The Goal (1984)
Eliyahu M. Goldratt
───────────────
▪ Somehow we have restricted the connotation of science to a very selective, limited assemblage of natural phenomena. We refer to science when we deal with physics, chemistry or biology. We should also realize that there are many more phenomena of nature that do not fall into these categories, for instance those phenomena we see in organizations, particularly those in industrial organizations. If these phenomena are not phenomena of nature, what are they? Do we want to place what we see in organizations to the arena of fiction rather than into reality?
▪ This book is an attempt to show that we can postulate a very small number of assumptions and utilize them to explain a very large spectrum of industrial phenomena
▪ What I have attempted to show with this book is that no exceptional brain power is needed to construct a new science or to expand on an existing one.
▪ What is needed is just the courage to face inconsistencies and to avoid running away from them just because "that’s the way it was always done’’
▪ I sincerely believe that the only way we can learn is through our deductive process. Presenting us with final conclusions is not a way that we learn. At best it is a way that we are trained.
▪ That’s why I tried to deliver the message contained in the book in the Socratic way.
▪ Jonah, in spite of his knowledge of the solutions, provoked Alex to derive them by supplying the question marks instead of the exclamation marks.
▪ "The Goal’’ is about New global principles of manufacturing. It’s about people trying to understand what makes their world tick so that they can make it better.
▪ I also hope that readers would see the validity and value of these principles in other organizations such as banks, hospitals, insurance companies and our families. Maybe the same potential for growth and improvement exists in all organizations.
▪ The secret of being a good scientist, I believe, lies not in our brain power. We have enough. We simply need to look at reality and think logically and precisely about what we see. The key ingredient is to have the courage to face inconsistencies between what we see and deduce and the way things are done.
▪ And they’re all talking at the same time. Dempsey is telling me we’ve got a problem. Martinez is shouting about how there is going to be a walkout. The hourly guy is saying something about harassment. Ray is yelling that we can’t finish some damn thing because we don’t have all the parts.
▪ And it turns out to be a fairly big order. Also a late one. So what else is new? Everything in this plant is late. Based on observation, I’d say this plant has four ranks of priority for orders: Hot ...Very Hot ...Red Hot... and Do It NOW! We just can’t keep ahead of anything.
▪ But when they go to that department, they find the machinists are not setting up to run the part in question, but instead some other do-it-now job which somebody imposed upon them for some other product.
▪ Peach doesn’t give a damn about the other do-it-now job. All he cares about is getting 41427 out the door
▪ Peach was able to pacify him only by promising to deal with the matter personally and by guaranteeing that the order would be shipped by the end of today, no matter what mountains had to be moved.
▪ "You’ve got enough people! Look at your efficiencies, for god’s sake! You’ve got room for improvement, Al,’’ he says. "Don’t come crying to me about not enough people until you show me you can effectively use what you’ve got.’’
▪ "Look, Al, it’s a waste of time to argue about this. Your last operations report tells the story,’’ says Peach
▪ "We going to make it?’’ I ask him.
"We’re trying,’’ he says.
"Yeah, but can we do it?’’
"We’re doing our best,’’ he says.
"Bob, are we going to ship the order tonight or not?’’ "Maybe.’’
▪ We held everybody in assembly on overtime, even though overtime is against current division policy. I don’t know where we’ll bury the expense, but we’ve to go get this order shipped tonight
▪ "You know, we paid a hell of a price for that shipment,’’ I say. "We lost a good machinist. There’s the repair bill on the NCX-10. Plus the overtime.’’
▪ Every six months it seems like some group from corporate is coming out with some new program that’s the latest panacea to all our problems. Some of them seem to work, but none of them does any good. We limp along month after month, and it never gets any better. Mostly it gets worse.
▪ Maybe I could push efficiencies some more, but ...I don’t know. It’s like whipping a horse that’s already running as fast as it can.
▪ And you walk through just about any plant in America about our size and you’ll find work-in-process inventory on the same scale as what we have. I don’t know what it is. On the one hand, this plant is no worse than most of the ones I’ve seen— and, in fact, it’s better than many.
▪ Or maybe I just don’t know enough. But, hell, I’ve got an engineering degree. I’ve got an MBA. Peach wouldn’t have named me to the job if he hadn’t thought I was qualified. So it can’t be me. Can it?
▪ He was different a couple of years ago. He was confident. He wasn’t afraid to delegate responsibility. He’d let you run your own show—as long as you brought in a respectable bottom line. He tried to be the "enlightened’’ manager. He wanted to be open to new ideas. If some consultant came in and said, "Employees have to feel good about their work in order to be productive,’’ Peach would try to listen. But that was when sales were better and budgets were flush.
▪ "And the answer is clear,’’ Peach is saying. "The future of our business depends upon our ability to increase productivity.’’
▪ “Here we are,” I say, and read the listing to him. “ ‘Robotics: Solution to America’s Productivity Crisis in the new millenium . . . a panel of users and experts discusses the coming impact of industrial robots on American manufacturing.’ ”
▪ "One thing I’ll admit,’’ I tell him, "is that we have a heck of a problem meeting shipping dates. It’s a serious issue with customers lately.’’
▪ "You’re missing the point,’’ he says. "You think you’re running an efficient plant... but your thinking is wrong.’’
▪ "And what is productivity?’’
I think for a minute, try to remember.
"According to the way my company is defining it,’’ I tell him, "there’s a formula you use, something about the value added per employee equals....’’
▪ "Just tell me, what does it mean to be productive?’’ he asks again as he walks through the metal detector. From the other side he talks to me. "To you personally, what does it mean?’’
▪ "But it’s too simplified,’’ I tell him. "It doesn’t tell me anything. I mean, if I’m moving toward my goal I’m productive and if I’m not, then I’m not productive—so what?’’
▪ "What I’m telling you is, productivity is meaningless unless you know what your goal is,’’ he says.
▪ That stumps me for a second. Jonah starts walking toward the gate again. It seems everyone else has now gone on board. Only the two of us are left in the waiting area. I keep after him.
▪ Jonah ignores her. "Alex, you cannot understand the meaning of productivity unless you know what the goal is. Until then, you’re just playing a lot of games with numbers and words.’’
▪ ve implemented a major effort to improve quality. Why isn’t the plant’s future secure? And if quality were truly the goal, then how come a company like Rolls Royce very nearly went bankrupt?
▪ Quality alone cannot be the goal. It’s important. But it’s not the goal. Why? Because of costs?
▪ If low-cost production is essential, then efficiency would seem to be the answer. Okay . . . maybe it’s the two of them together: quality and efficiency. They do tend to go hand-inhand. The fewer errors made, the less re-work you have to do, which can lead to lower costs and so on. Maybe that’s what Jonah meant.
▪ Producing a quality product efficiently: that must be the goal. It sure sounds good. "Quality and efficiency.’’ Those are two nice words. Kind of like “Mom and apple pie.”
▪ It’s not enough to turn out a quality product on an efficient basis. The goal has to be something else.
But what?
▪ Maybe the goal is some combination of efficiency, quality and technology. But then I’m back to saying we have a lot of important goals. And that really isn’t saying anything, aside from the fact that it doesn’t square with what Jonah told me.
I’m stumped.
▪ Money. Well, of course... money is the big thing. Peach is going to shut us down because the plant is costing the company too much money. So I have to find ways to reduce the money that the company is losing....
▪ The goal of a manufacturing organization is to make money.
▪ I reach for my briefcase, take out a yellow legal pad and take a pen from my coat pocket. Then I make a list of all the items people think of as being goals: cost-effective purchasing, employing good people, high technology, producing products, producing quality products, selling quality products, capturing market share. I even add some others like communications and customer satisfaction.
▪ All of those are essential to running the business successfully. What do they all do? They enable the company to make money. But they are not the goals themselves; they’re just the means of achieving the goal.
▪ Well, I don’t. Not absolutely. But adopting "making money’’ as the goal of a manufacturing organization looks like a pretty good assumption. Because, for one thing, there isn’t one item on that list that’s worth a damn if the company isn’t making money.
▪ If the goal is to make money, then (putting it in terms Jonah might have used), an action that moves us toward making money is productive. And an action that takes away from making money is non-productive.
▪ The basic rule has been just keep everybody and everything out here working all the time; keep pushing that product out the door. And when there isn’t any work to do, make some. And when we can’t make work, shift people around. And when you still can’t make them work, lay them off.
▪ Every moment, lots and lots of things are happening down there. Practically everything I’m seeing is a variable. The complexity in this plant—in any manufacturing plant—is mind-boggling if you contemplate it.
▪ We do have lots of measurements that are supposed to tell us if we’re productive. But what they really tell us are things like whether somebody down there "worked’’ for all the hours we paid him or her to work. They tell us whether the output per hour met our standard for the job. They tell us the "cost of products,’’ they tell us "direct labor variances,’’ all that stuff. But how do I really know if what happens here is making money for us, or whether we’re just playing accounting games?
▪ "You see? How much did it take to make that $10 million? Was it just a million dollars? Then you made ten times more money than you invested. Ten to one. That’s pretty goddamned good. But let’s say you invested a billion dollars. And you only made a lousy ten million bucks? That’s pretty bad.’’
▪ "So you need a relative measurement, too,’’ Lou continues. "You need something like return on investment... ROI, some comparison of the money made relative to the money invested.’’
▪ "You know,’’ he says, "it is possible for a company to show net profit and a good ROI and still go bankrupt.’’
▪ "Exactly,’’ he says. "Bad cash flow is what kills most of the businesses that go under.’’
▪ But I sit there wondering. Lou actually is a bright guy. We’re all fairly bright; UniCo has lots of bright, well-educated people on the payroll. And I sit here listening to Lou pronounce his opinions, which all sound good as they roll off his tongue, and I wonder why it is that we’re slipping minute by minute toward oblivion, if we’re really so smart.
▪ I try to figure out if there is one of those three measurements which can be favored at the expense of the other two and allow me to pursue the goal. From experience, I happen to know there are a lot of games the people at the top can play. They can make the organization deliver a bigger net profit this year at the expense of net profit in years to come (don’t fund any R&D, for instance; that kind of thing). They can make a bunch of no-risk decisions and have any one of those measurements look great while the others stink. Aside from that, the ratios between the three might have to vary according to the needs of the business.
▪ So this is the goal:
To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.
▪ Well, it’s more than that; Eddie’s walk is symbolic of the kind of person he is. He walks a little bit pigeon-toed. It’s as if he’s literally walking a straight and narrow line. His hands cross stiffly in front of him, seeming to point at each foot. And he does all this like he read in a manual someplace that this is how walking is supposed to be done.
▪ His world is one measured in terms of parts per hour, man-hours worked, numbers of orders filled. He knows labor standards, he knows scrap factors, he knows run times, he knows shipping dates. Net profit, ROI, cash flow—that’s just headquarters talk to Eddie. It’s absurd to think I could measure Eddie’s world by those three. For Eddie, there is only a vague association between what happens on his shift and how much money the company makes.
▪ Unfortunately, I don’t have a year to go back to school and re-study a lot of theory. I don’t even have the time to read the magazines, papers, and reports piling up in my office
▪ I slowly realize that the only tools I have—limited as they may be—are my own eyes and ears, my own hands, my own voice, my own mind. That’s about it. I am all I have. And the thought keeps coming to me: I don’t know if that’s enough.
▪ I hesitate. My answer seems so ludicrously simple I am suddenly afraid that it must be wrong, that he will laugh at me. But I blurt it out.
"The goal of a manufacturing organization is to make money,’’ I say to him. "And everything else we do is a means to achieve the goal.’’
But Jonah doesn’t laugh at me.
"Very good, Alex. Very good,’’ he says quietly.
▪ You see, there is more than one way to express the goal. Do you understand? The goal stays the same, but we can state it in different ways, ways which mean the same thing as those two words, ‘making money.’’’
▪ "Okay,’’ I answer, "so I can say the goal is to increase net profit, while simultaneously increasing both ROI and cash flow, and that’s the equivalent of saying the goal is to make money.’’
▪ Then I ask, "But what about production? Wouldn’t it be more correct to say—’’
"No,’’ he says. "Through sales—not production. If you produce something, but don’t sell it, it’s not throughput. Got it?’’
▪ But aside from that, it’s clear that every company would want to have its throughput go up. Every company would also want the other two, inventory and operational expense, to go down, if at all possible. And certainly it’s best if they all occur simultaneously—just as with the trio that Lou and I found.
▪ Increase throughput while simultaneously reducing both inventory and operating expense.
▪ Bob says, "Well, what I want to know is, how come in throughput he says ‘sales’? We’re manufacturing. We’ve got nothing to do with sales; that’s marketing.’’
▪ "But how do we know the value of our finished goods?’’ she asks.
"First of all, the market determines the value of the product,’’ says Lou. "And in order for the corporation to make money, the value of the product—and the price we’re charging—has to be greater than the combination of the investment in inventory and the total operational expense per unit of what we sell.’’
▪ "Everything is for your job,’’ she says. "It’s all you think about. I can’t even count on you for dinner. And the kids are asking me why you’re like this—’’
▪ Jonah holds up his hands. "Let me finish!’’ he says. "From what I’ve heard, I think you can solve your own problems. What I will do is give you some basic rules to apply. If you and your people follow them intelligently, I think you will save your plant. Fair enough?’’
▪ "No, I don’t,’’ he says. "But I’ll make a deal with you. Just pay me the value of what you learn from me.’’
"How will I know what that is?’’
"You should have a reasonable idea after we’ve finished. If your plant folds, then obviously the value of your learning won’t have been much; you won’t owe me anything. If, on the other hand, you learn enough from me to make billions, then you should pay me accordingly,’’ he says.
▪ "Alex, you told me in our first meeting that your plant has very good efficiencies overall. If your efficiencies are so good, then why is your plant in trouble?’’
▪ "Okay, look, I have to care about efficiencies if only for the reason that my management cares about them,’’ I tell him.
▪ "Most of the time, your struggle for high efficiencies is taking you in the opposite direction of your goal.’’
▪ But Jonah lights his cigar and says between puffs, "Okay, let’s see if I can help you understand with some basic questions and answers. First tell me this: when you see one of your workers standing idle with nothing to do, is that good or bad for the company?’’
"It’s bad, of course,’’ I say.
"Always?’’
I feel this is a trick question.
"Well, we have to do maintenance—’’
"No, no, no, I’m talking about a production employee who is idle because there is no product to be worked on.’’
"Yes, that’s always bad,’’ I say.
"Why?’’
I chuckle. "Isn’t it obvious? Because it’s a waste of money! What are we supposed to do, pay people to do nothing? We can’t afford to have idle time. Our costs are too high to tolerate it. It’s inefficiency, it’s low productivity—no matter how you measure it.’’
▪ "Let me tell you something,’’ he says. "A plant in which everyone is working all the time is very inefficient.’’
▪ "Yes, that’s exactly what everybody thinks,’’ says Jonah. "And the tendency for most managers is to trim capacity wherever they can, so no resource is idle, and everybody has something to work on.’’
▪ "Sure it is! Look at the things I have to contend with—my vendors, for example. We’ll be in the middle of a hot order and discover that the vendor sent us a bad batch of parts. Or look at all the variables in my work force—absenteeism, people who don’t care about quality, employee turnover, you name it. And then there’s the market itself. The market is always changing. So it’s no wonder we get too much capacity in one area and not enough in another.’’
▪ "Let me put it this way,’’ he says. "You know that some types of information can be determined precisely. For instance, if we need to know the seating capacity in this restaurant, we can determine it precisely by counting the number of chairs at each table.’’
He points around the room.
"But there are other kinds of information we cannot precisely predict. Like how long it will take the waiter to bring us our check. Or how long it will take the chef to make an omelet. Or how many eggs the kitchen will need today. These types of information vary from one instance to the next. They are subject to statistical fluctuations.’’
▪ "Yeah, but you can generally get an idea of what all those are going to be based on experience,’’ I say.
"But only within a range. Last time, the waiter brought the check in five minutes and 42 seconds. The time before it only took two minutes. And today? Who knows? Could be three, four hours,’’ he says, looking around.
▪ "Yeah, but if the chef is doing a banquet and he knows how many people are coming and he knows they’re all having omelets, then he knows how many eggs he’s going to need,’’ I say. "Exactly?’’ asks Jonah. "Suppose he drops one on the floor?’’ "Okay, so he has a couple extra.’’
▪ "Most of the factors critical to running your plant successfully cannot be determined precisely ahead of time,’’ he says
▪ "I’m not talking about the one or the other alone,’’ he says, "but about the effect of the two of them together.
▪ "Alex, if I simply told you what to do, ultimately you would fail. You have to gain the understanding for yourself in order to make the rules work,’’ he says.
▪ "Come over me? All of a sudden? Alex, you go off and leave me night after night. It’s no wonder that I’m lonely. Nothing suddenly came over me. Ever since you got into management, your career has come first and everyone else takes whatever is left.’’
▪ "Look, I put in the hours because I have to, not because I want to,’’ I tell her.
▪ Julie, you have no idea what kind of problems I’ve got at the plant.’’
"And you have no idea what it’s like here at home,’’ she says. I say, "Okay, look, I’d like to spend more time at home, but the problem is getting the time.’’
▪ Nor do I understand what he was trying to make out of those two items he described. I mean, "dependent events’’ ... "statistical fluctuations’’—so what? They’re both quite mundane
▪ But you find dependent events in any process, and not just those in a factory. Driving a car requires a sequence of dependent events. So does the hike we’re taking now. In order to arrive at Devil’s Gulch, a trail has to be walked. Up front, Ron has to walk the trail before Davey can walk it. Davey has to walk the trail before Herbie can walk it. In order for me to walk the trail, the boy in front of me has to walk it first. It’s a simple case of dependent events.
▪ If I say that I’m walking at the rate of "two miles per hour,’’ I don’t mean I’m walking exactly at a constant rate of two miles per hour every instant. Sometimes I’ll be going 2.5 miles per hour; sometimes maybe I’ll be walking at only 1.2 miles per hour. The rate is going to fluctuate according to the length and speed of each step. But over time and distance, I should be averaging about two miles per hour, more or less
▪ The same thing happens in the plant. How long does it take to solder the wire leads on a transformer? Well, if you get out your stopwatch and time the operation over and over again, you might find that it takes, let’s say, 4.3 minutes on the average. But the actual time on any given instance may range between 2.1 minutes up to 6.4 minutes. And nobody in advance can say, "This one will take 2.1 minutes... this one will take 5.8 minutes.’’ Nobody can predict that information
▪ So what’s wrong with that? Nothing as far as I can see. Anyway, we don’t have any choice. What else are we going to use in place of an "average’’ or an "estimate’’?
▪ Our hike is a set of dependent events...in combination with statistical fluctuations. Each of us is fluctuating in speed, faster and slower. But the ability to go faster than average is restricted. It depends upon all the others ahead of me in the line. So even if I could walk five miles per hour, I couldn’t do it if the boy in front of me could only walk two miles per hour.
▪ So I’ve got limits on how fast I can go—both my own (I can only go so fast for so long before I fall over and pant to death) and those of the others on the hike. However, there is no limit on my ability to slow down. Or on anyone else’s ability to slow down. Or stop. And if any of us did, the line would extend indefinitely.
▪ What’s happening isn’t an averaging out of the fluctuations in our various speeds, but an accumulation of the fluctuations
▪ And mostly it’s an accumulation of slowness—because dependency limits the opportunities for higher fluctuations
▪ Looking ahead, I can see that how much distance each of us has to make up tends to be a matter of where we are in the line. Davey only has to make up for his own slower than average fluctuations relative to Ron—that twenty feet or so which is the gap in front of him. But for Herbie to keep the length of the line from growing, he would have to make up for his own fluctuations plus those of all the kids in front of him.
▪ What about the amount of trail between Ron and me? It has to be inventory. Ron is consuming raw materials, so the trail the rest of us are walking is inventory until it passes behind me.
▪ If the distance between Ron and me is expanding, it can only mean that inventory is increasing
▪ And operational expense? I’m not sure. For UniCo, whenever inventory goes up, carrying costs on the inventory go up as well. Carrying costs are a part of operational expense, so that measurement also must be going up.
▪ In terms of the hike, operational expense is increasing any time we hurry to catch up, because we expend more energy than we otherwise would.
▪ Inventory is going up. Throughput is going down. And operational expense is probably increasing.
▪ I sit down at one of the tables and ponder a few thoughts as I eat a sandwich. What’s bothering me now is that, first of all, there is no real way I could operate a manufacturing plant without having dependent events and statistical fluctuations. I can’t get away from that combination
▪ But there must be a way to overcome the effects. I mean, obviously, we’d all go out of business if inventory was always increasing, and throughput was always decreasing.
▪ What if I had a balanced plant, the kind that Jonah was saying managers are constantly trying to achieve, a plant with every resource exactly equal in capacity to demand from the market? In fact, couldn’t that be the answer to the problem?
▪ Yes, indeed: statistical fluctuations. Every time I roll the dice, I get a random number that is predictable only within a certain range, specifically numbers one to six on each die.
▪ Now what I need next for the model is a set of dependent events.
▪ "The idea is to move as many matches as you can from your bowl to the bowl on your right. When it’s your turn, you roll the die, and the number that comes up is the number of matches you can move. Got it?’’
▪ They all nod. "But you can only move as many matches as you’ve got in your bowl. So if you roll a five and you only have two matches in your bowl, then you can only move two matches. And if it comes to your turn and you don’t have any matches, then naturally you can’t move any.’’
▪ "Well, if you’re able to move a maximum of six and a minimum of one when it’s your turn, what’s the average number you ought to be moving?’’ I ask them.
"Three,’’ says Andy.
▪ "Tell you what,’’ I say. "Just to make it more interesting, we’ll have a reward. Let’s say that everybody has a quota of 3.5 matches per turn. Anybody who does better than that, who averages more than 3.5 matches, doesn’t have to wash any dishes tonight. But anybody who averages less than 3.5 per turn, has to do extra dishes after dinner.’’
▪ "Hey, this isn’t fair!’’ says Chuck.
"Sure it is,’’ I tell him. "The name of the game is to move matches. If both Andy and Ben had rolled five’s, you’d have five matches to pass. But they didn’t. So you don’t.’’ Chuck gives a dirty look to Andy.
▪ "I’m doing my job up here,’’ says Andy.
"Yeah, what’s wrong with you guys down there?’’ asks Ben.
"Hey, I just now got enough of them to pass,’’ says Dave. "I’ve hardly had any before.’’
▪ I look at the chart. I still can hardly believe it. It was a balanced system. And yet throughput went down. Inventory went up. And operational expense? If there had been carrying costs on the matches, operational expense would have gone up too.
▪ What was I expecting? My initial chart ranged from +6 to −6. I guess I was expecting some fairly regular highs and lows, a normal sine curve. But I didn’t get that. Instead, the chart looks like I’m tracing a cross-section of the Grand Canyon.
▪ There was no reserve. When the kids downstream in the balanced model got behind, they had no extra capacity to make up for the loss. And as the negative deviations accumulated, they got deeper and deeper in the hole.
▪ Then a long-lost memory from way back in some math class in school comes to mind. It has to do with something called a covariance, the impact of one variable upon others in the same group. A mathematical principle says that in a linear dependency of two or more variables, the fluctuations of the variables down the line will fluctuate around the maximum deviation established by any preceding variables. That explains what happened in the balanced model.
▪ Inside a plant, when the departments get behind and work-in-process inventory starts building up, people are shifted around, they’re put on overtime, managers start to crack the whip, product moves out the door, and inventories slowly go down again. Yeah, that’s it: we run to catch up. (We always run, never stop; the other option, having some workers idle, is taboo.) So why can’t we catch up at my plant? It feels like we’re always running. We’re running so hard we’re out of breath.
▪ I mean, he seems like a good kid and everything. He’s clearly very conscientious—but he’s slower than all the others. (Somebody’s got to be, right?) So when Herbie is walking at what I’ll loosely call his "optimal’’ pace—a pace that’s comfortable to him —he’s going to be moving slower than anybody who happens to be behind him. Like me.
▪ In fact, whoever is moving the slowest in the troop is the one who will govern throughput
▪ It really wasn’t obvious who was the slowest in the troop. So the role of Herbie— the greatest limit on throughput—was actually floating through the troop; it depended upon who was moving the slowest at a particular time.
▪ Rogo, (I’m telling myself in my head), you loser! You can’t even manage a troop of Boy Scouts! Up front, you’ve got some kid who wants to set a speed record. and here you are stuck behind Fat Herbie, the slowest kid in the woods.
▪ I tell them Julie has simply gone away for a little while, maybe only a day or so. She’ll be back. She just has to get over a few things that are upsetting and confusing her. I give them all the standard reassurances: your mom still loves you; I still love you; there was nothing that either of you could have done; everything will work out for the best.
▪ "What did you do to her?’’ yells her mother.
"Nothing!’’ I plead, feeling like a liar in the onslaught.
▪ Monday morning is a disaster.
▪ "Listen, pal, my status with Bill Peach is none of your damn business,’’ I tell him. "What makes you think you can threaten me?’’
▪ Whatever enthusiasm I expected from the staff with regard to my education over the weekend... well, I don’t get it. Maybe I thought all I had to do was walk in and open my mouth to reveal my discoveries, and they’d all be instantly converted by the obvious rightness.
▪ Looking down the table at the faces looking back at me, I can see they don’t know what to make of what I’ve told them. Okay, I think I see a faint glimmer of understanding in Stacey’s eyes. Bob Donovan is on the fence; he seems to have intuitively grasped some of it. Ralph is not sure what it is I’m really saying. And Lou is frowning at me. One sympathizer, one undecided, one bewildered, and one skeptic.
▪ "Yeah, she’s out of town for a few days,’’ I tell her. "Fran, you’ve got a couple of kids. How do you manage to hold a job and take care of them?’’
▪ "Then from one to two, you still missed the quota by four pieces,’’ says Bob.
"Yeah, but so what?’’ says Pete. "Look what happened from two o’clock to three: we beat the quota by three pieces. Then when I saw we were still behind, I went around and told everyone how important it was for us to get those hundred pieces done by the end of the shift.’’
▪ I tell him, "You see, the first hour Pete’s people did nineteen pieces. The robot was capable of doing twenty-five, but Pete delivered less than that, so nineteen became the robot’s true capacity for that hour.’’
"Same with the second hour,’’ says Fred. "Pete delivered twenty-one, the robot could only do twenty-one.’’
▪ "The maximum deviation of a preceding operation will become the starting point of a subsequent operation.’’
▪ "Listen, sorry we
couldn’t ship today. Hope it doesn’t get us in trouble.’’ "We can’t worry about it now,’’ I tell him. "The gain we made today is that we learned something. But I’ll tell you one thing: we’ve got to take a close look at our incentives here.’’
▪ It didn’t matter that Pete got his hundred pieces done, because we still couldn’t ship,’’ I say. "But Pete and his people thought they were heroes. Ordinarily, we might have thought the same thing. That isn’t right.’’
▪ Today, I find them much more attentive. Maybe it’s because they’ve seen the proof of the idea take place on their own turf, so to speak.
▪ "This combination of dependency and fluctuations is what we’re up against every day,’’ I tell them. "I think it explains why we have so many late orders.’’
▪ I say. "Don’t forget we only had two operations here. You can imagine what happens when we’ve got dependency running through ten or fifteen operations, each with its own set of fluctuations, just to make one part. And some of our products involve hundreds of parts.’’
▪ Stacey is troubled. She asks, "Then how can we ever control what’s going on out there?’’
I say, "That’s the billion-dollar question: how can we control the fifty-thousand or—who knows?—maybe it’s fifty-million variables which exist in this plant?’’
▪ "Oh, you really think longer lead time would have guaranteed our ability to ship that order to Hilton Smyth’s plant?’’ I ask him. "How long had we already known about that order before yesterday, Bob?’’
▪ Then Stacey says, "Longer lead times increase inventory, Bob. And that isn’t the goal.’’
▪ And trying to level capacity with demand to minimize expenses has really screwed us up. We shouldn’t be trying to do that at all.’’
▪ "But that’s what everybody else does,’’ says Bob. "Yes, everybody does. Or claims to. As we now can see, it’s a stupid thing to try,’’ I say.
▪ "So how do other manufacturers survive?’’ asks Lou. I tell him I was wondering that myself. What I suspect is that as a plant comes close to being balanced through the efforts of engineers and managers doing the wrong things, events head toward a crisis and the plant is very quickly un balanced by shifting workers or by overtime or by calling back some people from layoff.
▪ The survival incentive overrides false beliefs
▪ "What we know now,’’ I tell him, "is that we shouldn’t be looking at each local area and trying to trim it. We should be trying to optimize the whole system.
▪ Some resources have to have more capacity than others. The ones at the end of the line should have more than the ones at the beginning—sometimes a lot more. Am I right?’’
▪ "What you have to do next, Alex, is distinguish between two types of resources in your plant. One type is what I call a bottleneck resource. The other is, very simply, a non-bottleneck resource.’’
▪ "A bottleneck,’’ Jonah continues, "is any resource whose capacity is equal to or less than the demand placed upon it.
▪ And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. Got that?’’
▪ He says, "Yes, but as you already know, you should not balance capacity with demand. What you need to do instead is balance the flow of product through the plant with demand from the market.
▪ So let me repeat it for you: Balance flow, not capacity.’’
▪ Speaking fundamentally, the bottleneck flow should be on a par with demand.’’
▪ "No, bottlenecks are not necessarily bad—or good,’’ says Jonah, "they are simply a reality.
▪ What I am suggesting is that where they exist, you must then use them to control the flow through the system and into the market.’’
▪ "I guess we look at all our resources,’’ I say, "and compare them against market demand. If we find one in which demand is greater than capacity, then we’ll know we’ve got a bottleneck.’’
"What happens if we find one?’’ asks Stacey.
"I guess the best thing to do would be what I did to the scout troop,’’ I say. "We adjust capacity so the bottleneck is at the front of production.’’
▪ "The problem is, we’ve been under the gun so much that a lot of the updating has just fallen by the wayside,’’ says Stacey. "Hell, with engineering changes, shifting labor around, and all that happening all the time, it’s just plain tough to keep up with it no matter what,’’ says Bob.
▪ I thought the best thing to do would be to reorganize everything so the resource with the least capacity would be first in the routings. All other resources would have gradual increases in capacity to make up for the statistical fluctuations passed on through dependency
▪ I say, "Okay, if we can’t do anything to change their position in the sequence, then maybe we can increase their capacities. We’ll make them into non-bottlenecks.’’
▪ I ask, "You mean we should put Q.C. in front of the bottlenecks?’’
▪ "I want to be absolutely sure you understand the importance of the bottlenecks,’’ says Jonah. "Every time a bottleneck finishes a part, you are making it possible to ship a finished product.
▪ "First, make sure the bottlenecks’ time is not wasted,’’
▪ "Because what happens when you build inventory now that you won’t sell for months in the future? You are sacrificing present money for future money; the question is, can your cash flow sustain it? In your case, absolutely not.’’
▪ "Then make the bottlenecks work only on what will contribute to throughput today... not nine months from now,
▪ "I know the decision,’’ I say. "Build inventory to maintain efficiencies.’’ But our problem is not efficiencies. Our problem is our backlog of overdue orders
▪ "Because I don’t know if I want to be married to you any more,’’ she says. "Isn’t that obvious?’’
▪ Hesitantly, I ask, "So...do you want a divorce?’’ "I don’t know yet,’’ she says.
▪ "Al, I’ve been unhappy for a long time,’’ she says. "And I’ll tell you something: I feel guilty about it. I feel as though I don’t have a right to be unhappy. I just know I am.’’
▪ I’m wondering while I’m eating what I’m going to do if Julie doesn’t come back. If I don’t have a wife, do I start to date women again? Where would I meet them?
▪ "By the way, our worst overdue order is now only forty four days late,’’ says Ralph. "As you may recall, the worst one used to be fifty eight days.’’
▪ Following bottleneck processing, the red-tagged parts have been getting to final assembly faster. It’s as if we’ve created an "express lane’’ through the plant for bottleneck parts.
▪ We’re not sure how much we’ve gained from that, because we didn’t know how much we were losing before
▪ "By the way, Roy, I thought Bob Donovan was going to sit in on this meeting.’’
"That man is hard to catch these days,’’ says Langston. "But I’ll brief him on what we talked about.’’
▪ "Al, the trouble is there is nothing for the guys down there to do while heat-treat is cookin’ the parts. You load up one of the damn furnaces, shut the doors, and that’s it for six or eight hours, or however long it takes. What are they supposed to do? Stand around and twiddle their thumbs?’’
"I don’t care what they do between times as long as they get the parts in and out of the furnace pronto,’’ I say. "We could have done almost another batch of parts in the five hours of waiting for people to finish what they were doing elsewhere and change loads.’’
▪ "How about this: we loan the people to other areas while the parts cook, but as soon as the time is up, we make sure we call them back immediately so—’’
"No, because what’s going to happen is everybody will be very conscientious about it for two days, and then it’ll slip back to the way it is now,’’ I say. "I want people at those furnaces standing by, ready to load and unload twenty-four hours a day, seven days a week. The first ones I want assigned there are foremen who are responsible full-time for what happens down there
▪ "But you know you’re talking about two, maybe three people per shift.’’
▪ "Is that all?’’ I ask. "Don’t you remember what lost time on a bottleneck costs us?’’
▪ But if the machine stops, say, in the middle of the afternoon, it may sit there for twenty, thirty, forty minutes or so before anyone gets around to starting a new setup. The reason is the setup people are busy with other machines, with non-bottlenecks.
▪ "Do we have people in the plant who can do these jobs?’’ asks Stacey.
"You mean steal people from other areas?’’ asks Bob.
"Sure,’’ I say. "Take people from the non-bottlenecks. By definition, they have excess capacity anyway.’’
▪ "Well, I guess we can try it,’’ says Bob. "But what happens if stealing people turns non-bottlenecks into bottlenecks?’’
▪ For a foreman, heat-treat seems like a very small kingdom, not much of a prize. There is nothing intrinsically attractive about running that operation, and having only two people to manage makes it seem like no big deal
▪ He explains that about five years ago some group of hotshots were trying to improve the efficiencies of several of the machining centers. To speed up the processing, the cutting tool "bite’’ was increased. So on each pass, instead of shaving a chip that was a millimeter thick, the tool took off three millimeters. But increasing the amount of metal taken off on each pass made the metal brittle. And this necessitated heat-treating. "The thing is, the machines we made more efficient happen to be non-bottlenecks,’’ says Bob.
▪ Then he looks at me and says, "By the way, do you remember when I told you that a plant in which everyone is working all the time is very in efficient? Now you’ll see exactly what I was talking about.’’
▪ "You end up with all this in front of the X machine,’’ he says. "And when you’re pushing in more material than the system can convert into throughput, what are you getting?’’
"Excess inventory,’’ says Stacey.
▪ "We can only use as much as the market demand can absorb,’’ I say.
▪ "So if you work Y to the maximum, you once again get excess inventory. And this time you end up, not with excess work-inprocess, but with excess finished goods.
▪ By running non-bottlenecks for "efficiency,’’ we’ve built inventories far in excess of demand.
▪ Just about all of the competitive products with bottleneck parts are sold virtually as soon as they come out of final assembly. A few of them sit in the warehouse a day or two before they go to the customer, but due to the backlog, not many.
▪ "we can form a simple rule which will be true in every case: the level of utilization of a non-bottleneck is not determined by its own potential, but by some other constraint in the system.’
▪ "A major constraint here in your system is this machine,’’ says Jonah. "When you make a non-bottleneck do more work than this machine, you are not increasing productivity. On the contrary, you are doing exactly the opposite. You are creating excess inventory, which is against the goal.’’
▪ Lou says, "Well, granted that maybe one hundred percent is unrealistic. We just ask for some acceptable percentage, say, ninety percent.’’
"Why is ninety percent acceptable?’’ asks Jonah. "Why not sixty percent, or twenty-five? The numbers are meaningless unless they are based upon the constraints of the system. With enough raw materials, you can keep one worker busy from now until retirement. But should you do it? Not if you want to make money.’’
▪ Then Ralph suggests, "What you’re saying is that making an employee work and profiting from that work are two different things.’’
▪ "And the implication of these rules is that we must not seek to optimize every resource in the system,’’ says Jonah. "A system of local optimums is not an optimum system at all; it is a very inefficient system.’’
▪ "Yes,’’ says Jonah. "You are sending work onto the floor whenever nonbottlenecks are running out of work to do.’’
▪ "No, they are not—as evidenced by all this excess inventory behind you. You see, the milling machines are not intrinsically a bottleneck. You have turned them into one.’’
▪ Everybody wants to go faster than Herbie. But if that happens, the line will spread out and some of the kids will get lost. For one reason or another, we can’t move Herbie from the middle of the line. Now, how do we keep the line from spreading?’’
▪ "Didn’t you tell me once that an assembly line is supposed to be the best way to make things?’’
"Well, yes, it’s the most efficient way to manufacture,’’ I say.
"In fact, we use that approach when we do the final assembly for most of our products. The problem is that an assembly line won’t work throughout the whole plant.’’
▪ Compared with my marital difficulties, the inventory problem at the plant seems simple—or at least it seems simple now. I guess every problem is easy once you’ve figured it out.
▪ We are, in effect, going to do what my two kids came up with. The Herbies (the bottlenecks) are going to tell us when to let more inventory into the system—except we’re going to use the aid of computers instead of drums and ropes.
▪ Jonah nodded and said, "That’s right. What you have to do is find a way to release the material for the red parts according to the rate at which the bottlenecks need material—and strictly at that rate.’’
▪ Ralph went on to say that he knows from observation it takes about two weeks, plus or minus a day or two, for material to reach the bottlenecks from the first operations.
▪ Once he knows when the bottleneck parts will reach final assembly, he can calculate backwards and determine the release of the non-bottleneck materials along each of their routes. In this way, the bottlenecks will be determining the release of all the materials in the plant.
▪ I said, "You know, that’s going to produce the same effect as moving the bottlenecks to the head of production, which is what I’d intended for us to do.’’
▪ "I can crank something out in no time,’’ said Ralph, "but I’m not going to promise it’ll work.’’
▪ "So are we just supposed to let everyone stand around out there?’’ asks Bob.
"Why not?’’ asks Stacey. "Once the somebody is already on the payroll, it doesn’t cost us any more to have him be idle. Whether somebody produces parts or waits a few minutes doesn’t increase our operating expense. But excess inventory...now that ties up a lot of money.’’
▪ Withholding some materials has meant we’re no longer choking on work-in-process.
▪ I have to bide my time until I can go to him with a solid case that my way (Jonah’s way, really) is the one that truly works. It’s too early for that. We’ve broken too many rules to tell him the full story now.
▪ I sigh. "Julie, was it that bad living with me?’’
"Al, it wasn’t bad,’’ she says. "It was just...I don’t know. You weren’t paying any attention to me.’’
"But I was having all kinds of problems in my job. I was really in over my head for awhile. What did you expect from me?’’
"More than what I was getting,’’ Julie says.
▪ "Like what is our marriage supposed to do for us?’’ I ask her. "My idea of the goal of a marriage is not living in a perfect house where everything happens according to a clock. Is that the goal for you?’’
▪ I smile a little "Yeah, sure. Sounds good.’’
She says, "I’m sorry about what happened.’’
"I guess we’ll just have to keep trying until we get it right.’’
▪ "Yes,’’ I say. "And he suggested we try what he called ‘the next logical step.’’’
I see her face take on a nervous grin. "What’s that?’’
"Cut our batch sizes in half on non-bottlenecks,’’ I say.
▪ "If we cut our batch sizes in half, then I guess that at any one time we’d have half the workin-process on the floor. I guess that means we’d only need half the investment in work-in-process to keep the plant working. If we could work it out with our vendors, we could conceivably cut all our inventories in half, and by cutting our inventories in half, we reduce the amount of cash tied up at any one time, which eases the pressure on cash flow.’’
▪ "But if we go to smaller batch sizes,’’ she says, squinting at me in cynicism, "doesn’t that mean we’ll have to have more setups on equipment?’’
▪ As Jonah pointed out last night, setup and process are a small portion of the total elapsed time for any part. But queue and wait often consume large amounts of time—in fact, the majority of the elapsed total that the part spends inside the plant.
▪ For parts that are going through bottlenecks, queue is the dominant portion. The part is stuck in front of the bottleneck for a long time. For parts that are only going through non-bottlenecks, wait is dominant, because they are waiting in front of assembly for parts that are coming from the bottlenecks
▪ We have been setting batch sizes according to an economical batch quantity (or EBQ) formula. Last night, Jonah told me that although he didn’t have time over the phone to go into all the reasons, EBQ has a number of flawed assumptions underlying it
▪ If we reduce batch sizes by half, we also reduce by half the time it will take to process a batch. That means we reduce queue and wait by half as well
▪ "And with faster turn-around on orders, customers get their orders faster,’’ says Lou.
"Not only that,’’ says Stacey, "but with shorter lead times we can respond faster.’’
"That’s right!’’ I say. "If we can respond to the market faster, we get an advantage in the marketplace.’’
▪ "Okay, I knew this would come up,’’ I tell them. "Now look, it’s time we think about this carefully. Jonah told me last night that there was a corresponding rule to the one about an hour lost at a bottleneck. You remember that? An hour lost at a bottleneck is an hour lost for the entire system.’’
▪ It’s perfectly okay to have more setups on non-bottlenecks, because all we’re doing is cutting into time the machines would spend being idle. Saving setups at a non-bottleneck doesn’t make the system one bit more productive. The time and money saved is an illusion. Even if we double the number of setups, it won’t consume all the idle time.’’
▪ What we had been doing many times was turning a nonbottleneck into a temporary bottleneck
▪ And it’s weird, but the idle time we do have is less noticeable. It’s spread out in shorter segments. Instead of people hanging around with nothing to do for a couple of hours, now they’ll have maybe a few tento twenty-minute waits through the day for the same volume of work.
▪ So I tell her: the cost of parts looks as though it’s gone up because of the additional setups necessitated by the smaller batch sizes.
▪ I tell her, "Okay, I’ll give you an example. Suppose we have a batch of l00 parts. The time to set up the machine is 2 hours, or 120 minutes. And the process time per part is 5 minutes. So we’ve invested per part 5 minutes plus 2 hours of set-up divided by 100. It comes to 1.2 minutes of set-up per part. According to the accountants, the cost of the part is based upon direct labor of 6.2 minutes.
▪ "The measurement assumes that all of the workers in the plant are always going to be fully occupied, and therefore, in order to do more set-ups, you have to hire more people. That isn’t true.’’
▪ Finally I look at Lou and say, "There is no way I can show Peach an increase in the cost of parts and convince him the plant is better off this month than last. If he sees these numbers and gets the idea our costs are going up, we’ll be in hot water anyway.’’
▪ "Well, then there’s the added shipping cost,’’ she says.
"Stacey, we’re talking a million dollars in business here,’’ I tell her.
▪ I know I want Sharon and Dave to grow up to be good people. And I want us to give each other what we need.’’
▪ "Hilton, we’re dealing with fundamental assumptions that are wrong,’’ I tell him.
"I can’t see that you’re dealing with anything fundamental,’’ says Hilton.
▪ "It’s at best simple common sense, and I’m being charitable at that.’’
"No, it’s more than just common sense. Because we’re doing things every day that are in direct contradiction to the established rules most people use in manufacturing,’’ I tell him.
▪ "According to the cost-accounting rules that everybody has used in the past, we’re supposed to balance capacity with demand first, then try to maintain the flow,’’ I say. "But instead we shouldn’t be trying to balance capacity at all; we need excess capacity. The rule we should be following is to balance the flow with demand, not the capacity.
▪ "No, and that’s a third assumption that’s wrong,’’ I say. "We’ve assumed that utilization and activation are the same. Activating a resource and utilizing a resource are not synonymous.’’
▪ I say an hour lost at a bottleneck is an hour out of the entire system.
▪ "Then how are we to evaluate the performance of our operations?’’ asks Cravitz.
"By the bottom line,’’ I tell him.
▪ As I approach his desk I start to talk, "Hilton Smyth is going to submit a negative report about my plant, and I feel that as my manager you should hear me out before you come to any conclusions.’’
▪ "I think that Alex should be called to order,’’ he says in a formal voice. "And I think that immediate actions should be taken in his plant before it’s too late. The productivity in Alex’s plant is deteriorating, cost of products is going up, and proper procedures are not being followed. I think that immediate actions are in order.’’
▪ I refuse to see his point. "Can’t you continue to teach me?’’
"Yes, I can,’’ he answers. "But first you should find out exactly what it is that you want to learn. Call me then.’’
▪ "Why too much?’’ says Jonah to my surprise. "I think that every sensible person should want to learn how to manage his or her life.’’
▪ A chill goes down my back as I remember it. I was in deep trouble. My plant was under a real threat of being closed down; over six hundred people were about to join the already long unemployment lines; my career was one inch from being kissed by limbo; and on top of all that, the unbelievable hours I was putting in at work had pushed our marriage to the brink of going down the tube. In short, I was about to change from a bright, rising star into an ordinary bum.
▪ What was the nature of the answers, the solutions, that Jonah caused us to develop? They all had one thing in common. They all made common sense, and at the same time, they flew directly in the face of everything I’d ever learned.
▪ Would we have had the courage to try to implement them if it weren’t for the fact that we’d had to sweat to construct them? Most probably not. If it weren’t for the conviction that we gained in the struggle—for the ownership that we developed in the process—I don’t think we’d actually have had the guts to put our solutions into practice.
▪ "Yes, I have,’’ I admit. "All of us, back in the plant, had the same question. The solutions look trivial, but the fact is that for years we’ve done the exact opposite. Moreover, the other plants still insist on sticking to the old, devastating ways.
▪ "Just bear with me,’’ I plead. "I really don’t know. I’m not sure that I even know the meaning of ‘common sense’. What do you think we mean when we refer to something as ‘common sense’?’’
▪ "Spelling out the answers when you are trying to convince someone who blindly follows the common practice is totally ineffective. Actually there are only two possibilities, either you are not understood, or you are understood.’’
▪ It must be that the Socratic method is much more than just asking questions. One thing I can tell you, improvising with this method is hazardous, believe me, I’ve tried. It’s like throwing a sharpened boomerang
▪ But sweetheart,’’ she laughs, "be careful, remember what happened to Socrates. He was forced to drink poison.’’
▪ "Julie, let me tell you, whenever Jonah and I talked about my troubles at the plant, I always felt he anticipated my response. It actually bothered me for quite some time.’’
▪ "Maybe I should start with a question,’’ he says. "Do you agree that inventory is a liability?’’
▪ "So why didn’t you tell me? I could have used these facts very effectively in the plant review.’’
"No Alex, you couldn’t have used them at all, it just would have confused your story. You see, everyone evaluates inventory this way, it’s even required by the tax authorities. You didn’t stand a chance. But I did discuss it at length with Ethan Frost; he understood it perfectly.’’
▪ I was following, almost blindly, some erroneous procedures without understanding the far-reaching, devastating ramifications.
▪ "I’ve given it a lot of thought lately. We need financial measurements for sure—but we don’t need them for their own sake
▪ "We didn’t say a flat no, or a flat yes, and then miss the due date by a mile, as we used to do. We re-engineered the deal; we came back with a counter-offer that was feasible and that the client liked even more than his original request.’’
▪ "It was peculiar because normally we don’t take the initiative —but maybe there’s a way to make it standard. Don’t you see? We actually engineered a sale. We—in the plant, in production—engineered a sale.’’
▪ Maybe the quoted lead times should be done case by case, according to the load on the bottlenecks. And maybe we shouldn’t regard the quantities required as if we have to supply them in one shot.
▪ The only thing that kept popping into my mind is that I must learn how to manage. But where on earth am I going to find the answer to Jonah’s question: What are the techniques needed for management? I don’t know, Julie. What do you think I should do now?’’
▪ I decide to start the meeting with the most naive questions. Initially they might think that I’ve lost all my self confidence, but I must expose to them the magnitude of the problem I’m about to face. Otherwise I’m going to end up, at best, with some fragmented, vague suggestions.
▪ "Who has a grudge against whom?’’ Bob contributes, and then in a more serious tone. "You also have to get a sense of the local politics.’’
▪ Bob points to the white board and chuckles, "You call this mess knowing what’s going on? Alex, come on. We all know that this nonsense of fact finding will continue until our committee runs out of ideas for gathering further facts.’’
"Or they run out of time,’’ Stacey adds with a bitter smile.
▪ "You know,’’ I say after a while, "It’s much worse than just wasting time producing useless, pompous reports. This overconcern about the ‘proper way to arrange things’ manifests itself in other harmful ways.’’
▪ "Yeah,’’ says Bob. "As a president of a company, when you don’t know what to do, when things are not going well, you can always shuffle the cards—reorganize.’’ Mockingly he continues, "That will do it! This reorganization will solve all our problems!’’
▪ "O.K. then,’’ and I turn back to the white board, which is not so white any more. "What is one supposed to do with this pile of colored shapes, except to arrange them in some order? Dealing directly with the pile is obviously totally impractical. Arranging the facts according to some order, classification, must be the first step. Maybe we can proceed from there in a different way than writing reports or rearranging the company, but the first step definitely must be to put some order into the mess.’’
▪ As I continue to look at the board, a new question starts to bother me; "In how many ways can one arrange the assembled facts?’’
"Obviously, we can arrange them by color,’’ Lou answers.
"Or by size,’’ Stacey adds.
"Or by shape.’’ Bob doesn’t give up on his suggestion.
"Any other possibilities?’’ I ask.
▪ "What a great idea,’’ Bob says sarcastically. "You know what, I’d rather use the dart technique—throw a dart and start arranging the shapes according to the order in which we nail ’em. All these methods have just as much meaning. At least my last suggestion offers some satisfaction.’’
▪ "O.K. fellows,’’ I say firmly. "Bob’s last suggestion has really clarified what we’re dealing with here. We’re dealing with the fact that we haven’t got any idea of what we’re doing. If we’re just looking for some arbitrary order, and we can choose among so many possibilities, then what’s the point in putting so much effort in collecting so much data? What do we gain from it, except the ability to impress people with some thick reports or to throw the company into another reorganization in order to hide from the fact that we don’t really understand what we’re doing?
▪ This avenue of first collecting data, getting familiar with the facts, seems to lead us nowhere. It’s nothing more than an exercise in futility. Come on, we need another way to attack the issue.
▪ "Right from the start, in the days of ancient Greece, people postulated that underlying the phenomenal variety of materials there must be a simple set of elements from which all other substances are composed.’’
▪ "The Greeks naively assumed that the elements were air, earth, water and...’’
"Fire,’’ Bob completes the list.
▪ "Since then, as you know, people have proven that earth is not a basic element but actually composed of many different more basic minerals. Air is composed of different types of gases, and even water is a composition of more basic elements, hydrogen and oxygen. The kiss of death to the naive Greece approach came at the end of the eighteenth century, when Lavoisier showed that fire is not a substance but rather a process, the process of attachment to oxygen.’’
▪ "Over many years, out of the chemists’ mammoth work, the more basic elements emerged and by the middle of the nineteenth century, sixty-three elements had been identified. The situation actually resembled our colored board. Many circles, rectangles, stars, and other shapes, in many colors and sizes filled the area with no apparent order. A real mess.’’
▪ "Many tried to organize the elements but no one succeeded in offering anything that was not immediately dismissed as a futile arbitrary exercise. It got to the point that most chemists gave up on the possibility of finding any generic order and concentrated their efforts on finding more hard facts regarding the combination of the elements to create other, more complicated materials.’’
▪ "Unfortunately some elements do not have a decisive color. Take pure carbon, for example. It appears as black graphite, or more rarely as a sparkling diamond.’’
▪ I don’t want to offend Ralph I continue, "Maybe something like specific gravity, electrical conductivity, or something more fancy like the number of calories absorbed or released when the element is combining with a reference element like oxygen.’’
▪ Mendeleev took basically the same approach. He chose to use a quantitative measurement that was known for each element and which didn’t change as a function of the temperature or the state of the substance. It was the quantity known as atomic weight, which represents the ratio between the weight of one atom of the given element and the weight of one atom of the lightest element, hydrogen.
▪ He didn’t arrange the elements in a line. He had noticed that each seventh soldier represents basically the same chemical behavior, though with increased intensity. Thus he organized the elements in a table with seven columns.
▪ "In this way all the elements were displayed according to ascending atomic weight, and in each column you find elements with the same chemical behavior in ascending intensity.
▪ "Skepticism is an understatement. Mendeleev became the laughing stock of the entire community. Especially when his table was not as neatly arranged as I described it to you. Hydrogen was floating there above the table, not actually in any column, and some rows didn’t have one element in their seventh column, but a hodgepodge of several elements crowded into one spot.’’
▪ "Actually, what are we looking for? We’re looking to arrange the facts in some order. What type of order are we seeking? An arbitrary order that we superimpose externally on the facts, or are we trying to reveal an intrinsic order, an order that already exists there?’’
▪ That’s why his classification was so powerful. Any other classification that just tries to superimpose some order, any order, on the given facts is useful in only one sense—it gives the ability to present the facts in a sequence, tables, or graphs. In other words, helpful in preparing useless, thick reports.
▪ "I spent some time in the library. Do you know that Socrates didn’t write anything? Socrates’ dialogues actually were written by his pupil, Plato
▪ You were talking about the Socratic method as a method to persuade other people. I wouldn’t touch philosophy with a ten foot pole, but to learn a method to persuade my stubborn husband and kids—for that I’m willing to sweat.’’
▪ This is not going to be easy. We all are action-oriented and searching for basic procedures is almost against our nature, no matter how much Bob tells me that he’s been transformed.
▪ If we want the same movement that we’ve succeeded in starting here to happen in the entire division, we have to clarify for ourselves what we actually have done—in a generic sense. Repeating the specific actions won’t work. Not only are the plants very different from each other; how can one fight local efficiencies in sales, or cut batches in product design?
▪ "A good job will be to start our division on a process of on-going improvement.’’
▪ So I try to gain some momentum by cleaning the board and writing in big letters "A process of on-going improvement.’’
▪ "But Bob, if we want to do the same in the entire division we must pinpoint what exactly the difference is between what we have done and what everyone else has tried to do.’’
▪ "I think that the key,’’ Stacey says in a thoughtful tone, "is in the different way we interpreted the word ‘improvement’.’’
▪ "What you are telling us,’’ I say slowly, trying to digest it, "is that we have switched the scale of importance.’’
▪ After a minute of silence I continue, "You know what, it really highlights another problem. Changing the measurements’ scale of importance, moving from one world into another, is without a doubt a culture change.
▪ "I don’t know. But one thing I can tell you, we haven’t declared any improvement project, they grow from the need. Somehow it was always obvious what the next step should be.’’
▪ "Yes, you are right,’’ I say gloomily. "Whenever the constraint is broken it changes conditions to the extent that it is very dangerous to extrapolate from the past.’’
▪ "It’s how physicists approach a subject; it’s so vastly different from what we do in business. They don’t start by collecting as much data as possible. On the contrary, they start with one phenomenon, some fact of life, almost randomly chosen, and then they raise a hypothesis: a speculation of a plausible cause for the existence of that fact
▪ The fact that we have bottlenecks and non-bottlenecks is not because we designed the plant very poorly. It’s a must. If the upstream resources don’t have spare capacity, we won’t be able to utilize even one single resource to the maximum; starvation will preclude it.’’
▪ "Stop, stop,’’ he raised his hands. "You made your point. I guess I was inclined to deal with the open receivables issue just because there I know what to do, while in all the others . . .’’ "Afraid?’’ I ask.
"Frankly, yes.’’
"So am I, so am I.’’ I mutter. "Where do we start? Where do we continue? On what should we concentrate first, on what second? It’s overwhelming.’’
▪ If synchronized efforts are required and the contribution of one link is strongly dependent on the performance of the other links, we cannot ignore the fact that organizations are not just a pile of different links, they should be regarded as chains.’’
▪ Yes, but you see, every grid can be viewed as composed of several independent chains. The more complex the organization —the more interdependencies between the various links—the smaller number of independent chains it’s composed of.’’
▪ Don’t you realize that the attitude in engineering, claiming that the basic rule of nature is that a project never finishes on time, is an even bigger problem.
▪ "As a matter of fact everything that I’ve seen of long term planning should be more appropriately categorized under ‘long term bullshitting.’’’
▪ You know, Lou, Julie predicted that as I come to it I’ll recognize that we are not dealing just with techniques but actually with thinking processes.’’ "It started to look like it,’’ Lou agrees.
▪ "But triggering breakthrough ideas by itself is not enough. An even bigger obstacle is to verify that this idea really solves all the resulting bad effects.’’ "Without creating new ones,’’ I add.
▪ I stop and look at him. "What are we asking for? For the ability to answer three simple questions: ‘what to change?’, ‘what to change to?’, and ‘how to cause the change?’ Basically what we are asking for is the most fundamental abilities one would expect from a manager.
▪ "At the same time,’’ I continue, "can you imagine what the meaning is to being able to hone in on the core problem even in a very complex environment? To be able to construct and check solutions that really solve all negative effects without creating new ones? And above all to cause such a major change smoothly, without creating resistance but the opposite, enthusiasm? Can you imagine having such abilities?’’
▪ The Goal was published 20 years ago. Since then a lot has changed in operations. New, powerful methodologies to improve operations, such as LEAN and Six Sigma, are widespread
▪ Even The Goal’s subtitle - a process of ongoing improvement - is a statement that is now taken for granted by every organization. So, my first question: Is The Goal still relevant?
▪ Eventually, the bottleneck moved outside our plant as depicted in “The Goal.” However, we knew this would happen ahead of time and had already begun the indoctrination of our sales and marketing group.
▪ Is it the Not-Invented-Here (NIH) syndrome?
▪ It was an operation where they were installing the fuzzy, felt-like material that goes in the ceiling of the car—very big and very clunky. Our data said that the mean cycles between failures was about five minutes, and the mean time to repair was about a minute. I was amazed that the line was stopping that often, and thought maybe the data was wrong, so we went and looked for ourselves.
▪ Was it considered a major problem before we looked at it? No. It’s not like we were losing an hour straight of production because something had broken down. We were only losing one minute. But it was happening every five cycles.
▪ I think the problem with too many other approaches is that once the first layer of problems goes away, and the crisis no longer exists, then it’s, “Phew! We’re done!” In the TOC world, you find yourself asking, “Where has the constraint gone, and what can I do to help break it?” So you’re never done.
▪ An example of an operation that is not only large and complex but also dominated by large uncertainties - a repair depot of the United States Marine Corps. This depot is overhauling helicopters. It’s very large – several thousand people. It is very complex – the helicopters are disassembled to the smallest pieces. Even the paint is sandblasted off. Whatever has to be repaired is repaired. Whatever has to be replaced is replaced. And then you reassemble the whole airplane. One has to make sure that certain parts which were taken from the original airplane go back on the same airplane.
▪ The real challenge is the fact that the whole operation is dominated by high uncertainty – one doesn’t know the content of the work until the helicopter is disassembled and inspected. Surprises all over the place. A real nightmare.
▪ I’d say almost everybody I’ve talked to who has read The Goal agrees with its messages. It also seems clear that many readers believe TOC to be founded on solid common sense. So why doesn’t everybody implement TOC right away? Is it because TOC demands that cost accounting be discarded? Do the financial managers block the implementations?
▪ Moreover, in almost any company, the VP of finance is one of the few managers who sees the overall picture and is extremely frustrated to witness so many devastating local optima decisions which do not view the organization as a whole.
▪ Our main problem was with on-time delivery. We also had problems with a department-type mentality at the company. People had a hard time looking beyond their departmental responsibilities. Everybody was functional in thought.
▪ Employees at Thomson-Shore have the ability to influence the standards and the way work moves within their area of expertise. When you’re strictly localized in your thinking, every person wants the job designed to benefit themselves.
▪ Before we did our TOC implementation, we could never agree on anything without a long, involved discussion. If we wanted to make a change we had to get 12 people in a room and then try to reach a compromise on everything. We could never please everybody. Having everyone read The Goal helped everyone understand that the basis for everything we do wasn’t localized thinking anymore.
▪ Yes! Of meeting the needs of the customer. And flowing the work in a timely fashion. When we began to concentrate on making the work flow, that is, maximizing the capacity of the press room, and subordinating everything else to that, we began to improve our ontime delivery.
▪ When the market isn’t a constraint, you choose which products and which customers to bring in based on that number. That’s how you build profitability. Assuming, of course, that the constraint is not in the market.
▪ Yeah, we have more capacity than the market’s willing to give. That’s an issue
▪ But, what we have to bear in mind is that such an approach is a major paradigm shift. And people will do almost anything before they will shift their paradigm.
▪ Someone gave me the book with the recommendation to read it. And I read it, and it was very entertaining and made a lot of sense, and I promptly put it right back on the shelf.
DW: I’ve heard stories like that before.
SW: Right. I just wasn’t ready yet.
▪ Do you believe that TOC is an infinite process? In other words, is there always going to be another constraint you can find and exploit?
SW: Theoretically, it can go on forever. But from what I’ve seen, it goes through one or two cycles within a facility, and then you’ve kind of broken the constraint in the production operation. Then it may move to, say, engineering. Then you can apply Critical Chain to the engineering group and eliminate that as a constraint, and then the next constraint usually is the market, and typically it’s the existing market.
▪ Normal gross margins in the industry were very much below 20%. Above 20% was suspicious. We were above 30%, which makes a lot of difference. And we were not ripping people off. They were extremely satisfied with our service.
▪ We still had some customers who were focused on price. We didn’t chase them away. We just gave them completely different conditions. We told them that if price is what matters most, you have to buy big quantities and you shouldn’t care about delivery times: “You can get the lowest price possible but you have to stand in line.”
▪ So they go for their guns and discover they forgot their bullets. So one of them puts his pack down and grabs his running shoes, and the other guy starts laughing: “Do you think you can outrun the tiger?” He says, “I don’t need to outrun the tiger, I only have to outrun you!”
▪ And I began to think that when you look at how a bank operates—for example, how it moves through the process of putting loans together—it’s really no different than manufacturing.
▪ Using TOC, we found it had to do with service levels and how we were solving problems for our customers, not with the specific products we were offering. So we ended up gearing the whole bank toward solving problems for our customers.
▪ Banks normally assume it’s not worth spending time with you if you have only $100,000 when they can spend that time with a guy who’s got $10 million. We discovered that a guy who only has $100,000 isn’t really going to spend a lot of time with you anyway; he’s just not there very often
▪ It sounds like one of the main conclusions you reached was that the perceived constraint—the regulatory climate—was not the actual constraint.
▪ First and foremost we use the five focusing steps almost instinctively now, in that we seek to identify the constraint in any problem before we do anything else.
▪ That’s sort of been my mantra, if you like—before we go any farther, let’s identify the constraint.
▪ I’m a university professor with a dual appointment, head of the department of internal medicine at the University of Pretoria and head of the department of internal medicine at Pretoria Academic Hospital.
▪ My department was in chaos, total chaos. Everything coming and going, not knowing what was what—much as things were in the factory that is the setting of The Goal.
▪ A chaotic system is not necessarily a factory. It could be a hospital with people coming and going. It could be a department with a whole lot of prima donnas—the doctors—who need to be managed. That parallel struck me.
▪ When one is introduced to Theory of Constraints, the first thing you see is a system where the causality is hidden. In other words, it’s chaotic. Things happen, you have no control. Suddenly, though, it becomes a system that can be analyzed in terms of certain key points—leverage points. And one learns that addressing these key points—rather than launching a symptomatic firefight—is the way to exert control over these systems.
▪ Second, our outpatient clinic, like most hospital outpatient clinics at that time, and even now in many parts of the world, was plagued by inefficiencies and long waiting lists. The more we fought the inefficiencies, the more money we poured into the system, the longer the waiting lists seemed to become.
▪ Now in my department, it seemed to me as though the processing of patients by doctors could really be viewed as a production line, just as in The Goal. The times are different, and obviously people aren’t machines. All of those issues I acknowledged. But I saw that parallel.
▪ Between the two of us—with her doing most of the work—we identified our constraint. We realized that we lost a tremendous amount of capacity whenever patients or doctors wouldn’t show up for scheduled appointments.
▪ That time lost was not recoverable. So we developed a call-in list, which we called the patient buffer. A day or two before a scheduled appointment we would phone patients and make sure that they would be coming into the clinic. If not, we would find substitute patients. The result was less loss of capacity.
▪ In about a six month period we got our waiting list below four months, which was roughly half of what most other hospitals were doing in South Africa at that time.
▪ Yes, we’re part of the state health system. In other words, not for profit. Patients pay only a small amount for services.
▪ We found that instead of focusing on local optima—making sure that my little department comes first—the real question people should be asking is, what can I do to achieve the larger goal of the hospital, which is to throughput new patients? It’s a simple concept, but implementing it took about two months of meeting with staff.
▪ I say that facetiously, but as a physician, it’s all about diagnosis. And the whole process of diagnosis, whether it’s a patient or an organization, is the application of the scientific method.
▪ So I said, “No one can give Mike the answer. You can ask Mike a question to help him think of the answer.” And that is when one of my other students raised her hand.
▪ It was a wonderful example of cooperative learning. Because everyone had to think. Even if they already knew the answer, they were thinking hard about how to guide others to the answer.