The Goal: A Process of on – going Improvement (Summary) Alex Rogo is the plant manager of Unico’s Bearington plant. Clearly he has problems in his plant as is evident in the surprise visit he got from the vice – president of his division, Bill Peach. Peach came to expedite an order (No. 41427), which he wanted to be shipped that day. Alex is given three months to turn around his unprofitable plant or else face a shut – down.
The order is shipped at the end of the day, although there was a breakdown of a machine and the plant operated beneath efficiency.All workers were pulled from other jobs just to work on a single order. Some even had to carry machine parts by hand to the point of assembly. Alex is concerned that his plant does not run as well as he thinks it should be based on the level of technology in the plant. Bill Peach summons all plant managers in his division for a meeting at the head office to discuss the reports of from their plants. Alex learns from peach’s staff how bad things are in the division. It dawns on him how serious the situation is i.
e. if things do not change, Alex and all staff of the division could be out of jobs at the end of three months.That is all he can think of during the meeting. While at the meeting, Alex has a flashback. Two weeks ago he runs into his old college professor, Jonah. When Jonah hears about the way the plan is trying to achieve efficiency and the addition of robots to the production line, he predicts that inventory was actually building up and it was caused by the addition of new technology working at a faster rate than all the other units at the plant. He also was on point in telling Alex that they were not meeting up on their order processing times.He also tells Alex to think about what the organization’s goal is, that anything that brings the plant closer to achieving the goal is productive while anything that keeps it from the goal is not.
Alex leaves the meeting during break giving an excuse about an emergency at his plant. However, he doesn’t go straight to his plant, instead he buys some beer and snacks and drives to a deserted road to ponder on what he heard from Jonah two weeks earlier. He needs to discover what the goal of his organization is, which he does after a while.
He realizes that the goal of his organization, like every other organization is to make money.Alex gets back to the office late in the afternoon; he looks for the plant accountant, Lou. They sit together and discuss terms associated with making money or achieving the goal.
They talk about increasing net profit while simultaneously increasing return on investment and also improving cash flow. Alex needed to apply these terms associated with profitability in his plant’s operations. Alex resolves to make the best of the three months grace he has been given to do his best and turn around his plant even though it is not certain that he will succeed. He decides to track Jonah down and ask for help.
When Alex is finally able to talk to Jonah, Alex is given three terms – throughput, inventory and operational expense – to consider as measurements for achieving the organization’s goals. Throughput defined by Jonah as the rate at which the system generates money through sales. Inventory was defined all the money that the system has invested in purchasing things it intends to sell.
Operational expense is all the money the system spends to turn inventory to throughput. Alex misses a call from Mr. Granby’s Office (the CEO), Alex calls back to discover that Mr.Granby wants to come to the plant to have his picture taken with the robots. Alex had earlier discovered that the robots were contributing to the inefficiencies at the plant. From what Alex gathered from the inventory manager (Stacey), the production manager (Bob) and the accountant; the robots kept working whether there was a need for the parts they were producing or not. Using Jonah’s measurements, Alex found that the robots increased inventory, increased operational expense and did not lead to sales.
Alex meets with his staff and explains what he learnt from Jonah to them.They were surprised that everything explained to them was done in terms of money. Throughput for instance was the money coming into the system, operational expense the money going out and inventory the money within the system.
The production manager is surprised that everything can be measured in terms of money. The inventory manager compares inventory to investment. Finally they are all convinced by Alex’s explanation and decide to call Jonah for further help. Alex meets Jonah briefly in New York the following day. Alex discusses the problems he is experiencing at the plant with Jonah, about how long he has to turn the plant around.Jonah says he doesn’t have the time to solve the problem but that with diligence, Alex and his team should be able to.
He asks Alex to forget about the robots and came up with a better definition of efficiency than is presently used at the plant. Jonah told Alex that a plant in which everyone was working all the time was inefficient. Jonah also dispels Alex’s idea of a balanced plant being a good one. He said the trimming of capacity to demand is not good for a plant as it reduces throughput and inventory piles up. Jonah gives Alex something to think about – What happens when dependent events are in combination with statistical fluctuations?Through a Boy Scout camping trip with his son’s group, Alex is able to figure out Jonah’s puzzle. The boys walk along the trail in a file with them alternating between the fastest child leading the file and the slowest leading. When the fastest child led the file and the slowest was in the middle or at the back, there was always a wide gap in the middle of the line or at the back. Alex finds that statistical fluctuations always average out when they occur in dependent events because the last event to occur always makes up for the time differential.
Alex finds out, through a game he invented which involved rolling of dice and acquiring matchsticks as a reward, that when trying to achieve a balanced plant, throughput went down, inventory went up and operational expense associated with the cost of carrying inventory will go up too. When they were returning from the camping trip, with his new knowledge of statistical fluctuations and dependent variables, Alex puts the slowest child at the beginning of the queue and removed some of the items in his bag that slowed him down. This way, he is able to walk faster and he determines the pace of the other boys.Alex tries to explain the concept of statistical fluctuations to his team.
He used an example that when fulfilling an order, human beings cannot be consistent with the number they produce but will speed up their pace when they are lagging behind, while on the other hand, machines can are consistent because they are programmed that way. The team seems uninterested, but Alex proves his point to them because they missed shipping the order as he said they would because the people feeding parts to the robots could not work at the same pace with the robot that was working at the rate of 25 parts per hour.Instead they worked 18 parts in the first hour, 21 in the second, 28 in the third and 32 in the fourth hour. They therefore determined the capacity of the robot but it could not exceed its capacity of 25. The next concept Alex and his team learn about is the bottleneck. Jonah defined bottleneck as any resource whose capacity is equal to or less than the demand placed on it.
Alex remembers the camping trip and names the bottleneck after the slowest boy on the trip. When Alex is able to identify the “Herbies” on his operation, he eeds to be able to reorganize. He identifies the bottlenecks as the “Heat Treat furnace” and the “NCX – 10”. It will be difficult to increase capacity because the machines they will need will cost money which the company is not willing to part with based on their performance. Alex picks Jonah up at the airport so as to assess the plant and advice them on what to do with the bottlenecks.
Jonah tells them of the need to increase the capacity of the bottlenecks they identified.He suggested operators at the NCX – 10 should not go on breaks before setting up the bottlenecks, there should be quality checks before parts are processed by the bottlenecks to reduce rejects and the old machines that can do the work done by the NCX – 10 should be brought back. In addition, vendors could also be called on to take work off the bottlenecks. Jonah made them understand that they are losing $2735 an hour by running the way they were.
Alex with the knowledge gained tells his team to only work on late orders by working on the really late ones first.Bob is finally able to track down one of the old machines he thought had been sold to complement the NCX – 10. The plant starts to ship orders unlike before when orders weren’t going out of their doors. Due to the fact that people are being moved around and are not at the bottlenecks when they need to offload and reload the heat – treat when the need arises, lags occur and inventory begin to pile up. A foreman is appointed for each department and the old machine, the Zmemga is put to work. Bob discovers that not every part needs to be heat treated; therefore parts going into the furnace were reduced.He also found that they could remove workers from non – bottlenecks and dedicate them to setting up the NCX – 10.
Inventory is reducing and orders are shipped out of the plant at a faster rate, before long the production team identifies other bottlenecks. Alex calls Jonah who decides to come over to the plant to assess the situation. Several items marked as low priority are piled up in front of the NCX – 10, the heat – treat and at assembly. Jonah explains to them that when they feed parts from non – bottle necks to bottlenecks non – stop, they get a pile up of inventory again at the bottleneck.He also said when they process non – bottleneck parts, they still pile up inventory al the point of assembly because 80% of their parts need to pass through the bottlenecks. He made them understand that the non – bottlenecks do not have to be working all the time as this will put a strain on the bottlenecks and increase inventory. They decide to reorganize and work on the priority system. Ralph, who is quite good with computers, volunteers to design a system that predicts when inventory should be released.
The idea is welcome.There is another division meeting, Alex’s plant seems to be the only one with marked improvements, all late order have been shipped and new orders were going out on time. Bill Peach doesn’t respond the way Alex was expecting him to.
He gives Alex an ultimatum of 15% improvement and also cut costs if he wanted his plant to continue running after the 3month deadline expires. Alex is thinking about Bill Peach’s ultimatum, when Jonah calls to let him know that he will be unavailable for some time. Alex tells him about the new challenge.The next day Alex tells his team about his discussion with Jonah and he recommended the following: cut batch size by half in order to reduce costs by half. Presently, the plant was running on Economic Batch Quantity, now they will need to reduce their batch sizes to process orders faster and deliver more quickly.
They decide to give the new method a try by cutting order processing time in half. Alex decides to go to the sales department at the head office to ask for more orders with a reduction in normal processing time.They get an order of one thousand and decide to process the order. They planned to ship the order in batches of 250, starting two weeks after the order has been placed and the customer agrees to it. The head of productivity from the head office comes over to the plant to have pictures taken with the robots but was surprised to see that the robots were not working.
The man starts snooping around, looking for something for the robots to do and suddenly stumbles on something. He invites accountants to review their methods of accounting.They discover that Alex’ plant had deviated from the companywide standards with an improvement 0f 17% instead of the 12. 8% they did if they had gone with company standards.
The owner of the company whose order they had shipped on time comes to the plant to shake everyone on Alex’s plant for a job well done. Alex goes for another meeting at the head office. Hilton sat in for Bill Peach and tells Alex about how he is raising his firm’s cost and that he will soon start making losses. He also tells Alex that Alex’s plant needs to be shut down soon.He goes in to see Peach, who tells Alex that Alex will be filling Peach’s position in two months as Peach will be moving to head the company along with his two aids.
Alex calls Jonah to tell him of the good news. Jonah congratulates him and tells Alex he needs to run a good division. Alex decides that in the two months remaining for him to resume his new position, he needs to learn as much as he can and also assemble his team. Lou, his accountant at the plant is willing to go to head office with him, while Bob, the production manager wants to stay on to manage the plant.
Alex talks to his team at the plant and they brainstorm in order to help solve the problems he will encounter in the division, they agree to do this every afternoon until Alex is ready to assume his new position They finally make a headway outlining the methods used in the Bearington plant. The terms throughput, inventory and operating expense came up again. These were to serve as a guide to the five steps they developed. 1 – Identify bottlenecks, 2 – Decide to exploit bottlenecks, 3 – Subordinate everything to the previous decisions, 4 – Evaluate the bottlenecks and 5 – If in a previous step, a bottle neck has been broken, go back to step 1.Alex, Ralph and Lou go to the head office for a meeting with the head of sales. Alex asks for orders to the tune of $10million.
Johnny, the head of sales, tells them of new demand and orders to be filled in Europe. Alex asks if the orders would not affect domestic markets, Johnny assures him they won’t. Bill peach calls Alex to congratulate him on the improvements he has made and to explain what he did with his plant. Meanwhile, inventory has started piling up at the bottlenecks and there are unplanned overtime on twelve work centres.
They finally are able to figure out the reason for the build up of inventory and find a solution but costs seem to be going up again. Alex realizes that, contrary to what he thought, the division has been unprofitable, it had been his former plant diving the division’s profitability. After sitting with Lou, they come up with answers to Jonah’s questions through questions of their own.
The questions outlined are * What do we change? * What do we change to? * How do we cause the change?