BOOK REVIEW OF GOAL PART – I

“Production is the heart of Industry. Industry is the heart of a Nation’s Wealth”

Productivity is the act of bringing a company closer to its goal. Every action that
brings a company clear to its goal is productive. Productivity is meaningless unless you know
what your goal is, until then you’re just playing a lot of games with the numbers and words.
Quality alone cannot be the goal. It’s important : But it’s not the goal. Then is it Quality and
Efficiency the goal of a company?

Technology : that’s really what is all about. We have to stay on the leading edge of
technology. It’s essential to the company. If we don’t keep pace with technology, we’re
doomed. The company exists to make money – “ GOAL” .

An action that moves us towards making money is productive and an action that takes
away from the making money is non-productive. Can we assume that making people work
and making money is the same thing? How do we really know if that happens here is making
money for us or whether we’re just playing accounting games? Is return on Investment
(ROI) a good measure to know the performance of the company?

Bad cash flow is what kills most of the businesses that go under. It’s a measure of
survival : stay above the line and you’re okay; go below and you’re dead.

The three important aspects of a company : Throughput, Inventory and

Operational Expenses…
• Throughput – 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 Expenses – is all the money the system spends in order to turn inventory
into throughput

Selling more products? Reduce the number of people on the payroll? Inventory had to go
down? – are these the Options…

Throughput is the money coming in. Inventory is the money currently inside the
system, and operational expenses are the money we have to payout to make throughput
happen.
One measurement for the incoming money, one for the money still stuck
inside and the one for the money going out. So investment is the same thing as inventory.
Any money we’ve lost is operational expense; any investment that we can sell is inventory.
A plant in which everyone is working all the time is very inefficient.
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 fro the market. Do you know why managers try to do this?
Well, because if we don’t have enough capacity, we’re cheating ourselves out of
potential throughput and if we have more than enough capacity, we’re wasting money. We’re
missing an opportunity to reduce operational expense.

The real reason is that the closer you come to a balanced plant, the closer you are to
bankruptcy.

If you trim capacity to balance with market demand you won’t affect throughput or
inventory -- this Assumption is wrong.

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 does
down, while inventory goes through the roof. And because inventory goes up, the carrying
cost of inventory – which is operational expense – goes up. So it’s questionable whether you
can even fulfill the intended reduction in your total operational expense, the one
measurement you expected to improve?

Let us see the two important elements in production :

Combination of “ Dependent Events ” and “ Statistical Fluctuations ”

“ Kitchen is the BEST Example ”

If I simply tell you what to do, ultimately you would fail. You have to gain the
understanding for yourself in order to make the Rules work.

One operation has to be done before a second operation can be performed – i.e,
Dependent Events.

For Ex. “ Boy Scouts’ going for a Holiday following one another, one moves a step
forward the other follows without breaking the line irrespective of their choice and ability.”
Hike is a set of dependent events – in combination with the statistical fluctuations.
Each of us is fluctuating in speed, faster or slower. But the ability to go faster than average is
restricted.

What’s happening isn’t an averaging out of the fluctuations in our various speeds, but
an accumulation of the fluctuations. And mostly it’s an accumulation of slowness – because
dependency limits the opportunities for higher fluctuations.

Soln – Keep record of the fluctuations in your own way – say in the form of some sort
of table with the variables.
 Covariance – the impact of one variable upon others in the same group. A
mathematical principle says that in a linear dependency of two or more variables, the
fluctuations of the variables down the line will fluctuate around the maximum deviation
established by any preceding variables. That explains what happened in the Balance Model.

The Effect : The fastest kid at the front of the line, and the slowest kid at the back of
the line. Each of them has found an optimal pace and place for himself. If this would have
been a plant, it would be as if there was a never ending supply of work – No Idle time.

The maximum deviation of a preceding operation will become the starting point of a
subsequent operation.

The true productive capacity of a function / machine / process / person depends upon
where it is in the plant / system. And trying to level capacity with demand to minimize
expense has really screwed us up. We can’t measure the capacity of a resource in isolation?
We shouldn’t be trying to do that at all.

We shouldn’t be looking at each level area independently and trying to trim it. We
should be trying to Optimize the Whole System.”

Distinguish between two types of resources in your plant. One type is what we can
call a bottleneck resource. The other is, very simply, a non-bottleneck resource.
A Bottleneck – 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.

The idea is “ Balance flow, not Capacity ”. The idea is to make the flow through the
bottleneck equal to demand from the market. Actually, the flow should be a tiny bit less than
the demand. Bottlenecks are not necessarily Bad or Good – they are simply a Reality. Where
Bottlenecks exist, you must then use them to control the flow through the system and into the
market.

Always put the Quality Centre ( Q.C.) in front of the bottleneck. 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. Every
time a bottleneck finishes a part, you are making it possible to ship a finished product. And
how much does that mean to you in sales?

“ The numbers were almost always right. However, if we check the assumptions, they
were almost always wrong.”
 What you have learned is that the capacity of the plant is equal to the capacity of its
bottlenecks. Whatever the bottlenecks produce I 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. Optimize the use of the bottlenecks? Make sure the bottlenecks time is not wasted.

What is the basic relationship between bottlenecks and non-bottlenecks?

Thus the Constraint is not in production ( i.e, not in the plant). The Constraint is
marketing’s ability to sell. Putting it precisely, activating a resource and utilizing a resource
are not synonymous?

Thus, 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 optimise every resource I the
system. A system of local optimums is not an optimum system at all; it is a very inefficient
system.

Another extended solution : Cut the batch sizes in half on the non-bottlenecks.
If we cut our batch sizes in half, then I guess that at any one time we’d have half the work-in-
process on the floor. I guess that means we’d only need half the investment in WIP to keep
the plant working. For that we need good relations and understanding with our Vendors /
Suppliers.

The time a piece of material spends inside the plant – 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 the 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 the
resource, but for another part so they can be assembled together.

The bottlenecks are what dictate this elapsed time. Which in turn, means the
bottlenecks dictate inventory as well as throughput. Batch size according to an economical
batch quantity ( EBQ ) formula, is not that good idea. The rule is an hour saved at a non –
bottleneck is a mirage. No time is Saved.

Probably Mark Twain was right saying that “ Common Sense is not common at all or
something similar ”. Something that’s not common sense – What could that be?
“ Probably Common Practice ”

Don’t give the answers, just ask the questions..” We’ll have to practice that.
“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 ”.

What is worse than Criticism ? Constructive Criticism – i.e, Criticism based

on pre-notions, interests, ego, selectiveness etc….

View production as a means to satisfy sales. The improvements on the “Capacity

Constraint Resources” (CCR) will always be sufficient to prevent non-bottlenecks from
becoming bottlenecks.

We can’t achieve a Goal that is Open – Ended. What we’ll have to do is to try and
move the division towards that goal. A good job will be to start our division on a process of
on – going improvements ( Kaizen ). You go down to the shop floor and mention a new
improvement project and you’ll see the response. People have already developed allergies to
the phrase. “ Everywhere improvements were interpreted as almost synonymous to cost
savings. People are concentrating on reducing operating expenses as if it’s the most
important measurement. But the most important thing is that, to regard throughput as the
most important measurement. Improvement for us is not so much to reduce costs but to
increase throughput.

“ 20% of the variables are responsible for 80% of the result ”. - Pareto Principle.

Summary : Step 1 : Identify the systems bottlenecks.

Step 2 : Decide how to exploit the bottlenecks.
Step 3 : Subordinate everything else to the above decision. Making
sure that everything marches to the tune of the constraints.
Step 4 : Elevate the systems bottlenecks.
Step 5 : If, in a previous Step, a bottleneck has been broken go back to
Step 1. ( Repeat )
FEW FINDINGS AND LEARNINGS FROM THE BOOK

Misconceptions of Accounting – Local Efficiencies, Optimum batch sizes, Product

cost, Inventory evaluations methods…

You can’t rely on marketing people alone to solve the marketing problems. They’re
captured by old, devastating, common practices to an even larger extent than production.
Somewhere in the Scientific Method lies the answer for the needed Mgmt. Techniques.

Scientific Method : They start with on 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 drive 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 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. To read, for
eg : , How Newton did it for the law of gravity is fascinating…

Order is built out of chaos. What can be more beautiful than that?
“ Management Techniques – are much more than techniques. They must be Thinking
Processes ”. “ Determining the Mgmt Techniques must come from the need itself, from the
examining how I currently operate and then trying to find out how I should operate ”.
“ Rome was not built in a Day ”. “ We don’t have Hundreds of Years ‼! ”.

The purpose of the organisation requires the synchronised efforts of more than one
person. The contribution of any single person to the organisations purpose is strongly
dependent upon the performance of others. The more complex the organisation – the more
interdependencies between the various links – the smaller the no. of independent chains it’s
composed of. The complexities of our organisations almost guarantee that there are not many
of them.

What about the Mentality that is so prevalent in the Headquarters, the mentality of
cover your ASS…. The Measurements, the processes, the policies, the procedures. Many of
them were cast into behavioural patterns. We are not just dealing with the techniques but
actually with the Thinking Processes. We are asking for the most fundamental things and at
the same time we are asking for the World.

What to Change? What to Change to? And How to cause the Change?
The most fundamental abilities one would expect from a manager. Think About It ‼‼!

If a manager doesn’t know how to answer those questions, is he or she untitled to be

called a manager? To cause a major change smoothly, without creating resistance but the
opposite, enthusiasm? Can you imagine having such Abilities? We should learn to be able to
do it without any external help. WE must learn these Thinking Processes, only then will we
know that we’re doing our job as a manager.

Reality has a momentum of its own. When people start to have severe doubts about
the validity of their product they cannot radiate confidence in it. And radiating confidence is
essential to the sale of a Revolutionary Product.

Obstacles in the way of our GOAL :

1. Lack of ability to propagate the message throughout the Company.

2. Lack of ability to translate what they learned from the book into workable procedures
for their Plant / Company / Organisation.
3. Lack of ability to persuade decision makers to allow the change of some of the
Measurements.
The key is in knowing how to steer the dynamics of the interaction between
people with different agendas and different levels of understanding.

“ What is the Dynamics behind – the Resistance to Change ? ”.

Layers of Resistance :

1. The First layer of Resistance : Raising problems having one thing in common – it’s
out of our hands : Vendors do not always deliver, clients change their mind at the last
minute, and workers are not properly trained, corporate forces on us.
[ As long as this layer is not removed you are talking to THE WALL ]
2. The Second layer of Resistance : Arguing that the proposed solution cannot possibly
yield the desired outcome.
[ Your proposed solution looks obvious to you, yet it doesn’t to others. When you
succeed to peel this layer, the real frustration starts. You clash smack into the next
one ]
3. The Third layer of Resistance : “ Yes, but….. ” . Arguing that the proposed solution
will lead to Negative Effects.
[ You must have a lot of Stamina and Patience to fight this one. Or you’re lucky to be
born with Tons of Charisma. But when you pass it you haven’t yet WON the War ]
4. The forth layer of Resistance : Raising Obstacles that will prevent the
Implementation.
[ Succeed to remove this layer and the person is now on your side, BUT …. ]
“ BUT …. All you have is a Big Butt….” – Pun intended….
5. The Fifth layer of Resistance : Raising Doubts about the collaboration of others ( Or
Worse, not raising their Doubts ).
[ Peeling in sequence, all these Layers turns Resistance to Change into the
Enthusiasm of An Inventor ]

“ THE GOAL --- COMMON SENSE ”