Summary and book review of “The Goal”: First industrial novel to sell well over 3.5 million copies – it explains how to improve the performance of a company by focusing attention on a resource, called the constrained resource.
By Eliyahu M. Goldratt, 2006 (3rd Edition), 1984 for the 1st Edition, 471 pages, and is part of the Personal MBA.
Note: This review is a guest review written by Florent Fouquefrom the blog, Excellence Opérationnelle.TV
Book review and summary of “The Goal”:
Upon entering the factory at 7:30, Alex, the plant manager, notices the red Mercedes of Bill Peach, vice president of the division. Both men are ambitious and are striving for the CEO spot. Alex usually arrives early to take care of the unfinished tasks he couldn’t do during the previous day.
Upon his arrival, Alex is surrounded by four men who are very upset: Dempsey, the shift supervisor, Martinez, the union steward, a worker and a foreman of the machine center. After calming them down, Alex learns that Bill Peach has demanded the status of the 41427 order that was late due to one of the machines.
All parts were ready for assembly except the component of a sub-assembly that was missing. The component is waiting to be run through behind another urgent order. Bill Peach orders to change the running order by threatening to fire the master machinist.
After calming down his conversation partners, Alex joins Bill Peach in his office. After a first exchange in which Bill Peach says he is there to save Alex, because he appears incapable of running the plant. Bill stopped into Alex’s factory after receiving a phone call from Bucky Burnside, president of a client company, who is angry over a seven-week overdue order.
Bill had tried to reach Alex the day before at his house, but Alex was in the middle of an argument with his wife. Peach is surprised that Alex is unaware of the late shipments. Alex uses a lack of staff as an excuse: second round of layoffs three months ago. He takes the opportunity to mention a future cut of 20% in the workforce. Peach considers that the workforce is sufficient for the plant and indicates that the delay in the Burnside order is only a symptom of a more serious problem.
The plant is losing money and the division is reporting heavy losses. Alex recognizes that he has only been there for 6 months. Peach gives him three months to straighten out the plant or he will recommend closing it. Alex becomes depressed as he sits through Peach’s talk. After Peach leaves, Alex returns to the plant. He meets up with production manager of 9 years, Bob Donovan, who tells him that Tony, the machinist, who was a highly qualified employee, resigned following his argument with Peach.
At 6 o’clock, Alex goes home. His wife, Julie, greets him, ready to go out. Alex declines because he has to go back to the plant, which may be closing. She complains to him for never having any time. After she cries, Alex promises to go out with her the next day.
Back at the plant, Alex goes to see Bob Donovan to keep up to date on the NCX-10 machine. The entire assembly shop is working overtime despite it being against the current division policy. Each part is transported by hand one by one. Each finished part is brought to where it is integrated into the sub-assembly and each sub-assembly is sent to the assembly area.
Alex congratulates Donovan and invites him out to eat at the restaurant that has the best burgers in the city. Alex looks back at what happened with the delivery that costed them dearly: loss of a good worker, the NCX-10 repair bill, overtime, and time lost on the NCX while it was down.
Bob Donovan seems satisfied with the result and everyone’s involvement. Alex, on the other hand, is worried about the way things are done, efficiency, and the cost of the operation.
After Donovan leaves, Alex reflects on the difficult situation:
- He still has three activity reports to change Peach’s opinion on the closure of the plant
- 600 people risk being laid-off and joining the 600 others who were already laid-off.
- The Uniware division will disappear from a market where it can’t compete.
- Inability to make a cheap product
- Lack of innovation
- Inability to make a competitive product even with
- technology (machines, robots, computers)
- quality staff
- good relationship with the union
Alex also questions his own skills despite his engineering degree, his MBA, and his experience as a plant manager.
The next day Alex is invited to a meeting at headquarters. He suspects that Peach will inform him of the division’s poor results.
The meeting begins at 8 o’clock. Peach seems overwhelmed and no longer trusts Alex.
Participants include Hilton Smith, a plant manager, Ethan Frost, the management controller, Peach, and other decision-makers. When time comes time for Alex to explain his bad result, he reaches his hand into his pocket to grab a pen, but instead, he finds a cigar. He then remembers how he got the cigar.
Alex was wearing the same suit two weeks before. He had met a man smoking the cigar at the Chicago airport. The man was Jonah, a physicist he had met at the university. During the meeting, Alex had told him about his career up until his management position at the plant. His position was the reason behind his trip to Houston, to attend a conference on robotics. During the discussion, Jonah questioned Alex about the relevance of investing in these robots by stating the following arguments:
- 36% more productivity has no impact on business profits
- The plant couldn’t ship more products per day
- There was no reduction in staff or operating costs
- Inventories have not declined
Alex understands the logic of the speech but tries to argue that the returns have increased by decreasing the cost per part, but Jonah retorts that the plant should no longer have inventories. Alex follows Jonah who tells him that with the indications he has given him Alex should realize that the numbers he is tracking give him contraindications to follow. They should therefore reconsider them rather than rashly accepting them.
Before leaving, Jonah hands him a cigar and asks him to think about what he thinks is the goal of his company. For Alex, his goal is to increase returns, but Jonah doesn’t have time to help him further.
Alex smokes the cigar during the meeting while remembering that encounter. Everyone except Alex listens and takes notes. Alex doesn’t know what they’re talking about. Jonah’s arguments sounded solid, but from a different world. Today, he is thinking about the goal.
At the break, Alex realizes that the meeting is a waste of time. He claims there’s an emergency at the plant and leaves. He doesn’t immediately go back to the plant but drives nearly two hours without knowing where to go. And he needs peace and quiet to think a little.
Ideas channel through him:
- Buy at the best cost and avoid inventory.
- Individuals are the most valuable asset; they must be competent and diverse.
- Quality and efficiency: the fewer mistakes we make, the fewer parts we have to re-work.
- Technology: you have to stay on the cutting edge.
It’s when he sees warehouses full of $ 20 million worth of unsold parts and unsold products that Alex thinks that the goal of a company might be to sell and make money. This is why J. Bartholomew Granby set up his company in 1881 and entered the market for coal stoves.
Alex does a brainstorming session on the goal and writes ideas down on a notepad:
- cost-effective purchasing,
- employing competent people,
- using advanced technology,
- manufacturing quality products,
- selling quality products,
- seizing market share,
- customer satisfaction
Back at the plant, Alex intends to take a fresh look at things and goes directly to the plant without going past the offices. He surprises three people who are talking and reading the newspaper. This makes him furious. After asking their supervisor to find them something to do, he wonders if they’re productive. Is making people work and making money one and the same?
He understands that the reporting indicators tell him if a person worked during the paid hours or if the activity brings in money. Around five o’clock, Alex returns to the office where everyone has already left; his phone is full of messages.
He meets Lou, the accountant, who tells him that Bill Peach contacted him to get the numbers and thought he was with him at the meeting. Alex gets confirmation from Lou that the goal of the company is to earn money and that making products is only a means to achieve it.
Then Alex talks about the situation of the plant and a possible closure. Lou, who is two years from retiring, doesn’t want early retirement. Left alone, Alex notes the three indicators which he just spoke about. He reflects on how the big boys up at top can manipulate indicators by playing around with financial statements to show a net profit. He writes down on his notepad the direct link between the three indicators and the productive elements.
It’s 10 o’clock and he has to call Julie to let her know he won’t be back for dinner. Julie reminds him that his daughter has been waiting for him all evening, because she has a surprise for him.
Alex returns to the plant where he comes across Eddie, the second shift foreman, who explains that the running orders are out of control.
When Alex returns home, it is past midnight and the house is pitch black. His daughter, Sharon, is waiting for him and hands him her grades, she has 10s everywhere. He congratulates her by telling her that he is proud of her. After letting her talk about everything for half an hour, she falls asleep and he puts her to bed.
He thinks about the situation. Discouraged, he plans to resign, but he feels responsible. He makes a decision; he will do everything he can for three months. And he doesn’t have a year to go back to school and learn new theories. Nor does he have money to hire a consultant. The only instruments he has are his eyes, his ears, his hands and especially his brain.
When he slips into bed, he finds Julie asleep as he left her 21 hours earlier. He decides to try to find Jonah hoping that he can provide him with the necessary help.
As he gets up the next morning, worries come to him again. The only thing he can think about: get in touch with Jonah. As soon as he arrives, Bill Peach gets him on the phone to yell at him for leaving the meeting. Accompanied on the line with Ethan Frost, he asks him additional information on the figures. Alex is assisted by Lou and then continues on with six meetings. It’s seven o’clock.
After leaving work, he thinks again about Jonah. He calls his wife from a gas station to tell her that he’s going over to his mother’s. Julie gets upset. It makes him feel weird to go back to his old neighborhood. Childhood memories come back to him: fights, making up with girlfriends… etc. He is happy and sad at the same time. They no longer go see his mother; Julie hates the tradition of visiting every Sunday. His mother is surprised and happy to see him.
He looks for his old address book he had in college and after four hours of looking, they finally find it in the drawer of his old desk. After several phone calls, he manages to reach Jonah who is in London. Alex lays out his concept of the goal, which Jonah finds appropriate.
The problem is that there are indicators that are not representative of the plant’s activities. For Jonah, the goal is always the same, but it can be expressed differently depending on the context.
He has developed a set of indicators that clearly express the goal of profit and that make it possible to formulate rules of operation to manage the plant:
- The throughput * is the rate at which the system generates money through sales.
- Inventory represents the money invested.
- Operating expenses consist of all the money spent on turning inventory into throughput.
All plant operations are covered by these indicators. Given the insistence of Alex’s questions about the use of these indicators, Jonah tells him that he is smart enough to find the solution all by himself.
As soon as he gets up at 11 o’clock, Alex calls Fran, his secretary, to see what’s going on: two testing machines are on a row basis, five are down and Donovan wants to know if he can ship a late order without testing. Lou wants to talk about the numbers that Bill Peach asked for. A reporter called to ask when the plant was going to close. Corporate communications wants to shoot a videotape about the productivity of robots with Mr. Granby.
After getting the last piece of information confirmed by corporate, Alex goes to lunch with his mother. Jonah’s questions about robot productivity obsess Alex (More sales through robots, downsizing, decrease in inventories).
Alex comes home, Julie’s car is not there. He finds his notepad on which the list of Jonah’s indicators is written down in the form of simple questions. Concerning the robots, Alex ignores the impact they have had on the throughput, they have increased operational expenses, but efficiencies have improved, and the unit cost has gone down.
Getting to the plant, Alex wants to find answers to these questions. Upon meeting up with Lou, he postpones the report to be sent to division and confirms that there was no increase in sales, but overdue shipments increased. With Stacey Potazenik, who is in charge of inventory control, Alex learns that work-in-progress has increased.
It wasn’t acceptable, and despite everything, when there are orders it seems that they never manage to have the components in sufficient quantity. In fact, Bob Donovan says that the components are not available.
When the numbers indicate a drop in efficiency, everyone outperforms forecasts and makes parts that are not needed.
Alex summarizes and concludes that robots consume a lot of raw materials resulting in increased inventories and costs. Alex deduces that it is necessary to adjust the management according to the goal.
In the conference room, Alex presents the goal diagram and the definition of the three indicators. After a moment of silence, everyone makes a remark explaining the impact in their own area.
Alex ends the meeting by announcing Peach’s ultimatum to his team. They have three months to correct the situation otherwise it is closing down definitively.
Alex contacts Jonah who arranges to meet him the next day at his hotel in New York.
Alex is back home; he thinks Julie is making no effort to understand. She reproaches him for being absent. He promises to call her as soon as he arrives in New York.
The next day at seven past ten, Alex waits for Jonah in the hotel lobby. Jonah arrives. Alex explains how he formulated the goal and its indicators. Jonah is satisfied, but Alex believes it would take more indicators to save the plant in 3 months.
He asks Jonah for help, but Jonah has commitments. He thinks Alex can solve his problems by himself. Regarding compensation, Jonah proposes to be paid according to the added value and the result. Alex wants to start with robots to make them profitable.
Jonah considers that they are industrial toys and that they must take care of more fundamental things. In fact, most of the time, efforts will achieve high efficiencies driving the company in the opposite direction of the goal. Alex believes it’s a waste of money and the only way to make the products profitable is to keep everyone working constantly.
The machines don’t run themselves; it is manpower that created excess inventories.
Therefore, you don’t have to lay off workers, but you do have to consider how the capacity of the plant is managed in accordance with the goal. Jonah asks Alex if he has a balanced plant; that is to say, if its capacity is exactly adapted to the demand of the market. Alex replies that if he does not have sufficient capacity, he deprives himself of potential throughput and if he has a surplus of capacity, he is wasting money.
The reason for not being able to have a balanced plant is that conditions are always changing (market, emergencies, etc.), but the closer you get to a balanced plant the closer you get to bankruptcy because the goal is not to improve an indicator independently, but to reduce spending and inventory while increasing throughput.
Reducing capacity to adapt to market demand has no impact on throughput and inventory, which contradicts the assumption of Western companies.
The cause is the combination of two phenomena namely:
- Dependent events
- Statistical or random fluctuations
It is possible to have a fairly accurate idea from experience, but most of the factors that are essential for managing a plant cannot be determined precisely in advance.
Jonah leaves Alex asking him to call him as soon as he finds the combination of the two phenomena.
Alex goes back home. He thinks of someone from Unico who, on his way home, found all the rooms completely empty.
Julie’s car is still there. Alex is relieved to see Julie sitting at the kitchen table. She has red eyes. The discussion is lively.
Alex wants to know where she spent last night. She reproaches him for his absence, which he justifies because of his work. Alex and Julie make up.
Alex takes the kids on a trip. Arriving at the hiker’s trail, Alex gathers everyone and spots on a map the instructions for the expedition: follow the marked trail to the devil’s gulch about 15 km, then return the next day.
They decide to walk in line. Alex gives Ron the lead and asks him to continue at a reasonable pace. The young Herbie, out of breath, slows down the group. Alex then asks everyone to wait up for him. Starting afresh, the line spreads out again.
Observing the line, Alex succeeds in transferring over Jonah’s advice: within the context of the hike, it is the hikers who act as the dependent events and the random fluctuations.
He stops the group to narrow the ranks. After a break, the column takes off again in a single file. Ron’s pace is regular, Herbie feels guilty and makes an effort to keep up with the others.
There is no balance in the fluctuations of the different speeds but an accumulation of fluctuations.
Alex decides to have lunch in a picnic area at the natural park. Alex thinks of the balanced plant where the capacity of each resource would be equal to the market demand by reducing costs and increasing profits.
The built model has shown the effects of the combination of the dependent events and the random fluctuations, it is possible to adapt the capacity of each boy so that everyone moves at the determined pace.
Alex notices that a kid is rolling a pair of dice giving him an idea of a game of implementing random fluctuations. Each time the die is rolled, there is a predictable random number. The model is a set of dependent events consisting of a box of matches and some aluminum cups. The die determines how many matches can be moved, which is the capacity of each resource.
The production capacity of each resource and the market demand are perfectly balanced. This is the model of the perfectly balanced plant. 5 boys play in order (Andy, Ben, Chuck, Dave, Evan).
Alex takes a sheet of paper and a pen to record the operations.
The following rule is applied: one cannot move more matches than there are in the cup. For example, if the die rolls a 5 and there are only 3 matches in the cup, the player can only pass on 3 matches to the person next to them.
Andy’s results are very regular. After four rounds, Alex is forced to add other negative results on the grid. Part of the inventories that were accumulated in the first three cups finally reach Dave, but he cannot get rid of them. The system was initially balanced, but the throughput fell as inventories grew. At the plant, half of the orders are late. Alex expected to have ups and downs at regular intervals.
“What a weird game”, Evan whispers
The hike has resumed its course. Alex observes the group. The gaps widen and he stops the group twice so that the stragglers can make up the distance. Alex looks for a solution, but he does not see what “reserve capacity” could compensate for these stragglers.
Memories of math courses on covariance come to his mind. It is a mathematical principle according to which the fluctuations of the variables change according to a variable. When Alex sees a straggler on the trail, he can tell the boy to hurry up. At the plant, they move people around or make them work overtime.
Alex observes the group again. The gaps still exist and are widening faster, but nobody is stuck on the heels of anybody else, except Herbie. The latter has the lowest capacity and determines the maximum throughput.
His pace determines that of the troop. The troop passes the marker indicating 7.5 km, they are halfway through the hike. They hiked 7.5 kilometers in 5 hours.
Inventories are becoming disproportionate. Alex orders the troop to stop and asks the boys to hold hands and reverse the troop’s order. The slowest is now in the lead and there is no gap, but he must find a way to speed up Herbie.
A kid noticed that Herbie’s backpack is too heavy. Alex decides to spread out the load in several backpacks. Herbie is now going 2 times faster. Inventories are down and throughput up. At 5 o’clock they arrive at Devil’s Gulch, meaning they traveled 6 kilometers in 2 hours.
Davey and Alex arrive home around half past four on Sunday afternoon. Julie’s car is not there. Most of Julie’s clothes are gone. She left a note behind, “I need you to spend more time with me”.
Alex goes to get his daughter from his mother’s and gives an explanation to his children, “she just wants to think things over”. He takes them to eat pizza and helps them do their homework before sending them to bed.
Monday morning is catastrophic for Alex who has to prepare lunch for his children. After an argument breaks out between the two brothers and sister, Sharon misses her bus for school.
Alex gets to the plant at nine o’clock to take an urgent call from Hilton Smyth, who is waiting for 100 held up sub-assemblies at the plant. The conversation is tense, but Alex takes the reference numbers of the order. He asks Fran to organize a meeting with his entire team at ten o’clock and delegates Donovan to see what is stalling the parts for the Smyth plant.
After a two-hour presentation of Alex’s weekend discoveries, the audience doesn’t seem impressed. Lou asks if Alex is sure that things are really going on that way at the plant. Bob says the robots don’t have random fluctuations and are still working at the same rate. Alex responds that not all operations are automated, and the goal is to make the whole system productive, but Lou argues that Bob is right and that there are enough automatic machines in the plant. After his demonstration, Alex fails to convince him.
Fred, the part expeditor, looks for Bob concerning Hilton Smyth’s parts.
He explains that the parts must go through two other departments before the sub-assemblies are ready for shipment.
The robot is able to weld 25 units of sub-assemblies per hour. Alex hopes to be able to implement his demonstration because the situation shows random fluctuations. Pete’s department will produce an average of 100 pieces between noon and four o’clock and dependent events, because the robot will not be able to solder if the handler has not brought the parts from Pete’s department.
Alex grabs a sheet of paper, sketches a simple schedule, and asks Pete to note the number of parts. After betting $ 10 with Bob that the order would not leave at night, Alex calls Hilton to announce the delivery for the next day and then thinks about how he could save his marriage.
At 4 o’clock, Alex goes to see Donovan. He is optimistic. He thinks he’s won, because Pete’s guys are going to finish 100 parts on time.
Alex and Bob go to see Pete who explains that it took a little time to get organized:
- 19 parts in the first hour
- 21 parts in the second
At five o’clock, the robot is still welding sub-assemblies. During the first hour, the robot was able to weld only 19 parts supplied while its capacity is 25, the second hour 21 parts were produced.
Alex’s conclusion is expressed in the statement of the mathematical principle: the maximum deviation of an operation becomes the starting point of the one that follows it. Alex gives the $10 to Pete’s team. Furthermore, Alex’s team learned something.
At 8:30, Bob, Stacey and Lou are in the office to see the demonstration. The combination of dependence and fluctuations is imposed on them every day, which is why there are always late orders and it applies to 10 or 15 transactions each with its own set of fluctuations.
Technology will not give better control. In addition, a longer manufacturing time would inflate inventories. Alex contacts Jonah who tells him he is on the right track.
There are two types of resources: bottlenecks and non-bottlenecks. A bottleneck is a resource whose capacity is equal to or less than the corresponding demand. You have to seek to balance the flow of products in the plant with the demand of the market.
Jonah asks to be called back as soon as the team has located a bottleneck to compare all resources to the market demand.
Updating the data would take months. An experience-based method would be faster. The supply department is in the best position to know which parts are missing and which department will pick them up. Alex uses the hike as an analogy.
In front of the bottleneck, there must be a huge pile of work in progress. A first bottleneck is identified: the NCX10. The NCX required extra staff; two qualified operators for each machine.
A second bottleneck is identified. This is the heat treatment department. Operators put in between 12 and 200 parts that remain for six to sixteen hours. Parts cool off outside the furnace at room temperature.
Most of the time the furnaces work at half their capacity. The problem is that the batches are either too small or too big.
It’s not possible to change the process, but it’s likely possible to optimize the batches.
Alex eats dinner at home. He discusses the problems at the plant with his children and his mother. The latter asks him to think about the idea of making the machines work faster as he had done for Herbie during the hike.
Alex picks up Jonah at the airport who reassures him that two months are enough to start making improvements. You have to learn how to manage the plant according to constraints.
There are two reasons why it couldn’t work.
- Lack of demand for manufactured products.
- The unwillingness to change.
Having two bottlenecks does not mean you can’t make money. Jonah arrives at the plant and meets the team.
The most urgent need is the cash flow of the plant. To find capacity, it is necessary to increase the capacity of the bottlenecks.
Walking past the NCX10, Jonah notices a pile of work in progress near the machine that doesn’t work. It might be possible to get the unions to understand the situation. This factor is extremely important.
Jonah questions the need to move all the parts, which is held up by poor collaboration between departments.
Furthermore, Jonah finds that the bottleneck doesn’t only work on throughput, but for inventory of spare parts. Jonah calls into question the quality control of the parts that is done prior to the final assembly. He suggests using quality control differently.
Every time a bottleneck finishes a part, it’s the opportunity to ship a finished product. The hourly cost of a machine is estimated by Lou to be $32.5 to $21. Jonah states that the numbers are incorrect because the costs were determined as if the work centers were in isolation.
Operating expenses are estimated at $ 1.6 million and the production hours of each machine is $ 585. The actual cost of a bottleneck is the total amount of system expenditure divided by the number of hours of work of the entire system. It changes the way of seeing things.
It is possible to optimize the use of the bottlenecks by not wasting their time, increasing the production capacity and reducing their workload.
Sharon gives Alex a piece of information to find his wife Julie.
Alex begins to list the actions recommended by Jonah.
He thinks about Julie. He ends up calling Julie’s parents and accuses Ada, Julie’s mother, of not telling him that his wife was at their place. Julie refuses to talk to her husband.
At ten o’clock, Alex’s whole team is in his office. Everyone seems convinced of the need to change the way they work.
They decide to immediately implement the easiest actions to put in place:
- Moving quality control.
- New rules for the lunch break.
- Determination of the parts that must be processed by the bottlenecks.
- List of all overdue orders in order of priority.
- Order of priority of processing by the bottlenecks according to the delay of orders
The principle adopted is to schedule the bottlenecks so that they start working on the parts that are intended for the order that has the greatest number of days overdue.
In the evening, Alex goes to Julie’s parents. Alex tells her he loves her. She returns to her parents. Alex starts his car and returns to his house.
Alex gets home at ten o’clock. He wonders what he’ll do if Julie doesn’t come back and proposes to see each other from time to time. He asks her out on a date for Saturday night.
The next morning Alex joins his team, plus Ted spencer, who is in charge of the heat treatment furnaces, and Mario de Monte, supervisor of the machine shop, where the NCX-10 is located. Stacey and Ralph compiled the list of overdue orders as well as the BOMs and ranges for each order.
They compiled a list of 77 late orders in increasing order of priority ranging from 58 days to 1 day overdue. 90% of late orders go through one or the other of the bottlenecks and 85% of them are held up during assembly. Alex tells the two team leaders that the parts will go before all the others according to the priority list and asks them to respect the order.
Alex goes to personal relations to meet Mike O’Donnell, a union president who is reluctant to change the terms for taking breaks. And Alex explains him the situation. Mike needs to think it over and talk about it with others. In the beginning of the afternoon, Alex goes into the shop to make sure that the staff of the two bottleneck machines are informed that they have to keep working on the order that is at the top of the list of priority. The NCX-10 doesn’t work.
Alex is about to strangle himself. He asks Mario to move to the next order. In fact, the parts were held up waiting in another department that processes batches by size. Foreman Otto wasn’t aware of the importance of his parts.
The parts did not get to the NX-10 because they are intended for the bottleneck and were held up by a non-bottleneck machine.
Alex organizes 15-minute meetings with all teams. Bob goes on to elaborate on the priority identification system. A red tag means the work corresponds to the highest priority. When a batch of parts arrives at your workstation, you deal with it immediately. If you have two lots of the same color, you must work on the parts that have the lowest number.
In the late afternoon, Alex gets O’Donnell’s agreement on the new break policy.
On Saturday night, Alex rings Julie’s door. She greets him wearing an elegant dress.
The team is enthusiastic. The situation is moving in the right direction. The new batch marking system according to priority and ranges has worked relatively well. Alex asks Bob for recommendations to ease the workload of the bottlenecks.
In the afternoon, Alex meets Elroy Langston, quality control manager, and Babara Penn, who is in charge of employee communications. Last week, the first issue of Barbara’s newsletter explaining the reasons for the changes in the plant was distributed.
Regarding the identification of the parts coming out of the bottlenecks, Barbara proposes to stick a yellow piece of tape on the urgent labels after the parts exit the bottlenecks.
She will organize an information campaign inside the plant to explain what the tape means. Regarding controls, Elroy identifies the causes of quality problems on bottlenecks to formulate specific procedures.
Alex daydreams. The Saturday night date with Julie was very nice. Ever since then, they see each other regularly. The storm has moved away for the time being.
Ted Spencer comes to see Alex complaining about Ralph. Alex calls in Ralph and asks him for a precise record of the actual times of the cycle of the parts that pass through the furnace.
Alex agrees that Ralph will take all the measurements he needs, even on the NCX-10.
When Alex informs Bob, the problem is that the guys have nothing to do while waiting for the parts to come out of the furnace. Alex doesn’t agree. He wants workers near these furnaces. There may be 20 to 40 minutes of interruption. Alex asks to put two people, including a qualified operator, permanently at the machine. Bob opposes this and claims that everyone will think that they are increasing direct labor costs.
The next day, Bob presents the recommendations in four steps:
The first two are the permanent stationing of two people at the NCX10 and a foreman with two workers at the heat treatment furnaces. This would be for the three teams.
The other two recommendations concern offloading the bottlenecks.
But how to find the people:
- Call back the laid-off staff;
- Take people from other departments assigned to non-bottleneck resources,
- Some workers who have not been laid off due to their seniority
- The stationing of a two-person permanent team at the NCX-10.
In a discussion with Mike Haley, Alex learns that his team can prepare in advance the loading of the parts in the furnace. He therefore proposes to change the furnace load from 1 hour to 2 minutes. This reduction in time is made possible by using a system of interchangeable trays.
Alex offers to have him on the day shift to put his procedures in writing and asks Bob to give him an increase when the salaries are lifted by the division.
Friday afternoon, the door of Alex’s office flies open. The team celebrates the new shipping record set by the plant: a 12% decrease from the previous month.
Bill Peach, on the line with Johnny Jons, calls Alex. They are very happy because a lot of the overdue orders have been made up. He congratulates him. It’s party time; Stacey drives a drunk Alex back home. After seeing Alex come home drunk with his employee, Julie gets into her car and drives off.
On Monday morning, Stacey announces that the bottlenecks have multiplied. Stacey and Alex converge on the assumption that by increasing throughput and bottleneck productivity, they have imposed an additional workload on other positions. Alex asks Stacey to gather as much information as possible about the parts involved.
In the evening, Julie calls home. Having cleared up the misunderstanding through Stanley, she apologizes.
The next morning, Alex greets Jonah at the airport. Alex, the team, and Jonah are gathered in the conference room. The parts have been identified. The raw materials are available, but these parts do not arrive at the assembly and remain held up at the new bottlenecks.
Jonah doesn’t think it is new bottlenecks and suggests taking a look around the plant. In front of a group of milling machines, parts are stacked. Most of the missing parts have been there for three weeks.
After questioning Jake, the foreman, they understand that while the parts with the green labels are piling up, the entire time has been spent on the bottleneck parts. Jonah asks to see the bottlenecks, because the solution lies in them.
Using a resource optimally means using it in a way that brings the company closer to its goal.
Our problem is that we send raw material faster than bottlenecks can handle it and we clog the system. Producing according to the maximum capacity of the resource is therefore counterproductive if it clogs the resource bottleneck.
The simplicity of the solution is not apparent to Alex until he returns home. Sharon and Dave want to help solve the problem: a scout troop is walking in a single file with Herbie. Everyone else wants to go faster. What to do so the line doesn’t spread out?
Sharon: “You need a drum that is beaten by Herbie”.
Dave: “A rope tied around the waist”.
Both ideas are excellent. Bottlenecks will tell us when we need to increase the throughput of the system, but technology will be used. The machines are oversupplied with raw materials and there is no need for an inventory at each bottleneck to maintain production. The milling machines will have time to work on the green parts and those that arrive at the assembly department without any problem. However, it is necessary to think of a way to distribute the raw material for the red pieces based on the bottlenecks.
In addition to excess inventory bottlenecks, the problem of non-bottleneck parts can be processed.
For the schedule time, everything concerning raw materials for red parts can be set up quickly. For the rest, it takes a little time.
Jonah leaves the meeting to catch his plane. The next day, Bob announces a big problem: if efficiencies drop then some workers will remain inactive. Alex decides to apply the system which allows him to regulate the flow based on bottlenecks because it is a unique opportunity to improve the results.
At headquarters, during the directors’ meeting, Ethan Frost presents the turnover of the Bearington plant, which enabled the division to generate operating profit for the first time this year.
Alex thinks the month of May was excellent. The inventory level has gone down and the parts are circulating much more smoothly. Efficiencies are starting to increase.
The customer service is better because there are no more overdue orders. Bill Peach ends his presentation without emphasizing the results of Bearington. Alex argues with Bill, who is not convinced of the lasting improvement and asks for 15% better results next month.
Alex goes to the Barnett’s, where he is warmly welcomed. He walks and chats with Julie, who tells him that she is headed back home soon. They will see each other again on Saturday.
Just after getting home, Alex is called by Jonah. Regarding the plant, everything is going well. It’s making money. Alex feels he has reached a limit. Jonah believes they have just begun. We must proceed to the next logical step: cut the batch sizes in half on non-bottlenecks.
This measure results in a halving of work-in-progress, which represents a significant reduction in the amount of tied up money.
The time a part spends in the plant and enters in the form of raw materials until it comes out as finished products can be divided into four parts:
- Setup time corresponding to the preparation of the machine
- Process time
- Queue time, which is the time the part spends on the line while another part is worked on
- Wait time, which is the time during which a part waits for another part to be assembled
Queue and wait times before assembly account for most of the time spent in the plant.
At this point, we have to experiment with what happens when we cut the batch sizes in half. The compression of manufacturing cycles will help respond more quickly to demand, so sales should increase.
The rule is that an hour lost on a bottleneck is lost time for the whole system, and an hour gained at a non-bottleneck is a trap.
Alex plans to go to the marketing people to launch a new campaign promising customers shorter delivery times. Alex meets Johnny Jons, the man wearing Gucci, and after showcasing the results, they agree to announce to traders that Bearington’s products can be delivered within six weeks.
Alex spends the night with Julie, but his professional concerns give him nightmares.
Since the call with Johnny, he’s got half a dozen new orders. Efficiencies have increased. Workers are busier. Parts move from one station to another much faster, reducing hold-ups for parts waiting.
The periods of inactivity decreased from 2 hours to 10 minutes. The work is more fluid. However, there is the impression that the production cost is going up.
In fact, the unit price of parts drops by selling more products with the total cost. Alex takes the risk and is willing to handle it on his own.
Bucky Burnside, a customer, wants 1000 model 12 products in two weeks, of which 950 need to be manufactured. The order had initially gone to the main competitor 5 months ago and could not be delivered in time. If the plant can help them out, they could become their preferred supplier.
Alex offers to call them back and calls in his team. After having listed the necessary raw materials and evaluated the feasibility, the order seems workable within the time required, provided they work exclusively for them for two weeks, which is not acceptable for other customers.
Actions are planned:
- Cut the batch sizes in two.
- Halt the priority system for orders.
- Raw materials can be obtained either from inventory or from various suppliers to reduce delivery times
At the end of the day, Alex calls Johnny and offers him to deliver 250 parts a week for four weeks. Johnny calls back. They have the order; the customer even prefers smaller shipments.
The first installment of the Burnside order has gone out. Lou announces that they have achieved 17% improvement in results thanks in part to the Burnside order. They are highly profitable. Inventories are down and throughput has doubled.
Alex receives two letters: one is Peach’s congratulations for the Burnside order and the other is to inform him that the results of the plant will be reviewed in detail during a meeting at headquarters. Alex is not worried because the results are good, and the plant is making money.
Lou retorts that this system is much more representative of the actual situation. Accountants only know the accounting rules of the division.
Lou gets criticism from Frost in the form of a note asking him to follow the accounting rules of his division and redo the financial statements. The increase in the margin is adjusted to 12.8%. On the other hand, the bet is won with Johnny, a pair of Gucci, and an order of 10000 units of model 12s per year is made.
Alex goes to see Julie and talks about his results and the future of the plant. Julie wants to spend more time with him. They reminisce and talk about their plans.
The next morning, Bill misses the meeting. Hilton asks the reason for the increase in product costs and the non-compliance with the proper procedures for determining the optimal batch size.
Alex begins his presentation by asking what the goal of Uniware is and explains what he has put in place is common sense and also explains:
- Balance of the flow, and not capacity, with demand
- Difference between activating and utilizing a resource
- Motivation incentives are usually based on the assumption that a worker’s level of utilization is determined by his or her own potential, but dependency must be taken into account.
Hilton stubbornly disagrees with Alex because the costs are rising.
Once the meeting ends, Alex goes to see Bill in his office and explains the situation. Bill calls Hilton, Ethan, and Johnny Jons. Hilton Smyth asks Alex to be called to order for the poor results on falling productivity and rising product costs. For Ethan Frost, the plant is profitable and releases cash for the division; for Johnny Jons, Alex’s plant is the only one capable of working miracles.
Alex questions him about the closing of the plant, Bill responds they’re not closing a gold mine. He also takes the opportunity to announce that Alex is promoted to division chief, which includes handling three plants, plus responsibility for product design and marketing. Alex contacts Jonah and asks him to help him with his new responsibilities. Jonah doesn’t think it’s a good idea and that Alex should rely on himself.
Julie is proud of Alex, who keeps calm. Alex thinks about the “Socratic” method used by Jonah and discusses the subject with Julie.
The nature of Jonah’s answers and questions starts from a solid common sense but fly in the face of everything Alex had ever learned.
Alex gives his version of common sense, it means that if we consider something common sense, it’s because we have a prior knowledge of it, and it takes an external event to cause this awareness.
Stating answers to convince people who follow common practices is ineffective.
Alex wants to convince Lou to follow him, but, so close to retirement, Lou hesitates.
Throughout his life, he has filled in number charts considering himself as the impartial observer capable of providing objective data. They need financial indicators to know how successful the company’s goal of making money is and how it motivates people to do what is good for the company.
Alex offers Bob the production of the entire division. Bob doesn’t want the job right now. It was his ambition, but the way Burnside’s order was handled made him change his mind. Bob was impressed by the unusual way the events unfolded for the order. He wants production to become one of the dominant components of a good sale.
On the other hand, he would like to stay to continue what Alex started and would like to run the plant. Alex agrees. Alex has Stacey and Ralph come in and he announces that Bob will replace him to head the plant. He also offers the position of production manager to Stacey.
Stacey accepts. She tries to find out if new bottlenecks can arise. By monitoring, with the team, the queues in front of the assembly line and in front of the bottlenecks.
These resources are called capacity constraint resources, CCR. These are interactive bottlenecks. She fears that a further increase in sales will precipitate chaos. Buffer management techniques should not be used to locate missing parts in time and could be used to target our local improvement efforts.
Ralph expresses his willingness to turn the data he processes into information that facilitates decision-making in order to develop decision support systems.
Alex rehashes the day’s events with Julie. He is rather pessimistic about the chances of success for Lou and Bob to carry out their projects. Hearing the dreams expressed by his employees, Alex realized that he had to learn to manage. Alex organizes a series of meetings.
All participants agree to start with an observation period to facilitate data collection.
New meeting. Ralph takes the example of Mendeleyev who classified chemical elements according to an invariable characteristic, atomic weight.
This classification allowed the discovery of new elements corresponding to holes. The result is an analogy method between Mendeleev’s table and the attempt at arranging the colored shapes drawn on the board during the last meeting.
It is the identification of criteria that determines an intrinsic order. It’s necessary for classifications to reveal an intrinsic order because it is helpful in preparing thick reports. A technique to highlight the intrinsic order would be a powerful management tool.
The subject of the new meeting is how to extend to the entire division what has been put in place at the plant. The goal of the division is to make more money today and in the future.
To achieve this goal, a process of ongoing improvement must be put in place. Each plant in the group has already launched at least four improvement projects without success.
The project put in place is different due to the scale of importance between throughput and cost reduction. For the plant, it is the throughput, inventories and operating expenses that are important. The improvement project is a journey and a process.
After an additional work session, the following methodology appears:
- Identify the system’s constraints
- Decide how to exploit the system’s constraints
- Subordinate everything else to the foregoing decisions
- Elevate the system’s constraints
At the end of the meeting, Alex concludes that nothing can prevent them from reaching a whole new level of profit.
Alex, Lou and Ralph meet Johnny Jons and Dick Pasky of the sales department to get more orders for their excess of 20% capacity, which would be $10 million. Competition is tough and some even demand prices below cost.
Alex is willing to accept all orders up to 10% below cost, but salespeople are paid for turnover and there is a risk that other customers will ask for the same discount. Dick talks about Djangler, a very demanding French client.
After agreeing on terms and conditions, Djangler demands a price on the model 12 at $701 while it is at $827 for Burnside with a supply cost of $334.7. Alex accepts enthusiastically: the capacity is available and if we take the order, we cash the difference of $367 that will go directly into the operating account. Lou approves.
Alex would like to use the French client as a bridgehead in Europe but avoid the price war with the competition. He asks Johnny to obtain a quantity commitment for one year with the benefit of shipment within 3 weeks upon receipt of the fax. On the way home, the team checks the impressive financial impact. He thinks that salespeople are captured by old practices.
Alex continues to think of the potential of this method. Actually, he had not realized the immense possibilities of improvement. Where did Jonah learn all he knows? Somewhere in the scientific process lies the answer for the management techniques.
The deal with a more advantageous price, long-term contracts, and a three weeks’ delivery is made.
Alex has a new role: to guarantee what is planned in advance. He goes to the city library to immerse himself in the scientific process by reading popular scientific works.
Comparing their reading, scientific for Alex, philosophical for Julie, both find a similarity in the two approaches: observing facts, raising hypotheses. Some deal with material things, others with human behavior. But what Alex will have to implement are more than techniques, they are thinking processes.
Bill Peach congratulates Alex for his excellent results. Hikton Smyth’s results are not great;his indicators are up, but his financial results are weak. He asks Alex to come and explain his approach to costs.
Stacey asks Alex to come in, because there is a serious problem: twelve work centers have been forced to work overtime for a week. The bottlenecks are not overloaded, but the work seems to arrive in waves as if the bottlenecks were moving.
Once the problem is solved, the upstream resources must not only supply the bottleneck normally, but inventory must also be rebuilt. Having bottlenecks and non-bottlenecks is not a design flaw. The question is what reserve capacity is needed for arbitration.
Bob summarizes: New orders have changed our balance. The new demand did not create a bottleneck, but it reduced our spare capacity on non-bottlenecks that we did not compensate for with an increased buffer inventory in front of the bottlenecks.
Bob makes the following decisions:
- Raph continuously identifies the orders.
- Make non-bottlenecks work all weekend to rebuild inventories.
- Make sure to warn salespeople not to promise anything less than four weeks.
Alex regrets having put Bob in a position where his first interventions are negative, especially on the confidence of the salespeople who will be forced to give up their promotional operation.
Alex and Lou come back from headquarters. Lou thinks small changes can improve the division’s results, but Alex is unsatisfied. They discuss the indicators. They need to define a process for developing change.
To increase the throughput, it is necessary to change their mode of operation. The real constraints came from their bad behavioral reflexes.
How to identify the fundamental problem responsible for all undesirable effects. They need to come up with an idea.
The three essential skills for managing are:
- What to change.
- What to change to.
- How to initiate the change.
- Divide up the most complex environments to identify the fundamental problem.
- Construct and verify solutions.
- Causing such a significant change requires enthusiasm
It is only after learning these mental processes that Alex will be able to say if he has done his job.
Book critique of “The Goal”
The day I read the Goal, I had a real eye-opener about the existence of bottlenecks and their impact on workflows. During the two months after I read this book, I saw bottlenecks everywhere and I thought of various solutions to remove them. Most people who read the Goal don’t go further than the importance of identifying one’s constrained resource in order to increase one’s productive capacity through working on it. However, in reality, the principle of the constraint theory is much more universal than the sole context of a production plant.
As an entrepreneur, all my decisions are always linked to the consumption of my constrained resource: me.
As I am the only one in my business today, I am the constrained resource. Therefore, my turnover is limited by my available time. Having realized this, I identified with which tasks I create the most value. I deduced that it was about 3 essential things: producing content, marketing my products, finding partners. Therefore, I try as much as possible to set aside time for these tasks. For all the rest (computer graphics, video editing, web development, podcast recording…) I use freelancers.
If you also want to use this method, try to identify the constrained resource of your system. Try to identify the resource (or activity) that limits the increase in your turnover. Once you have identified it, try to do what is necessary to “blow up” this bottleneck, either by rearranging it or by increasing its capacity. For example, if you have more and more customer complaints and your customers are increasingly dissatisfied with your after sales service, it may be that this activity has become the constraint of your system because you have focused too much on the selling process. In this case, hire a new person or initiate a project to optimize your claims process to be more effective. What is important to remember is that the constrained resource determines your turnover, from there, we must see each investment on this resource as an opportunity to develop your turnover.
- Makes a very comprehensive theory accessible.
- Highlights the counterproductive nature of optimizing local indicators
- Written by a novelist who really brings the book to life.
- The industrial context in which the theory is presented makes it difficult to transfer it over to other areas of activity (services, for example).
- The novel conceals some technical subtleties necessary for the concrete implementation of the principles.
- The methodological part of the novel was conceived a few years after the initial version, which disrupts the story’s flow. We have the impression that the story is over, and then it goes back to another issue despite the biggest challenges having already been addressed.
My rating :
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