The Goal by Eliyahu M. Goldratt

Copyright © 1984 Eliyahu M. Goldratt

One of Eli Goldratt’s convictions was that the goal of an individual or an organization should not be defined in absolute terms. A good definition of a goal is one that sets us on a path of ongoing improvement.

Pursuing such a goal necessitates more than one breakthrough. In fact ir requires many. To be in a position to identify these breakthroughs we should have a deep understanding of the underlying rules of our environment.

Eli Goldratt was an Israeli physicist who became a business management guru and a consultant and advisor to major corporations and government agencies worldwide. He is the originator of the Optimized Production Technology, the Theory of Constraints (TOC), the Thinking Processes, Drum-BufferRope, Critical Chain Project Management (CCPM) and other TOC derived tools. He was called a «guru to industry» by Fortune Magazine and «a genius» by Business Week.

Dr. Goldratt obtained his Bachelor of Science degree from Tel Aviv University and his Masters of Science, and Doctorate of Philosophy from Bar-Ilan University. In addition to this pioneering work in business management and education, he holds patents in a number of areas ranging from medical devices to drip irrigation to temperature sensors.

Eli Goldratt passed away at his home in Israel on June 11th, 2011, in the company of his family and close friends. He will be remembered as an educator, author, scientist, philosopher, and business leader. But he will, first and foremost, always be remembered as a thinker who provoked others to think.

Main ideas:

• There is only one goal, no matter what the company.
• Bad cash flow is what kills most of the businesses that go under.
• A plant in which everyone is working all the time is very inefficient.
• Most of the factors critical to running your plant successfully cannot be determined precisely ahead of time.
• If I simply told you what to do, ultimately you would fail. You have to gain the understanding for yourself in order to make the rules work.
• A bottleneck is any resource whose capacity is equal to our less than the demand placed upon it.
• The idea es to make the flow through the bottleneck equal to demand from the market.
• The capacity of the plant is equal to the capacity of its bottlenecks.
• Activating a non-bottleneck to its maximum is an act of maximum stupidity.
• Outside Toyota TPS (Toyota Production System ) first became known as Just-in-time production.
• The manufacturing industry has been shaped by two great thinkers, Henry Ford and Taiichi Ohno.

Comments extracted from the book, they could be right or wrong, you decide for yourself:

• This book is an attempt to show that we can postulate a very small number of assumptions and utilize them to explain a very large spectrum of industrial phenomena.
• What I have attempted to show with this book is that no exceptional brain power is needed to construct a new science or to expand on an existing one. What is needed is just the courage to face inconsistencies and to avoid running away from them just because «that’s the way it was always done».
• I sincerely believe that the only way we can learn is through our deductive process. Presenting us with final conclusions is not a way that we learn. At best it is a way that we are trained.
• I wanted to show that we can all be outstanding scientists. The secret of being a good scientist, I believe, lies not in our brain power. We have enough. We simply need to look at reality and think logically and precisely about what we see. The key ingredient is to have the courage to face inconsistencies between what we see and deduce and the way thing are done. This challenging of basic assumptions is essential to breakthroughs.
• Progress in understanding requires that we challenge basic assumptions about how the world is and why it is that way. If we can better understand our world and the principles that govern it, I suspect all our lives will be better.
• If your inventories haven’t gone down … and your employee expense was not reduced … and if your company isn’t selling more products, which obviously it can’t, if you’re not shipping more of them, then you can’t tell me these robots increased your plan’s productivity.
• If you are like nearly everybody else in this world, you’ve accepted so many things without question that you’re not really thinking at all.
• I have come to the conclusion that productivity is the act of bringing a company closer to its goal.
• There is only one goal, no matter what the company.
• You cannot understand the meaning of productivity unless you know what the goal is. Until then, you are just playing a lot of games with numbers and words.
• I make a list of all the items people think of as being goals: cost-effective purchasing, employing good people, high technology, producing products, producing quality products, selling quality products, capturing market share. I even add some others like communications and customer satisfaction. They enable the company to make money. But they are not the goals themselves; they’re just the means of achieving the goal.
• Then it occurs to me: those three guys are doing something now, but is that going to help us make money? They might be working, but are they productive?
• Bad cash flow is what kills most of the businesses that go under.
• The goal of a manufacturing organization is to make money. And everything else we do is a means to achieve the goal.
• There is more than one way to express the goal. The goal stays the same, but we can state it in different ways, ways which mean the same thing as those two works, «making money».
• Throughput is the rate at which the system generates money through sales.
• A measurement not clearly defined is worse than useless.
• Inventory is all the money that the system has invested in purchasing things which it intends to sell.
• Operational expense is all the money the system spends in order to turn inventory into throughput.
• It eliminates the confusion over whether a dollar spent is an investment or an expense. That’s why I defined inventory and operational expense the way I just gave you.
• We are not concerned with local optimums.
• Most of the time, your struggle for high efficiencies is taking you in the opposite direction of your goal.
• A plant in which everyone is working all the time is very inefficient.
• The only way you can create excess inventories is by having excess manpower.
• A balanced plant is essentially what every manufacturing manager in the whole western world has struggled to achieve. The real reason is  that the closer you come to a balanced plant, the closer you are to bankruptcy.
• There is a mathematical proof which could clearly show that when capacity is trimmed exactly to marketing demands, no more and no less, throughput goes down, while inventory goes through the roof. So it’s questionable whether you can even fulfill the intended reduction in your total operational expense, the one measurement you expected to improve. Because of the combinations of two phenomena which are found in every plant. One phenomenon is called «dependent events’. An event, or a series of events, must take place before another can begin … the subsequent event depends upon the ones prior to it. The big deal occurs when dependent events are in combination with another phenomenon called «statistical fluctuations’.
• Most of the factors critical to running your plant successfully cannot be determined precisely ahead of time.
• If I simply told you what to do, ultimately you would fail. You have to gain the understanding for yourself in order to make the rules work.
• What’s happening isn’t an averaging out of the fluctuations in our varios speeds, but an accumulation of the fluctuations. And mostly it’s an accumulation of slowness, because dependency limits the opportunities for higher fluctuations.
• How could Jonah be right and everybody else be wrong? Managers have always trimmed capacity to cut costs and increase profits; that the game.
• Whoever is moving the slowest in the troop is the one who will govern throughput. And that person may not always be Herbie.
• The maximum deviation of a preceding operation will become the starting point of a subsequent operation.
• Trying to level capacity with demand to minimize expenses has really screwed us up. We shouldn’t be trying to do that at all.
• A bottleneck is any resource whose capacity is equal to our less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it.
• You should not balance capacity with demand. What you need to do instead is balance the flow of product through the plant with demand from the market. This, in fact, is the first of nine rules that express the relationships between bottlenecks and non-bottlenecks and how you should manage your plant. Balance flow, not capacity.
• The idea es to make the flow through the bottleneck equal to demand from the market.
• If we find one resource in which demand is greater than capacity, then we’ll know we’ve got a bottleneck.
• I can’t help you if you’re determined not to change.
• Most manufacturing plants do not have bottlenecks. They have enormous excess capacity.
• What we must do is find enough capacity for the bottleneck to become more equal to demand.
• If you are like most manufacturers, you will have capacity that is hidden from you b ecause some of your thinking is incorrect.
• This is a relatively new machine. Where are the older machines that this one replaced? Do you still have those?
• Make sure the bottleneck works only on good parts by weeding out the ones that are defective. If you scrap a part before it reaches the bottleneck, all you have lost is a scrapped part. But if your scrap the part after it’s passed the bottleneck, you have lost time that cannot be recovered.
• When I was a physicist, people would come to me from time to time with problems in mathematics they couldn’t solve. They wanted me to check their numbers for them. But after a while I learned not to waste my time checking the numbers, because the numbers were almost always right. However, if I checked the assumptions, they were almost always wrong.
• The capacity of the plant is equal to the capacity of its bottlenecks. Whatever the bottlenecks produce in an hour is the equivalent of what the plant produces in an hour. So an hour lost at a bottleneck is an hour lost for the entire system.
• There are two principal themes on which you need to concentrate. First, make sure the bottlenecks’ time is not wasted. Make the bottlenecks work only on what will contribute to throughput today … not nine months from now. Do all of the parts have to be processed by the bottleneck? If not, the ones which don’t can be shifted to non-bottlenecks for processing. And the result is you gain capacity on your bottleneck. A second question: do you have other machines to do the same process?
• Bob explains what we mean by «right away». If the employee is working on a different job, it’s okay to finish what he’s doing, as long as it doesn’t take more than half and hour. Before an hour has passed, certainly, the red-tagged parts should be getting attention.
• The important thing is to maintain the flow. If we take a worker away, and we can’t maintain the flow, then we’ll put the worker back and steal a body from someplace else. And if we still can’t keep the flow going, then we’ll have no choice but to go to a division and insist that we either go to overtime or call a few people back from layoff.
• Bob, make sure the people you pick are good. From now on, we put only our best people to work on the bottlenecks.
• Maybe with the increase in throughput, we’ve loaded the plant to a level that we’ve run out of capacity on some other resources in addition to heat-treat and the NCX-10. Making the bottlenecks more productive has put more demand on the other work centers. If the demand on another work center has gone above one hundred percent, then we’ve created a new bottleneck.
• When you’re pushing in more material than the system can convert into throughput, what are you getting? Excess inventory.
• This time you end up, not with excess work-inprocess, but with excess finished goods. The constraint here is not in production. The constraint is marketing’s ability to sell.
• The level of utilization of a non-bottleneck is not determined by its own potential, but by some other constraints in the system.
• You have created this mountain of inventory with your own decisions. And why? Because of the wrong assumption that you must make the workers produce one hundred percent of the time, or else get rid of them to ‘save’ money.
• Why is ninety percent acceptable? Why not sixty percent, or twenty-five? The numbers are meaningless unless they are based upon the constraints of the system. With enough raw materials, you can keep one worker busy from now until retirement. But should you do it? Not if you want to make money.
• Activating a non-bottleneck to its maximum is an act of maximum stupidity. And the implication of these rules is that we must not seek to optimize every resource in the system. A system of local optimums is not an optimum system at all; it is very inefficient system.
• With an increase in throughput, it is possible to create new bottlenecks. But most plants have so much extra capacity that it takes an enormous increase in throughput before this happens.
• Do you even know why you want the things you do?
• Where did you get your ideas about how a marriage is supposed to be?
• If you consider the total time from the moment the material comes into the plant to the minute it goes out of the door as part of a finished product, you can divide that time into four elements. One of them is setup, the time the part spends waiting for a resource, while the resource is preparing itself to work on the part. Another is process time, which is the amount of t ime the part spends being modified into a new, more valuable form. A third element is queue time, which is the time the part spends in line for a resource while the resource is busy working on something else ahead of it. The fourth element is wait time, which is the time the part waits, not for a resource, but for another part so they can be assembled together.
• An hour saved at a non-bottleneck is a mirage.
• Since we cut batch sizes, work is flowing through the plant more smoothly than ever.
• You remember a long time ago, after we got married and we both had jobs, how we’d come home and just talk to each other for a couple of hours, and sympathize with each other about the trials and tribulations we’d suffered during the day? That was nice.
• We’ve assumed that utilization and activation are the same. Activating a resource and utilizing a resource are not synonymous.
• Spelling out the answers when you are trying to convince someone who blindly follows the common practice is totally ineffective. Actually there are only two possibilities, either you are not understood, or you «are» understood.
• This is the technique that I should ask Jonah to teach me: how to persuade other people, how to peel away the layers of common practice, how to overcome the resistance to change.
• Do you agree that inventory is a liability?
• How can one identify an intrinsic order even when he stumbles on it?
• For an accountant, everything is a matter of measurements.
• In the past, cost was the most important, throughput was second, and inventory was a remote third. To the extent that we regarded it as assets. Our new scale is different. Throughput is most important, then inventory (due to its impact on throughput) and only then, at the tail, comes operating expenses.
• Changing the measurements’ scale of importance, moving from one world into another, is without a doubt a culture change.
• It wasn’t too long before the process was written clearly on the board:
  • Step 1. Identify the system’s bottlenecks.
  • Step 2. Decide how to exploit the bottlenecks.
  • Step 3. Subordinate everything else to the above decision.
  • Step 4. Elevate the system’s bottlenecks.
  • Step 5. If, in a previous step, a bottleneck has been broken go back to step 1.
• It’s how physicists approach a subject; it’s so vastly different from what we do in business. They don’t start by collecting as much data as possible. On the contrary, they start with one phenomenon, some fact of life, almost randomly chosen, and then they raise a hypothesis: a speculation of a plausible cause for the existence of that fact. And here’s the interesting part. It all seems to be based on one key relationship: IF … THEN. What they actually do is to derive the unavoidable results logically from their hypothesis. They say: IF the hypothesis is right THEN logically another fact must also exist. With these logical derivations they open up a whole spectrum of other effects. Of course the major effect is to verify whether or not the predicted effects do exist. as more and more predictions are verified, it becomes more obvious that the underlying hypothesis is correct.
• As long as we don’t know what caused the situation, the best we can do is to throw punches in all directions.
• It looks like the bottlenecks are moving all the time.
• The problem is that the bottlenecks are moving all over the place.
• The more inventory we allow before the bottleneck, the more time is available for upstream resources to catch up, and so, on average, they need less spare capacity. The more inventory the less spare capacity and vice versa.
• Every organization is built for a purpose. We haven’t built any organization just for the sake of its mere existence.
• The distorted measurements are the biggest constraint of the division.
• The real constraints, even in our plant, were not the machines, they were the policies.
• It is easy to trace the popularity of Lena production to Toyota’s success. Toyota’s success was undeniable.
• The sucess of Toyota is fully attributed to the Toyota Production System (TPS). At least this is the conviction of Toyota’s management, the stated number one challenge of Toyota is to pass TPS on as the company’s DNA to the next generation.
• Toyota was more than generous in sharing their knowledge. This company put all the TPS knowledge in the public domain and even went as fas as inviting their direct competitors to visit their plants.
• The manufacturing industry has been shaped by two great thinkers, Henry Ford and Taiichi Ohno. Ford revolutionized mass production by introducing the flow lines. Ohno took Ford’s ideas to the next level in his TPS, a system that forced the entire industry to change its grasp of inventory from an asset to a liability. Ford’s starting point was that they key for effective production is to concentrate on improving the overall flow of products through the operations. His efforts to improve flow were so successful that, by 1926, the lead time from mining the iron ore to having a completed car composed of more than 5,000 parts, on the train ready for delivery, was 81 hours. Eighty years later, no car manufacturer in the world has been able to achieve, or even come close, to such a short lead time. In order to achieve flow, Ford had to abolish local efficiencies.
• Outside Toyota TPS first became known as Just-in-time production.
• Lean is now strongly associated with small batches and setup reduction techniques.
• In the last twenty years, every other car company has implemented one version or another of the Toyota system and reaped major benefits, the productivity of Toyota is unmatched by any other car company.
• Ohno did not invest so much effort in reducing the setup times in order to gain some cost savings. If saving cost would have been his target he would not have ‘wasted’ the time saved by further reducing the batches and therefore doing much more setups. Ohno did not try to reduce the number of defective parts in order to save some (trivial) costs; he did it to eliminate the major disruptions to flow that result from having a defective part. Ohno did not even try to squeeze better prices from Toyota suppliers or to cut the payroll of Toyota (the two main elements of cost); rather he put all his energy into improving the flow.
• Ford and Ohno followed four concepts:
  1. Improving flow (or equivalently lead time) is a primary objective of operations.
  2. This primary objective should be translated into a practical mechanism that guides the operation when not to produce (preventsoverproduction). Ford used space; Ohno used inventory.
  3. Local efficiencies  must be abolished.
  4. A focusing process to balance flow must be in place. Ford used direct observation. Ohno used the gradual reduction of the number of containers and then gradual reduction of parts per container.
• The most demanding assumption that TPS is makes about the production environment is that it is a stable environment. And it demands stability in three different aspects.
• Since the Kanban system takes time to implement, its assumption is that the environment is relatively stable, that the process and the products do not change significantly for a considerable length of time.
• The car industry allows changes only once a year (a model year change) and usually, from one year to another, the vast majority of the components are the same. That is not the case for many other industries.
• A second aspect of the stability required by TPS is stability in demand over time per product.
• The most demanding aspect of the stability required by TPS is stability in total load placed by the orders on the various types of resources.
• All three aspects of stability have to do with the way the company designs and sells its products and not with the way it produces them. Unfortunately, the majority of companies suffer from at least one aspect of instability, if not from all three.
• For environments in which the assumptions of Lean are not valid, fragments of Lean cannot be used.
• Ford and Ohno opened our eyes to the fact that better flow (reducing lead time) leads to much more effective operations. They have demonstrated it in stable environments but what is the impact of improved flow on relatively unstable environments?
• We now realize that: TPS is restricted to relatively stable environments; most environments suffer from instability; and relatively unstable environments have much more to gain from better flow than even stable environments.
• The problem is that the time it takes material to be converted to a finished product, ready for delivery to the client, depends more on the time it has to wait in queues (waiting for a resource that is busy processing another order or waiting in front of assembly for another part to arrive) and not so much on the touch time to process the order. It is commonly known that in almost any industrial operation (except for process lines and companies that use the Kanban system) the time that a batch of parts spends being processed is only about 10% of the lead time. As a result, the decision of when to release the material determines where and how big the queues will be, which in turn determines how much time it will take to complete the order, which determines when to release the material.
• Even though the term ‘just-in-time’ is a key concept in Lena its use its figurative and not quantitative. In Lean, by production just-in-time we certainly don’t mean that the part that was worked on just now is needed to be at the loading deck ready for shipment in the next second … or minute … our hour. Actually it is likely, that even under the best Kanban systems, this part will not be worked on right away by the succeeding work center. So, what time interval will we consider to be ‘just-in-time’? More explicitly: if we want to restrict overproduction by restricting the release of the material, how much time before the due date of an order should we release the material for that order?
• In conventional plants batches of parts spend only about 10% of the time being processed. About 90% of the time the batches are either waiting in a queue for a resource or waiting for another type of part to be assembled together. What we learned from Ford, and more from Ohno, is that we shouldn’t accept the size of batches as given; that economical batch quantities are not economical and instead we should and can strive to reach a one-piece flow.
• The more sensible way to deal with exposed excess capacity is to capitalize on it; to encourage the sales force to take advantage of the improved performance to gain more sales.
• The bottleneck becomes the ‘drum beat’ for the orders, the ‘time buffer’ translates due-dates into release dates and the action of choking the release becomes the ‘rope’ that ties the order to t he release of work. That is the reason this time-based application of the Theory of Constraints became known as the Drum-Buffer-Rope system or in short DBR.
• Five Focusing Steps:
  1. IDENTIFY the system’s constraint.
  2. Decide how to EXPLOIT the system’s constraint.
  3. SUBORDINATE everything else to the above decisions.
  4. ELEVATE the system’s constraint.
  5. If in the previous steps a constraint has been broken Go back to step 1, but do not allow inertia to cause a system constraint.

Have you read this book? Any other similar book? Do you have anything to say about what this book is saying? Do you recommend any book related to this matter? Anything at all? I’ll be glad to know what you think about it in the comments.

Some related links:

• Wikipedia.

Some related books:

• How to Fail at Almost Everything and Still Win Big by Scott Adams.
• The 4 disciplines of execution by Chris McChesney, Sean Covey & Jim Huling.
• Measure what matters by John Doerr.
• Built to last by Jim Collins & Jerry I. Porras.
• Switch by Chip & Dan Heath.
• The essential Drucker by Peter F. Drucker.
• Getting things done by David Allen.
• Slack by Tom DeMarco.
• Ask a manager by Alison Green.
• Maverick! de Ricardo Semler.

raul