The Goal by Eliyahu M. Goldratt - A Book Review

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A review as well as analysis of highly acclaimed book by Eliyahu M. Goldratt. The review consists of a Management Control System perspective.

Published in: Business, Technology

The Goal by Eliyahu M. Goldratt - A Book Review

  1. 1. A BOOK REVIEW
  2. 2. INDEX CONTENT 1 BRIEF INTRODUCTION 5 MANAGEMENT AUDIT 2 KEY CONCEPTS 6 THE TRANSFORMATION 3 PROBLEM AREAS 7 THE IMPLEMENTATION 4 CONTROL SYSTEMS 8 KEY LEARNINGS
  3. 3. NEXT Brief Introduction
  4. 4. BRIEF INTRODUCTION Alex Rogo (Plant Manager) Stacey Bill Peach (Division Head) Julie Rogo (Alex’s wife) Ralph Nakamura (Head Inventory Control) Bob Donovan (Production Manager) (Planning) Jonah Lou (Physicist / Consultant) (Accountant)
  5. 5. BRIEF INTRODUCTION Alex’s Bearington plant is losing money. He is given 3 months ultimatum to either make plant make money or plant will be closed. He implements a few concepts suggested by Jonah. He, with his team consisting of Stacey, Lou, Bob and Ralph improve the processes and culture at the plant. As a result, Alex gets promoted as Divisional Manager.
  6. 6. NEXT Key Concepts
  7. 7. KEY CONCEPTS Rate at which system generates money through sales All the money system has invested in purchasing things it intends to sell THROUGHPUT OPERATIONAL EXPENSES All the money system spends to convert inventory to throughput INVENTORY BOTTLENECK Any resource whose capacity is equal to or less than the demand placed upon it
  8. 8. TOC CONCEPT Identify the Constraint Repeat the process Elevate performance of the Constraint Exploit the Constraint Subordinate and Synchronize to the Constraint The throughput of any system is determined by the Bottleneck Constraint. Hence to increase the throughput one must focus on identifying and improving this constraint.
  9. 9. NEXT Problem Areas
  10. 10. PROBLEM AREAS THE INVENTORY the problem areas BOTTLENECK’S CAPACITY ROBOTS ORDERS
  11. 11. THE INVENTORY Every machine was used with 100% capacity which in turn increased Inventories due to capacity mismatch between adjacent machines/resources Inventory was high. Inventory turnover period increase. Cash conversion cycle increase. Low Cash Inflow.
  12. 12. BOTTLENECK’S CAPACITY Capacity is less than or equal to the demand. Bottlenecks decided throughput of the system as a whole. Bottleneck capacity could not be increased due to Capital Expenditure Constraint.
  13. 13. THE ROBOTS Robots were used, but production didn’t increase. Labour wasn’t laid off. Cost of materials didn’t go down. So, there was no tangible effect of using Robots.
  14. 14. THE ORDERS Most of the orders were getting late. Expediting was a norm in the plants.
  15. 15. NEXT Control Systems
  16. 16. BASIC MODELS OF MANUFACTURING The four basic models of manufacturing, shown as follows: Where X represents a Bottleneck and Y represents a Non-Bottleneck Y X X Y Y ASSEMBLY & Y PART-A X but X ASSEMBLY PART-B
  17. 17. CONTROL SYSTEMS SET GOALS MEASURE ACHIEVEMENT CALCULATE VARIANCE REPORT VARIANCE DERIVE CAUSE OF THE VARIANCE • To make money by increasing net profit, while simultaneously increasing ROI and Cash Flow. • Plant was making losses (Bill Peach’s revelation) • Division was also making losses. • Losses were not quantified though • Less throughput due to bottleneck constraints
  18. 18. CONTROL SYSTEMS Prioritized material coming to bottlenecks over other material. TAKE NECESSARY ACTIONS TO MINIMIZE THE VARIANCES Bottlenecks utilized to 100 % of time Quality Check shifted before the bottleneck to let bottleneck process non-defective WIP Consume the inventory to decrease levels of inventory and free money locked up in inventory Production Planning and Material Sourcing Planning to avoid Interactive Bottleneck Situation. Use of alternate resources to increase capacity of Bottleneck Process Re-engineering REPEAT THE STEPS UNTIL GOALS ARE MET
  19. 19. NEXT Management Audit
  20. 20. APPRAISAL OF CONTROL Process re-engineering APPRAISAL OF CONTROL Information gathered from shop floor and list of backlog orders Ralph created system to efficiently predict time to engineer a sale. Materials were sourced as per the demand and capacity constraint Resources to efficiently use bottlenecks
  21. 21. APPRAISAL OF ORGANIZATION STRUCTURE Production Planning and Control Inventory Planning PRODUCTION Capacity Utilization of Bottlenecks Production Inspection (QC moved to before bottleneck)
  22. 22. APPRAISAL OF ORGANIZATION STRUCTURE Differentiation Strategy New Marketing Campaign for 4 week delivery MARKETING Heightened brand image Long term / Yearly contracts with French Customer.
  23. 23. BALANCED SCORECARD FINANCIAL PERSPECTIVE CUSTOMER PERSPECTIVE Increase in Orders: • New customer Burnside • Contract made with French customer for 1 year • • • • Cash Flow Net Profit ROI Increase Sales backlog INNOVATION & LEARNING PERSPECTIVE • Revenue per employee • Culture change from cost world to throughput world INTERNAL BUSINESS PERSPECTIVE • Production planning control • Material sourcing • 4 week delivery
  24. 24. NEXT The Transformation
  25. 25. THE TRANSFORMATION PREDICTIVE PROACTIVE REACTIVE
  26. 26. THE TRANSFORMATION REACTIVE • In Bearington plant, expediting was a norm. • Efficiency of the plant was down. • Plant was making losses. PROACTIVE • Alex and team identified system constraints i.e. the bottlenecks. • Gave high priority to parts that were to be fed to Bottlenecks over parts that were not going to be processed by bottlenecks. • Bottlenecks time was not lost and it increased throughput. PREDICTIVE • Red tag and green tag priority system caused starvation of resources for green tagged parts. • Increased QUEUE TIME for green tagged parts & increased WAIT TIME for Red Tagged parts. • By analyzing the capacity of bottlenecks, the amount of production of green tagged parts could be calculated. • This helped in material sourcing planning and predicting the Out Time of the order.
  27. 27. HOW DO THE MEASURES RELATE TO DECISIONS? NP ROI CF OPERATIONAL FINANCIAL THROUGHPUT (TP) I OE ROI CF INVENTORY (I) TP NP NP ROI CF OPERATIONAL EXPENSE (OE) NP ROI CF An effective decision simultaneously increases TP, decreases I, and decreases OE.
  28. 28. NEXT The Implementations
  29. 29. THE IMPLEMENTATIONS WHAT TO IMPLEMENT? Efficiently use the bottleneck capacity Increase in bottleneck capacity What?
  30. 30. THE IMPLEMENTATIONS HOW TO IMPLEMENT? Realigning Quality Control Prioritization (Tagging) Recall some of the Old Machines Dedicated Personnel Material Release System Reduce the Batch Size
  31. 31. NEXT Key Learnings
  32. 32. KEY LEARNINGS Balance the flow with demand, not capacity. The level of activity of the system is determined by constraints in the system. Activating a resource and utilizing it are not the same. An hour lost at a bottleneck is an hour lost by the entire system. An hour saved at a non-bottleneck is worthless. Performance of an operation should be evaluated by its bottom line.
  33. 33. KEY LEARNINGS Alex and Lou identify three fundamental decision issues as critical to the success of any manager Knowing what to change What to change to How to cause the change
  34. 34. THANK YOU

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