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

1. Hugh E. ColeManaging PartnerAvraham Y. Goldratt Institute, LPASEM Member Benefit – www.asem.org/Understanding THE GOAL:The best-seller by Eli Goldratt and Jeff CoxCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

2. 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 muteCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

5. 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…!”Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

6. Alex Rogo•  Technology•  Computers•  Good people•  All materials needed•  Have a market!“Something is wrong…”Why can’t we make money?Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

7. Alex Rogo JonahChance 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”Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

8. Alex Rogo•  Produce products as efficientlyas we can•  Buy raw materials in the mostcost-effective manner•  Be a good employer•  Produce quality products•  Produce quality productsefficiently•  Stay on the leading edge oftechnology•  Meet sales requirements•  MAKE MONEY!“What is the Goal?”“What do we try to do?”UniCoCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

9. Alex RogoActually make more money todayand in the future!Why is that important to know?•  It enables us to answer the question “what isproductivity?”•  An action that moves us toward making moneyis productive.•  An action that takes us away from makingmoney 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.

10. Throughput(T)Investment ($I)Inventory ($I)$OperatingExpense($OE)$BudgetJonah1.  Throughput (T)2.  Investment (I)3.  Operating Expense (OE)Measurements??SystemCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

11. Throughput(T)Investment ($I)Inventory ($I)$OperatingExpense($OE)$BudgetJonah1.  Throughput (T)2.  Investment (I)3.  Operating Expense (OE)Throughput = Sales - TVCNet Profit = T - OESystemCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

12. Alex Rogo JonahBreakfast meeting…Alex: “Let’s talk about my Robots…”Jonah: “Forget about the Robots - you’ve got much more fundamentalthings to concern yourself with.”Alex: “But what about my efficiencies?”Jonah: “Most of the time your struggle for high efficiencies is takingyou in the opposite direction of your Goal!”Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

14. 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 EventsRawMaterialCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

15. 2. Statistical FluctuationsThe output of any resource fluctuates over time.15105On average, this resource will produce 10 units per hourOn average, this resource will deliver in 10 hoursOn average, this customer will require 10 units per dayorProbability Distribution10TimeUnitsCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

16. A B CRawMaterialD E FCombine Dependent Events…15105or1015105or1015105or1015105or1015105or1015105or10Jonah: “Alex, call me when you can tell me what thecombination of the two phenomena mean to your plant.”…with Statistical FluctuationsCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

17. Boy Scout HikeSpreading troops mean high inventory.Closely packed troops mean lower inventory.How can we prevent the troops from spreading withoutlosing speed/throughput?Raw MaterialFG Work-in-ProcessHerbieCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

18. 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!HerbieCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

20. Lightened Herbie’s load to enable him to speed up.Made sure that those behind could close any gaps.What did Alex do next?HerbieCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

21. “The maximum deviation of a preceding operation willbecome the starting point of a subsequent operation”.What did Alex learn about Statistical Fluctuations andDependent Events?Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

23. UniCoAlex’s “system” (Big Picture)Raw MaterialsConversion(Production)FGInventoryDiscreetOrdersThe Goal: Make more money now and in the future.The Metrics: Throughput, Investment, Operating ExpenseBut how does the system achieve the Goal? (Details…)Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

24. Material ReleaseRawMaterialsResources / Routing / BOMFGInventoryOrdersHow Alex’s System achieves its Goal(Details…)FlowCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

25. Resources / Routing / BOM“What you have to do next, Alex, is todistinguish between two types ofresources in your plant. One type iswhat I call a bottleneck resource. Theother is, very simply, a non-bottleneckresource.”“Bottleneck: Any resource whose capacity is equal to orless than the demand placed on it.”RawMaterialsFGInventoryOrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

26. Resources / Routing / BOM“Bottleneck: Any resource whose capacity is equal to orless than the demand placed on it.”NCX-10“What you have to do next, Alex, is todistinguish between two types ofresources in your plant. One type iswhat I call a bottleneck resource. Theother is, very simply, a non-bottleneckresource.”RawMaterialsFGInventoryOrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

27. FGInventoryResources / Routing / BOM“Bottleneck: Any resource whose capacity is equal to orless than the demand placed on it.”NCX-10Heat Treat“What you have to do next, Alex, is todistinguish between two types ofresources in your plant. One type iswhat I call a bottleneck resource. Theother is, very simply, a non-bottleneckresource.”RawMaterialsOrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

28. Resources / Routing / BOMNCX-10Yes, it is possible to have two bottlenecks, but firstmake sure they are really bottlenecks.RawMaterialsFGInventoryHeat TreatOrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

29. Resources / Routing / BOMNCX-10In the case of the furnaces, they were bottlenecksbecause of the way they were operated - and Alexlearned that they did not need to heat treat someparts that they processed.RawMaterialsFGInventoryHeat TreatYes, it is possible to have two bottlenecks, but firstmake sure they are really bottlenecks.OrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

30. Resources / Routing / BOMNCX-10In the case of the furnaces, they were bottlenecksbecause of the way they were operated - and Alexlearned that they did not need to heat treat someparts that they processed.RawMaterialsFGInventoryYes, it is possible to have two bottlenecks, but firstmake sure they are really bottlenecks.OrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

31. So he had to take another approach…Unlike the Boy Scout hike, Alex’s slowestresource was not first in line!Applying the Boy Scout Hike to UniCoCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

32. Applying the Boy Scout Hike to UniCoAlex “tied a rope” from the first operation to the constrainingoperation, limiting the “distance” (time) between them, andlimiting the work-in-process.Raw MaterialFG Work-in-ProcessHe also exploited the use of Herbie by changing certain policies.Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

33. Resources / Routing / BOMIn the plant, the “tied Ropes” looked like this.NCX-10He also changed work rules for breaks, QA, and maintenance.They controlled entry points for material release ofroutings that led to the NCX-10. The ropeseffectively choked off release of materials to the rateand quantity required by the NCX-10 to makedemands for both inventory and discreet orders.RawMaterialsFGInventoryOrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

34. Resources / Routing / BOMNCX-10He 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”!RawMaterialsFGInventoryOrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

35. Resources / Routing / BOMNCX-10Alex followed what is known as the Five Focusing Steps of TOC…Until the CONSTRAINT moved to…At which time Alex used his new-foundcapacity and decreased lead-time to acquiresignificantly more business!The MARKET!RawMaterialsFGInventoryOrdersCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

36. 1.  Identify the system’s constraint(s).2.  Decide how to Exploit the system’s constraint(s).3.  Subordinate/Synchronize everything else to theabove decision.4.  Elevate the system’s constraint(s).5.  If in the previous steps a constraint has beenbroken, go back to Step 1.Do not allow inertia to become the system’s constraint!WARNINGThe Five Focusing Steps of TOCCopyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

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

AGI - Goldratt Institute

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