THE GOAL Eliyahu Goldratt & Jeff Cox Submitted by Harleen Kaur 08PG307 Prateek Srivastava 08PG328 Sean Collins 08PG343 Introduction “The Goal” is a very unique book as it explains management concepts propounded by Eliyahu Goldratt in the form of a fiction novel. The main concept that is briefly described in the book is the “Theory of Constraints”, which he explains in detail in his next book titled “The Theory of Constraints”. The author uses a simple common sense approach to explaining the basic underlining concept of any manufacturing firm. The story brings in a lot excitement as there is a lot of personal drama elements. The Story The story starts off with the main character Alex Rogo reaching office and finding out that that his boss, the division head, has stormed into his plant and is furious over a late order. Bill Peach, the division head, warns him about the plant being neither productive nor profitable. He gives Alex a 3 month deadline to show improvement or else the plant would be shut down. The particular order gets shipped by using all hands in the plant on that one order. The Story (Continued) Bill Peach calls for a meeting at the division headquarters where Alex comes to know through the grapevine that if the division has one year to improve or else it will be shut down and sold off. While at the meeting he remember an encounter with his old physics professor Jonah, where Jonah without being told guesses all the problems being faced by Alex. Jonah had asked him a simple question, “What is the Goal of any manufacturing firm?” Alex leaves the meeting and spends time alone to figure out that the goal is to make money. The Story (Continued) Alex sits with his accountant Lou to define what is needed assess an achievement of a goal, i.e., Net Profit, Return on Investment, Cash Flow. Alex decides to stay with the company for the 3 months and finally talks to Jonah. Jonah gives him three terms to help him run his plant – Throughput, Inventory and Operational Expense. Alex finds out that the new robots installed in his plant have increased costs, operational expenses and were less productive. Alex, Lou, Bob and Stacey brainstorm about the actual meaning of the three terms given by Jonah. The Story (Continued) Alex goes to meet Jonah in New York where Jonah gives him some advice A plant with everyone working all the time is very inefficient. The closer you get to a balanced plant the closer you are to bankruptcy. The combination of dependent events and statistical fluctuations work themselves down the productive line. Over the weekend Alex volunteers to take his son and boy scouts on a hiking trip. It is then that he understands the importance of dependent events and statistical fluctuations. The Story (Continued) Jonah introduces Alex to the concept of bottlenecks. He tells Alex that to increase capacity the capacity of bottlenecks need to be increased. Jonah, Alex and the team then calculate the cost for every minute of downtime at the bottlenecks. The crew of the plant then find a way of using red and green tags to keep the bottlenecks continuously running. With twelve orders shipped and things looking up the production managers rounds up some old machines to do the work of the bottlenecks. The Story (Continued) Increased efficiencies and lower inventories suddenly created excess materials in front of the bottle neck. After careful reinvestigation by Jonah it was found that the red and green tags need to be modified a bit. Ralf creates a schedule for the bottlenecks to alleviate any excess inventory in front of them. Bill Peach gives a 15% improvement target for the next month. Jonah advices Alex to reduce batch sizes by half. This cuts costs in half and reduces lead times. The Story (Continued) Alex restructures batch sizes and promises customers to get the products shipped on time. Improvement touches 17% but according to the old cost accounting model its only 12.8%. An owner of a company overwhelmed with the service came and shook every ones hand personally and upped the contract from thousand parts to ten thousand. At a meeting at the division headquarters Alex tries to convince the executives about the new growth measurement model but did not succeed. The Story (Continued) To his surprise Alex is promoted to Peach’s job. He now has to manage 3 plants. In his new job Alex and his team come up with a process to manage the division. Identify System Constraints Decide how to exploit system constraints Subordinate everything to step 2 decision Evaluate the system constraints Warning! If a constraint is broken then go back to step 1 Alex and the Head of Sales decide to fill capacity by catering to European markets. The Story (Continued) All the new orders create new bottlenecks and new problems for Alex. Production asks sales not to promise delivery for 4 weeks to ease up production. Finally Alex learns that the key to being a good manager is to ask questions like What to change? What to change to? How to cause the change? Production is an on going process and when new problems arise they need to be dealt with accordingly. Learning The Goal of any manufacturing firm is to make money. Any activity that brings us closer to making money is productive and vice versa. Achievement of a goal can be determined by looking at net profits that need to increase along with return on investment and cash flows. Throughput is the rate at which the system generates money through sales. Inventory is all the money that the system has invested in purchasing things it intends to sell. Operational expense is all the money the system spends in order to turn inventory into throughput. Learning (Continued) Throughput is money coming in, inventory is money in the system and operational expense is the money we have to pay out to make throughput happen. Robots don’t always reduce costs and increase efficiencies. A plant in which everyone is working all the time is very inefficient. A balanced plant is one where each and every resource is balanced exactly with the demand from the market and the closer to this is closer to bankruptcy. Dependent events and statistical fluctuations are very important and work themselves through a line. Learning (Continued) A bottleneck is any resource whose capacity is equal to or less than the demand placed on it. A non bottleneck is any resource whose capacity is greater than the demand placed on it. As changes take place new pseudo bottlenecks get created which need to be dealt with. To be a good manager key questions like why who where what when and how should always be asked.
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