THE GOAL

B Y E L I YA H U G O L D R AT T
CONTENTS

1. Scenario & Story Characters – Slide 3

2. Quick Overview – Slide 4
3. Snapshot of the story – Slide 5 – 12
4. Questions to ponder upon – Slide 13 - 14
5. Key Takeaways for Managers – Slide 15
1. SCENARIO & STORY CHARACTERS:
• Story revolves around a 38 year old young executive- Alex Rogo. Alex is
an Engineering Graduate + MBA. He is plant manager of the Bearington
plant which is the part of the UniWare Division of the conglomerate
UniCo.
• Jonah: Alex's college professor, who offers critical advice & clues
• Julie Rogo: Alex Rogo's wife
• Bill Peach: division vice-president
• Fran: Alex's secretary
• Lou: the head accountant
• Stacey: the plant inventory manager
• Bob Donovan: the production manager
• Ralph Nakamura: Data Processing Manager
• Herbie: a boy scout who comes to metaphorically symbolize the
bottleneck in the plant
• Dave: Alex's son
• Sharon: Alex's daughter
2. QUICK OVERVIEW:
• Alex Roxo is a harried plant manager working desperately to try to
improve performance. His factory is rapidly heading for disaster. So is his
marriage. He has ninety days to save his plant – or it will be closed by
corporate HQ, with hundreds of job losses. It takes a chance meeting
with a professor from student days-Jonah-to help him break out of
conventional ways of thinking to see what needs to be done.

• The story of Alex’s fight to save his plant is more than compulsive
reading. It contains a serious message for all managers in industry and
explains the ideas, which underline the Theory of Constraints (TOC),
developed by Eli Goldratt
3. SNAPSHOT OF THE STORY:
Alex, an educated and competent manager at UniCo, is excited to get
transferred back to his hometown Bearington with his family. But his
moment of bliss quickly evaporates once he realizes that his factory is
facing difficulties and might even get closed down!

3.1 Current Scenario:

• Shipments are always late and production backlog is growing.
• Inventories keep soaring.
• Efficiency heading in downwards direction
• Facing an increase cash shortage.
• If no improvement- shutdown
• Deadline-3 months
The team wonders why they can't seem to ship on time with good
quality at a reasonable cost.
3.2 New Hope:
Alex meets Jonah, his college physics professor, at the airport:
ALEX JONAH
I am going to speak at Robots for
Productivity Conference. So your plant uses robots?
Yes Have they increased productivity?
Sure-36% in one area 36% more money?
No
You didn’t increase productivity.
Airport conversation continues:
JONAH ALEX
Did you ship one more product? Not sure.
Did you fire anybody? No Probably not
Did your inventories go down? No
Then you didn't increase productivity.

But we run at 90% efficiency with a low cost per part.

3.3 Alex and Jonah: A conflict:
Alex: I am running an efficient plant.
Jonah:You are running an inefficient plant.
Data :
 Machines run 90% of the time.
 Unit costs are low.
 More products are not shipped.
 No one is fired.
 Inventory is not decreased. Inventories are high.
 Can't ship on time.
“A Plant in which everyone is working all the time is very
inefficient”.
Jonah’s final advice “Forget about robots, stop chasing
efficiencies”.
Meanwhile Alex’s wife, Julie, struggles to adjust to the monotonous life in
the small town. Alex’s long hours at office put additional strain on their
relationship, as things go from bad to worse.
3.4 Questions left by Jonah:
Jonah gives a series of clues about how to save the division.
Jonah takes on complex subjects like "productivity" and defines them in simple
terms. For example: "Every action that brings a company closer to its goal is
productive. Every action that does not bring a company closer to its goal is not
productive."
But WHAT IS THE GOAL?
Following Jonah's clues, Alex mobilizes his team at the plant to find ways to
improve the flow of production.
3.5 Measurements of Productivity:
Together, the team reviewed the meaning of throughput, inventory and
operating expense
 Throughput is rate at which the money is coming in ;
Sales revenue – raw Material Expense
 Inventory is the money currently inside the system.
 And operational expense is the money we have to pay out to convert
inventory into throughput.
3.6 Revelations during Hike with the Son:
On one Saturday morning Alex joins his son’s overnight Boy Scouts hike.
As they hike, the boys in the troop keep getting spread out further and
further. It seems Alex discovered the true meaning of "dependent
events" in relation to "statistical fluctuations" by fluke!
He then decides to let the slowest kid named Herbie lead the
line and distributed some of the extra weight that he was carrying. As
expected, the fluctuations of the line balance out and the hikers reaches
together on time, thus increasing the “throughput” of the entire troop!
Alex’s Observations:
 Final throughput is measured by the rate of the last and slowest operation in
the sequence.
 Inventory is equal to the length between the leader and the backdoor, which
should be minimized.
 Operational expense is roughly measured by the energy expended, which
must be conserved.
 Some resources need to have more capacity than others, especially towards
the end operating sequence.
3.7 Steps towards Improvement:
Jonah finally visits the plant in person. He explains to Alex that every plant
have bottlenecks, and that a system can only increase production by increasing
capacity at the bottleneck operations.
Bottleneck is any source whose capacity <= Demand placed on it.
Alex prioritizes the bottleneck to work on the overdue orders starting
from the most overdue to the least.

By discovering the importance of Constraints, Alex’s plant made progress, still

management was considering to close the entire division as plant as a whole
was not doing well.
As per Jonah’s advice, Alex reduced the batch size and inventory level to half
by making several operational changes.
Jonah’s ideas work, Alex was promoted to head entire division.
3.8: New Challenge:
New challenge was to replicate the same model to entire division and to
elevate the existing level of the model to a new level.
The team formulates a five-step Process Of On-Going Improvement
(POOGI):
• Step 1: Identify the system’s bottlenecks
• Step 2: Decide how to exploit those bottlenecks
• Step 3: Subordinate every other decision to 'step two decisions'
• Step 4: Elevate the systems bottlenecks
• Step 5: if, in a previous step, a bottleneck has been broken, go back to
the beginning (Step 1).
3.9 Three Fundamental Decision Issues:
Alex and Lou identify three fundamental decision issues as critical
to the success of any manager:
• Knowing what to change?
• Knowing what to change to?
• How to cause the change?
3.10 Alex’s Realization:

Alex eventually realizes that the goal is not about cost-effective

purchasing, employing the right team members, the latest technology,
producing quality products, capturing market share, customer
satisfaction, etc. but rather MAKING MORE AND MORE MONEY.

Once the plant’s operations stabilize, Alex finds himself spending more
time with his family. He wins back his wife’s affection and his plant
suddenly becomes the most productive one in the company. Alex is
promoted to President at UniCo and entrusted with the task of
implementing Jonah’s advice throughout the entire division.
4. QUESTIONS TO PONDER UPON:
WHY IS GOAL IMPORTANT?
 Directs decisions
 Allows Measurement of accomplishment
 Without goals we are moved by the current requirements to the
exclusion of concerns for the future.
 We need one goal not many.

HOW DO WE MEASURE PROGRESS TOWARD THE GOAL?

Financial Measures
What Financial Measures Describe the Goal of Making Money?
 Net Profit (NP)
 Return on Investment (ROI)
 Cash Flow (CF)
Are these sufficient for making decisions?
CAN NP, ROI AND CF BE USED TO MAKE DECISIONS?
 Engineering Economics says “Yes”. - Accept the project if the IRR of the
cash flow is greater than the MARR. (Minimum Acceptable Rate Of
Return)
 Goldratt would say “no” as It is difficult to see how the global measures
are affected by individual design and operating decisions.

WHAT OPERATIONAL MEASURES DESCRIBE THE GOAL?

 Throughput (TP)
 Inventory (I)
 Operational Expense (OE)

HOW DO THESE MEASURES RELATE WITH FINANCIAL MEASURES?

NP = TP - OE
ROI = NP/I
Cash flow is OK if Cumulative Income + Initial Cash > Cumulative Costs.
 5. KEY TAKEAWAYS FOR MANAGERS:
Measurements
Drive Behavior Take the responsibility to identify The Goal of your
organization.

Seek Answers Be active in your quest for knowledge. At times answers are
hidden in the unlikely places, like Jonah.

Teamwork
Teams are very important to drive change and improvement.

Never Give up There is always a chance to recover as long as your

business in still running. Battle is not lost until you give up!

Work Smarter, Not By focusing on the right areas we can achieve breakthrough
Harder
results.
Improve the Overall
System, Not Just Goal is achieved by not just optimizing a single link in the
the Individual Parts value chain but by optimizing entire chain.
THANK YOU !