The Goal Report

1. Provide the de nitions of throughput, inventory and operational expense given

in The Goal. How do they compare with the traditional de nitions? Do you nd
them useful, and why?

Throughput

De nition in The Goal The rate at which the system generates money through sales.
Traditional De nition The rate of production or the rate at which something is processed.

Comparison : The de nition in The Goal considers additional steps and time required towards
sales after production when calculating the throughput whereas the traditional de nition
considers only until the production ends.

Usefulness : Yes, I nd this concept useful. Because this gure can directly translated into revenue
created during a certain period of time. In addition, the term throughput is already de ned
differently depending on contexts, i.e. data communication, etc., so it is fair to de ne throughput
exibly as far as it is consistent with a concept of completion ratio and is useful for the group.

Inventory

De nition in The Goal All the money that the system has invested in purchasing things which
it intends to sell.
Traditional De nition The goods and materials that a business holds for the ultimate goal of
resale.

Comparison : The de nition in The Goal includes includes indirect costs like SG&A into
inventory which is traditionally not included in calculating inventory.

Usefulness : This can be useful when calculating sales margin in manufacturing or retail
company. However, it can be extremely confusing and misleading when you mix up this new
concept when doing nancial accounting, as it is quite different from the accounting standards.

Operational Expense

THE GOAL REPORT 1

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 De nition in The Goal All the money the system spends in order to turn inventory into
throughput.
Traditional De nition Expenditures that a business incurs to engage in activities not directly
associated with the production of goods or services.

Comparison : The de nition in The Goal considers all the expenses directly related to
production as operational expense, whereas traditionally, all the expenses that are not directly
related to production as operating expense.

Usefulness : The can be useful only if the company is heavily manufacturing oriented and does
not have much of indirect expenses. Since there is a standard accounting de nition for the term
operating expense, the merit of introducing this new concept would not beat the demerits of it
bringing confusions.

2. Provide the de nition of a bottleneck machine. Develop your own simple

example to demonstrate it to me.

From the book, the ‘bottleneck’ is de ned as any resource which is equal to or less than
the market demand placed on it. Thus, a bottle neck machine is a machine which is equal to or
less than the market demand placed on it.

For example, if in a milk manufacturing factory, everything from milk extraction,

pasteurization, labeling, and shipping works fast, but bottling is taking a longer period of time,
i.e. if milks sits before the bottling machine to wait to be bottled and bottled milks are labeled
and shipped without delay, the bottling machine is the bottleneck machine in this case.

3. What are the production scheduling principles (at least 4 distinct ones)
discussed in The Goal?

1. IDENTIFY the system’s constraint(s).

2. Decide how to EXPLOIT the system’s constraint(s).
3. SUBORDINATE everything else to the above decision.
4. ELEVATE the system’s constraint(s).
5. WARNING!!!! If in the previous steps a constraint has been broken, go back to step 1,
but do not allow INERTIA to cause a system’s constraint.

4. Provide an explanation of the pitfalls (at least 4 distinct ones), as discussed in

The Goal, of using cost accounting data for manufacturing decision making.

THE GOAL REPORT 2

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 a. Traditional cost account data balances capacity with demand rst, but they needed to
balance the ow with demand not the capacity.
b. The incentives we usually offer are based on the assumption that the level of utilization
of any worker is determined by his own potential, but that is not true because of dependency.
c. We’ve assumed that utilization and activation are the same, but this is not true.
d. Inventory may not be liability.

THE GOAL REPORT 3

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