Case Study - The Goal (E M Goldratt)

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a case study on The Goal, a book by E.M. Goldratt, in the subject on Operations Management

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Case Study - The Goal (E M Goldratt)

  1. 1. The Goal A Process of Ongoing Improvement -presented by Nachiket Kulkarni #311 Ashwin Mehta #313 Pratik Mehta #314 Ishan Parekh #315 Ankit Shah #317 Dishank Shah #318
  2. 2. About The Author • Born in March 31, 1948 • an Israeli physicist who became a Business Management Guru • B.Sc. from Tel Aviv University (TAU), Israel • M.Sc. Doctorate of Philosophy from Bar-Ilan University (BIU), Israel • An Educator, Author, Scientist, Philosopher & Business Leader. • He holds a number of patents in the areas from medical devices to drip irrigation to temperature sensors. Eliyahu Moshe Goldratt
  3. 3. Introduction – The Goal • Dr. Eli Goldratt's book “The Goal”, has been a best seller since 1984 and is recognized as one of the best-selling management books of all time. • The Author has used the Socratic inductive reasoning to teach his Theory Of Constraints • It is an underground best seller that utilizes a non-traditional approach to convey important business information. • It has reached a sale of eight million copies. • This book which is an overall framework for various businesses determine: ▫ What to change? ▫ Change to what ? ▫ How to cause the change? The Goal – An Ongoing Process of Improvement
  4. 4. The Goal - Scenario • Story revolves around 38year old young executive – Alex Rogo. • An Engineering Graduate + MBA. • Started career in UniCo as project manager and now works under Bill Peach as plant manager in Bearington, his hometown. • Factory produces machined assemblies. • Well trained staff led by highly experienced managers.
  5. 5. Story Characters Alex Rogo, Plant Manager Julie, Rogo’s Wife Bill Peach, Vice President Bob Donovan, Production Manager Fran, Rogo’s Secretary Dempsey, Shift Supervisor Martinez, Union Steward
  6. 6. 6 Set the Stage • Alex Rogo, plant manager of the Bearington plant • Bearington plant, part of the UniWare Division, part of the conglomerate UniCo • Alex meets Jonah, his college physics professor, at the airport
  7. 7. 7 Interchange between Alex and Jonah at Airport Alex Jonah I'm going to speak at a Robots for Productivity Conference So your plant uses robots Yes Have they increased productivity? Sure - 36% in one area 36% more money? You didn't increase productivity
  8. 8. 8 Airport conversation continues Did you ship one more product? Alex Not sure. Jonah Did you fire anybody? Then you didn't increase productivity. No Probably not Did your inventories go down? But we run at 90% efficiency with a low cost per part.Alex
  9. 9. 9 Alex and Jonah: a conflict • Alex: I am running an efficient plant. • Jonah: You are running an inefficient plant. • Data ▫ Machines run 90% of the time. ▫ Unit costs are low. ▫ More products are not shipped. ▫ No one is fired. ▫ Inventory is not decreased. ▫ Inventories are high. ▫ Can't ship on time.
  10. 10. 10 What is the source of the conflict? • Productivity: Anything that moves toward the goal is productive. Anything that moves away from the goal is not productive. • Alex and Jonah have different definitions of the goal. • What is the goal?
  11. 11. 11 Question left by Jonah: What is the Goal? • Make product • Increase market share • Produce quality products • Produce efficiently • Hire workers • Support the city, state and national economy • Increase stockholder value
  12. 12. 12 Why is a goal important? • Directs decisions • Allows Measurement of accomplishment • Without goals we are moved by the current requirements to the exclusion of concerns for the future. • What would Deming say is the Goal? ▫ Point 1: Constancy of Purpose for the Improvement of Product and Service. • We need one goal not many
  13. 13. 13 What is the goal of a public company? Make money now and in the future
  14. 14. 14 How do we measure progress toward the goal?
  15. 15. 15 Financial Measures • What Financial Measures Describe the Goal of Making Money? ▫ Net Profit (NP) ▫ Return on Investment (ROI) ▫ Cash Flow (CF) • Are these sufficient for making decisions?
  16. 16. 16 Can NP, ROI and CF be used to make decisions? • Engineering Economics says “yes” ▫ Accept the project if the IRR of the cash flow is greater than the MARR. • Goldratt would say “no” ▫ It is difficult to see how the global measures are affected by individual design and operating decisions.
  17. 17. 17 What Operational Measures Describe the Goal? • Throughput (TP) ▫ Rate at which system generates money through sales. Sales Revenue - Raw material Expense • Inventory (I) ▫ All the money that the system has invested in purchasing things which it intends to sell • Operational Expense (OE) ▫ All the money that the system spends in order to turn inventory into throughput
  18. 18. 18 How do these measures relate financial measures? • NP = TP - OE • ROI = NP/I • Cash flow is OK if ▫ cumulative income + initial cash > cumulative costs.
  19. 19. 19 NP ROI CF TP I OE How do the measures relate to decisions? TP I OE Operational Financial NP ROI CF NP ROI CF NP ROI CF • An effective decision simultaneously increases TP, decreases I, and decreases OE.
  20. 20. 20 Was the decision to add robots a good idea?Jonah Alex Did you ship one more product? (did you increase throughput?) Not sure Did you fire anybody? (did you decrease cost?) Probably not Did your inventories go down? No Did the robots increase productivity?
  21. 21. 21 The Goal The goal is to reduce operating expense, reduce inventory while simultaneously increasing throughput. The most powerful effect is to increase throughput.
  22. 22. ThankYou

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