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
at the airport. Chapter Three Mr. All hands in the plant are working on one order with forbidden overtime to boot. the Division has one year to improve or it’s going to be sold. Chapter Seven Alex makes the decision to stay with the company for the last three months and try to make a change. By the way. Peach has been acting so erratic lately. it seems adjustment isn’t going well for his family. Rogo finds out perhaps why Mr. he just knows this meeting isn’t for him. Rogo sits down with one of his accountants and together they define what is needed in terms of achieving the goal. Since moving back to his hometown six months ago. 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 Eight
http://www. Jonah. He also states that there is only one goal for all companies.info/ArticleSummaries/ArtSumTheGoal. Peach calls a meeting at headquarters for all plant managers and his staff.htm
. You also experience Mr. Rogo’s background through his reflections back on his travels to eventually find himself back where he started. Peach. "He’s now 38 years old and a crummy plant manager". 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. along with Mr. Chapter Four While at this meeting. Jonah puzzles Alex with how well he knows how Alex’s plant is doing.Goldratt & Cox .The Goal
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improvement or the plant will be shut down! Chapter Two This chapter gives insight to Alex’s home life.maaw. (See What is this thing called Theory of Constraints for more on Alex's encounter with Jonah. not today. Then he decides he needs to find Jonah. It’s great for Alex.) Chapter Five Alex decides to leave the meeting at the break. Net profit needs to increase along with simultaneously increasing return on investment and cash flow. Now all that is needed is to put his specific operations in those terms. He has no particular place he would like to go. At the meeting everybody finds out how bad things are and are given goals to achieve for the next quarter. Jonah has no knowledge of where Alex is employed. Johan predicts the problems of high inventories and not meeting shipping dates. After a pizza and a six pack of beer it hits him. He needs to understand what the "goal" is. but not very efficiently. money. but it’s a big change from the city life that his wife is used to. Alex thinks back on a recent business trip where he ran into an old physics professor. Through the grapevine Mr.
Jonah tells Alex to forget about the robots. Chapter Ten After explaining everything. and therefore were less productive. and operational expense. operational expenses. But how can they do that without lowering efficiencies? Another call to Jonah is placed and Alex is off to New York that night. Jonah says no. throughput. With the help of the accountant.htm
. Chapter Eleven The meeting with Jonah is brief. Inventory is the money currently inside the system. the building. Stacey says. The labor was shifted to other parts of the plant." Alex needs more explanation. Alex discovers the robots increased costs. inventory control woman. Lou. states the relationships as follows. "Throughput is money coming in. Alex and his staff (Bob from production." Then they decide that something drastic is needed to be done with the machines. inventory and operational expense until satisfied. He also tells Alex that "A plant in which everyone is working all the time is very inefficient. "Throughput is the rate at which the system generates money through sales. He is given three terms that will help him run his plant. First. Chapter Twelve This short chapter tries to capture the essence of the problems the job is causing at home with the extra workload.The Goal
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Alex finally speaks to Jonah. "the closer you come to a balanced plant. The marriage is very strained because of the devotion Alex needs to give to the plant. The whole plant is an investment that can be sold. This gets Alex thinking of the efficiency of these robots." Alex thinks a balanced plant is a good idea. this "is a plant where the capacity of each and every resource is balanced exactly with demand from the market. Lou from accounting and Stacey from inventory control) hammered out the meaning of throughput. And operational expense is the money we have to pay out to make throughput happen. inventory." "Inventory is all the money that the system has invested in purchasing things which it intends to sell." Jonah suggest that Alex question how he is managing the capacity in the plant and consider the concept of a balanced plant. "So investment is the same thing as inventory. 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. Lou explains that tooling. Implementing the robots increased costs by not reducing others.maaw.
http://www. the closer you are to bankruptcy. Jonah says they can be fixed in that time and then they go over the problems the plant has. like direct labor.Goldratt & Cox . Alex tells Jonah of the problems at the plant and the three months in which to fix them." Bob is skeptical that everything can be accounted for with three measurements. According to Jonah." Then Jonah leaves Alex with another riddle. machines.info/ArticleSummaries/ArtSumTheGoal. 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." "Operational expense is all the money the system spends in order to turn inventory into throughput. the whole plant are all inventory. and the production manager. Jonah states that everything in the plant can be classified under these three terms.
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". 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. Alex discovers the importance of "dependent events" in relation to "statistical fluctuations".The Goal
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Chapter Thirteen Stuck for the weekend as troop master. which takes more capital. and division is not going to go for that. "A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it.htm
. Now the kids and the job are all Alex’s responsibility. like the slow kid Herbie on the hike. (See the Dice Game or Match Bowl experiment note). This balances the fluctuations and increases the kid’s productivity. Through the analogy between a single file hike through the wilderness and a manufacturing plant. Chapter Sixteen Well.maaw. but when the hike came up it seemed to be the last straw for her. All the stress of his job was too much for her so she left. 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. Alex and his team recognize the bottlenecks. Even if there were no limits. Jonah defines these terms as follows. Production is a process and it cannot be moved around so easily. Chapter Fifteen Fully understanding the "dependent events". Nobody seems interested. the areas where capacity doesn’t equal demand.info/ArticleSummaries/ArtSumTheGoal. Many processes rely on the previous one to be able to complete the next. But the walk in the woods becomes apparent when it is put to the test for an overdue order in the plant. Alex would need more machines. A balanced plant is not the answer. This was supposed to be a weekend for Alex and his wife. which increased the throughput of the team. Chapter Seventeen Alex tries to portray his new revelation to his team at the plant. With this discovery goes the ideas related to reorganizing the plant like Alex did with the hike." Jonah explains that Alex should not try to balance capacity with demand. after the camping trip the boys arrive home to find the mother has disappeared.
http://www. Chapter Fourteen Finally. Now what? Chapter Eighteen In this chapter Jonah introduces Alex to the concept of bottlenecks and non-bottlenecks. but instead balance the flow of product through the plant. Later.Goldratt & Cox . Now even the production supervisor agrees. the last event must make up for all the others for all of them to average out. "A non-bottleneck is any resource whose capacity is greater than the demand placed on it.
It seems there was nothing to do while waiting for the bottleneck machine to finish the batch. Jonah wants to know how much it cost when the bottlenecks (X and heat treat) machines are down. and relieve the workload by farming some work out to vendors. one process being sent through a bottleneck could be accomplished through another older way and therefore free up time on the bottleneck. Finally. He puts his production manager on it. Every plant should have bottlenecks. That concludes another week. How much when the whole plant is down? Around $1. In the process they find that they need another system to inform the workers what materials have priority at nonbottlenecks. Lou says $32 per hour for the X machine and $21 per hour for heat treat.Goldratt & Cox . Alex is confused. Alex is pleased. Some ways to increase capacity at the bottlenecks are not to have any down time within the bottlenecks. even the kids. The true test will be next week. Jonah explains that when the bottlenecks are down for an hour. Then one of those dedicated foreman. you cannot generate throughput. the cost of the entire system. She is at her parent’s house. After a calculation.info/ArticleSummaries/ArtSumTheGoal.maaw. 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.735. Every minute of downtime at a bottleneck translates into thousands of dollars of loss throughput. increasing efficiency by ten percent. Chapter Twenty-Two Great. Chapter Twenty Alex organizes the bottlenecks to work on only overdue orders from the most overdue to the least. Chapter Twenty-Three They are becoming more and more efficient.htm
. discovers a way to process more parts by mixing and matching orders by priority. twelve orders were shipped. He then finds his wife. Red and green tags are the answer. and green for the non-bottleneck parts. Jonah tells them that they have hidden capacity because some of their thinking is incorrect. Chapter Twenty-One The crew works out some of the details for keeping the bottlenecks constantly busy. make sure they are only working on quality products so not to waste time. because without the parts from the bottleneck. Jonah makes a visit to the plant. Alex decides to dedicate a foreman at each location all the time. More machines to do the bottleneck operations might help.6 million. Things are looking up. Therefore. His production manager rounds up some old machines to complement what one of the bottlenecks does. the night foreman. in keeping with the notion that everybody needs to stay busy. but he definitely needs more. Jonah tells Alex that a plant without bottlenecks would have enormous excess capacity.The Goal
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Chapter Nineteen Well.
http://www. How many hours are available per month? About 585. Therefore. Red for bottleneck parts to be worked on first as to not hold up the bottleneck machine. workers were at other areas between batches. you can’t sell the product. but how about making them run more effectively. Through their conversation it is learned that she still needs to be away from everybody. What is needed is to increase the capacity of the plant? The answer is more capacity at the bottlenecks. the true cost is around $2.
Alex decides to talk with him in private. Impossible without committing the plant to nothing but the new order? Wrong! How about smaller batch sizes. Chapter Twenty-Seven There is another corporate meeting. Chapter Twenty-Six Ralf. but there are enough parts in front of the bottlenecks to stay busy for a month. Peach doesn’t praise Alex like Alex thinks he should. They can greatly increase sales. Then promise to ship 250 each week for four weeks starting in two weeks. Cut them in half again. but it’s not derived from the old cost accounting model. the computer wiz. This intrigues Jonah so he’s coming to take a look. This will alleviate any excess inventory in front of the bottlenecks.Goldratt & Cox . inventory is decreasing. current and future. What actually has happened is a result of some old thinking. nearly all costs are cut in half. Mr. you should be able to predict non-bottleneck parts as well. Alex informs him of the new problem of more inventories and less throughput. but what about the non-bottlenecks? Jonah says with the same data out of the bottlenecks to final assembly. The customer loved it. Sounds good.The Goal
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Chapter Twenty-Four Now that the new priority system is in place for all parts going through the bottlenecks. Also. There needs to be balance. The red and green tags need to be modified. This will make some time. It seems as if the bottlenecks will again control the flow. if they can ship a thousand products in two weeks.info/ArticleSummaries/ArtSumTheGoal. All parts are stacked up in front of the bottlenecks and others are awaiting non-bottleneck parts for final assembly. The
http://www. but if it can be done. 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. this will take some doing with vendors. Jonah suggests reducing batch sizes by half. Working non-bottlenecks to maximum capacity on bottleneck parts has caused the problem. they get quicker response times and less lead times for orders. Of course.htm
. That will be hard because that relies heavily on demand from the marketplace. Chapter Thirty Seventeen percent!! That’s great. Chapter Twenty-Five "There aren’t any new bottlenecks". by only sending them exactly what they need and when they need it. says he can come up with a schedule for bottleneck parts and when they should be released.maaw. Mr. Chapter Twenty-Nine Alex is propositioned with a test. That’s a good thing right? But lower inventory revealed more bottlenecks. says Jonah. Peach agrees to keep the plant open if Alex gives him a fifteen percent improvement next month.
just different. but the production manager isn’t.info/ArticleSummaries/ArtSumTheGoal. Alex thought he would be meeting with Mr. by understanding how the scientists started with nothing and achieved order. Surprisingly the accountant with two years to retirement is on board. 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. go to step one. Step three. After the first day it is obvious . He wants to be plant manager to continue their efforts.if. Step twodecide how to exploit those bottlenecks. He decides to try and convince them it doesn’t work. Step two – decide
http://www. Step four. they will need them all.htm
.Goldratt & Cox . Just before leaving he decides to see Mr.8% improvement. Everything is totally into place at the plant but more is needed for division. 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-One Well the meeting at Division started out rough. Peach and other top executives. 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-Six The team finally comes up with the process: Step one – identify the system’s bottlenecks. a bottleneck has been broken.maaw. because he just got promoted to Mr. It’s a good thing he did. Most of it accounts from the new order.evaluate the systems bottlenecks. Peach’s position. It seems so simple. He calls Jonah desperately and asks for help.subordinate everything else to step two decisions. Chapter Thirty-Four Alex is firmly engrossed with the problems of taking over the division. in a previous step. and how the scientists actually got a table of any sort. tomorrow is the day of reckoning at division. Which by the way. Chapter Thirty-Three Now is the time to assemble Alex’s team for Division. Instead.The Goal
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auditors sent down to the plant from Division find just 12. Peach. he met with their underlings. Every afternoon they will meet to solve the problem. Chapter Thirty-Seven The team decides to revise the steps: Step one – identify the systems constraints. Anyway. Maybe that is how they will solve the massive problems of division. Step five. A way to define them by their intensive order is needed. Chapter Thirty-Five The second day they are led in a discussion about the periodic table of elements. Chapter Thirty-Two Alex has a nice dinner with his wife. Jonah declines until he has specific questions.
struggling with the answer to Jonah’s question.Goldratt & Cox . Then Alex ponders Jonah’s question. If it can be done. 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. so selling for less there will not affect domestic clients. and when new problems arise they need to be dealt with accordingly. This will hurt the new relationship between sales and production. twice as much as before. but it is needed. Step three – subordinate everything else to step two decisions. will open a whole new market. to determine what management techniques should be utilized. Step five.warning!!! If in the previous steps a constraint has been broken.maaw. Chapter Thirty-Eight Talking with the head of sales. Alex determines how a physicist approaches a problem. and the skills needed to answer them are the keys to a good manager and ultimately the answer to Jonah’s question.The Goal
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how to exploit the systems constraints. they agreed to increase inventory in front of the bottlenecks an tell sales to not promise new order deliveries for four weeks. It seems all the new orders have created new bottlenecks. Maybe this will lead to an answer. Chapter Thirty-Nine Alex experiences a problem at the plant.info/ArticleSummaries/ArtSumTheGoal. After analyzing the problem.htm
. Alex finds out that there is a market order to fill the capacity. Step four – evaluate the systems constraints. Production is an ongoing process of improvement. 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. Chapter Forty Finally. That will free up twenty percent capacity. go back to step one. but don’t allow inertia to cause a system constraint. It’s in Europe.
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