Understanding THE GOAL: The best-seller by Eli Goldratt and Jeff Cox

Hugh E. Cole
Managing Partner
Avraham Y. Goldratt Institute, LP
ASEM Member Benefit – www.asem.org/
Understanding THE GOAL:
The best-seller by Eli Goldratt and Jeff Cox
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

HOUSEKEEPING
•  Presentation will last 45 minutes
•  There will be time at the end for questions
•  Save all questions until the end
•  Please turn your phone on mute

3
3
•  Over 3 Million copies sold
•  Translated into more than 21
languages

Alex Rogo Jonah
“To ask, inquire…” “Seeks truth…”
UniCo

Alex Rogo
•  Late orders
•  High cost
•  Low efficiencies
•  Two rounds of layoffs
•  20% cutback
•  Plant is losing money…
Meeting with the boss (Bill Peach)…
“You have 3 MONTHS…!”

Alex Rogo
•  Technology
•  Computers
•  Good people
•  All materials needed
•  Have a market!
“Something is wrong…”
Why can’t we make money?

Alex Rogo Jonah
Chance meeting at the airport…
Robots -> Productivity Improvement -> What is productivity?
Not equations! -> Can only be measured in terms of your Goal!
So…”what is the Goal of your manufacturing organization?”
Hint: “There is only one Goal, no matter what the company”

Alex Rogo
•  Produce products as efficiently
as we can
•  Buy raw materials in the most
cost-effective manner
•  Be a good employer
•  Produce quality products
•  Produce quality products
efficiently
•  Stay on the leading edge of
technology
•  Meet sales requirements
•  MAKE MONEY!
“What is the Goal?”
“What do we try to do?”
UniCo

Alex Rogo
Actually make more money today
and in the future!
Why is that important to know?
•  It enables us to answer the question “what is
productivity?”
•  An action that moves us toward making money
is productive.
•  An action that takes us away from making
money is non-productive.
But how to measure? There is no shortage of measurements!
•  Hours worked vs. hours paid to work…
•  Output per hour compared to standard…
•  Cost of products…
•  Direct labor variances…
Problem: “…they don’t tell me if I made money!”Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

Throughput
(T)
Investment ($I)
Inventory ($I)
$Operating
Expense
($OE)
$Budget
Jonah
1.  Throughput (T)
2.  Investment (I)
3.  Operating Expense (OE)
Measurements??
System

Throughput
(T)
Investment ($I)
Inventory ($I)
$Operating
Expense
($OE)
$Budget
Jonah
1.  Throughput (T)
2.  Investment (I)
3.  Operating Expense (OE)
Throughput = Sales - TVC
Net Profit = T - OE
System

Alex Rogo Jonah
Breakfast meeting…
Alex: “Let’s talk about my Robots…”
Jonah: “Forget about the Robots - you’ve got much more fundamental
things to concern yourself with.”
Alex: “But what about my efficiencies?”
Jonah: “Most of the time your struggle for high efficiencies is taking
you in the opposite direction of your Goal!”

“Two phenomena are found in every plant…”
1.  Dependent Events
2.  Statistical Fluctuations

A B C
• C cannot accomplish more than what B provides to it.
• B cannot work until it receives parts from A.
• A cannot do its job until it receives Raw Material.
1. Dependent Events
Raw
Material

2. Statistical Fluctuations
The output of any resource fluctuates over time.
15
10
5
On average, this resource will produce 10 units per hour
On average, this resource will deliver in 10 hours
On average, this customer will require 10 units per day
or
Probability Distribution
10
Time
Units

A B CRaw
Material
D E F
Combine Dependent Events…
15
10
5
or
10
15
10
5
or
10
15
10
5
or
10
15
10
5
or
10
15
10
5
or
10
15
10
5
or
10
Jonah: “Alex, call me when you can tell me what the
combination of the two phenomena mean to your plant.”
…with Statistical Fluctuations

Boy Scout Hike
Spreading troops mean high inventory.
Closely packed troops mean lower inventory.
How can we prevent the troops from spreading without
losing speed/throughput?
Raw MaterialFG Work-in-Process
Herbie

Put Herbie in the lead.
Made sure that those behind could close any gaps.
What did Alex do?
But the ‘troops became frustrated because it was too slow!
Herbie

What did Alex do next?
Herbie

Lightened Herbie’s load to enable him to speed up.
Made sure that those behind could close any gaps.
What did Alex do next?
Herbie

“The maximum deviation of a preceding operation will
become the starting point of a subsequent operation”.
What did Alex learn about Statistical Fluctuations and
Dependent Events?

UniCo
How could Alex apply this learning to UniCo?

UniCo
Alex’s “system” (Big Picture)
Raw Materials
Conversion
(Production)
FG
Inventory
Discreet
Orders
The Goal: Make more money now and in the future.
The Metrics: Throughput, Investment, Operating Expense
But how does the system achieve the Goal? (Details…)

Material Release
Raw
Materials
Resources / Routing / BOM
FG
Inventory
Orders
How Alex’s System achieves its Goal
(Details…)
Flow

“What you have to do next, Alex, is to
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.”
“Bottleneck: Any resource whose capacity is equal to or
less than the demand placed on it.”
Raw
Materials
FG
Inventory
Orders

NCX-10
resource.”
Raw
Materials
FG
Inventory
Orders

FG
Inventory
NCX-10
Heat Treat
resource.”
Raw
Materials
Orders

NCX-10
Yes, it is possible to have two bottlenecks, but first
make sure they are really bottlenecks.
Raw
Materials
FG
Inventory
Heat Treat
Orders

NCX-10
In the case of the furnaces, they were bottlenecks
because of the way they were operated - and Alex
learned that they did not need to heat treat some
parts that they processed.
Raw
Materials
FG
Inventory
Heat Treat
Orders

NCX-10
In the case of the furnaces, they were bottlenecks
because of the way they were operated - and Alex
learned that they did not need to heat treat some
parts that they processed.
Raw
Materials
FG
Inventory
Orders

So he had to take another approach…
Unlike the Boy Scout hike, Alex’s slowest
resource was not first in line!
Applying the Boy Scout Hike to UniCo

Applying the Boy Scout Hike to UniCo
Alex “tied a rope” from the first operation to the constraining
operation, limiting the “distance” (time) between them, and
limiting the work-in-process.
Raw MaterialFG Work-in-Process
He also exploited the use of Herbie by changing certain policies.

In the plant, the “tied Ropes” looked like this.
NCX-10
He also changed work rules for breaks, QA, and maintenance.
They controlled entry points for material release of
routings that led to the NCX-10. The ropes
effectively choked off release of materials to the rate
and quantity required by the NCX-10 to make
demands for both inventory and discreet orders.
Raw
Materials
FG
Inventory
Orders

NCX-10
He also changed work rules for breaks, QA, and maintenance.
Operating in this manner…
•  WIP decreased
•  FG inventory decreased
•  Lead time decreased
•  Due date performance improved
•  Operating Expense Decreased
•  Plant began “making money”!
Raw
Materials
FG
Inventory
Orders

NCX-10
Alex followed what is known as the Five Focusing Steps of TOC…
Until the CONSTRAINT moved to…
At which time Alex used his new-found
capacity and decreased lead-time to acquire
significantly more business!
The MARKET!
Raw
Materials
FG
Inventory
Orders

1.  Identify the system’s constraint(s).
2.  Decide how to Exploit the system’s constraint(s).
3.  Subordinate/Synchronize everything else to the
above decision.
4.  Elevate the system’s constraint(s).
5.  If in the previous steps a constraint has been
broken, go back to Step 1.
Do not allow inertia to become the system’s constraint!
WARNING
The Five Focusing Steps of TOC

QUESTIONS?
Hugh E. Cole
AGI-Goldratt Institute
hugh.cole@goldratt.com
www.goldratt.com

Understanding THE GOAL: The best-seller by Eli Goldratt and Jeff Cox

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