“The Goal” is about New global principles of manufacturing. This novel explains the importance of simple assumptions in achieving the goal. In this novel, Alex explains the importance of setting a goal, and then working to achieve that goal. Alex takes the readers through different steps in achieving the goal. In doing so, he faced many problems and then how he came up with the solution is the most interesting part of this novel. In this novel, Alex shows how the understanding of global principles of manufacturing bring order to the plant and illustrates the power of this understanding and the benefits it can bring.
It all started when Alex was appointed plant manager of a substandard plant. Six months into the job he realized that the plant is performing in such a way that the management is thinking about closing the plant. Alex was given three months to turn around the plant. The plant had a lot of inventory and the orders coming out of the plant were late. The productivity of the plant was poor and the plant was also losing money.
Jonah (a wise man) and Alex’s physics professor helped him through this time. After talking with Jonah, Alex realized the first problem was that the goal of the organization had to be defined and all the work should be according to the goal in order to be productive or profitable. In order to come up with the goal of the organization, Alex made a list of all the items as being goal: cost effective purchasing, employing good people, high technology, producing products, producing quality products, selling quality products, capturing market share. After talking to the plant controller he realized that it was possible for a company to show net profit and a good rate of return and still go bankrupt. Alex then defined the goal as to increase net profits, while simultaneously increasing both ROI and cash flow. Jonah told him that, there were three measurements which express the goal. Their names were throughput, inventory and operational expense. He defined throughput as the rate at which the system generates money through sales, inventory as the money that the system has invested in purchasing things which it intend to sell and operational expense as all the money the system spends in order to turn inventory into throughput. After understanding the measurement Alex redefined the goal as ” increase throughput while simultaneously reducing both inventory and operating expense”.
Once the goal was defined the problem was, how to achieve the goal. The first problem was to realize how to reduce the inventory. Alex came to know that the only way the plant is creating excess inventory is by having excess manpower. This also makes sense as machines do not setup and run themselves. People had to create the excess inventory. Alex realized that the market demand of the product the organization is producing is high and inside the company he has so many resources, each of which has so much capacity, to fill that demand. He concluded in order to reduce the inventory he needed a balanced plant. Balanced plant is a plant where the capacity of each and every resource is balanced exactly with demand from the market. Jonah told Alex that there is a mathematical proof which could clearly show that when capacity is trimmed exactly to marketing demands, no more or no less, throughput goes down, while inventory goes through the roof and as inventory goes up, the carrying cost of inventory which is also operational expense goes up. The solution to the inventory problem is to maintain the capacity a little lower than the marketing demand. This will help even if the demand is decreased the company will not lose money.
Alex realized that the plant had statistical fluctuations. But the plant has robotic operations. Robots do not have statistical fluctuation as they always work at the same pace. But Alex knew that they were not dealing with only robotic operations and the goal was not only to make the robots productive but the whole system productive. To better understand the problem he told both the division to keep a log for the robot and of exactly how many parts are actually completed hour by hour in the other department. Alex concluded that robots have a certain output and it can be increased by providing the material on time for the robot to work on. He also concluded that the maximum deviation of a proceeding operation will become the starting point of a subsequent operation.
From this he realized that they had to distinguish between two types of resources in the plant . One type was called bottleneck resource. The other was , a non-bottleneck resource. 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. The idea is to make flow through the bottleneck equal to or tiny bit less than demand from the market. Because if you keep it equal to demand and the market demand goes down, you will lose money. Finding a bottleneck is important as it makes an enormous difference in how to manage the resources. Alex found out that there are two bottlenecks. NCX-10 machine, which replaced three machines and the process saves on average of four minutes per part. The second bottle neck is Heat-treat, this is a pair of furnaces insides of which are lined with ceramic blocks. Gas burners raise the internal temperatures to the 1500-degree-Fahrenheit range.
There was a problem with the bottleneck, as they were not maintaining a flow sufficient to meet demand and make money. Alex tried to move the bottleneck to the front of the process but that was impossible. He suggested to increase the capacity of the machine to make them non-bottleneck but that was not feasible. Jonah suggested to find enough capacity for the bottlenecks to become more equal to demand. They concluded that the lunch break of the operator is costing them, because the time lost at the bottleneck could not be recovered and that decreases the throughput. Alex fixed the problem by talking to the union and coming up with a solution. Now both bottlenecks were running all the time with two operators. But still this was not solving the capacity problem. Alex realized that the quality control is after the bottleneck, that means if they scrap the part after it’s passed through the bottleneck, they have lost time that cannot be recovered.
Alex decided to put Q.C. before the bottlenecks. That way bottleneck work only on good parts by eliminating the ones that are defective, because if you scrap a part before it reaches the bottleneck, all you have lost is a scrapped part. Bottleneck is important, as every time a bottleneck finishes a part, they are making it possible to ship the finished products. Alex also concluded that to increase the capacity of bottlenecks some of the parts will be shifted to non-bottleneck for processing. In order to take load off the bottleneck they brought in old machines. This made the bottleneck more efficient and increased the capacity. Alex told the staff to make a list of all the parts processed by bottlenecks. He also told them to use the computer to collect data every hour, this would show them the performance of the machine and help them to predict the time required to complete the order. By doing so they can back calculate and tell the marketing department, how much time is required to complete the order.
Alex was happy as they shipped fifty seven customer orders in one month and they had a twelve percent net decline in work-in-process inventory. But there was another problem, which was that they had created another bottleneck. Alex found out that with the bottlenecks more productive, the throughput was up and the backlog was declining. But making the bottlenecks more productive had put more demand on the other work centers. If the demand on the other work center had gone above one hundred percent, then they had created a new bottleneck. This time they ended up, not with excess work in process but with excess finished goods. The constraint was not in production but the constraint was marketing’s ability to sell. As at least two thirds of the inventories was produced with non-bottlenecks, they had built inventories far in excess by running non-bottlenecks for efficiency. They realized that when a non-bottleneck did more work than the bottleneck the productivity is decreased.
Jonah told Alex that with an increase in throughput it is possible to create a new bottleneck and they were sending work to the floor whenever non-bottlenecks are running out of work to do. In other words they were releasing materials faster than the bottlenecks can process it. As they were keeping data on the bottleneck, they were able to predict several weeks in advance what each bottleneck will be working on at a particular time. By this they controlled the excess inventory not only on the bottlenecks but also on the non-bottleneck parts. Jonah explained as, they can determine a schedule for releasing materials from the bottleneck, they can also determine the release of non-bottleneck materials by back calculating. This way bottleneck will determine the release of all the materials in the plant. This was the best solution to the problem as, the non-bottleneck will not be overloaded and this will not create another bottleneck. But this will decrease the efficiency increasing the rate of shipments. I think as the materials will be released to the non-bottleneck the efficiency will go up again.
Now the process was doing fine but Alex wanted to show more profits. Jonah gave him an idea, to cut the batch size in half on non-bottlenecks. Alex realized that if they cut the batch sizes in half they would cut the work in process in half. That meant they would only need half the investment in work in process. In order to do that the suppliers should also agree to increase the frequency of deliveries and to reduce the quantity of each delivery. Alex was successful in doing that and by reducing the batch in half they condensed the total lead time. With the increased lead time customers were getting their orders faster. And with faster turn around they got an advantage in the marketplace. The plant became so effective by employing this strategy that Alex had to beg the marketing department for more orders. He got his wish and they delivered on their promise. Alex ran into one small problem by reducing the batch. That was, the cost of parts went up. But the reduction in work in process inventory and the decrease in excess inventory helped him overcome this hurdle. This idea gave new life to the plant, as it attracted the old customers and some foreign companies. Alex accepted orders on the terms that not one in the same industry can fulfill. This hard work paid of, as the plant was saved and Alex was promoted also.
In conclusion, Alex started with setting up the goal for the organization and then sticking to the goal till the end. He took simple assumptions and put them to work. The first step in the process was to identify the system’s bottleneck. The second step was to decide how to exploit the bottlenecks. The third step was to subordinate every thing else to the previous steps. Fourth step was to elevate the bottleneck (in this case they brought in the old machines to do some work). The last step was if there was some thing wrong with the bottleneck go to the first step. Alex followed these steps keeping the goal in mind and got his plant out of trouble and landed a promotion for himself. A good reward for an excellent work.