

The author gives us a five-step procedure to overcome any problems that we might face.

Step1: IDENTIFY the systems constraint(s).

Step2: Decide how to EXPLOIT the systems constraint(s).

Step3: SUBORDINATE everything else to the above decision.

Step4: ELEVATE the system’s constraint(s).

Step5: WARNING!!!! If in the previous steps a constraint has been broken, go back to

step1, but do not allow INTERTIA to cause a system’s constraint.

‘THE GOAL’ – VALUE TO A MANAGEMENT STUDENT

The book explains how to see businesses as systems as well as any other book on this

subject.

The metaphor of how to speed up a slow-moving group of boy scouts will be visceral to

anyone who has done any hiking with a group.

The book helps us learn how to improve the performance of a system by providing us

with a replicable process that we can apply to analysing any human or engineering

system.

We get to experience the power of the Socratic method as a way to stimulate our mind to

learn, and to use Socratic questions to stimulate the minds of others to become better

thinkers and doers.

The author used problem simulation as a practical way to help us experience the learning

process they are advocating.

The book is unusually good in bringing home the consequences of letting our business/

professional life interfere with our family life.

The pacing of the book is especially good. We are given time to stew with issues and

come up with our own ideas before sample answers are provided by Alex and his team in

the novel. Unlike many books that take complicated ideas and oversimplify them so the

ideas lose their meaning, this book simplifies ideas in ways that enhance their meaning

by making the ideas easier to see and employ.

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It accurately describes the behaviour of manufacturing facilities, including such fundamental

concepts as bottlenecks, constraints, and the impact of variability. One reason why it has

been so broadly read is that it frames these concepts in the guise of a novel. This makes the

ideas easy to read and digest.

IMPORTANT LESSONS TO BE LEARNT

Some of the lessons of the book include the following:

When we are productive we are accomplishing something in terms of goals. Every action

that brings a company closer to its goal is productive. The goal of a manufacturing

organization is to make money.

Because of variability, a factory cannot be run at 100% of capacity. Or, as Jonah says,

“the closer you come to a balanced plant, the closer you come to bankruptcy.”

One of the biggest problems in improving the factory is collecting the right data. Alex

eventually concludes, “We're going to have to accept the fact that we're not going to have

perfect data to work with.”

“An hour lost at the bottleneck is an hour lost for the entire system. The actual cost of a

bottleneck is the total expense of the system, divided by the number of hours the

bottleneck produces.” This suggests managing bottlenecks very closely.

Non-bottlenecks do not need to be regulated so closely, and should not be operated to

maximize utilization. Jonah says that “activating a non-bottleneck to its maximum is an

act of maximum stupidity.”

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