The Goal Summary & Book Review - Theory of Constraints ...

The Goal is a book designed to influence industry to move toward continuous improvement. First published by Eliyahu Goldratt in 1984, it has remained a ... TheoryofConstraintsInstitute About AboutTOCInstitute TributetoGoldratt HistoryofTOC ExecutiveBoard Fundamentals TheoryofConstraints ConstraintDefinition WhatisTheGoal? FiveFocusingSteps GettingStartedinTOC KnowledgeCenter TheGoalSummary IdentifyYourConstraint TOCApplications TheoryofConstraintsPDF TOCThinkingProcesses > PrerequisiteTree Articles > StockClearance TOCConsultingvs.StrategyConsulting? TOCinIndia MafiaOfferMarketing RecommendedBooks Services BusinessCoaching OpenWorkshops > TOCThinkingProcessBootCamp In-HouseTraining AdvisoryServices FeasibilityStudies ContactUs TheGoalSummary&BookReview TheGoalisabookdesignedtoinfluenceindustrytomovetowardcontinuousimprovement.FirstpublishedbyEliyahuGoldratt in1984,ithasremainedaperennialbestsellereversince.Itis writtenintheformofagrippingbusinessnovel.AWHAT!!! Sincewhenarenovelswrittenaboutafactorylocatedinasmalltown??? WhoisThisBookFor? EveryonefromproductionmanagerstocollegestudentstoCEOsshouldreadTheGoal.Itissurprisinglyeasyforpeopleofalllevelstoread becauseitiswrittenasastory. AsurveyofthereadinghabitsofmanagersfoundthatthoughtheybuybooksbythelikesofTomPetersfordisplaypurposes,theonemanagementbooktheyhaveactuallyreadfromcovertocoverisTheGoal."​    - TheEconomist​ ​​Althoughitdescribesmanufacturingoperations,TheGoalbookisrelevantforalltypesofsituationsbecauseitisabout learningwhatmakestheworldticksothatyoucanimproveit.Asthecharacters"thinklogicallyabouttheirproblems"theygraduallyuncoverthe"causeandeffectrelationships"betweenactionsandresults. ​TheGoalisoneof threebooksthatJeffBezorequireshistopmanagementteamtoread.Infact,heusesitasaframeworkforsketchingoutthefutureofAmazon.com. TheGoalSummary:OutlineofThisArticle ​ThiscomprehensivebookreviewoftheGoalcontainssixsections:​QuickOverviewCastofCharactersChapter-wiseSummariesMainLessonsFromTheGoalKeyTakeaways forManagers: HowtoDriveContinuousImprovement​FinalThoughtsClickonthelinksabovetovisitwhateversectioninterestsyoumost.   QuickOverview Alex,aneducatedandcompetentmanageratUniCo,isexcitedtogettransferredbacktohishometownBearingtonwithhisfamily.Buthismomentofblissquicklyevaporatesonceherealizesthathisfactoryisfacingdifficultiesandmightevengetcloseddown!Shipmentsarealwayslateandtheirproductionbacklogisgrowing,yetsomehowinventoriesalsokeepsoaring.Theteamwonderswhytheycan'tseemtoshipontimewithgoodqualityatareasonablecost. Alexresolvestodowhateverittakestosavethemanufacturingplant… Meanwhilehiswife,Julie,strugglestoadjusttothemonotonouslifeinthesmalltown.Alex’slonghoursatofficeputadditionalstrainontheirrelationship,asthingsgofrombadtoworse. Giventhreemonthstoturntheplantaround,Alexchancesto bumpintohisoldPhysicsprofessor,Jonah,whochallengeshisthinkingandgivesaseriesofcluesabouthowtosavethedivision.Jonahtakesoncomplexsubjectslike"productivity"anddefinestheminsimpleterms.Forexample: "Everyactionthatbringsacompanyclosertoitsgoalisproductive.Everyactionthatdoesnotbringacompanyclosertoitsgoalisnotproductive."Butwhatisthegoal?FollowingJonah'sclues,Alexmobilizeshisteamattheplanttofindwaystoimprovetheflowofproductionandsomehowshipthehugebacklogofordersontime.Alongthewaytheydiscovertheimportanceofconstraintsandlearnhowtomanagethemtoachievegrowthandprofitability.Alexeventuallyrealizesthatthegoalisnotcost-effectivepurchasing,employingtherightteammembers,thelatesttechnology,producingqualityproducts,capturingmarketshare,customersatisfaction,etc.butrather makingmoreandmoremoney.Oncetheplant’soperationsstabilize,Alexfindshimselfspendingmoretimewithhisfamily.Hewinsbackhiswife’saffectionandhisplantsuddenlybecomesthemostproductiveoneinthecompany.AlexispromotedtoPresidentatUniCoandentrustedwiththetaskofimplementingJonah’sadvicethroughouttheentiredivision. Apersuasivesolutionforfactoriesstrugglingwithproductiondelaysandlowrevenues."      - HarvardBusinessReview​ Towardstheend,hebeginstorealizethat'bottlenecks'orconstraintscanchangeovertime,andhencehemustadapthiswayofmanagingthebusiness.ButJonahhasgivenhimthekeyquestionstofindsolutionstothesechallengesastheyarise…thesecretstotheProcessofOn-GoingImprovement(POOGI).   CastofCharacters AlexRogo:manufacturingplantmanager(themaincharacter)Jonah: Alex'scollegeprofessor,whoofferscriticaladvice&cluesJulieRogo: AlexRogo'swifeBillPeach: divisionvice-presidentFran: Alex'ssecretaryLou: theheadaccountantStacey: theplantinventorymanagerBobDonovan: theproductionmanagerRalphNakamura:DataProcessingManagerHerbie: aboyscoutwhocomestometaphorically symbolize thebottleneckintheplantDave: Alex'ssonSharon: Alex'sdaughter   Chapter1(TheGoal) ThischapterintroducesthemaincharacterMr.AlexRogo,anindustrialengineerandanMBAgraduatewhomanagesaplantoftheUniCoManufacturingCorporation.HearrivesattheofficeonemorningtodiscoverthathisparkingslothasbeentakenbythedivisionVicePresidentMr.BillPeach.Theconversationbecomesheatedwhentheydiscussorder#41427thatisseven-weeksoverdue.BillisveryangryandwarnsAlexthathemustturnaroundthefactorywithin3monthsoritwillbeshutdown.Furthermoretheoverdueordermustbeshippedthatverysamedayorelse… Chapter2(TheGoal) Alexreflectsbackbackonhistravels,findinghimselfbackattheplacewherehestartedfrom."I’m38yearsoldandacrummyplantmanager." ThesceneshiftstoAlex’shomelife.HiswifeJulieisfromthecityandisstrugglingtoadjusttosmalltownlife.TheygetintoanargumentwhenJuliewantstogooutforlunch.Hepromiseshertobebackearlythatnightandthenheadstowardstheplant… Alexreachesofficeonlytodiscoveraworse-casescenariowhereinamachinehascompletelystalled.Hepushesalltheemployeestoworkextrahoursandsomehow,order#41427finallygetsshippedlatethatnight.Butthisachievementcomesatthecostofdecliningefficienciesandfurtherdelaysforotherorders.Laterthatnight,whileatdinnerwithacolleague,hereflectsuponthemismatchbetweenthecompany'sMISsystemreportsandactualprofits… Chapter3(TheGoal) Thenextmorning,Alexrushestoattendameetingofplantmanagersatheadquarters.IntheelevatorAlex’sco-workerNathanSelwinexplainswhyPeachhasbeenbehavingsostrangelately.Theentiredivisionhasbeengivenoneyeartoimproveorit’sgoingtobesold! Atthemeeting,Peachexplainshowbadthingsareandhandsoutnewstretchtargetsforthenextquarter… ​Chapter4(TheGoal) Whileatthemeeting,Alexremembersrunningintohisoldphysicsprofessor,Jonah,attheairport.JonahmarvelsAlexwithhisintimateknowledgeofhowbadlyAlex’splantisdoing.Withnopriorknowledge,heaccuratelypredictsproblemslikehighinventoriesandmissedshippingdeadlines.  HowdidJonahknowsomuchaboutAlex'sfactory??? TheirconversationisinterruptedsothatJonahcancatchhisflight.ButheleavesAlexwithalingeringquestion:"Whatishiscompany'sultimategoal?" ​Chapter5(TheGoal) Alexmindkeepswanderingandheleavesthemeetingtotakeabreak.HecannotstopponderingoverJohan'squestion.SuddenlyitstrikeshimthattheGoalofhiscompanyistomakemoney!AnythingthatbringshimclosertotheGoalisproductive.Hence,allotheractivitiesarenon-productive! Chapter6(TheGoal) Backattheofficethatevening,Alexsitswiththeplant'scontroller,Lou.Together,theydiscussthedetailsofhowtheplantcouldgoaboutachievingtheGoalandthenewtargets.Thereisanurgentneedtoincreasecashflow,returnoninvestments,andthenetprofits.WhenAlexrunsthenumbers,thetaskseemsdaunting,almostimpossible.Theirconversationstretcheslate,andAlexfindshimselfintroubleonceagainwithJuliewhenhecallshome… Chapter7(TheGoal) Returninghomeataverylatehour,Alexissurprisedwhenhisdaughtergreetshiminthedoorway.Shewantedtoshowhimherschoolgrades,butthisistheonlytimewhenshouldcouldgetherfather’sattention. Aftertuckingherintobed,hebeginstorethinkthesituationfromamorepositiveperspective.ButherealizesthathemightneedguidancefromJonahonceagain… Chapter8(TheGoal) Thenextmorningatwork,AlextriestoapologizetoPeachafterskippingoutofhismeetingthepreviousday.Unabletogetthrough,AlexdecidestotracedownJonahinstead.InresponsetoAlex’squestions,Jonahrevealsthreeoperationalmeasurements."Throughputistherateatwhichthesystemgeneratesmoneythroughsales.""Inventoryisallthemoneythatthesystemhasinvestedinpurchasingthingswhichitintendstosell.""Operationalexpense isallthemoneythesystemspendsinordertoturninventoryintothroughput."Theirconversationgetscutshortonceagain.Alexisleftwonderinghowtorelatethemintermsoftheplant'soperation… Chapter9(TheGoal) Theheadofthecompanydecidestocomedownforaphotoshootwiththerobotsinthefactory.Alexbeginstoreflectontheviabilityoftherobots.WiththehelpofLoutheaccountant,theinventorycontrolperson,andtheproductionmanager,Alexdiscoversthattherobotsincreasedoperatingexpenseswithoutreducinganycostslikedirectlabor,whichwasmerelyshiftedtootherpartsoftheplant.Sinceinventorystayedthesameandthroughputdidnotincrease,theproductivityoftheplantdeclinedbecauseofaddingtherobots! Chapter10(TheGoal) Alexandhisteam(Bobfromproduction,LoufromaccountingandStaceyfrominventorycontrol)reviewedthemeaningofthroughput,inventoryandoperatingexpenseuntileveryonewassatisfied.Lou,summarizesthemasfollows."Throughputismoneycomingin.Inventoryisthemoneycurrentlyinsidethesystem.Andoperationalexpenseisthemoneywehavetopayouttomakethroughputhappen." Bobremainsskepticalthateverythingcanbeaccountedforwithjustthreemeasurements.ButLouexplainedthatmachines,toolingandthewholethebuildingarealljustdifferentformsofinventory.Staceyremarked,"Soinvestmentisthesamethingasinventory."Togethertheydecidethatsomethingdrasticmustbedonewiththemachines.Buthowcantheydothatwithoutloweringefficiencies?TheycallJonahinsearchofanswers,buttospeaktohimAlexmustvisitNewYork… Chapter11(TheGoal) ​AlexcatchesJonahbrieflyinhishotelinNewYorkCityandsharesthedetailsoftheplant’sproblems.JonahassuresAlexthatalltheproblemscanbesolveddespitetheirloomingdeadline. HeadvisesAlextoforgetabouttherobots,andstopchasingefficiencies.Afterall,"aplantinwhicheveryoneisworkingallthetimeisveryinefficient." JonahrejectsAlex’snotionofabalancedplant,claimingthat"thecloseryoucometoabalancedplant,thecloseryouaretobankruptcy."ThenheleavesAlexwithanotherriddle:considerwhat"dependentevents"and"statisticalfluctuations"havetodowithyourplant?BothharmlessenoughtoAlex,whofeelsconfidentthatbothshouldworkthemselvesoutfartherondowntheproductionline… Chapter12(TheGoal) Uponhisreturnhome,Alexgetscaughtinanargumentwithhiswifeaboutalltheunansweredphonecalls.Atthispointhismarriageisverystrainedduetothepressureofworkandlackoftimeavailableforhisfamily.Alexpromisestosetasidesometimeforherovertheweekend… Chapter13(TheGoal) AlexwakesuponSaturdaymorningsurprisedtofindhissondressedandreadytogoonanovernightBoyScoutshike.Alexforgotthathehadvolunteeredtoleadtheboys! Astheyhike,theboysinthetroopkeepgettingspreadoutfurtherandfurther.ItseemsAlexdiscoveredthetruemeaningof"dependentevents"inrelationto"statisticalfluctuations"byfluke!Thisanalogybetweenasinglefilehikethroughthemountainsandamanufacturingplant,makesAlexrealizethedifficultyofmakingupthedownsideofthefluctuationsfollowing"dependentevents".Thelasteventmustalwayscatchupeverythingtoaverageout,whichrarelyeverhappens. Chapter14(TheGoal) Toobservetheeffectmorecarefully,Alexdevisesadicegametoplaywiththeboys.Itquicklybecomesclearthatanybalancedplantfacedwith"statisticalfluctuations"and"dependentevents"willseethroughputgoingdownandinventorygoingup.Jonahwasright-abalancedplantisnottheanswer! Chapter15(TheGoal) Thenextdaythetroopbeginstohikesagain.Butthistime,AlexdecidestolettheslowestkidnamedHerbieleadtheline.HealsodistributessomeoftheextraweightthatHerbiewascarrying.Asexpected,thefluctuationsofthelinebalanceoutandthehikersreachestogetherontime,thusincreasingthe“throughput”oftheentiretroop! Chapter16(TheGoal) Sundayeveningwhentheyreachedhomefromthecampingtrip,Juliehasgonemissing.Inhernote,sheexpressesfrustrationthatAlexisspendingallhistimeatworkandhasyetagainbrokenhispromisetospendtimewithher. Hepicksuphisdaughterfromhismother'shouseandtriestoreachJulieonthephone.Despitemakingseveralcallstofriendsandacquaintances,heisunabletolocateheranywhere.NowthekidsandthejobareallAlex’sresponsibility… Chapter17(TheGoal) Thenextdayatwork,Alexexplainshisrevelationaboutdependenteventsandstatisticalfluctuationstoahesitantteamofco-workers.Fortunately,heisabletoprovehispointbyusingtheseprinciplestocompletealargeoverdueorder.Theteam’sskepticismfadesandeventheproductionsupervisoragrees.Nowwhat…? Chapter18(TheGoal) Theteamisbeginningtotrusttheirbossandappearsreadytoactonhiscommand.ButAlex,ontheotherhand,remainsunsurewhattodonext.Predictably,Jonahisconsultedonceagain. Thistime,theprofessordisclosestheTheoryofConstraints:"Abottleneckisanyresourcewhosecapacityisequaltoorlessthanthedemandplaceduponit.Anon-bottleneckisanyresourcewhosecapacityisgreaterthanthedemandplacedonit."JonahcarefullyexplainsthatAlexmustNOTtrytobalancecapacitywithdemand,butinsteadbalancetheflowofproductthroughtheplant.  AlexandhisteamsetouttofindtheirbottleneckandzeroinontheNCX-10machineandheattreatmentsection… Chapter19(TheGoal) Jonahfinallyvisitstheplantinperson.HeexplainstoAlexthateveryplantshouldhavebottlenecks(!),andthatasystemcanonlyincreaseproductionbyincreasingcapacityatthebottleneckoperations. ButAlexisconfused.Whatmusthedotoincreasethecapacityoftheplant?Ideallyhewouldliketopurchaseanadditionalmachine,buttheyhaveneitherthetimenorthebudgetforthat.Jonahmusesthatmoremachinestodothebottleneckoperationsmighthelp,butweren’ttheyforgettingaboutmakingtheexistingmachinerunmoreeffectively? Howmuchdoesitcostswhenthebottlenecks(NCX-10andheattreatment)machinesgodown?Louquotes$32perhourfortheformerand$21perhourforthelatter.Andhowmuchdoesitcostwhenthewholeplantgoesdown?About$1.6million.Howmanyworkinghoursareavailablepermonth?About585. Jonahthenrevealsthatwhenthebottlenecksaredownforjustanhour,thetrueopportunitycostismorelike$2,735. Thatisbecauseeachminuteofdowntimeatabottlenecktranslatesintolostthroughputfortheentireplant! Chapter20(TheGoal) Alexprioritizesthebottleneckstoworkontheoverdueordersstartingfromthemostoverduedowntotheleast.Whilethisproductionplanisbeingsetintomotion,AlexdiscoversthathiswifeJuliehadbeenstayingwithherparents.Butwhenhetriestoconvincehertocomehome,sheinsiststhatsheneededmoretimetoherself… Chapter21(TheGoal) Thecrewworksoutadetailedplantokeepthebottlenecksfullyutilized.Theysoondiscoverthattheyneedamechanismtoinformworkersabouttheprioritysequenceatnon-bottlenecksaswell.Asystemofredandgreentagsisputintoplacetomapprioritiesvisually:Redforbottleneckparts(tobeworkedonfirst)andgreenfornon-bottleneckparts(tobeworkedonsecond). AlexisdeterminedtomakeupfortheweekendheowesJulie,soheasksheroutforSaturday.Sheisexcitedlyagreestothisplan.Thistime,Alexmanagestokeepthedatehepromisedhiswifewithoutanyinterferencefromwork… Chapter22(TheGoal) Mondaymorning,Alexisexcitedtolearnthattheirnewsystemisactuallyworking…theplantmanagedtoshiptwelveoverdueorders!Alexispleased,buthedefinitelywantsmore.Heinvitessuggestionsfromtheteamforadditionalimprovements.Bob,theproductionmanager,findsandrefurbishesanoldmachinetotakesomeoftheloadofftheNCX-10.Thingsarefinallybeginninglookingup… Chapter23(TheGoal) Newproblemscropupatthebottleneckstodisruptproduction.Thereisnothingtodowhilewaitingforthebottlenecktofinishitsbatch,soworkershavebeenshiftedtootherareasbetweenbatchestokeepbusy.Topreventthis,Alexdedicatesoneforemanateachconstraintlocationallalltimes.Oneofhisdedicatedforemendiscovershowtoprocessmorepartsbymixingandmatchingordersbypriority,thushikingefficiencybyafull10%. Meanwhile,thingsarebeginningtoworkoutbetweenAlexandJulieaswell… Chapter24(TheGoal) Theteamisexcitedaboutthesuddenincreaseinperformanceanddecidestocelebrate.Afterwards,StaceydroppedAlexhomebutJulieiswaitingupforhim.ShebecomessuspiciousthatAlexmightbecheatingonherandleaves! Backinplant,thenewprioritysystemisinplace.Therateofflowhasincreasedconsiderably,thusreducinginventory. Butnowthattheproductivityofthebottleneckhasimproved,newbottlenecksbegintosurface!ThisintriguesJonahandhedecidestovisittheplanttohavealook… Chapter25(TheGoal) Afterstudyingtheproblems,Jonahexplainsthattherearen’tanynewbottlenecks!Rather,thecurrentpracticeofprioritizingnon-bottleneckstoworkfirstonbottleneckpartsinadvertentlycausedtheproblem.Anotherpart,whichisrequiredforfinalassembly,doesnotrequireanyworkbythebottleneck.Hencethosepartswereproducedonlowestpriority,leadingtoshortagesatfinalassembly. Thesolutionmightbetoreworkthetaggingsystemtocreateanequalsupplyofthetwoparts.Thefocusnowexpandstoincludematchingtheproductionofbottleneckpartstoensuretimelyavailabilityofnon-bottleneckchildparts.Ifsuccessful,thiscouldalsoreducetheaccumulationofbottleneckpartsinWIPinventoryattheassemblyline(whileawaitingtheirrespectivematchingpartsfromthenon-bottleneckprocesses)… Chapter26(TheGoal) Jonah&theteam(includingRalph,thecomputerwhiz)deviseaplantoanticipatewhichproductsneededtobefinishedbywhenandreleasethemintoproductionaccordingly.Itmighttakesometimesincetherearesomanypartsstackinginfrontofthebottleneck.Butthiswouldeventuallycreateabalancebetweenproductionofthebottleneckandnon-bottleneckparts.Tiredbutrelieved,AlexdropsJonahbacktocatchhisflightattheairport... Chapter27(TheGoal) Onceagain,Alexissummonedforanothercorporatemeeting.Butthistime,heisexpectingplentyofappreciationfortheachievementsofhisteam. Instead,themeetingturnsintoadisaster.ThoughAlex’splantmadeprogressoverthelastcoupleofmonths,noneoftheothersaredoingwellatall.Managementisconsideringclosingtheentiredivision.WhenAlexconfrontsMr.Peachinprivate,heistoldthatifhecanimproveanotherfifteenpercent,hemightbeallowedtokeephisplantopen.Itseemsprettychallengingbecausethiswouldrequiregeneratingadditionalnewdemandfromthemarket.Despitehissecretmisgivings,Alexpromisestoachieveit. Whenhereturnstospendtimewithhiswifeandkids,hemanagestogetintoanotherfightwithhiswife.Buttheyeventuallyresolvetheirdifferencesandmakeup. Chapter28(TheGoal) Later,asAlexpondersoverhowtoincreasedemandfromthemarket(15%!?#!)whilereducinginventories,histhoughtsareinterruptedbytheringofthetelephone.Jonahhascalledtoinformthathewillnotbeavailableforadviceoverthenextfewweeks. Alexinformshimabouthisnewstretchtargetsandhowdifficulttheyappear.Jonahsuggestsreducingthebatchsizesdowntohalfoftheircurrentlevel.Doingthiscouldpotentiallyreduceinventorylevelsbyhalf.Also,theycouldachievefasterresponsetimesandshortertimesfororders.Butitwouldmeanseveraloperationalchangesincludingnegotiatingnewdealswiththevendors.AlexbumpsintoJohnnyJohns,thedivisionsalesmanager,andrequestshimtocreateanewmarketingstrategytoachievethenewtargets. Chapter29(TheGoal) Johnhasfoundacustomerwillingtopurchase1,000productsinjusttwoweeks’time.Infact,thisordermayleadtomorebusinessinthefutureaswell!Butcantheplantproducethatmuch,giventheirexistingcommitments?Theteamrealizesthatsmallerbatchsizescanhelpbutwillnotcompletelysolvetheproblem.Workingtogether,theyfindanovelwaytospreadoutthenewcontractdeliveriesoverfourweeks(250productsperweek).Thecustomerlovestheirproposalandtheywintheorder.Thus,smallerbatchesbecomeakeyfactorintheirabilitytoincreasesales. ButAlexremainsworriedaboutthefactthathisefficienciesandP&Lstatementappeartobegettingworse,despiteallthegrowthandproductivityimprovements.LoutheaccountanttellshimnottoworryandpromisestocontesttheMISreportswhichareclearlymisrepresentingtherealityoftheirimprovements. ​ Chapter30(TheGoal) Themonthisoverandresultsarein.LoucalculatesanimprovementofSeventeenPercentasperhisnewaccountingmethod!!Mostofthisincreaseisthankstodeliveringontheneworder… ButHiltontheproductivitymanagergetsawhiffofthenewsanddropsintoaudittheplant.Accordingtohiscalculationthereisonlya12.8%increasewhengoingbythestandardmethodofaccounting. Meanwhile,theowneroftheirnewcustomer,Mr.Burnside,showsuptopersonallyshakehandswiththeteamfordeliveringtheirordersoquickly.Hehasdecidedtoincreasethesizeofthecontractfrom1,000partsto10,000! Afterwards,AlexmeetsJulieandtheyreclaimtheirrelationship.Buttomorrowisthefinaldayofreckoningbackatthedivisionheadquarters… Chapter31(TheGoal) Insteadofmeetingdirectlywiththeboss,AlexfindshimselfdiscussingmatterswithacommitteeofMr.Peach’ssubordinates.Theyseemtobelievethatthattheplant’sextraordinarygrowthisjusttemporary,andthattheplantwillsoonbegintoshowmajorlosses.Loutriestopointouttheflawsoftheoldaccountingmodeltothedivisioncontroller,demonstratingthattheactualgrowthforthatmonthwasalmost20%. Asthediscussiondragson,Alexbecomesimpatient.HetracksdownMr.Peachtodefendhisplant'sgrowth,butthedecisionhasalreadybeenmade…theplantwillcontinueoperationsandwillnotbeshutdown!Moreover,PeachhasbeenpromotedandAlexistotakeoverhisoldpositionasheadofthedivision!Now,Alexhastomanagethreeplantsinsteadofjustone! AlexcallsJonahinsearchofurgentadvice,butJonahrefusestooffermuchassistance.Hehasspecificquestionstoaskfirst… Chapter32(TheGoal) Alexandhiswifedecidetocelebratehispromotionwithacandlelitdinnerinanexpensiverestaurant.Overwine,theydiscussJonah'scriticalroleintheeventsthattranspiredinthepastmonths.Whycouldn'ttheydoitwithoutJonah'squestionsandoccasionaladvice,whichseemlikelittlemorethancommonsense? Alexnowfacesthechallengeofgettingawholenewsetofworkerstobuyintotheseideasfromscratch.Howcanhedothiswithoutputtingthemoffandbeingcondescending? Chapter33(TheGoal) Alexmakeshisappearanceattheplant,butthistimeasthedivisionVice-President.HepromoteshisteammembersLou,Bob,Stacey,andRalph,tohigherpositionswithinthedivision,carryinggreaterresponsibilities.Nowheisallsettoembarkuponthenextmajorstageofplanningandgrowth… Chapter34(TheGoal) NowthatAlex’scoreteamhastakenuptheirnewpositions,itistimetotaketheirmodeltoanewlevel.Theconceptsthatwerebeingappliedforjustoneplantmustsomehowbemodifiedtoworkfortheentiredivision.Thiswillinvolveplentyofworkandeachteammember'sintenseinvolvement.Sotheydecidetomeetonadailybasistoworkouttheirstrategyandtactics. Chapter35(TheGoal) Astheteambrainstorms,theydiscusshowchemistsinventedtheperiodictableofelements.Howweretheyabletoclassifysomethingsovastintoonesimpletable?Maybethisishowtheycanapproachthemassiveproblemsoftheirdivision!Thosescientistsbeganbyobservingvastchaosandgraduallyderivedit’sunderlyingorder.Bythinkinglikescientists,theymustdesignacommonframeworktoexaminealltheissuesofthedivision… Chapter36(TheGoal) Astheteamreviewstheprocesstheyfollowedtofixthesituationattheirplant.Graduallytheyformulateafive-stepProcessOfOn-GoingImprovement(POOGI):         Step1:Identifythesystem’sbottlenecksStep2:DecidehowtoexploitthosebottlenecksStep3:Subordinateeveryotherdecisionto'steptwodecisions'Step4:ElevatethesystemsbottlenecksStep5:if,inapreviousstep,abottleneckhasbeenbroken,gobacktothebeginning(Step1).Itseemedsimple,clearyet…toughtoimplement. Chapter37(TheGoal) Astheteamreviewsthefivefocusingsteps,theydiscovervariousissuestobeaddressed.Thelaststepinthefive-stepprocess,forexample,mustensurethatinertiadoescreateanysystemconstraints. Theydiscoversomefictitiousorderswerecreatedtokeepthebottlenecksbusy.Eliminatingthiscanfreeup20%capacity,whichcanbeusedtofulfillrealordersinthefuture.Staceymodifiesthetaggingsystem,andAlexandJohnplanfutureexpansioninthemarket. Chapter38(TheGoal) JohnfindsanewclientinEuropewhichislargeenoughtoutilizetheexcesscapacitythathasbeenfreedup.Butthereisacatch–thedealwouldhavetobepricedsignificantlylowerthantheirofferingtothelocalmarket.ButthedealcouldopenupnewopportunitiesinEurope,whichhasalotofotherpotentiallargecustomers. Alexdecidestoanalyzethesituationfromtheperspectiveofaphysicist.Theycouldusetheirexistingsparecapacitytomeetthecontractrequirementsandtheonlyadditionalcostwouldberawmaterials.Despitethelowerpricing,thiswouldstillleadtoincrementalprofitinthedivision’sbookofaccounts…andsincethecustomerisinEurope,sellingthereshouldnotcauseanyreductioninthepricingfordomesticorders.Eureka! Chapter39(TheGoal) Anotherproblemattheplant…allthefreshordersseemtobecreatingnewbottlenecksallovertheplace!Julie,whohasbeenreadingSocrates,explainsthetheoryof'if…then'deduction.Sheexplainstheimportanceofconsideringallofthescenariosthatcanariseandhowprepareforallthesideeffectsofanewinitiative. Afteranalyzingtheproblem,theteamdecidestoincreasetheinventoryinfrontofthebottleneckstoensureutilizationoftheirfullcapacity.Thiswillincreasecycletimesandhencethesalesteamcanpromisetofulfillnewordersafterfourweeks,twiceaslongasbefore.Althoughthismayjeopardizesomeoftheirnewcustomerrelationships,itappearstoberequired.Businessisanongoingprocessofimprovement,andwhennewproblemsarisetheymustbedealtwithhead-on. Meanwhile,AlexiscalleduponbyPeachtohelpHiltonwithhisplant'simprovementandisaskedtovisittheplantandteachhispractices. Chapter40(TheGoal) WhileAlexandLouponderoverJonah’squestions,theycreatesafewoftheirown:Whattochange?Whattochangeto?Howtocausethechange?AlexrealizesthathecannolongerkeeprunningbacktoJonahforhelp;hemusttreadaloneonthepathshownbyJonah.Asamanager,hemustmastertheartofhowtogettothecoreofacomplexsituationandsolveitwithoutcreatingnewproblems. MainLessonsFromTheGoalBook Initially,Alex’sthinkingisdistortedbyconventionalmanagementaccountingmetrics.Thiscauseshimtowastetimeandenergy“improvingefficiency”eventhoughithasnoimpactontheprofitsofthedivision.JonahhelpsAlexalignhisorganizationtotheGoalbydistinguishingbetweenthreeoperationalmeasurements:Throughput: therateatwhichthesystemgeneratesmoneythroughsalesnetofvariablecosts.Thiscorrespondstothevalueaddedbythesystem.Inventory: “allthemoneythatsystemhasinvestedinpurchasingthingswhichitintendstosell,”Thiswaslaterexpandedtoincludeallinvestmentsuchasplant,property,equipmentetc. OperatingExpense: “allthemoneythesystemspendsinordertoturninventoryintothroughput.”Thesefixedcostslikerentandsalariesareincurredwhetherornotthroughputincreasesordecreases. Armedwiththesedefinitions,AlexhasasoundbasistoanalysewhetherhisdecisionsarehelpingtheplantmovetowardstheGoal(tomakemoney,ascharacterizedbyincreasingthroughputand/ordecreasinginventoryandoperationalexpense).Betweenthesethreeoperationalmeasurements,increasingThroughputimpactsprofitabilityfarmorethanreducingInventoryorOperatingExpense.​ Theslowestoperationalwaysdeterminesthemaximumspeedatwhichproductscanbeproducedandthereforealsotherateatwhichthroughputcanberealized.Thisslowestmachineiscalledthe BottleneckorConstraint.Alostproductionhouronthisbottlenecktendstobeverycostly. Jonahoutlinesthesecretstomanagingconstraints(TheoryofConstraints)byaskingquestions.Theanswerstohisquestionsformfivefocusingstepstoimprovetheperformanceofanysystem(sometimesknownastheProcessofOn-GoingImprovementorPOOGI):Identifythesystem'sconstraint(s)Decidehowtoexploitthesystem'sconstraint(s) Subordinateeverythingelsetoexploittheconstraint(s)Elevatethesystem'sconstraint(s)Ifinthepreviousstepsaconstrainthasbeenbroken,gobacktostep1,butdonotallowinertiatocauseasystem'sconstraint.Thesefivestepsfollowaspecificsequence.Inotherwords,youshouldexploittheconstraintbeforeelevatingit,becauseaddingcapacityrequirescapitalinvestment.Alsonotethatthebottleneckmaybeinternalorexternal,suchascustomerdemand.ClickheretoreadmoreaboutTheFiveFocusingSteps.   KeyTakeawaysforManagers:HowtoDriveContinuousImprovement 1)MeasurementsDriveBehavior:anymisalignmentinmeasurementscausesawiderangeofdestructivetendencies.ItisyourresponsibilitytoidentifyTheGoalofyourorganization.BesurethatyourmetricsaligncompletelytothisGoal.2)SeekAnswers:Beactiveinyourquestforknowledge.Theanswersareoutthere,youjusthavetodiscoverthem.Sometimestheanswerscanbefoundinunlikelyplaces,suchasJonah,anoldphysicsprofessor.​3)Teamwork:Teamsareveryimportanttodrivingchangeandimprovement.Themoreheadsonthejobthebetter.Peoplehavedifferentopinionsandoutlooks;someoneelsemaythinkdifferentlythanyoueverwouldhave.​​  4)NeverGiveUp:Thereisalwaysachancetorecoveraslongasyourorganizationinstillrunning.Don’tbeafraidtochallengethestatusquo.Thebattleisnotlostuntilthemomentyougiveupandstoptrying. 5) WorkSmarter,NotHarder:Oftentimesourgreatesteffortsareineffectiveandsometimesevencounter-productive.Butbyfocusingontherightareaswecanachievebreakthroughresults​​6) ImprovetheOverallSystem,NotJusttheIndividualParts:EffectivecoordinationbetweenOperationsandMarketing/SalesiscriticaltoachievingtheGoal,notjustoptimizingasinglelinkinthevaluechain.​ LikeMrs.Fieldsandhercookies,TheGoalwastootastytoremainobscure.Companiesbeganbuyingbigbatchesandmanagementschoolsincludeditintheircurriculums."      - FortuneMagazine​ FinalThoughts TheGoalcontinuestotransformavarietyofdifferentfieldsincluding:OperationsPlanningAccounting&MISReportingProcessImprovement​Sales&MarketingAchievingWork-lifeBalance ​ButDr.Goldrattdidnotintendhisbooktobe onlyformanagers.ItshouldbetaughtaspartofeveryMBA,accountingcourseandleadershipdevelopmentprogrambecauseofit'sthoughtprovokingexplanationofbusinessfundamentals.Also:clickhereforaninterestingbackstoryabouteventsleadinguptothewritingofTheGoal. 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