Sunday, January 8, 2012

An Analysis of the goal

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Chapter 1 Introduction


Overview of The Goal


In his book, “The Goal”, author Eliyahu Goldratt describes the problems faced by a fictitious manufacturing company, Unico. These problems include decreases in efficiencies, cash flow and sales, and an increase in late orders and inventory levels; problems that are actually found to some degree in all manufacturing organizations. The story centers on how one of Unico’s plants are able to improve performance by disputing and eventually contradicting some long-held beliefs in manufacturing and manufacturing accounting methods. Plant Manager Alex Rogo and his staff, central characters involved in a desperate attempt to improve the performance of their plant to avoid its closing, are led through a series of conversations and soul-searching questions by an unlikely coach and mentor, Rogo’s college physics professor “Jonah”.


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Redefine Goal of Plant


In a chance meeting with Jonah, and thinking his plant was doing well, Rogo is challenged to answer three basic questions 1. Have more products been sold? . Has payroll been reduced? And . Are inventories down? The answers lead Rogo and his staff to question many commonly accepted concepts and practices. Initially, Jonah encourages Rogo and his staff to begin by re-defining the goal of the plant. Reaching agreement that the ultimate goal is to make money, they realize that the measurements traditionally used to define success net profits, return-on-investment, and cash flow, are ineffective and actually misleading. Jonah provides alternative ways to measure the success of their plant throughput, inventory, and operational expense. These unique measurements created the need for a re-defined goal Jonah suggests, “ The goal is to reduce operational expense and reduce inventory while simultaneously increasing throughput,” (Goldratt, p. 87).


Throughput


Throughput was defined as “the rate at which the system generates money through sales”. Included in the description of inventory were any investments that could be sold, such as the physical plant and any machine that someone would buy. Operational expenses, including the carrying costs of inventory and work-in-progress, were classified as “money lost”. In addition to these uncommon measurements and definitions, Rogo and his staff accepted the theory that it is actually inefficient for people to be working all the time, with the reasoning that excess people hours create excess inventory. This revelation led to a further contradiction, that the long sought Holy Grail of manufacturing � the Balanced Plant � was not a sound idea, and could actually lead to disastrous results. The balanced plant suggests that to operate at maximum efficiency, the capacity of each resource (machines or human) is balanced exactly with market demand. In actuality, the results of a balanced plant would be the opposite of the intended goal decreased throughput, and increased inventory and carrying costs.


Dependent Events and Statistical Flucuations


The realization that a balanced plant was not one of the goals then led Rogo and his staff to the discovery of two phenomena that Jonah suggests are found in every plant dependent events and statistical fluctuations. A dependent event refers to the steps in a process that must follow each other in a specific order (like the hiking trail analogy). Statistical fluctuations were initially assumed to mean that, no matter how many fluctuations there were in a process, they would even out in the aggregate. In fact, Rogo discovered, (via a statistical game he invented using dice and matches on a camping trip with his son’s boy scout troop) that the dependency itself limits opportunities for higher fluctuations. Thus proving the principle that the maximum deviation (high or low) of an operation will become the starting point for the next operation.


Bottlenecks and Non-bottlenecks


The book uses the hiking trail story to point to some other concepts held by Jonah and the author Goldratt. For example, analyzing why the slow boy Herbie was the key to completing the hike before dark led to the identification of the two types of resources that became the focus of Rogo’s improvement efforts. A bottleneck is a resource where the capacity is equal to or less than the demand for it. A non-bottleneck has capacity that is greater than the demand on it (therefore, excess capacity). Jonah suggests there is a rule to identify the relationship between the two resources balance the flow of the product with the demand, not the capacity. The idea is to have excess capacity in both resources.


How to Decrease Bottlenecks


The story from here focuses on the identification and optimization of the bottlenecks in Rogo’s plant, where other contradictions emerge as a result. For example, against common belief it was determined that lost time on a bottleneck was lost throughput for the entire system, and clearly demonstrated by calculating the cost of a bottleneck as the total expense of the system divided by the number of available productive hours. Realizing the significance of the calculation of this lost time in dollars, Rogo optimized the use of the bottlenecks in several ways not allowing it to sit idle during breaks; moving quality control in front so that the machine/bottleneck was not processing already defective parts; and by banning the practice of processing un-needed (spare) parts, and ensuring that it worked on the jobs that would contribute to today’s throughput. This reinforced the theory that excess hours create excess inventory, and that the utilization of human resources is not the same as the activation. Another method to increase the capacity of the bottleneck/s was to take over-capacity load and divert it to non-bottlenecks. This supports the idea that an hour saved at a non-bottleneck is actually worthless.


Effective Management


Having put all of these theories and ideas into practice, Alex turns that plant around, is recognized for his success, and promoted to run the entire division. Now comes the question What techniques are needed for effective management? This question prompts Rogo to ask his staff to help in determining his first steps as division leader. Instead of the normal recommendations that would result from this conversation, which is to gather data and information and categorize and classify it, Rogo realizes that the first step is to reveal the intrinsic order of divisional events, which will help identify the divisional bottlenecks, or constraints, as well as the core problem. In addition, this conversation led to the formulation of “first principles” Every organization was built for a purpose, and every organization has more than one person.


Constraints


Dealing with primarily physical constraints in the plant, Alex recognizes that there will be other types of constraints at the divisional level, such as ineffective measurements, erroneous policies, and outdated procedures. They discover that identifying the constraint is only part of the first step n the process, they also need to identify the core problem; whatever is responsible for all of the undesirable effects.


During this time, there emerges the need for a specific Thinking Process as the foundation for the effective management techniques they seek, which will generate ideas for improvement through the use of three questions


1. What should be changed?


. What should it change to?


. How can we cause this change?


The next step Alex decides to take is to look at the process he and his team used to identify and optimize constraints, and standardize it as a method of process improvement to deal with constraints across the division. The group came up with the following process


1. Identify the system’s constraints


. Decide how to exploit the system’s constraints


. Subordinate everything else to the above decision


4. Elevate the system’s constraints


5. If there is a break in the constraint, go back to step #1. Do not allow inertia to cause a system’s constraints.


The final revelation, and the principal one that Jonah was teaching all along, is that we all need to develop systematic thinking processes that will work for each of us. In effect, we all have the potential to become our own Jonahs.


Georgia-Pacific


Just as Unico was a manufacturing plant, so is Georgia-Pacific, but our products are quite different. Even though the author sells corrugated packaging, we encounter the very same problems that Unico faces everyday not making enough money and low efficiencies. Georgia-Pacific Corporation uses PCS (Production Control System) to make sure everything flows through the plant at an efficient pace. Just like Unico, some corrugated packaging requires several workstations before it can be shipped, but with PCS, GP can control bottlenecks and move product around to equipment that has capacity. The author’s stance on whether this could work or not is yes, but with such a large corporation, Georgia-Pacific is always pushing their people to think outside the box.


Chapter Conclusion


In conclusion, The Goal made me more aware and to think about the processes that I work with on a daily basis. Being in sales, sometimes we like to promise too much to the customer without realizing the steps that manufacturing most go through before the product reaches the customer’s dock. At the very least, this story encourages me to ask questions and challenge common sense, which seemed to get Alex in trouble. Just because a plant such as Unico or Georgia-Pacific has always done something the same way, does not mean that it cannot be changed for the better.





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