The Goal

innotes

books
management
systems
Cover Image for The Goal

The Goal, by Eliyahu Goldratt is a great read on how to manage a complex system in order to get the most value out of it.

It's a narrative about a plant manager who is trying to get the most out of his struggling plant. He finds a mentor who teaches him, via the socratic method, general management concepts that he applies to his situation. It's an enjoyable read, and a great way to learn the same concepts as you see the main character struggling to apply them to his own situation.

Notes

The Goal

Is efficiency the goal? Nope. Money is the goal.

Is the company making money? Consider net profit, ROI & cash flow.

Throughput, Inventory & Operational Expense

  • Throughput: the rate at which the system generates $ through sales
  • Inventory: the $ the system has invested in purchasing things it intends to sell
  • Operational Expense: the $ spent on converting inventory into throughput

Analyze your current system based on the goal and the 3 definitions above.

Productivity in one area doesn't necessarily help the company achieve the goal. Aim to reduce inventory and operational expense while simultaneously increasing throughput.

Dependent Events & Statistical Fluctuations

  • Dependent events are events that depend on other events.
  • Statistical fluctuations are things that are outside of your control (could be considered "random") that impact a resource's effectiveness.
  • Fluctuations don't average out over time, they accumulate.
  • It's an accumulation of slowness because dependency limits opportunity for higher fluctuations.
  • If there are no reserves and you get behind, there's no capacity to catch up.
  • Don't level capacity with demand to minimize expenses. Resources at the end of the line need more capacity.
  • Balance flow (not capacity) with market demand.

Bottlenecks

A bottleneck (BN) is a resource with capacity less than the demand placed on it.

Identify BNs and move them to the front or increase their capacity.

Non-BNs can and should be idle at times. BNs should never be idle. Make sure BN time isn't wasted by:

  • sitting idle
  • working on defective things
  • working on things you don't need now

If slowing down a non-BN speeds up a BN, do it.

The level of utilization of a non-BN is determined by some other constant in the system (not by its own potential).

Activating a resource and utilizing a resource are not synonymous.

Utilizing: making use of a resource in a way that moves the system toward the goal Activating: turning it on to work, whether or not it moves the system toward the goal

The implication here is that we must not seek to optimize every resource in the system.

BNs can and should control the activation (and utilization) of other resources.

An hour saved at a BN is an hour saved for the system.

An hour saved at a non-BN is a mirage.

Batch Sizes

Smaller batch sizes make you more agile, able to respond to changes in market needs.

Reduced batch sizes leads to less idle time on non-BNs. You'll still get idle time, but in smaller, more frequent chunks.

Maximize the amount of WIP for current demand.

Measurements & Metrics

Measurements should:

  • allow for control by knowing to what extent a company is achieving it's goal of making money
  • induce the parts to do what's good for the company as a whole

A Process of Ongoing Improvement

  • identify systemic BNs
  • decide how to exploit the BN
  • subordinate everything else to the above decision
  • elevate the system's BNs
  • if in a previous step, a BN has been broken, go to step 1

Management

  • It's about knowing what to change, what to change it to and how to cause the change
  • Utilize the socratic method to help people see things for themselves
  • Teach & impart new knowledge