Goldratt’s The Goal is a book that approaches cost account from a management oriented view. The book puts an emphasis on the goal of making money in business production. In order to develop his theory of constraints, Goldratt uses the Layman’s language to bring out business concepts. The constraints theory advanced in this book has become so common and is put into use in organization management. Written in a production plant setting, The Goal brings out the part bottlenecks or constraints play in the manufacturing processes. Goldratt claims that finding the bottlenecks disturbing, the manufacturing course of a production work helps to reduce them and also it is an important tool used to measure and to control the flow of materials into and out of the plant. Goldratt presents a team under the leadership of Alex and identifies the constraints limiting the manufacturing process and implements strategies to remedy them. They begin with bringing in an old machine to be used with other two machines, to help speed up capacity of the NCX-10 machine. Although the old machine is an outdated technology, what matters at that time is the utility, which is helping eliminate or alleviate the constraints. After that, the team works on the heat treatment process which causes a lot of delay in production, when products get double heating to melt and then harden. This is not necessary or if it is absolutely necessary, then the heating should occur only once. Goldratt approaches management as well as cost account from a point of view, simple for the public to understand. Therefore, the book is useful both to those studying management as well as to those operating businesses. The constraint theory, currently in use as a systems management model, is practically useful in dealing with constraints in manufacturing processes. The model helps managers to improve the efficiency of the manufacturing process. That way, managers are able to produce more with short periods as well as at reduced costs. Therefore, the model assists in cost benefit analysis of the production plants. In addition, applying the constraint theory makes it possible for managers to monitor the movement of materials in and out of the firm’s warehouse. Therefore, apart from management system, the constraint theory has helped in improving accountability and minimize unaccounted-for loses.
Chapter one of The Goal makes the reader familiar with Mr. Alex Rogo in addition apparent hitches with the production plant belonging to him. Mr. Peach is his boss who is the vice president of the division showed this through a confrontation with him. A belated order brought about the dispute. It is learned through the conversation they had that Mr. Peach would not accept anything below the demand being dispatched today. Alex has quarter a year to show improvement on the plant or it will be closed down since it has no profit and it is also not productive.
The chapter gives an understanding of Alex’s life at home. Half a year ago, he went back to his home and adjustments seem not to be favoring his family. For Alex, it is great but a big adjustment from life in the city that the wife has adapted. You also understand Mr. Togo’s upbringing through his reflections on the travels he had back to finally get himself back wherever he began. “Besides a worthless plant manager he is now 38 years of age.” Though not very efficiently the order is usually shipped. One order is being worked on by everyone in the plant with banned overtime booting (Goldratt and Cox, 27).
All plant managers and staffs were called for a meeting by Mr. Peach at the headquarters. During the meeting after everyone discovers that things are not going well, they are entrusted with goals to meet in the coming quarter. Through the gossip, Mr. Rono discovers why Mr. Peach has been lately behaving so unpredictably. Failure of the division to improve within a year will result to its sale together with Mr. Peach.
Still at the meeting, Alex reflects on a current business trip in which Jonah, a physics professor who is old was run into by him. He had the insight of Alex’s working place. Jonah foresees the constraints of big companies, also anything that gets one closer to attaining that which is productive and anything else is unproductive.
During the break, Alex left the meeting. He has no specific place to go, for he is just aware that today this meeting was not meant for him. He wants to know the goal. After six beers and pizza, money hits him. The “goal” is money making and any other thing that gets us nearer is termed productive is otherwise unproductive.
Mr. Rono with one of the accountants sits down and they together state what is required in relation to achieving the goals. The overall profit is supposed to rise accompanied with a rise in returns on the cash flows and investments. Putting specific operations on all these terms is all that is required.
Alex makes the decision to persist with the trade for three more months, attempting to introduce changes. He then decided to find Jonah and have a conversation with him.
Alex at last spoke to Jonah. He assumed there were three conditions that were to help him run his plant, throughput, inventory, and operational expense. Jonah states that everything can be categorized under the three conditions. “Throughput is said to be the rate that the system makes money through selling.” “Stock is all the cash that the system has devoted in buying things that it aims to sell.” “Operational costs are all the cash the organization so that it can turn stock into throughput.” Alex needs more explanation.
Alex renews off his swap with Jonah becomes word that the top man of the company needs to move down for a photo occasion with one of Alex’s robots. This makes Alex think of the effectiveness of the robots. With the help of an accountant, stock control person, and the production director Alex discover that the robots rise costs, operational costs, and, therefore, were less useful. Executing the robots rises costs by not limiting others, like direct of labor. The labor was changed to other functions of the business.
After amplifying everything, Alex plus his workforce spoke out the sense of throughput, operational and inventory cost until satisfaction. Throughput is cash flowing in. Money inside the system is said to be inventory. The money paid to help throughput happen is called operational expense. The plant as a whole is an inventory; buildings, machines, and tooling among others. Investment and inventory is the same thing.
The meeting that involved Jonah was brief. Alex explained the problems the plant had to Jonah. He went on to reveal the number of months for fixing the problems to be three. In the beginning, Alex is asked to forget everything concerning the robots. The plant where many persons work is somehow inefficient. Jonah talks on the matter of handling the question Alex had posed. The question concerns the plant management. The plant, according to Jonah, has resources and the capacity of each person balancing with the market demand. Market demand should be higher or equivalent to the capacity the firm has. Alex understands that a good company is a stable one. The second one becomes closer to the organization that is well adjusted. Alex has a different puzzle. All ideas can work, but some work better compared to others. It is worth to have ideas that would make a plant grow to good heights at all times (Goldratt and Cox 174).
Alex works at a manufacturing plant where it seems that the work is causing strain on his family relationships. The wife and the children are feeling the void of his absence.
Alex led a team of workers for a team building outing event. He makes important observation on various factors that affect productivity. He compares the outing event with actual activities in an organization. He observes that various factors in an organization are interrelated and interlinked in an intricate manner. He calls this needy event. They depend on each other. Occurrence of one will lead to the manifestation of the other one; It is like a snowball effect. For instance, low drive in one day will lead to low output in that particular day. However on assumed other day the drive of the staff may be at the crowning. This will lead to high output and it will balance the negative effects of the previous day. This is what he calls an averaging effect.
In this, match bowl experiment is brought into picture. This experiment explains the relationship or the dependency between various workstations in a line production that is sequential. It involves the use of one die in a dice which represents the variation in stock. The matches which represent the stock, the bowls which represent the work stations and various players. Once the dice is thrown, the number on the dice represents the number of matches each player will place on the bowl. If like the dice lands on the six side, the player places six matches, the second player’s dice lands, for example, on five side then he has to get five matches from the bowl of the first player. Assume the third player’s dice lands on the six sides. Then he has to get five only from the second bowl, as six are not available. This represents what we call a bottleneck since the second player becomes the bottleneck to the operation. Alex concludes that a balanced plant is not the solution to avoid expenses related to these disturbances in the line production. He emphasizes that a manager may not know where the second bottleneck will occur and when.
In this case, Alex identifies the weak points of production system and empowers them to have an effect on others. The weak points should be given a priority because they will always affect the strong points. The slowest kid represents the weakest point in the production line. Relieving his burdens means correcting the anomaly that leads to the negative effect in production. Once this backlog at one point has been cleared, it becomes indicative that the overall team production has gone up. That becomes a tick and a movement in the right direction as far as production management is concerned.
As earlier mentioned, the work commitment by Alex was causing too much strain on his family life, there was a social void that was been created, it had to be filled failure too it would explode, finally when they came from the camp, he found the wife had already left leaving him with the kids and the house and the job to take care upon himself only. This is catastrophic, considering that Alex was already overburdened and he needed somebody to stand by him. The weekend she actually left was supposed to be the moment when Alex and his wife had to have time together and rediscover their social and intimate contact; unfortunately, the camping event arose.
Armed with the discovery from the woods, he eagerly introduces them to the fellow workers but they are all disinterested and, perhaps, think that this is a hoax. This is known as resistance to change and he has to deal with it; however, the new system works when there is a special order and the methodology is applied. This is a part of management support which is crucial in dealing with resistance to change and also use of special isolated situations to act as part of the control experiment.
In this case, Jonah who is probably a mentor or a coach or a working colleague who seems to have a clear cut experience on production systems offers invaluable advice to Alex. He makes clear what Alex discovered and tries to interpret from crude form to a more clear effective and applicable form. He comes up with concepts of relating capacity of the work stations with the demand expected from this work station; he says that work station capacity should never be related or compared or evaluated on the demand basis but should be viewed as a dependent component of the production system which can only be affected by the production activities happening upstream; he, therefore, emphasizes on identifying and strengthening this areas and hence production becomes efficient in other areas. From the woods experiment, Herbie, the slowest kid, is identified as the ineffective work station and once it is strengthened then by relieving his loads and putting him in front production becomes fast.
In this case, Jonah is back with more avalanche of advice which Alex seems not to fathom because it seems intricate and meandering from what he already knew. He re-introduces the concept of the capacity of the work stations and demand. This was the concept he had earlier rubbished and considered the concept of free flow of goods at the stock in the production system. However, he has modified this concept to be a more reliable one; he introduces the knowledge of outsourcing the less quality products to other work stations and introducing machines in the work stations and making sure that they are not idle, as every minute a machine is idle it translates to thousands dollar losses (Goldratt and Cox 206).
Alex comes up with a way of dealing with overdue by giving priority on the overdue. He also realizes that his wife is at her parents’ home but she is unwilling to come back and she needs moments of solitude.
The team dealing with production comes up with a formula of ensuring all machines are busy; a system is introduced to ensure the priority of the materials to be feed to the work station and this seems to be working on their favor.
After a dozen of orders are shipped, Alex is motivated, as things look very bright now; he becomes a bit ambitious and he commands the old machines to be brought on board for usage to complement the current machine.
Everything is working out very well, however, a small problem which could lead to big negative impact arises. There is a time lag between movement of workers from one station to another as a result of loaning of workers or job rotation. One experienced foreman proposes for introduction of a supervisor in each station to man the people and to reduce the time lag.
The new priority system is now in place for all parts going through the bottlenecks, resulting to a decrease in inventory. This reduction in inventory leads to more bottlenecks. Jonah is fascinated and plans to look at it.
Working non-bottlenecks to maximum capacity has caused all parts to be queued up in front of the bottlenecks, while others are awaiting non-bottlenecks parts for final assembly. ‘We need to balance by sending exactly what the bottlenecks need when they need it, since it controls the flow,’ says Jonah.
Ralf – the computer expert comes up with a timetable for bottleneck segments that will limit any excess stock in front of the limiters, and this same information will be used to forecast non-bottleneck segments. This will bring some time, but there are sufficient parts in front of the limiter to stay demanding for an entire month.
During another corporate meeting, Mr. Peach gives Alex less praise than he thinks he deserves. So Alex decides to talk to him in private. Mr. Peach agrees to continue having the plant open if Alex manages to give him a 15% improvement the coming month, which is hard because it highly depends on demand from the market place (Goldratt and Cox 346).
Just when Alex’s attention is engrossed with the 15% increase, he has to mark to the company by the following month. Jonah appeals to inform Alex that he would not be present to talk in the succeeding few weeks. Alex resolves to stake with him the new setback of more stocks and limited throughput. Jonah makes a suggestion of reduction of batch bulk by half, thus needing a sizeable effort with merchants, but once done, the expenses will go low by nearly half. They would also get faster response period and less lead times for orders.
Alex has to make a decision. The choice has to be made either to increase current and future sales by shipping a thousand products in two weeks, which is only possible if the plant commits to nothing else but the new order, or to reduce batch size by half then promise to ship 250 each week for four weeks starting in two weeks. The customer loved the latter.
17% is the resulting improvement from the new order if calculated using the new cost accounting methods. The auditors who were sent to the plant from the division calculates and finds just 12.8% improvement because they are deriving it from the old accounting method. The owner of the company that had placed the order came personally to shake everybody’s hand in the plant and to place an order, not of a thousand but of ten thousand. Tomorrow is the Day of Judgment at division.
The meeting at division started out rough. Alex had thought he would be meeting Mr. Peach and the other top executives but instead he met with their juniors. He convinces them that it does not work. Before leaving, he then decides to see Mr. Peach, who promotes him to his position. Now he has to manage three plants as the whole division. He then calls Jonah for help who lets him down until he comes up with specific questions.
Alex and his wife while enjoying a nice dinner decide to ask Jonah how he can get others to understand these techniques that his team has come up with without being patronizing.
The time to bring together Alex’s team for Division has come. In the absence of the production manager, the accountant with two years to retire is unexpectedly on board and wants to be the plant manager to continue their efforts. Although everything is in place but more is needed for division.
Alex is absorbed with the problems of controlling the division. With his wife’s advice, he decides to enroll the help of his team at the plant. They will be meeting every afternoon to solve the problem. All of them will be needed as from the first meeting.
On the second day, a conversation is initiated about the periodic table of elements and how the scientists actually got a table of any sort. Understanding how the scientists started with nothing and achieved order may help them solve severe problems of division. They now need a way to define them by their vigorous order.
The team finally identifies a process: Step one – to establish the systems bottlenecks; Step two – to decide how to make full use of those constraints; Step three – to subject everything else to step two decisions; Step four – to determine the system constraints; Step five – if, in a prior step, a bottleneck/ constraint has been broken, go back to step one and start all over again. It is simple but different.
The team resolves to reconsider and alter the steps: Step one – to establish the system limitations; Step two – to resolve how to make full use of the system constraints; Step three – subject everything to step two decisions; Step four – determine the systems limitation; Step five –warning. If in a prior step a limitation has been broken, repeat step one, but do not allow the resistance to cause a bottleneck. It has also been found out that they have been using bottlenecks to create imaginary orders in an effort to keep the constraints occupied. That will liberate 20% capacity, which translates into market share.
Speaking with the sales head, Alex finds an opportunity to fill the market order capacity. In Europe domestic clients will not be affected by fewer sales. Alex thinks deeply on Jonah’s question to know the management techniques to utilize. Alex determines the way a physicist tackles a problem. Maybe this is the solution to the problem.
There are problems which Alex experiences at the site. It is like new bottlenecks have been created by new orders. After the problem is analyzed, they come up with an agreement to stock in front of bottlenecks and direct the sales not to be entrusted with new deliveries for one month. This hurts the relationship of sales and production but there is a need to. Production is a current happening process of participation when problems emerge they should be solved accordingly.
At last, finding solutions on Jonah’s question, Alex structures his own question: where to change? Where to change to? The way to cause the change. The keys to management are the solutions to these questions and the qualities of a good manager are the skills needed to solve this Jonah’s question.
“The Goal” by Goldratt’s is a pleasurable novel which is also thought stimulating business book. The book relates to Alex Rogo who is plant manager and whose work and marriage can be considered to be going downhill. His position is not unenviable as he has only ninety days available for him to keep his plant. At fortuitous meeting in the company of an old friend, Jonah familiarizes him with the Theory of Constrains (TOC).
TOC argues that for every corporation to have a continuous method of improvement, firms are required to way out the following fundamental questions: 1. What change is needed? 2. What the change will become? 3. How the change will be caused? The main goal is to have more money; this is done through the following: Increasing Throughput, Reducing Inventory and Reducing Operating Expense.
Goldratt definition of throughput (T) is the rate which a system is able to generate money by sales. He defined inventory (I) as anything a system invests that is intended for sale. Operating expense (OE) is all money a system spends to convert inventory to throughput. The author explains his concepts well, especially on how to deal with drawbacks and bottlenecks.
The various benefits of concentrating on activities which are constraints are clearly explained with various examples in the book. An example in the book given is where Alex takes his beloved son and Boy Scouts to hiking expedition. Alex was faced by a constraint of Herbie who was slow. Alex applies two principles which Jonah discussed with him. It was about the “dependent events” and “statistical fluctuations”. He comprehends that in a sequence of dependent activities, statistical fluctuations may occur on any step. The result is time lags which occur in the processes that may accumulate, growing in size as the processes continue. The result is performance in the system being worse than average size of constraint.
Goldratt Institute demonstrates TOC Analysis in the form which five steps can be used like a foundation where solutions are built: the steps include: Identifying constraint, Deciding on to exploit the constraint Subordinating and synchronizing everything to the decisions above Elevating the constraint performance.
The Business performance at the increasingly aggressive market is subject on various factors that exist externally. They are the competitors, customers, external opportunities, and non-customers. Administrators need to emphasis on these so as to see the main picture. The book is especially helpful when reading for the cream MBA programs. Though the main purpose was a review, the write-up is also intended in serving as a brief of the main concepts of the book and about TOC.
The main points include various principles of finding and focusing on one exact goal and not becoming caught up with various side issues which others might consider as goals. To realize this, one should learn to stop and look at a problem. New ways are required in trying potential answers. This includes asking penetrating questions about yourself and many others who should give information. This requires listening to the affected people on what they have to say on various aspects of achieving goals (Hourigan 42).
A vital point which is made is for every individual in the organization to play a part in reaching the organization goal. What is needed is creating honest setting where we encourage participation, teaching everyone on how right questions can be asked, so they see for themselves the needs to be carried to realize the goals.
Importantly, the communication cooperation that develops between the principal character and employees together with the superiors overflows into his association with his spouse and naturally changes their relationship, as well. There is more to be learned in this book, and I have seen why it is a huge hit in this many years.
Conclusively, with the beneficial information contained in this book, tutors have used in for class work as well as reference in support of the course work. It helps students to work with ease. Therefore, it has been in use for educational purposes. Since it is in a novel, the book catches the interest of many people, not only those reading it for class work purposes. Even those in business and others reading it for leisure would find it interesting.