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ARE 112 –Spring 2016 Reading Notes: The Goal

KEY EXPANDED FOR ADDITIONAL COMMENTS


These questions relate to The Goal. Answer each these questions in one or two sentences and make a
page reference to The Goal. In some cases you can just respond with the key term. You will find a few
of these questions on the first exam. You can work in your groups to do this.

The assignment is called a Q&A assignment where you get to focus on important points with the
questions and give a short, to-the-point answer.

General Questions

1. What prevents an organization from achieving the goal? BOTTLENECK OR CONSTRAINTS


– THEY ARE THE SAME. YOU CAN ALSO SAY THAT THE ORGANIZATIONAL
BEHAVIOR TO NOT RECOGNIZE THE CONSTRAINTS PREVENTS THE
ORGANIZATION FROM ACHIEVING THE GOAL.
2. What is a constraint? A CONSTRAINT IS SOME LIMITATION ON THE
ORGANIZATIONAL PROCESSES THAT PREVENTS OTHER ORGANIZATIONAL
PROCESSES FROM OPERATING AT THEIR MAXIMUM CAPACITY.
3. Why does Goldratt condemn placing emphasis on the efficiency of non-constraints? BECAUSE
IT DOES NOT ADDESS THE CONSTRAINT WHICH IS PREVENTING THE
ACHIEVMENT OF THE GOAL.
4. What is throughput? Provide the example from The Goal. THROUGHPUT IS THE RATE AT
WHICH THE ORGANIZATION GENERATES CASH THRU SALES - SEE PAGE 60.
5. Goldratt argues that traditional accounting mixes controllable and uncontrollable costs in cost of
goods sold. What does he mean by this? HE DOES NOT MEAN FIXED AND VARIABLE
COST BUT COST THAT YOU CAN CONTROL LIKE INVENTORY HOLDING COSTS
AND COST YOU CANNOT CONTROL LIKE YOU LABOR COST – WE ARE NOT
GOING TO FIRE PEOPLE AT THE PLANT.
6. What is a balanced plant? THE FIRST BALANCED PLANT IS TO BALANCE OUTPUT
WITH CAPACITY SO THE PLANT IS OPERATING AT 100% CAPACITY. BUT THIS
BUILDS UP INVENTORY AND NOT SALES. SO JONAH WANTS TO BALANCE THE
PLANT WITH THE MARKET DEMAND. SO THAT IS THE BALANCED PLANT.
7. What is Goldratt’s match-stick bowl experiment designed to show? THAT STATISTICAL
VARIATIONS WILL ACCUMULATE RATHER THAN OFFSET AND THE
DEPENDENT EVENTS WILL BE AFFECTED.
8. What does Goldratt mean by balancing the flow? BALANCING THE FLOW TO THE
MARKET SO THAT THE BOTTLENECK/CONSTRAINT IS ALWAYS AT FULL
CAPACITY.
9. What is Goldratt’s prescription for increasing throughput? HE HAS A FEW BUT ONE OF
THEM IS BALANCE THE PLANT TO THE MARKET.
10. Why is Goldratt opposed to compromise? HE BELIVES THAT THERE IS ONE CORRECT
ANSWER SO A COMPROMISE WILL TAKE AWAY FROM THAT CORRECT
ANSWER.

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ARE 112 –Spring 2016 Reading Notes: The Goal
KEY EXPANDED FOR ADDITIONAL COMMENTS
Chapter Questions

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 improvement or the plant will be shut down!
Chapter Two
This chapter gives insight to Alex’s home life. Since moving back to his hometown six
months ago, it seems adjustment isn’t going well for his family. It’s great for Alex, but it’s a
big change from the city life that his wife is used to. You also experience Mr. Rogo’s
background through his reflections back on his travels to eventually find himself back where
he started. "He’s now 38 years old and a crummy plant manager". By the way, the order
#41427 does get shipped, but not very efficiently. All hands in the plant are working on one
order with forbidden overtime to boot.
Chapter Three
Mr. 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.
Through the grapevine Mr. Rogo finds out perhaps why Mr. Peach has been acting so erratic
lately, the Division has one year to improve or it’s going to be sold, along with Mr. Peach.
Chapter Four
While at this meeting, Alex thinks back on a recent business trip where he ran into an old
physics professor, Jonah, at the airport. Jonah puzzles Alex with how well he knows how
Alex’s plant is doing. Jonah has no knowledge of where Alex is employed. Johan predicts
the problems of high inventories and not meeting shipping dates. He also states that there is
only one goal for all companies, and anything that brings you closer to achieving it is
productive and all other things are not productive. (See What is this thing called Theory of
Constraints for more on Alex's encounter with Jonah.)
Chapter Five
Alex decides to leave the meeting at the break. He has no particular place he would like to
go; he just knows this meeting isn’t for him, not today. He needs to understand what the
"goal" is. After a pizza and a six pack of beer it hits him, money. 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. Rogo sits down with one of his accountants and together they define what is needed in
terms of achieving the goal. 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.

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ARE 112 –Spring 2016 Reading Notes: The Goal
KEY EXPANDED FOR ADDITIONAL COMMENTS

Chapter Seven
Alex makes the decision to stay with the company for the last three months and try to make a
change. Then he decides he needs to find Jonah.
Chapter Eight
Alex finally speaks to Jonah. He is given three terms that will help him run his plant,
throughput, inventory, and operational expense. Jonah states that everything in the plant can
be classified under these three terms. "Throughput is the rate at which the system generates
money through sales." "Inventory is all the money that the system has invested in purchasing
things which it intends to sell." "Operational expense is all the money the system spends in
order to turn inventory into throughput." Alex needs more explanation.
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. This gets Alex thinking of the
efficiency of these robots. With the help of the accountant, inventory control woman, and the
production manager, Alex discovers the robots increased costs, operational expenses, and
therefore were less productive. Implementing the robots increased costs by not reducing
others, like direct labor. The labor was shifted to other parts of the plant.
Chapter Ten
After explaining everything, Alex and his staff (Bob from production, Lou from accounting
and Stacey from inventory control) hammered out the meaning of throughput, inventory and
operational expense until satisfied. Lou, states the relationships as follows. "Throughput is
money coming in. Inventory is the money currently inside the system. And operational
expense is the money we have to pay out to make throughput happen." Bob is skeptical that
everything can be accounted for with three measurements. Lou explains that tooling,
machines, the building, the whole plant are all inventory. The whole plant is an investment
that can be sold. Stacey says, "So investment is the same thing as inventory."
Then they decide that something drastic is needed to be done with the machines. But how
can they do that without lowering efficiencies? Another call to Jonah is placed and Alex is
off to New York that night.
Chapter Eleven
The meeting with Jonah is brief. Alex tells Jonah of the problems at the plant and the three
months in which to fix them. Jonah says they can be fixed in that time and then they go over
the problems the plant has. First, Jonah tells Alex to forget about the robots. He also tells
Alex that "A plant in which everyone is working all the time is very inefficient." Jonah
suggest that Alex question how he is managing the capacity in the plant and consider the
concept of a balanced plant. According to Jonah, this "is a plant where the capacity of each
and every resource is balanced exactly with demand from the market." Alex thinks a
balanced plant is a good idea. Jonah says no, "the closer you come to a balanced plant, the
closer you are to bankruptcy." Then Jonah leaves Alex with another riddle, 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.

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ARE 112 –Spring 2016 Reading Notes: The Goal
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Chapter Twelve
This short chapter tries to capture the essence of the problems the job is causing at home
with the extra workload. The marriage is very strained because of the devotion Alex needs to
give to the plant.
Chapter Thirteen
Stuck for the weekend as troop master, Alex discovers the importance of "dependent events"
in relation to "statistical fluctuations". Through the analogy between a single file hike
through the wilderness and a manufacturing plant, Alex sees that there are normally limits to
making up the downside of the fluctuations with the following "dependent events". Even if
there were no limits, the last event must make up for all the others for all of them to average
out.
Chapter Fourteen
Finally, through the dice game or match bowl experiment, 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. A balanced plant is not the
answer.
Chapter Fifteen
Fully understanding the "dependent events", 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. This balances the
fluctuations and increases the kid’s productivity, which increased the throughput of the team.
Chapter Sixteen
Well, after the camping trip the boys arrive home to find the mother has disappeared. All the
stress of his job was too much for her so she left. Now the kids and the job are all Alex’s
responsibility. This was supposed to be a weekend for Alex and his wife, but when the hike
came up it seemed to be the last straw for her.
Chapter Seventeen
Alex tries to portray his new revelation to his team at the plant. Nobody seems interested.
But the walk in the woods becomes apparent when it is put to the test for an overdue order in
the plant. Now even the production supervisor agrees. Now what?
Chapter Eighteen
In this chapter Jonah introduces Alex to the concept of bottlenecks and non-bottlenecks.
Jonah defines these terms as follows. "A bottleneck is any resource whose capacity is equal
to or less than the demand placed upon it. "A non-bottleneck is any resource whose capacity
is greater than the demand placed on it." Jonah explains that Alex should not try to balance
capacity with demand, but instead balance the flow of product through the plant.
Later, Alex and his team recognize the bottlenecks, the areas where capacity doesn’t equal
demand, like the slow kid Herbie on the hike. With this discovery goes the ideas related to
reorganizing the plant like Alex did with the hike. Production is a process and it cannot be
moved around so easily. Many processes rely on the previous one to be able to complete the
next. Alex would need more machines, which takes more capital, and division is not going to
go for that.

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ARE 112 –Spring 2016 Reading Notes: The Goal
KEY EXPANDED FOR ADDITIONAL COMMENTS
Chapter Nineteen
Well, Jonah makes a visit to the plant. Jonah tells Alex that a plant without bottlenecks
would have enormous excess capacity. Every plant should have bottlenecks. Alex is
confused. What is needed is to increase the capacity of the plant? The answer is more
capacity at the bottlenecks. More machines to do the bottleneck operations might help, but
how about making them run more effectively. Jonah tells them that they have hidden
capacity because some of their thinking is incorrect. Some ways to increase capacity at the
bottlenecks are not to have any down time within the bottlenecks, make sure they are only
working on quality products so not to waste time, and relieve the workload by farming some
work out to vendors. Jonah wants to know how much it cost when the bottlenecks (X and
heat treat) machines are down. Lou says $32 per hour for the X machine and $21 per hour
for heat treat. How much when the whole plant is down? Around $1.6 million. How many
hours are available per month? About 585. After a calculation, Jonah explains that when the
bottlenecks are down for an hour, the true cost is around $2,735, the cost of the entire
system. Every minute of downtime at a bottleneck translates into thousands of dollars of loss
throughput, because without the parts from the bottleneck, you can’t sell the product.
Therefore, you cannot generate throughput.
Chapter Twenty
Alex organizes the bottlenecks to work on only overdue orders from the most overdue to the
least. He then finds his wife. She is at her parent’s house. Through their conversation it is
learned that she still needs to be away from everybody, even the kids.
Chapter Twenty-One
The crew works out some of the details for keeping the bottlenecks constantly busy. In the
process they find that they need another system to inform the workers what materials have
priority at non-bottlenecks. Red and green tags are the answer. Red for bottleneck parts to be
worked on first as to not hold up the bottleneck machine, and green for the non-bottleneck
parts. That concludes another week. The true test will be next week.
Chapter Twenty-Two
Great, twelve orders were shipped. Alex is pleased, but he definitely needs more. He puts his
production manager on it. His production manager rounds up some old machines to
complement what one of the bottlenecks does. Things are looking up.
Chapter Twenty-Three
They are becoming more and more efficient, 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. It seems there was nothing to do while waiting for the
bottleneck machine to finish the batch. Therefore, in keeping with the notion that everybody
needs to stay busy, workers were at other areas between batches. Alex decides to dedicate a
foreman at each location all the time. Then one of those dedicated foreman, the night
foreman, discovers a way to process more parts by mixing and matching orders by priority,
increasing efficiency by ten percent. Finally, one process being sent through a bottleneck
could be accomplished through another older way and therefore free up time on the
bottleneck.

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Chapter Twenty-Four
Now that the new priority system is in place for all parts going through the bottlenecks,
inventory is decreasing. That’s a good thing right? But lower inventory revealed more
bottlenecks. This intrigues Jonah so he’s coming to take a look.
Chapter Twenty-Five
"There aren’t any new bottlenecks", says Jonah. What actually has happened is a result of
some old thinking. Working non-bottlenecks to maximum capacity on bottleneck parts has
caused the problem. All parts are stacked up in front of the bottlenecks and others are
awaiting non-bottleneck parts for final assembly. There needs to be balance. The red and
green tags need to be modified. It seems as if the bottlenecks will again control the flow, by
only sending them exactly what they need and when they need it.
Chapter Twenty-Six
Ralf, the computer wiz, says he can come up with a schedule for bottleneck parts and when
they should be released. This will alleviate any excess inventory in front of the bottlenecks,
but what about the non-bottlenecks? Jonah says with the same data out of the bottlenecks to
final assembly, you should be able to predict non-bottleneck parts as well. This will make
some time, but there are enough parts in front of the bottlenecks to stay busy for a month.
Chapter Twenty-Seven
There is another corporate meeting. Mr. Peach doesn’t praise Alex like Alex thinks he
should. Alex decides to talk with him in private. Mr. Peach agrees to keep the plant open if
Alex gives him a fifteen percent improvement next month. That will be hard because that
relies heavily on demand from the marketplace.
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. Alex informs him of the new problem of more
inventories and less throughput. Jonah suggests reducing batch sizes by half. Of course, this
will take some doing with vendors, but if it can be done, nearly all costs are cut in half. Also,
they get quicker response times and less lead times for orders. Sounds good.
Chapter Twenty-Nine
Alex is propositioned with a test. They can greatly increase sales, current and future, if they
can ship a thousand products in two weeks. Impossible without committing the plant to
nothing but the new order? Wrong! How about smaller batch sizes. Cut them in half again.
Then promise to ship 250 each week for four weeks starting in two weeks. The customer
loved it.
Chapter Thirty
Seventeen percent!! That’s great, but it’s not derived from the old cost accounting model.
The auditors sent down to the plant from Division find just 12.8% improvement. Most of it
accounts from the new order. Which by the way, 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. Anyway, tomorrow is the day of reckoning at
division.

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Chapter Thirty-One
Well the meeting at Division started out rough. Alex thought he would be meeting with Mr.
Peach and other top executives. Instead, he met with their underlings. He decides to try and
convince them it doesn’t work. Just before leaving he decides to see Mr. Peach. It’s a good
thing he did, because he just got promoted to Mr. Peach’s position. Now Alex has to manage
three plants as the whole division. He calls Jonah desperately and asks for help. Jonah
declines until he has specific questions.
Chapter Thirty-Two
Alex has a nice dinner with his wife. 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-Three
Now is the time to assemble Alex’s team for Division. Surprisingly the accountant with two
years to retirement is on board, but the production manager isn’t. He wants to be plant
manager to continue their efforts. Everything is totally into place at the plant but more is
needed for division.
Chapter Thirty-Four
Alex is firmly engrossed with the problems of taking over the division. With advice from his
wife he decides to enlist the help of his team at the plant. Every afternoon they will meet to
solve the problem. After the first day it is obvious , they will need them all.
Chapter Thirty-Five
The second day they are led in a discussion about the periodic table of elements, and how the
scientists actually got a table of any sort. Maybe that is how they will solve the massive
problems of division, by understanding how the scientists started with nothing and achieved
order. A way to define them by their intensive order is needed.
Chapter Thirty-Six
The team finally comes up with the process: Step one – identify the system’s bottlenecks;
Step two- decide how to exploit those bottlenecks; Step three- subordinate everything else to
step two decisions; Step four- evaluate the systems bottlenecks; Step five- if, in a previous
step, a bottleneck has been broken, go to step one. It seems so simple, just different.
Chapter Thirty-Seven
The team decides to revise the steps: Step one – identify the systems constraints; Step two –
decide how to exploit the systems constraints; Step three – subordinate everything else to
step two decisions; Step four – evaluate the systems constraints; Step five- warning!!! If in
the previous steps a constraint has been broken, go back to step one, but don’t allow inertia
to cause a system constraint.
It also has been discovered that they have been using the bottlenecks to produce fictitious
orders in an effort to keep the bottlenecks busy. That will free up twenty percent capacity,
which translates in to market share.

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Chapter Thirty-Eight
Talking with the head of sales. Alex finds out that there is a market order to fill the capacity.
It’s in Europe, so selling for less there will not affect domestic clients. If it can be done, will
open a whole new market. Then Alex ponders Jonah’s question, to determine what
management techniques should be utilized. Alex determines how a physicist approaches a
problem. Maybe this will lead to an answer.
Chapter Thirty-Nine
Alex experiences a problem at the plant. It seems all the new orders have created new
bottlenecks. After analyzing the problem, 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. This will hurt the new relationship between sales and production, but it is needed.
Production is an ongoing process of improvement, and when new problems arise they need
to be dealt with accordingly.
Chapter Forty
Finally, struggling with the answer to Jonah’s question, 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, and the skills needed to answer them are the keys to a
good manager and ultimately the answer to Jonah’s question.

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