Goldratt & Cox - The Goal

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Goldratt, E. M. and J. Cox. 1986. The Goal: A Process of Ongoing Improvement. New York: North River Press.

Summary by Chris Hourigan University of South Florida, Spring 2001
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The Goal is a very compelling novel. Novel, HUH!! Who ever heard of a novel about a production plant? Well, Eli has made the production managers have quite an epiphany. In one book he might have changed the whole world of cost accounting. Eli approached the production world with a common sense view. Using just one goal, making money, he referenced every activity to it. Eli said, "I view science as nothing more than an understanding of the way the world is and why it is that way." You see, Eli is a physicist, and in being one, has to understand why things work the way they do. His common sense approach is illustrated beautifully in this novel. He has looked at cost accounting from the outside and has developed a whole new system because of it. Everyone from accountants to production managers to CEO’s should read this book. Because of its fundamentals, it should be part of the curriculum of every accounting program. This novel has and continues to help the industry to make strides toward continuous improvement. Chapter One The first chapter gets the reader acquainted with Mr. Alex Rogo and his apparent problems with his production plant. This is shown through a confrontation between Mr. Rogo and his boss Mr. Peach, the Division Vice President. The dispute is over an overdue order #41427. Through their conversation it’s learned that Mr. Peach will not settle for anything less than the order being shipped today, and since the plant is neither productive nor profitable, Alex has three months to show an 9/20/2011

Goldratt & Cox . Chapter Eight http://www. He has no particular place he would like to go.The Goal Page 2 of 8 improvement or the plant will be shut down! Chapter Two This chapter gives insight to Alex’s home life. Chapter Seven Alex makes the decision to stay with the company for the last three months and try to make a change. It’s great for Alex.htm 9/20/2011 . Rogo sits down with one of his accountants and together they define what is needed in terms of achieving the goal. and anything that brings you closer to achieving it is productive and all other things are not productive. the order #41427 does get shipped. Chapter Four While at this meeting. Peach calls a meeting at headquarters for all plant managers and his staff. At the meeting everybody finds out how bad things are and are given goals to achieve for the next quarter. at the The "goal" is to make money and anything that brings us closer to it is productive and anything that doesn’t isn’t. Chapter Six Mr. Peach. He also states that there is only one goal for all companies. He needs to understand what the "goal" is. Now all that is needed is to put his specific operations in those terms. money.) Chapter Five Alex decides to leave the meeting at the break. Rogo finds out perhaps why Mr. "He’s now 38 years old and a crummy plant manager".maaw. Peach has been acting so erratic lately. but not very efficiently. Jonah has no knowledge of where Alex is employed. You also experience Mr. Chapter Three Mr. not today. along with Mr. Net profit needs to increase along with simultaneously increasing return on investment and cash flow. Rogo’s background through his reflections back on his travels to eventually find himself back where he started. After a pizza and a six pack of beer it hits him. the Division has one year to improve or it’s going to be sold. Through the grapevine Mr. Then he decides he needs to find Jonah. Jonah. but it’s a big change from the city life that his wife is used to. Johan predicts the problems of high inventories and not meeting shipping dates. he just knows this meeting isn’t for him. (See What is this thing called Theory of Constraints for more on Alex's encounter with Jonah. All hands in the plant are working on one order with forbidden overtime to boot. it seems adjustment isn’t going well for his family. Jonah puzzles Alex with how well he knows how Alex’s plant is doing. Since moving back to his hometown six months ago. Alex thinks back on a recent business trip where he ran into an old physics professor. By the way.

Lou. like direct labor. Lou from accounting and Stacey from inventory control) hammered out the meaning of throughput." "Operational expense is all the money the system spends in order to turn inventory into throughput. Alex tells Jonah of the problems at the plant and the three months in which to fix them. Chapter Eleven The meeting with Jonah is brief. "the closer you come to a balanced plant. http://www. But how can they do that without lowering efficiencies? Another call to Jonah is placed and Alex is off to New York that night. Inventory is the money currently inside the system. Jonah tells Alex to forget about the robots.htm 9/20/2011 . "Throughput is the rate at which the system generates money through sales. operational expenses." "Inventory is all the money that the system has invested in purchasing things which it intends to sell. and therefore were less productive. This gets Alex thinking of the efficiency of these robots. Chapter Twelve This short chapter tries to capture the essence of the problems the job is causing at home with the extra workload." Alex needs more explanation. Lou explains that tooling. inventory and operational expense until satisfied." Then they decide that something drastic is needed to be done with the machines. Jonah says no." Alex thinks a balanced plant is a good idea. Stacey says.Goldratt & Cox . First. The marriage is very strained because of the devotion Alex needs to give to the plant. inventory control woman. machines. and operational expense. and the production manager. Implementing the robots increased costs by not reducing others." Then Jonah leaves Alex with another riddle. He is given three terms that will help him run his plant." Jonah suggest that Alex question how he is managing the capacity in the plant and consider the concept of a balanced plant. states the relationships as follows." Bob is skeptical that everything can be accounted for with three measurements. The whole plant is an investment that can be sold. "Throughput is money coming in. the building. Jonah says they can be fixed in that time and then they go over the problems the plant has. throughput. inventory. Jonah states that everything in the plant can be classified under these three terms. With the help of the accountant.maaw. Alex and his staff (Bob from production. He also tells Alex that "A plant in which everyone is working all the time is very inefficient. the closer you are to bankruptcy. the whole plant are all inventory. "So investment is the same thing as inventory. And operational expense is the money we have to pay out to make throughput happen. this "is a plant where the capacity of each and every resource is balanced exactly with demand from the market. Chapter Nine Alex fresh off his talk with Jonah gets word that the head of the company wants to come down for a photo opportunity with one of Alex’s robots. According to Jonah. The labor was shifted to other parts of the plant. Alex discovers the robots increased Goal Page 3 of 8 Alex finally speaks to Jonah. what does the combination of "dependent events" and "statistical fluctuations" have to do with your plant? Both of those seem harmless and should work themselves out down the production line. Chapter Ten After explaining everything.

The Goal Page 4 of 8 Chapter Thirteen Stuck for the weekend as troop master. through the dice game or match bowl experiment. Alex sees that there are normally limits to making up the downside of the fluctuations with the following "dependent events". Chapter Seventeen Alex tries to portray his new revelation to his team at the plant. but instead balance the flow of product through the plant. Now even the production supervisor agrees. Chapter Fourteen Finally. (See the Dice Game or Match Bowl experiment note). which increased the throughput of the team.htm 9/20/2011 . This balances the fluctuations and increases the kid’s productivity. Now what? Chapter Eighteen In this chapter Jonah introduces Alex to the concept of bottlenecks and non-bottlenecks. Nobody seems interested. Chapter Fifteen Fully understanding the "dependent events". "A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it. the last event must make up for all the others for all of them to average out. but when the hike came up it seemed to be the last straw for her. A balanced plant is not the answer. http://www. after the camping trip the boys arrive home to find the mother has disappeared. like the slow kid Herbie on the hike. and division is not going to go for that. Alex puts the slowest kid in the front of the hike and he relieves him of extra weight he has been carrying in his backpack. the areas where capacity doesn’t equal demand. it becomes clear that with a balanced plant and because of "statistical fluctuations" and "dependent events" throughput goes down and inventory along with operating expenses goes up. Now the kids and the job are all Alex’s responsibility. Alex would need more machines." Jonah explains that Alex should not try to balance capacity with demand. But the walk in the woods becomes apparent when it is put to the test for an overdue order in the plant. All the stress of his job was too much for her so she left. Jonah defines these terms as follows. Even if there were no limits. Production is a process and it cannot be moved around so easily. which takes more capital. Chapter Sixteen Well. With this discovery goes the ideas related to reorganizing the plant like Alex did with the hike. Alex discovers the importance of "dependent events" in relation to "statistical fluctuations". This was supposed to be a weekend for Alex and his wife. Through the analogy between a single file hike through the wilderness and a manufacturing plant.Goldratt & Cox . Many processes rely on the previous one to be able to complete the next. "A non-bottleneck is any resource whose capacity is greater than the demand placed on it. Alex and his team recognize the bottlenecks.

In the process they find that they need another system to inform the workers what materials have priority at nonbottlenecks.6 million. in keeping with the notion that everybody needs to stay busy. Jonah wants to know how much it cost when the bottlenecks (X and heat treat) machines are down. Chapter Twenty-Three They are becoming more and more efficient.htm 9/20/2011 . Red for bottleneck parts to be worked on first as to not hold up the bottleneck machine. Jonah tells them that they have hidden capacity because some of their thinking is incorrect. even the kids.maaw. Some ways to increase capacity at the bottlenecks are not to have any down time within the bottlenecks. because without the parts from the bottleneck. Alex decides to dedicate a foreman at each location all the time.735. Every minute of downtime at a bottleneck translates into thousands of dollars of loss throughput. He then finds his wife. Jonah explains that when the bottlenecks are down for an and green for the non-bottleneck parts. Therefore. Alex is confused. you can’t sell the product. Red and green tags are the answer. More machines to do the bottleneck operations might help. That concludes another week. Finally. Every plant should have bottlenecks. the night foreman. He puts his production manager on it. but he definitely needs more. one process being sent through a bottleneck could be accomplished through another older way and therefore free up time on the bottleneck. Chapter Twenty Alex organizes the bottlenecks to work on only overdue orders from the most overdue to the least. Chapter Twenty-One The crew works out some of the details for keeping the bottlenecks constantly busy. discovers a way to process more parts by mixing and matching orders by priority. the true cost is around $2. increasing efficiency by ten percent. His production manager rounds up some old machines to complement what one of the bottlenecks does. After a calculation. but lag time arouse with the two bottlenecks because of workers being loaned out to other areas and not being at the bottlenecks when needed to process another order. Therefore. What is needed is to increase the capacity of the plant? The answer is more capacity at the bottlenecks. Jonah makes a visit to the plant. Then one of those dedicated foreman. It seems there was nothing to do while waiting for the bottleneck machine to finish the batch. She is at her parent’s house. the cost of the entire system. How many hours are available per month? About 585. workers were at other areas between batches. Alex is pleased. but how about making them run more effectively. Lou says $32 per hour for the X machine and $21 per hour for heat treat. Through their conversation it is learned that she still needs to be away from everybody. you cannot generate throughput.The Goal Page 5 of 8 Chapter Nineteen Well.Goldratt & Cox . How much when the whole plant is down? Around $1. http://www. make sure they are only working on quality products so not to waste time. Jonah tells Alex that a plant without bottlenecks would have enormous excess capacity. Chapter Twenty-Two Great. Things are looking up. and relieve the workload by farming some work out to vendors. The true test will be next week. twelve orders were shipped.

Chapter Twenty-Six Ralf. but if it can be done. Peach agrees to keep the plant open if Alex gives him a fifteen percent improvement next month.htm 9/20/2011 . There needs to be balance. but there are enough parts in front of the bottlenecks to stay busy for a month. This will alleviate any excess inventory in front of the bottlenecks. Impossible without committing the plant to nothing but the new order? Wrong! How about smaller batch sizes. They can greatly increase sales. This will make some time. the computer wiz. Peach doesn’t praise Alex like Alex thinks he should. says Jonah. What actually has happened is a result of some old thinking. they get quicker response times and less lead times for orders. Alex informs him of the new problem of more inventories and less throughput. Sounds good. by only sending them exactly what they need and when they need it. Mr. Chapter Twenty-Seven There is another corporate meeting. Jonah suggests reducing batch sizes by half. The http://www. nearly all costs are cut in half. inventory is decreasing. All parts are stacked up in front of the bottlenecks and others are awaiting non-bottleneck parts for final assembly. but it’s not derived from the old cost accounting The customer loved it. Alex decides to talk with him in private. you should be able to predict non-bottleneck parts as well. This intrigues Jonah so he’s coming to take a look. Cut them in half again. this will take some doing with vendors. if they can ship a thousand products in two weeks. The red and green tags need to be modified. Chapter Thirty Seventeen percent!! That’s great. Also. Chapter Twenty-Eight Fifteen Percent!! Fifteen Percent!! Just then Jonah called to let Alex know that he will not be available to speak with in the next few weeks. Chapter Twenty-Nine Alex is propositioned with a test.maaw. That will be hard because that relies heavily on demand from the marketplace. Then promise to ship 250 each week for four weeks starting in two weeks. That’s a good thing right? But lower inventory revealed more bottlenecks. It seems as if the bottlenecks will again control the flow. Working non-bottlenecks to maximum capacity on bottleneck parts has caused the problem. Chapter Twenty-Five "There aren’t any new bottlenecks". but what about the non-bottlenecks? Jonah says with the same data out of the bottlenecks to final assembly. current and future. Mr. Of course.Goldratt & Cox .The Goal Page 6 of 8 Chapter Twenty-Four Now that the new priority system is in place for all parts going through the bottlenecks. says he can come up with a schedule for bottleneck parts and when they should be released.

by understanding how the scientists started with nothing and achieved order. a bottleneck has been broken. Peach. Chapter Thirty-One Well the meeting at Division started out rough. Anyway. He calls Jonah desperately and asks for help. Jonah declines until he has specific questions.maaw. Which by the way. He decides to try and convince them it doesn’t work. Instead. Surprisingly the accountant with two years to retirement is on board. the owner of the company that placed the order came down personally to shake everybody’s hand in the plant and to give a contract to them for not a thousand parts but ten thousand. Chapter Thirty-Seven The team decides to revise the steps: Step one – identify the systems constraints.The Goal Page 7 of 8 auditors sent down to the plant from Division find just 12. Every afternoon they will meet to solve the problem.evaluate the systems bottlenecks. Chapter Thirty-Four Alex is firmly engrossed with the problems of taking over the division. Chapter Thirty-Six The team finally comes up with the process: Step one – identify the system’s bottlenecks. Step twodecide how to exploit those bottlenecks. Step three.htm 9/20/2011 . because he just got promoted to Mr. Alex thought he would be meeting with Mr. Chapter Thirty-Three Now is the time to assemble Alex’s team for Division. Chapter Thirty-Two Alex has a nice dinner with his wife. but the production manager isn’t. and how the scientists actually got a table of any sort.subordinate everything else to step two decisions. Through the veal parmesan and cheese cake it is decided that Alex should ask Jonah how he can get other people to understand these techniques that his team has discovered without being condescending. Chapter Thirty-Five The second day they are led in a discussion about the periodic table of elements. Step four.if. just different. He wants to be plant manager to continue their efforts. Step two – decide http://www. Step five. Peach and other top executives. After the first day it is obvious . Most of it accounts from the new order. Everything is totally into place at the plant but more is needed for division. they will need them all.8% improvement. Maybe that is how they will solve the massive problems of division. A way to define them by their intensive order is needed. he met with their underlings. Peach’s Just before leaving he decides to see Mr.Goldratt & Cox . go to step one. in a previous step. tomorrow is the day of reckoning at division. It seems so simple. Now Alex has to manage three plants as the whole division. With advice from his wife he decides to enlist the help of his team at the plant. It’s a good thing he did.

so selling for less there will not affect domestic clients. If it can be done. Then Alex ponders Jonah’s question. It seems all the new orders have created new bottlenecks. This will hurt the new relationship between sales and production.warning!!! If in the previous steps a constraint has been broken.Goldratt & Cox . but it is needed. Alex comes up with some questions on his own: What to change? What to change to? How to cause the change? Answering these questions are the keys to management. which translates in to market share. It also has been discovered that they have been using the bottlenecks to produce fictitious orders in an effort to keep the bottlenecks busy. to determine what management techniques should be utilized. Theory of Constraints Main Page Deming Main Page Deming & Goldratt Main Page http://www. but don’t allow inertia to cause a system constraint.The Goal Page 8 of 8 how to exploit the systems constraints. That will free up twenty percent Maybe this will lead to an answer. struggling with the answer to Jonah’s question. Alex finds out that there is a market order to fill the capacity. they agreed to increase inventory in front of the bottlenecks an tell sales to not promise new order deliveries for four weeks. twice as much as before. After analyzing the problem. Alex determines how a physicist approaches a problem. and when new problems arise they need to be dealt with accordingly. Production is an ongoing process of improvement. Chapter Thirty-Nine Alex experiences a problem at the plant. go back to step one. Chapter Thirty-Eight Talking with the head of sales. It’s in Europe.htm 9/20/2011 . Step five. Step three – subordinate everything else to step two decisions. and the skills needed to answer them are the keys to a good manager and ultimately the answer to Jonah’s question. Chapter Forty Finally. Step four – evaluate the systems constraints. will open a whole new market.

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