Summary - Important Points - Book - The Goal - A Process Ongoing Improvement - Eliyahu Goldratt

Main Themes of the Book

“The future of our business depends upon our ability to increase productivity.”

What is Productivity?

How to improve it?

Summary of TOC Institute

https://www.tocinstitute.org/the-goal-summary.html

Important Ideas and Statements from Each Chapter

Ch. 2

But, hell, I’ve got an engineering degree. I’ve got an MBA.

 3

“And the answer is clear,” Peach is saying. “The future of our business depends upon our ability to increase productivity.”

Ch. 4

I’m on my way to Houston. We belong to a manufacturers’ association, and the association invited UniCo to be on a panel to talk about robotics at the annual conference. I got picked by UniCo, because my plant has the most experience with robots.”

 I crack open my briefcase on my lap and pull out the advance copy of the program the association sent me.

“Here we are,” I say, and read the listing to him. “ ‘Robotics: Solution to America’s Productivity Crisis in the new millenium … a panel of users and experts discusses the coming impact of industrial robots on American manufacturing.’”

“You say your plant uses robots?” he asks.

“In a couple of departments, yes,” I say.

“Have they really increased productivity at your plant?”

“Sure they have,” I say. 

“I think it was a thirty-six percent improvement in one area.”

“Really … thirty-six percent?” asks Jonah. “So your company is making thirty six percent more money from your plant just from installing some robots? Incredible.”

“Well…no,” I say.  It was just in one department that we had a thirty-six percent improvement.”

“Then you didn’t really increase productivity,” he says.

He says. “Forget for just a minute about the formulas and all that, and just tell me in your own words, from your experience, what does it mean to be productive?”

Ch. 5

The plant wasn’t built just so it could break even. UniCo is not in business just so it can break even. The company exists to make money.

I see it now.

The goal of a manufacturing organization is to make money.

Ch. 6

Think of it. We’d really be making money if we could have all of the measurements go up simultaneously and forever.

So this is the goal:

To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.

Chapter 8

 “Throughput,” he says, “is the rate at which the system generates money through  sales.

 “Inventory is all the money that  the system has invested in purchasing things which it intends to sell.”

 “Operational expense,” he says. “Operational expense is all the money the  system spends in order to turn inventory into throughput.

 how do I use these measurements to evaluate productivity?”

Chapter 9

 One of them, I remember as I’m driving, was whether we had been able to sell  any more products as a result of having the robots. Another one was whether we had  reduced the number of people on the payroll. Then he had wanted to know if  inventories had gone down. Three basic questions.

 So the way to express the goal is this?

 Increase throughput while simultaneously reducing both inventory and  operating expense.

Ch. 11

He says. “A plant in which everyone is working all the time is very inefficient.”

He says, “A balanced plant is essentially what every manufacturing manager in the whole western world has struggled to achieve. It’s a plant where the capacity of each and every resource is balanced exactly with demand from the market."

Says Jonah,  no resource is idle, and everybody has something to work on.”

For one thing, 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,” he says. “And because inventory goes up, the carrying cost of inventory—which is operational expense—goes up. 

“Because of the combinations of two phenomena which are found in every plant,” he says. “One phenomenon is called ‘dependent events.’"

“The big deal occurs when dependent events are in combination with another phenomenon called ‘statistical fluctuations,’” he says.

Alex. Call me when you can tell me what the combination of the two phenomena mean to your plant.”

Ch. 12

I look at the chart. I still can hardly believe it. It was a balanced system. And yet throughput went down. Inventory went up. And operational expense? If there had been carrying costs on the matches, operational expense would have gone up too.

What if this had been a real plant—with real customers? How many units did we manage to ship? We expected to ship thirty-five. But what was our actual throughput? It was only twenty. About half of what we needed. And it was nowhere near the maximum potential of each station.

Chapter 18

He says, “What you have to do next, Alex, is 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.”

“A bottleneck,” Jonah continues, “is any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. Got that?”

“But, Jonah, where does market demand come in?” Stacey asks. “There has to be some relationship between demand and capacity.”

He says, “Yes, but as you already know, 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. So let me repeat it for you: Balance flow, not capacity.”

We’re defining a work center as any group of the same resources. Ten welders with the same skills constitute a work center. Four identical machines constitute another. The four machinists who set up and run the machines are still another, and so on. Dividing the total of work center hours needed, by the number of resources in it, gives us the relative effort per resource.

Ch. 19

Jonah raises a finger and says, “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 you scrap the part after it’s passed the bottleneck, you have lost time that cannot be recovered.”

 “Be sure the process controls on bottleneck parts are very good, so these parts don’t become defective in later processing.”

Says Jonah. “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.”

“Then how much would it cost for this entire plant to be idle for one hour?” asks Jonah.

“The actual cost of a bottleneck is the total expense of the system divided by the number of hours the bottleneck produces,” says Jonah. 

Says Jonah. “If your bottlenecks are not working, you haven’t just lost $32 or $21. The true cost is the cost of an hour of the entire system. And that’s twenty seven hundred dollars.”

“And with that in mind, how do we optimize the use of the bottlenecks? There are two principal themes on which you need to concentrate …

“First, make sure the bottlenecks’ time is not wasted,” he says. “How is the time of a bottleneck wasted? One way is for it to be sitting idle during a lunch break. Another is for it to be processing parts which are already defective—or which will become defective through a careless worker or poor process control. A third way to waste a bottleneck’s time is to make it work on parts you don’t need.”

“I mean anything that isn’t within the current demand,” he says.

“Then make the bottlenecks work only on what will contribute to throughput today… ” says Jonah. “That’s one way to increase the capacity of the bottlenecks. The other way you increase bottleneck capacity is to take some of the load off the bottlenecks and give it to non-bottlenecks.”

 “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? If you have the machines, or if you have a vendor with the right equipment, you can offload from the bottleneck. And, again, you gain capacity which enables you to increase throughput.”

Ch. 26

“Okay, enough!” I say. “What’s your idea, Sharon?”

Sharon says, “A drummer.”

“Pardon me?”

“You know…like in a parade,” she says.

“Oh, I know what you mean,” I say, realizing what she has in mind. “There

aren’t any gaps in a parade. Everybody is marching in step.

 “Okay, wise guy, what’s your idea?”

“Tie ropes to everyone,” says Dave.

“Ropes?”

“You know, like mountain climbers,” he says. “You tie everyone together at the waist with one long rope. So, that way, no one could get left behind, and nobody could speed up without everybody speeding up.”

Ch. 28

Part of what Jonah told me last night over the phone had to do with the time a piece of material spends inside a plant. If you consider the total time from the moment the material comes into the plant to the minute it goes out 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 time 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.

As Jonah pointed out last night, setup and process are a small portion of the total elapsed time for any part. But queue and wait often consume large amounts of time —in fact, the majority of the elapsed total that the part spends inside the plant.

Last night, Jonah told me that although he didn’t have time over the phone to go into all the reasons, EBQ has a number of flawed assumptions underlying it. Instead, he asked me to consider what would happen if we cut batch sizes by half from their present quantities.

If we reduce batch sizes by half, we also reduce by half the time it will take to process a batch. That means we reduce queue and wait by half as well. Reduce those by half, and we reduce by about half the total time parts spend in the plant. Reduce the time parts spend in the plant, and….

Ch. 36

The process was written clearly on the board:

STEP 1.

Identify the system’s bottlenecks.

(After all it wasn’t too difficult to identify the oven and the NCX10 as the bottlenecks of the plant.)

STEP 2.

Decide how to exploit the bottlenecks.

(That was fun. Realizing that those machines should not take a lunch break, etc.)

STEP 3.

Subordinate everything else to the above decision.

(Making sure that everything marches to the tune of the constraints. The red and green tags.)

STEP 4.

Elevate the system’s bottlenecks.

(Bringing back the old Zmegma, switching back to old, less “effective” routings….)

STEP 5. 

If, in a previous step, a bottleneck has been broken go back to step 1.

Ch. 37

When she returns to her seat the board has the following:

1. IDENTIFY the system’s constraint(s).

2. Decide how to EXPLOIT the system’s constraint(s).

3. SUBORDINATE everything else to the above decision.

4. ELEVATE the system’s constraint(s).

5. WARNING!!!! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system’s constraint.

Ch. 38

The Socratic dialogues. They’re done in exactly the same way, through exactly the same relationship, IF … THEN. Maybe the only difference is that the facts do not concern material but human behavior.”

“Interesting, very interesting. Come to think about it,” I say, “my field, management, involves both material and people behavior. If the same method can be used for each then it’s probably the basis for Jonah’s techniques.”

She thinks about it for a while. “You’re probably right. But if you are then I’m willing to bet that when Jonah starts to teach you those techniques you’ll find that they are much more than techniques. They must be thinking processes.”

In the Book Race

67: REDUCING DISRUPTIONS TO GAIN A COMPETITIVE EDGE

Focused application of the right productivity improvement technique reduces disruptions and eliminates the most important holes in our buffers.

69: THE PRODUCTIVITY FLYWHEEL

The first step in establishing such a productivity flywheel is to implement synchronized manufacturing using the drum-rope-buffer approach. Then we need to manage the inventory buffers and to focus our process improvement efforts. Finally, Just-in-Time techniques, new technology and good management practices should be brought to bear where they will have the greatest impact. The result will be a continuous increase in net profit, return on investment and cash flow.

70: THERE IS NO FINISH LINE

This process of ongoing improvement is not the only or best way. We  must think even harder to find even better processes.

Good luck and much success in your efforts to win the race.

Ud. 14.9.2024,  7.9.2024

Pub. 3.9.2024