The Goal Chap Page Eliyahu M. Goldratt and Jeff Cox Connie 3/8/05

Characters  Alex Rogo Plant Manager  Bill Peach Division VP UniCo  FranOffice Administrator  Martinez  Mike O’DonnellLocal Union Pres.  DempseySupervisor  Ray Foreman  Bucky BurnsideCustomer  Bob DonavaProduction Mgr  TonyMaster Machinist  Julie RogoWife  JonahTOC Guru  GrandbyChairman of the Board  Sharon, DaveyChildren  Ethan FrostDivision Controller  Johnny JonsMarketing Mgr  LouPlant Controller  Stacey PotazenikInventory Control Mgr  Alex Rogo Plant Manager  Bill Peach Division VP UniCo  FranOffice Administrator  Martinez  Mike O’DonnellLocal Union Pres.  DempseySupervisor  Ray Foreman  Bucky BurnsideCustomer  Bob DonavaProduction Mgr  TonyMaster Machinist  Julie RogoWife  JonahTOC Guru  GrandbyChairman of the Board  Sharon, DaveyChildren  Ethan FrostDivision Controller  Johnny JonsMarketing Mgr  LouPlant Controller  Stacey PotazenikInventory Control Mgr

Chapter 7  “Quality” time with daughter Sharon - report card with straight A’s  Reflection  Flunking out on business  Do I stay or do I go?  Decides to do everything I can for 3 months  “Quality” time with daughter Sharon - report card with straight A’s  Reflection  Flunking out on business  Do I stay or do I go?  Decides to do everything I can for 3 months

Chapter 7  How?  More of same won’t do  No time for school or reading  No money for consultants  Solution  Don’t take anything for granted  Watch closely, Think carefully  Take it one step at a time  Use what I have: eyes, ears, hands, voice, mind  ….Find Jonah  How?  More of same won’t do  No time for school or reading  No money for consultants  Solution  Don’t take anything for granted  Watch closely, Think carefully  Take it one step at a time  Use what I have: eyes, ears, hands, voice, mind  ….Find Jonah

Chapter 8  Goal for day is “Find Jonah”  Derailed  Bill demands meeting  Press inquires about plant closing  Telecom with Bill, Ethan, Lou  Project reviews from last week  Paperwork  The day is done - no Jonah  Goal for day is “Find Jonah”  Derailed  Bill demands meeting  Press inquires about plant closing  Telecom with Bill, Ethan, Lou  Project reviews from last week  Paperwork  The day is done - no Jonah

Chapter 8  Search for Jonah’s phone # 6 hrs pass  Interrogation by mom  Feed by mom  Worried over by mom  Search of attic, basement, room  Recap of family history  At 1:00 am # is found & Alex calls a friend in Israel for J’s #  At 2:00 am pad full of #s  At 3:00 am leaves message for Jonah in London  About 4:00 am Al is called back  Search for Jonah’s phone # 6 hrs pass  Interrogation by mom  Feed by mom  Worried over by mom  Search of attic, basement, room  Recap of family history  At 1:00 am # is found & Alex calls a friend in Israel for J’s #  At 2:00 am pad full of #s  At 3:00 am leaves message for Jonah in London  About 4:00 am Al is called back

*Chapter 8, p.59  “What is the Goal?”  “The goal of a manufacturing organization is to make money.”  “Everything else we do is a means to achieve the goal”  “What is the Goal?”  “The goal of a manufacturing organization is to make money.”  “Everything else we do is a means to achieve the goal”

Chapter 8  Measurement of results  Corporate Level  Net profit  Return on investment  Cash flow  Plant Level  “There is more than 1 way to express the goal..the goal stays the same..make money…”  Measurement of results  Corporate Level  Net profit  Return on investment  Cash flow  Plant Level  “There is more than 1 way to express the goal..the goal stays the same..make money…”

*Chapter 8, P.60  Plant Measurements  Throughput  Inventory  Operational Expense  Throughput - “rate at which the system generates money through sales”  Plant Measurements  Throughput  Inventory  Operational Expense  Throughput - “rate at which the system generates money through sales”

*Chapter 8, Page 60, 61  Inventory - “Inventory is all the money that the system has invested in purchasing things which it intends to sell” (Investment)  Operational Expense - “all the money the system spends …to turn inventory into throughput” (Expense)  Inventory - “Inventory is all the money that the system has invested in purchasing things which it intends to sell” (Investment)  Operational Expense - “all the money the system spends …to turn inventory into throughput” (Expense)

*Chapter 8&9, P.62  “…[numbers] are always talking about the organization as a whole, not local optimums”  How to derive operational rules for the plant?…Later!  Sleeps in until 11 and makes excuses  Late orders, customer complaints, testing machines down  Fight, numbers for Bill, reporters, & productivity tape at plant w/ Chairman of the Board, Granby (he likes the color of the robot)  “…[numbers] are always talking about the organization as a whole, not local optimums”  How to derive operational rules for the plant?…Later!  Sleeps in until 11 and makes excuses  Late orders, customer complaints, testing machines down  Fight, numbers for Bill, reporters, & productivity tape at plant w/ Chairman of the Board, Granby (he likes the color of the robot)

*Chapter 9 P.65  Exit pass from mom’s house  Eat breakfast  Explain phone call  Explain robots  Mom suggests returning the robots  Enough to eat, snack, hug  “Stop worrying!” lecture  Call so I can pay phone bill  Remembers what Jonah says:  “Is productivity really increased?”  Plant #’s say 36%  Exit pass from mom’s house  Eat breakfast  Explain phone call  Explain robots  Mom suggests returning the robots  Enough to eat, snack, hug  “Stop worrying!” lecture  Call so I can pay phone bill  Remembers what Jonah says:  “Is productivity really increased?”  Plant #’s say 36%

Chapter 9  Had productivity gone up with the robots?  Did we sell more product? (throughput up?)  Did we reduce the number of people on the payroll? (operational expenses down?)  Had inventories gone down?  Had productivity gone up with the robots?  Did we sell more product? (throughput up?)  Did we reduce the number of people on the payroll? (operational expenses down?)  Had inventories gone down?

*Chapter 9, P.67  Way to express the revised goal?: “Increase throughput while simultaneously reducing both inventory & operating expense”

Chapter 9  Thoughts about Robots  Inventories have increased  Depreciation has increased  No jobs directly removed, shifted people  Operational expense increased  Efficiencies increased so cost per part dropped???  Thoughts about Robots  Inventories have increased  Depreciation has increased  No jobs directly removed, shifted people  Operational expense increased  Efficiencies increased so cost per part dropped???

Chapter 9  Facts about robots  No increase in sales  Work in process inventories went up (more product was released to floor to increase their efficiencies resulting in increased WIP)  Discussion on working on things with no orders and no parts for the orders they have  Not getting parts when they need them  Facts about robots  No increase in sales  Work in process inventories went up (more product was released to floor to increase their efficiencies resulting in increased WIP)  Discussion on working on things with no orders and no parts for the orders they have  Not getting parts when they need them

Chapter 9, P. 71  “Look, it’s the same game everybody plays. Whenever efficiencies take a drop, everybody draws against the future forecast to keep busy. We build inventory. If the forecast doesn’t hold up,…We’ve been building inventory for the better part of a year.”  The cost of parts goes down, not with production volume, but with sales volume  “Look, it’s the same game everybody plays. Whenever efficiencies take a drop, everybody draws against the future forecast to keep busy. We build inventory. If the forecast doesn’t hold up,…We’ve been building inventory for the better part of a year.”  The cost of parts goes down, not with production volume, but with sales volume

*Chapter 10, P. 74 Throughput Money coming in Operating Expense Money out Inventory Money inside Measures (Value added is not taken into account)

Chapter 10  All Employee time is Operational Expense:  Direct  Indirect  Idle time  Operating time  Whatever  All Employee time is Operational Expense:  Direct  Indirect  Idle time  Operating time  Whatever

Chapter 10 Selling Price > investment + total operational in inventory expenses (Value of Product or Selling Price)

Chapter 10  Costs sifted:  Inventory  Machines  Buildings  Parts  Knowledge that is sold  Operational Expense  Depreciation  Oil  Scrap  Lost Money  Knowledge used on process  Costs sifted:  Inventory  Machines  Buildings  Parts  Knowledge that is sold  Operational Expense  Depreciation  Oil  Scrap  Lost Money  Knowledge used on process

Chapter 10  Tells Bob, Stacey and Lou about 3 month Ultimatum  “We’ve got to look good for Granby”  “We’ve got to make the robots productive in terms of the goal”  Seeming conflicts in perceptions  Alex decides to meet with Jonah at 7 am in New York  No sleep  Angry family  Tells Bob, Stacey and Lou about 3 month Ultimatum  “We’ve got to look good for Granby”  “We’ve got to make the robots productive in terms of the goal”  Seeming conflicts in perceptions  Alex decides to meet with Jonah at 7 am in New York  No sleep  Angry family

Chapter 11, P. 84  Jonah strikes a deal for Alex to “Just pay me the value of what you learn from me”  If plant folds, then nothing  If make millions, then pay accordingly  Alex starts defending the plants efficiencies and Jonah asks: “then why is your plant in trouble”  Jonah: “Most of the time, your struggle for high efficiencies is taking you……[away]from goal”  Jonah strikes a deal for Alex to “Just pay me the value of what you learn from me”  If plant folds, then nothing  If make millions, then pay accordingly  Alex starts defending the plants efficiencies and Jonah asks: “then why is your plant in trouble”  Jonah: “Most of the time, your struggle for high efficiencies is taking you……[away]from goal”

Chapter 11  Is it okay for a production employee to be idle?  “A plant in which everyone is working all the time is very inefficient”  “Do you have a lot of excess inventories?”  Is it okay for a production employee to be idle?  “A plant in which everyone is working all the time is very inefficient”  “Do you have a lot of excess inventories?”

*Chapter 11, P. 85, 86  The Big Picture  “Out there in the world …is a market demand. Inside company are resources and capacity to fill that demand”  Balanced plant = capacity of resource = market demand  Old school thought:  Not enough capacity, cheating ourselves out of potential throughput  Too much capacity, wasting money & need to reduce operational expense, traditionally trim capacity  The Big Picture  “Out there in the world …is a market demand. Inside company are resources and capacity to fill that demand”  Balanced plant = capacity of resource = market demand  Old school thought:  Not enough capacity, cheating ourselves out of potential throughput  Too much capacity, wasting money & need to reduce operational expense, traditionally trim capacity

Chapter 11  Why aren’t there balanced plants? Alex’s view:  Conditions always changing  Vendor sends bad parts  Work force  Absenteeism  Poor quality output  Employee turnover  Market conditions  Why aren’t there balanced plants? Alex’s view:  Conditions always changing  Vendor sends bad parts  Work force  Absenteeism  Poor quality output  Employee turnover  Market conditions

*Chapter 11, P. 87  Why aren’t there balanced plants? Jonah’s view:  “The closer you come to a balanced plant, the closer you are to bankruptcy”  Look at obsession with trimming capacity:  “When you lay off people do you increase sales?” No. “Do you reduce inventory?” No. “You improve only one measurement, operational expense.”  Why aren’t there balanced plants? Jonah’s view:  “The closer you come to a balanced plant, the closer you are to bankruptcy”  Look at obsession with trimming capacity:  “When you lay off people do you increase sales?” No. “Do you reduce inventory?” No. “You improve only one measurement, operational expense.”

*Chapter 11, P.87  Jonah: “The goal is not to reduce operational expense by itself. The goal is to reduce operational expense and reduce inventory while simultaneously increasing throughput.”

*Chapter 11, P.87  Alex challenges: “If we reduce expenses and inventory and throughput stay the same, aren’t we better off?”  Jonah: “Only if you do not increase inventory and/or reduce throughput.”  J: “You assumed that if you trim capacity to balance with market demand you won’t affect throughput or inventory..that assumption---which is practically universal in the western business world--is totally wrong”  Alex challenges: “If we reduce expenses and inventory and throughput stay the same, aren’t we better off?”  Jonah: “Only if you do not increase inventory and/or reduce throughput.”  J: “You assumed that if you trim capacity to balance with market demand you won’t affect throughput or inventory..that assumption---which is practically universal in the western business world--is totally wrong”

Chapter 11  Mathematical proof: “When capacity is trimmed exactly to..demand,..throughput goes down, and inventory goes UP  Carrying cost of inventory (operational expense) goes up. “So, it is questionable whether you can fulfill the intended reduction in total operational expense”  Mathematical proof: “When capacity is trimmed exactly to..demand,..throughput goes down, and inventory goes UP  Carrying cost of inventory (operational expense) goes up. “So, it is questionable whether you can fulfill the intended reduction in total operational expense”

Chapter 11  Dependent variables  Statistical fluctuation  Known  Unknowns  Don’t know all the facts ahead of time  “Where to, chief?”  Dependent variables  Statistical fluctuation  Known  Unknowns  Don’t know all the facts ahead of time  “Where to, chief?”

Chapter 12  Negotiations with family on division of time between work and home