Instaread - The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt and Jeff Cox

Guide to

Eliyahu M. Goldratts & et al

The Goal

A Process of Ongoing Improvement

by

Instaread

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This is a companion to the original book.

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Table of Contents

The Goal: A Process of Ongoing Improvement by Eliyahu Goldratt and Jeff Cox describes a process by which an unprofitable manufacturing operation can be made profitable. It conveys proven factory turnaround principles through a fictional story.

The main obstacle to making an operation profitable is constraints, or bottlenecks, that prevent the plant from running at capacity. These bottlenecks are the result of machinery standing idle, poor work flow, unwise use of labor, and other mistakes. The main impact of the problems is orders being filled late. This leads to unhappy customers who refuse to give the factory additional business and tell others about their unhappiness.

Rogo, the fictional manager, uses a manufacturing operation turnaround specialist as a sounding board for his and his executive teams ideas to make the factory profitable before a three month deadline for closing it. The team recognizes that bottlenecks are the main reason for the operations lack of profit. They come up with ideas to overcome these bottlenecks, which leads to profitability, until new bottlenecks develop. The team must then rush to overcome those as well.

After dealing with multiple, and changing, bottlenecks, the team develops a set of principles for addressing all bottlenecks. Those principles amount to a blueprint for dealing with constraints that arise not only in their factory but in manufacturing operations in general.

Alex Rogo: Rogo is the plant manager of the fictional Bearington factory of UniCo Manufacturings UniWare Division. The plot of the book, The Goal, is that Rogos plant must become profitable in three months or the company will close it.

Jonah: Jonah is a globe-trotting, renowned factory-operation efficiency expert who helps Rogo make the Bearington operation profitable.

1. The goal of any manufacturing operation is to earn a profit.
2. One of the three measurements of profitability is throughput, or the amount of product moved through a plant via sales.
3. A second measurement of profitability is inventory, or the money that a factory uses to buy items it plans to sell.
4. A third measurement of profitability is operational expense, which is the money the factory spends to turn inventory into throughput.
5. The major impediment to a factory earning as much money as it should is bottlenecks, or constraints, in the manufacturing system.
6. The first step in overcoming a bottleneck is identifying what the bottleneck consists of.
7. The second step in overcoming a bottleneck is deciding how to utilize it.
8. The third step in overcoming a bottleneck is making a priority of utilizing the problem.
9. The fourth step in overcoming a bottleneck is taking steps to prevent it from recurring.
10. The fifth step in overcoming a bottleneck is using the identification and resolution process to utilize the next bottleneck because bottlenecks tend to move from one part of a manufacturing operation to another.

The goal of any manufacturing operation is to earn a profit.

Analysis

When the fictional factory efficiency expert Jonah asks Alex Rogo, the plant manager of the Bearington factory, what his operations goal is, Rogo is uncertain at first. That is because companies have many objectives that might seem like candidates for an overarching goal, such as being the industry leader in quality or gaining market share. But Rogo finally realizes the goal of any manufacturing operation is to make money.

The closing of the Zama manufacturing plant in Japan on February 26, 1992 is a classic example of what happens to a plant when it loses sight of its goal. This was Japans first auto factory closure ever. The reason for the closure was simple: Nissan could not make money at the older factory. Japanese auto manufacturing excellence had put the American auto industry on its heels in the 1970s and 1980s, but the Americans bounced back in quality and lowered their costs to compete with the Japanese by the 1990s. In closing the plant, Nissan abandoned a goal that was almost as important as making money, lifetime employment. Japanese corporations traditionally keep employees from the day they hired them to retirement. Nissan was forced to abandon that goal when its Zama facility could not make money, underscoring the idea that a manufacturing plants only true goal is to make money [1].

One of the three measurements of profitability is throughput, or the amount of product moved through a plant via sales.

Analysis

A factory can do a great job of churning out products but still be incapable of making money. If the product sits in the factory warehouse rather than going to customers, it does not contribute to the bottom line. So the amount of production a factory achieves is not a good measure of the facilitys value to the company. The real measure is the amount of product the factory sells. Throughput is a measure of production and sales.

Throughput means that plant managers must emphasize sales as much as they do output. This requires them to educate themselves about sales. Not only do they need to know the basics of sales, but also the basics of marketing and sales promotion. In addition, they need to understand the principles of public relations since one of the objectives of public relations is to help the marketing and sales divisions increase sales. Plant managers know what qualities make their products better than competitors products, but marketing, sales, and public relations departments may not. That means plant managers need to work with the marketing, sales, and public relations people to develop pitches for selling those products.

A second measurement of profitability is inventory, or the money that a factory uses to buy items it plans to sell.

Analysis

Throughput is a positive measure of bottom line success because the more sales a company has, the greater their revenue. In contrast, the amount of inventory is a negative, or inverse, measure of bottom line success. That is because the more inventory a company has, the greater their cost and the lower their profit, for the same throughput.

Excess inventory costs a company money in at least three ways. First, it has to spend money to buy the materials that then sit idle. Second, it takes space to store the inventory, space that could be used to make more product. Third, it takes employee time to keep track of and handle inventory. This means that keeping inventory to a minimum is a key to profitability. After World War II, a cash strapped Japan responded to these issues by developing a new approach to obtaining materials for their operations called just-in-time manufacturing. The idea is to have vendors deliver material to a factory just before it is needed. This shifts the burden of inventory from factory to vendor. This approach has been such a key part of Japanese manufacturers success that factories in the United States and many other parts of the world began implementing it as early as the late 1970s [2].