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The Goal in 885 Words
Here are the principles behind the dramatic turnaround story in The Goal, in 885 words. Ready? Start counting now:
The goal of a manufacturing organization is to make money. Jonah poses this as a question: “What is the goal?” and Rogo actually struggles with it for a day or two, but any manager or executive that cant answer that question without hesitation should be fired without hesitation.
But then again, the goal isnt clear to everyone. One of the characters in the book, an accountant, responds to an offhand comment about the goal with a confused “The goal? You mean our objectives for the month?” Thats sure to strike a chord with a lot of readers.
At an operational level, measure your success toward the goal with these three metrics:
Throughput – The rate at which the system generates money through sales.
Inventory – The money that the system has invested in purchasing things which it intends to sell.
Operational expense – The money the system spends in order to turn inventory into throughput.
You could rephrase it this way – and someone does, a bit later in the book:
Throughput – Goods out; the money coming in.
Inventory – Materials in; the money currently inside the system.
Operational expense – Effort in; the money going out.
Obviously, your job is to minimize expense and inventory and maximize throughput.
Adjust the flow of product to match demand. In particular, dont trim capacity to match demand. Its a standard cost-cutting procedure, sure. But youll need that capacity later, if youre serious about increasing throughput.
Find bottlenecks. If manufacturing is whats limiting your throughput, then the problem isnt that people arent working hard enough. You have bottlenecks in your manufacturing processes that are holding up everything else. Find the bottlenecks and do everything you can to fix them. Increase their efficiency, even at the expense of efficiency in non-bottleneck places, because the efficiency of a bottleneck directly determines the efficiency of the entire process, all the way through final payment. In the book, a variety of steps are taken to “elevate” and circumvent the bottlenecks. This is where the results start showing up on the bottom line. Soon the plant can actually use information from the bottleneck to do an effective job of scheduling work and (for the first time) reliably predicting when orders will be ready to ship.
Dont be afraid to have resources idle. Its better than putting them to work producing excess inventory that you cant sell.
Decrease the unit of work. If youve got people idle, you can afford to have them do their work in smaller chunks. Under a cost-accounting model, this hurts their “efficiency” by removing certain economies of scale. But you have much faster turn-around time. Everyones more flexible. Work flows more smoothly. (Well, this is what the book says.)
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The Goal – A Process Engineering Novel
I read Eliyahu M. Goldratts novel The Goal the other night, instead of sleeping.
The book has two parts. In the first 264 pages, a manufacturing plant manager turns his failing plant into a tremendous success. That part of the book ends with the managers promotion to a position with oversight over several failing plants. In the second part of the book (73 pages), the manager prepares for his new job by trying to deduce a repeatable “process of ongoing improvement.” Hes trying to make sense of what happened in the first part of the book so hell have half a chance of repeating that success on a greater scale.
For now, Ill set aside considerations of why The Goal is a novel, how effective it is as a book, whether it succeeds as literature, and so on. This article is primarily about the ideas behind the book, and why some are valuable while others are probably quite useless.
How to Turn Around a Failing Plant
The first part of the book is about a manufacturing plant.
The protagonist, plant manager Alex Rogo, turns around a failing plant by following the advice of his guru, Jonah, a physicist turned university professor and corporate consultant. The guru is a very busy man, and he casts his pearls sparingly. Rogo plays the tough role of figuring out what they mean (i.e. explaining them to the reader) and putting them in action (i.e. convincing the reader that they could really work). The essence of this first part of the book is found in the gurus occasional pronouncements. I believe The Goals success stands mainly on the strength of these insights. Heres what the guru has to say. (The parts in maroon are direct quotes from the book.)
The goal of a manufacturing organization is to make money.