1. GENESIS OF THE GOAL 1.

GENESIS OF THE GOAL

The Goal is about science and education. The author believes that these two words have been
abused to the extent that their original meanings have been lost in a fog of too much respect
and mystery. Science for him is not about the secrets of nature or even about truths. Science
is simply the method to try and postulate a minimum set of assumptions that can explain,
through a straightforward logical derivation, the existence of many phenomena of nature. For
example the Law of Conservation of Energy of physics is not truth. t is !ust an assumption
that is valid in explaining a tremendous amount of natural phenomena. Such an assumption
can never be proven since even though an infinite number of phenomena that can be
explained by it. "n the other hand, it can be disproved by !ust a single phenomenon that
cannot be explained by the assumption. This disproving does not detract from the validity of
the assumption. t !ust highlights the need or even the existence of another assumption that is
more valid. This is the case with the assumption of the conservation of energy, which was
replaced by Einstein#s global$more valid $postulation of the conservation of energy and mass.
Einstein#s assumption is not true to the same extent that the previous one was not %true%.
The author believes that we have restricted the connotation of science to a very selective,
limited assemblage of natural phenomena. &e refer to science when we deal with physics,
chemistry or biology.
This boo' is an attempt to show that we can postulate a very small number of assumptions
and utilise them to explain a very large spectrum of industrial phenomena.
&hat the author has attempted to show with this boo' is that no exceptional brainpower is
needed to construct a new science or to expand on an existing one. &hat is needed is !ust the
courage to face inconsistencies and to avoid running away from them !ust because %that#s the
way it was always done%. The author has also dared to interweave into the boo' a family life
struggle, which he assumes is (uite familiar to any manager who is to some extent obsessed
with his wor'.
The author has also attempted to show in the boo' the meaning of education. The author
sincerely believes that the only way we can learn is through our deductive process.
)resenting us with final conclusions is not a way that we learn. *t best it is a way that we are
trained. That#s why he has tried to deliver the message contained in the boo' in the Socratic
way. The author believes that our textboo's should not present us with a series of end results
but rather a plot that enables the reader to go through the deduction process himself.
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2. INTRODUCTION TO THE GOAL 2. INTRODUCTION TO THE GOAL
The ,oal is about new global principles of manufacturing. t-s about people trying to
understand what ma'es their world tic' so that they can ma'e it better. *s they thin'
logically and consistently about their problems they are able to determine .cause and effect .
relationship between their actions and results. n the process they deduce some basic
principles, which they use to save their plant and ma'e it successful.
n today#s manufacturing society production management is one of the most crucial ideals to
stay competitive in the mar'et place. n our competitive manufacturing industry if a plant
does not satisfy customer#s wants and needs their sales and profits will suffer and
management may end up pulling the plug if sales continue to decrease.
The boo' covers the following topics in great detail/
Communication0
nventory0 1ottlenec's0
Efficiency0 and
Capacity )lanning.
There are several reasons why the author chose a novel to explain his understanding of
manufacturing 2 how it wor's and why it wor's that way in reality. Firstly, he wants to ma'e
the global principles of manufacturing more understandable and show how they can bring
order to the chaos that so often exists in our plants. Secondly, he wanted to illustrate the
power of this understanding and the benefits it can bring. The results achieved by the
exercise are not fantasy $ they have been and are being achieved in real plants. The author
hopes that the readers would see the validity and the value of these principles in other
organi3ations such as ban's, hospitals, insurance companies and our families. 4e believes
that the same potential for growth and improvement exists in all organi3ations. Finally and
most importantly the author wanted to show that we can all be an outstanding scientist. The
secret of being a good scientist lies not in brainpower but simply the need to loo' at reality
and thin' logically and precisely about what we see. The 'ey ingredient is to have courage to
face inconsistencies between what we see and deduce and the way things are done. This
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challenging of basic assumption is essential to brea' through. For example almost everyone
who has wor'ed in a plant is uneasy about the use of cost accounting efficiencies to control
our actions. 6et few have challenged this sacred cow directly.
The basic story is built around the dilemmas facing *lex 7ogo, a plant manager in charge of
an in!ection moulding plant a division at 1earington of his company 8niCo. *lex 7ogo is a
harried plant manager wor'ing ever more desperately to try and improve performance. 4is
factory is rapidly heading for disaster and so is his marriage. 4e has ninety days to save his
plant or it will be closed by the corporate 49 resulting in hundreds of !ob losses. The plant
can#t seem to ship its orders on time and it#s losing money. *lex is at a loss for what to do
until he pulls out a cigar that :onah, a physicist from srael, had recently given him. That
cigar reminds him to contact :onah for possible help. From there, the path to recovery begins.
3. ABOUT THE AUTHOR 3. ABOUT THE AUTHOR
Eli ,oldratt;s ten year old crusade to change manufacturing from an art to a science is
bearing fruit. Eli-s reputation as a slaughterer of sacred cows began in <=>= when the
introduction of his computeri3ed scheduling system disproved that myth that finite
scheduling doesn-t wor'. ts seems appropriate that Eli who is a man characteri3ed as
unconventional but also full of common sense should disguise The ,oal0 a manufacturing
textboo' as a novel. ts also fitting that it should become an underground best seller in
boardrooms, universities and on factory floors. 4owever it was not anticipated that the ,oal
would be passed along to and avidly read by spouses. ?or was it anticipated that people in
more than a do3en different countries would claim that the boo' was written about their plant
and their families.
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4. CHARACTERS IN THE GOAL 4. CHARACTERS IN THE GOAL
NAME OF CHARACTER ROLE IN THE BOOK
*lex 7ogo )lant Aanager 2 8ni &are Co. at 1earington
:ulie 7ogo *lex 7ogo;s wife
Bave and Sharon 4is Children
:onah )hysicistCConsultant
1ill )each D) at 8niCo E*lex 7ogo-s 1ossF
Lou *ccountant at 1earington Factory
1ob Bonovan )roduction Aanager at 1earington Factory
Stacey )ota3eni' nventory Controller at 1earington Factory
7alph ?a'amura System *nalyst at 1earington Factory
4erbie G 7on 1oys on the tre'
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5. CHAPTER I 5. CHAPTER I
THE BAD NEWS
The first chapter of this boo' describes the difficult situation *lex;s plant is in. Everything in
the plant is late. "rders are never shipped on time. n fact based on his observation *lex has
categorised all the orders that are behind schedule as being either Bo t ?ow, 7ed hot, Dery
hot or 4ot depending upon their priority for dispatch.
Buring this period *lex#s superior 1ill )each comes to the plant to ma'e sure the operation
are running smoothly as planned and to chec' on an important order for a client which
happens to be 8niCo. biggest customer. The order has been considerably delayed upsetting
the client. n an attempt to retain the client 1ill promises to personally loo' into the status of
the order.
* visibly upset 1ill ta'es *lex to tas' and as's him the reason as to why orders are getting
delayed. *lex blames the second round of layoffs that the Company carried out to reduce
costs for the delay as they have placed severe constraints on the plant functioning. 4owever
1ill and the management believe that *lex has enough people to build the products on
schedule. *ccording to 1ill the plant is no longer the money ma'er it should be and that he
would have no choice but to close the facility down. 1ill gives *lex three months to get the
plant running. Either the plant shapes up or the plant will be closed and everyone will lose
their !obs including *lex.
*t the plant for some reason orders have not been on time. They are usually caught up in a
bottlenec' somewhere. n fact many orders as of late have been so far behind that now it is a
ma!or problem for the company and the lively hood of the wor'ers. 4is company that he
wor's for is losing money. For the past couple of years the company has continued losing
money now it is his turn to change things around.
Thus in the first chapter we are made aware of the difficulties that *lex is facing and the
ultimatum that 1ill has delivered to him regarding the future of the plant.
I
6. CHAPTER II 6. CHAPTER II
STRESS ON FAMILY LIFE
"ne of the 'ey features of this boo' is that the author has very realistically interweaved
family life and professional life. Today most of the managers at all levels of the organi3ation
complain about the amount of hours they need to put into their !obs, !ust to be secure about
the !ob. This stress exerts intense pressure on ones family life. *lex being the plant manager
is going through a similar situation.
&ith all the problems with the plant, *lex hardly finds anytime for his wife and 'ids. This
situation has escalated to a point where *lex hardly gets to see in 'ids and is driving his
marriage towards disaster. The situation is further aggravated due to the fact that, :ulie hates
the town of 1earington and doesn-t want to stay there. *lex on the other hand is attached to
the town as he was born and raised in 1earington. 4e feels he is at home and also has a sense
of ownership towards the town.
THE INTROSPECTION
*ccording to *lex the real issue for him today is to save a manufacturing plant on the critical
list within three months before 1ill pulls the plug on the factory. This meant that *lex would
have probably two or three monthly reports to change 1ill-s mind failing which the plant
would be shut down without giving him time to complete his bac'log and IJJ people will
head for the unemployment lines. *lex tries to analyse the situation as to why can-t they
consistently deliver a (uality product out of the factory on time and at a cost which would
beat the competition inspite having a good plant, the latest technology, the best nCc machines
that money, robots and a computer system. *lex feels that the fierce competition from the
:apanese is the main cause. Earlier the :apanese were beating the *mericans on (uality and
product design and now they are beating on the basis of price and deliveries. *lex also feels
that he has already done enough of cost reduction and there is nothing left to trim.
Finally *lex reaches a conclusion that the division has to do something about the late orders,
reduce need of expeditors, and stac's and stac's of inventory in the warehouse and most
importantly to stop losing money.
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. CHAPTER III . CHAPTER III
PENNY WISE POUND FOOLISH
.)enny wise )ound FoolishK is an age$old adage. Today companies are so obsessed with cost
cutting in all possible minor ways that sometimes they land up spending a bomb trying to cut
trivial costs. This becomes evident in 8niCo when *lex has to go for a meeting to the
Company-s 49 at L.JJ am in the morning. *ccording to *lex the irony of calling an early
morning meeting when the Company is on a cost cutting drive is that half of the people
attending the meeting will have to fly in the night before, which means hotels bills and extra
meals. So in order to inform the divisions that they are not performing well and not ma'ing
money, 8niCo is going to pay a couple of grand more than they would have to pay if they
begun the meeting an hour or two later.
THE CRISIS
1efore the start of the meeting *lex comes to 'now the real reason for 1ill-s sudden outburst
and change in behaviour. ?athan Selwin one of 1ills assistant informs him that not !ust his
factory but also the whole division, which 1ill heads would be, shut down in case 1ill is
unable to ma'e a turnaround and improve performance before the end of the year. This meant
that if the division went so would 1ill-s !ob.
1ill was *lex-s immediate superior at the time he !oined 8niCo. t was 1ill who recogni3ed
*lex;s potential and promoted him to plant manager of the 1earington Factory. 1ill then was
a very different man. 4e was confident and wasn-t afraid to delegate his responsibility. 4e
would allow an employee to run his own show as long as the employee contributed to the
bottom line of the company. 4e tried to be an enlightened manager and was open to new
ideas. 1ut as sales reduced, competition intensified and budgets started becoming more and
more conservative, so did 1ill attitude.
1ill started to lose his rationality due to all the crisis that 8niCo was facing. 4e over reacts to
even petty issues and *lex compares 1ills current state to that of a general who 'nows he is
losing the battle, but forgets his strategy in his desperation to win.
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!. CHAPTER I" !. CHAPTER I"
THE FATEFUL MEETING
Chapter D of the boo' is the most crucial and the turning point in the fate of the plant and
*lex. This chapter describes the meeting between *lex and :onah and how this meeting sets
the ball rolling on the path of recovery.
* cigar in his suit poc'et reminds *lex of his fateful meeting with his old time physics
professor :onah at the "-4are *irport. *lex who is on his way to 4ouston to attend a
seminar on .7obotics/ Solution for the Eighties to *merica-s )roductivity CrisisK informs
:onah that his plant also ma'es use of robots in certain departments which have increased
productivity by thirty six percent in the areas where they are installed.
:onah however bombards *lex with a serious of fundamental (uestions such as/
s his plant now ma'ing thirty six percent more money than beforeM
&as his plant able to ship even one more product per day as a result of increase in
efficiencies in the department where robots are installedM
Bid he lay off any people and thereby reducing people-s expenses due to installation of
the robotsM
Bid the inventories of the plant go downM
Boes he ship his products on time meeting all the delivery and shipment datesM
&hen *lex replies in negative to all the above (uestions :onah says that in case the
inventories haven-t done down, employee expenses haven-t reduced and the company isn-t
selling more products or is not meeting shipping dates, then it is wrong for *lex to claim that
the robots have increased the plant-s productivity. Further :onah claims that *lex is running
a highly inefficient plant and that !ust li'e everybody else in the world, he has accepted so
many things without (uestion and that he is not thin'ing at all.
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THE TURNING POINT
*lex is stunned at :onah-s blunt but shoc'ingly true statements. 4e wants to 'now how
:onah could without even 'nowing or coming to his plant ma'e such accurate !udgments
about his plant. :onah tells *lex that what is happening in his plant is today a universal
phenomenon and in(uires why does *lex believe that the robots are such a great
improvement. *lex believes that robots are a great improvement because they have increased
productivity.
:onah then as's *lex to define productivity in a lay mans terms. *lex rightly defines
productivity as/
Accomplishing something in terms of goals.
:onah further adds that,
Productivity is the act of bringing a company closer to its goal. Every action that brings a
company closer to its goal is productive and every action that does not bring it closer to its
goal is not productive.
4owever productivity is meaningless unless one 'nows what is his goal and the problem with
*lex is that he doesn-t 'now what is his goal and until then he is !ust playing a lot of games
with numbers and words.
:onah advices *lex to thin' about what his goal is and gives him a clue that no matter what
the company, there is always only one goal to be achieved.
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#. CHAPTER " $ "I #. CHAPTER " $ "I
DISCO"ERING THE GOAL
This chapter describes the step$by$step process by which *lex tries to define the goal of his
company accurately. Neeping in mind that :onah had said that there is only one goal, *lex
tries to identify the goal by considering each of the departments in his plant. 4e starts with/
PURCHAE
"ne of the things that a manufacturing organi3ation must do is buy raw materials to produce
the re(uired final products. So is cost effective purchasing of raw materials the goal of the
companyM *lex re!ects this hypothesis considering the fact that his purchase department is in
the process of renting out more warehouses to stoc' all the crap that they are buying so cost
effectively which has resulted in a 5+ month supply of copper wire, > month supply of
stainless steel and millions and millions of money tied up in other stuff and all bought at
terrific prices and all this has not helped the plant in any way.
HU!A" RE#URCE
8niCo. employs people by thousands and people are supposed to be its most important asset.
So is supplying !obs and loo'ing after its employees its goalM 4owever in the last one year
8niCo has ruthlessly laid off a bul' of its staff nor does it provide lifetime employment to
anybody unli'e the :apanese companies. 1esides the plant isn-t built for the purpose of
paying wages and giving people something to do and so employee-s welfare is not the goal.
$UA%&'(
s (uality the goalM 1ecause if one doesn-t manufacture a (uality product all that one gets at
the end is a bunch of expensive mista'es and before long there would be no business and
clients. 4owever *lex 'nows that his plant does no compromise on (uality and is still
ma'ing losses and if (uality were truly the goal, then how come a company li'es 7olls
7oyce very nearly went ban'rupt. 4ence (uality alone cannot be the goal.
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E))&C&E"C( * $UA%&'(
*lex decides (uality alone cannot be the goal because of costs. f low cost production is
essential, then efficiency would be the goal, or rather both hand in hand i.e. the fewer errors
made, the less re$wor' one has to do would lead to lower costs and thus producing a (uality
product efficiently must be the goal. 1ut can this goal 'eep the plant wor'ingM *lex
considers a few examples of companies that were producing low cost (uality products but
have now discontinued them such a Dol'swagen-s 1ugs etc. and so he comes to the
conclusion that turning out a (uality product on an efficient basis is not the goal.
'ECH"#%#+(
f one has to stay in the business, he has to have the leading edge of technology. 1ut then if
technology is the goal of a manufacturing organi3ation, then how come the most responsible
positions aren-t in research and development. 4ow come 7 G B is always off to the side in
every organi3ation chart and even if the plant did have the latest technology would it save the
plant. ?o it wouldn-t and so even though technology is important it isn-t the goal
A%E * !AR,E' HARE
*lex then thin's about all the +J million dollars worth of finished goods inventory in his
inventory, which they haven-t been able to unload yet. 9uality products, all produced
efficiently with the most current technology are all piled up in the warehouse waiting for
someone to buy them. So is sales and mar'et share the goalM 1ut *lex remembers the old
line .we are losing money, but we; re going to ma'e it up by volumeK. * company will
sometimes sell at a loss or at a marginal profit !ust to unload inventories. Thus one can have a
big mar'et share, but what is the use is you are losing money in maintaining your share.
!#"E(
Then *lex realises that 1ill is going to shut *lex;s plant down because his plant is losing
money and the only way he can save his plant is by doing some incredibly brilliant thing and
stemming the losses so as to ma'e profits and through that money. Thus the goal of a
manufacturing organi3ation is to ma'e money. f a company doesn-t ma'e money by
producing and selling products, the company is finished. t will cease to function.
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Thus if the goal is to ma'e money, then putting it in :onah;s terms/
An action -hich moves to-ards ma.ing money is productive and an action that ta.es a-ay
from ma.ing money is non productive.
*lex reali3es that in the past one year his plant is moving away from the goal rather than
more towards it. So in order to save the plant, *lex has to ma'e it productive, i.e. he has to
ma'e money for 8niCo.
MEASUREMENTS FOR OBTAINING THE GOAL%
&e have seen that, ma'ing money is the goal of an organi3ation. 4owever in order to 'now
if one is actually achieving the goal, there is a need for certain measurements against which
the goal can be measured. The author here gives us a set of measurements against which one
can measure the extent to which one has succeeded in achieving the goal.
"E' PR#)&' /"P01
?) is an absolute measurement. ndeed it would tell us how much excess of income we have
made over expenses. 1ut ?) can be sometimes misleading on its own. For example, lets say
we earn a profit of O<J million. "n an absolute basis this is a wonderful figure and sounds
li'e a lot of money, but is it enough when compared to amount of money we investedM f we
started with a million dollars then we have made <J times more money than we invested and
that-s excellent, but if we have invested a billion dollar then a profit of <J million dollar
seems pretty lousy. 4ence an absolute measurement has to be compared with some other
relative measurement to draw some meaningful interpretation from it
RE'UR" #" &"2E'!E"' /R#&0
7" is a relative measurement, to compare the money made relative to the money invested.
This would solve the above problem, however there are examples of companies having a
good 7" but still going ban'rupt. *nd the basic reason behind this is inade(uate or
improper cash management. 1ad Cash Aanagement can drive a perfectly healthy company
on the verge of ban'ruptcy.
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CAH )%#3 A"A%(&
To support the above two measurements, Cash flow analysis is essential as it tells an
organi3ation how much funds are available to it in li(uid cash, what are the re(uirements for
cash during a given period and what are the sources from where funds are going to flow into
the Company. Cash flow analysis is essential because it is a measure of survival. Stay above
the li(uidity margin and an organi3ation is "N and go below it and the organi3ation is dead.
WHAT IS THE GOAL%
Finally *lex after much deliberation with Lou his plant controller defines the ,oal as/
'# !A,E !#"E( 4( &"CREA&"+ "E' PR#)&'5 3H&%E &!U%'A"E#U%(
&"CREA&"+ RE'UR" #" &"2E'!E"' A"6 &"CREA&"+ 'HE CAH )%#3.


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1&. CHAPTER "III 1&. CHAPTER "III
THE REFINED GOAL
The measurements that *lex decided to measure the goal are more of accountant-s
measurements and as such they may not be applicable down at the plant level and may not
really tell whether or not the plant is really productive.
To ma'e the measurements more compatible with the scenario on the plant floor the author
gives us 5 different measurements. The goal essentially remains the same0 only it is stated in
a different and more compatible manner. The definitions may sound simple but they are
worded very precisely differently than the conventional definitions. The measurements are/
'HR#U+HPU'
&t is the rate at -hich the system generates money through sales. ?ormally throughput is
associated with production, however the author rightly argues that even if we produce
something, but are not able to sell it, its doesn-t give any money to the Company and
conse(uently it is not throughput.
&"2E"'#R(
&t is all the money that the system has invested in purchasing things -hich it intends to
sell.
#PERA'&#"A% E7PE"E
&t is all the money the system spends in order to turn inventory into throughput.
Each of the definitions given by the author contains the word .moneyK. 'hroughput is the
money coming in. &nventory is the money currently in the system and operational e8pense
is the money one has to pay out to ma.e the throughput happen.
"ne measurement for the incoming money, one for the money still stuc' inside and one for
the money going out. The reason why the author decided to define inventory and operational
expense in the above fashion was because he didn-t want to ta'e into account any value
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added as it eliminates the confusion over whether a dollar spent is an investment or an
expense. For example normally direct labour cost is added to the inventory cost, however the
author has decided to treat it as an operational expense because the time of the employees
isn-t what the plant is selling. The plant buys the time from the employees. Thus all
employee time whether direct or indirect, idle or operating time is operational expense and
still getting accounted for in a simpler way.
*lex tries to correlate the above definitions with his earlier conversation with :onah
regarding the 7obots. *lex reali3es that :onah was using the measurements in a crude form
of simple (uestions to chec' whether the robots had really increased productivity.
'()*+,- B*-./ 012-3.()- 012-3.()- .) 3245- (6 52*-14252)3-
&as his plant able to ship even one more product
per dayM
Bid the throughput go up or increaseM
Bid he lay off any people and reduce people-s
expensesM
Bid the operational expense go downM
Bid the inventories of the plant go downM Bid the inventories go downM

So the way to express the goal is/
&"CREAE 'HR#U+HPU' 3H&%E &!U%'A"E#U%( RE6UC&"+ 4#'H
&"2E"'#R( A"6 #PERA'&"+ E7PE"E.
&hich means that if the robots have made the throughput go up and the other two factors to
go down, they have made money for the system.
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11. CHAPTER I7 11. CHAPTER I7
THE DISCUSSION ON ROBOTS
&ith goal clearly defined *lex decides to find out if the robots had actually increased the
productivity. 4e studied the impact of the installing of the robots on the 5 measurements
given by :onah. *lex with his team ELou, Stacey, 1ob and 7alphF discovered that in every
case where a robot came on line, there had been no increase in sales for any product for
which they made parts. The only increase was in the list of overdue shipments.
The wor' in progress on the parts produced by the robots had also gone up on those parts
since they were installed. Stacey associated the reason of increase in inventories to release of
more materials to the plant floor to 'eep the robots wor'ing so as to increase their utili3ation
rate. *s a result though the efficiencies of the robots did go up, the plant was also ending up
with huge surpluses of inventories. Further the plant wasn-t consuming those inventories, as
it didn-t have any orders that would call for those parts.
Stacey pointed out the irony that in cases where the plant did have orders, it !ust didn-t seem
to get enough of the parts re(uired. The reason for the above shortage in re(uired parts was
that whenever the utili3ation rate of the robots falls, everybody drew materials from the
stores against the future forecast to 'eep the robots busy. *nd hence the robots had been
producing parts for which there were no orders resulting in an increase in inventories.
8nfortunately the forecast didn-t hold up resulting in surplus inventory.
Thus it could be seen that in order to give more to the robots to do, more materials were
released, which in turn increased inventories and in turn the costs of the plant. *lex
concluded that they had been managing a very inefficient plant and not according to the ,oal
and went on to explain his meeting with :onah to his team.
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12. CHAPTER 7I 12. CHAPTER 7I
EFFICIENCY 8 GOOD OR BAD9999
Through years we have all come to believe that idle time is not desirable irrespective of
whether it is normal or abnormal. Aost managers are also in a constant struggle to eliminate
as much of idle time as possible because we believe that idle time is bad for the company
since it was a waste of money since the company doesn-t pay its employees to be idle. n this
chapter the author had ta'en a stand that idle time is in fact desirable and essential for the
proper functioning of an organi3ation. n fact he believes that A P%A"' &" 3H&CH
E2ER(#"E & 3#R,&"+ A%% 'HE '&!E & 2ER( &"E))&C&E"'
The author adds that that *lex-s plant is the best example of the above statement. The
struggle to 'eep the robots and the wor'ers busy had resulted in a huge pile of inventories for
which there was no demand. Aost of the managers today believe that their plant are so short
of people that the only way they can get products out of the plant is by 'eeping everyone
wor'ing. 4owever the author says that the only way one can have huge excessive inventories
as in case of *lex is by having excessive manpower or by over wor'ing people. Aachines
don-t set up and run themselves. )eople are the ones who create inventory. The author
vehemently advices the readers to stop focusing on efficiencies and instead concentrate on
ma'ing money, which is the true goal.
*lex tells :onah about their finding on the robots and admits that their excessive focus on
increasing efficiencies of the robots had resulted in a movement away from the goal.
THE BALANCED PLANT 8 A MYTH
4ere the author has introduced the concept of a balanced plant, to explain the validity of his
above statements. The author defines a balanced plant as/
A plant -here the capacity of each and every resource is balanced e8actly -ith the demand
from the mar.et.
Every manager tries to achieve this because if they don-t have enough capacity, they are
depriving themselves out of potential throughput and if they have more capacity they are
wasting money and missing an opportunity to reduce operational expense. The tendency for
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most managers to achieve this is to trim the capacity wherever they can, so no resource is idle
and everybody has something to wor' on.
Ho-ever according to the author nobody ever runs a perfectly balanced plant because the
closer one gets to achieve a balanced plant5 the closer he gets to ban.ruptcy.
This is because the obsession with trimming capacity leads to laying off of people, which
only results in a decrease in operational expenses without a decrease in inventory or increase
in sales. 1esides in trimming capacity to balance with mar'et demand managers ma'e a
universal assumption that it wont affect throughput or inventory. Contrary to the assumption
there is a mathematical proof that when capacity is trimmed exactly to mar'eting demands,
no more and no less, throughput goes down and inventories go through the roof, and because
inventories increase, the carrying cost also increases which is nothing but an operational
expense. *nd so the one measurement, which is expected to improve by layoff of people,
also increases ta'ing one away from the goal.
The reason for the above result lies in a combination of two phenomenons that are found in
every plant. They are/
6EPE"6E"' E2E"'
&t is an event or a serious of events5 -hich must ta.e place before another can begin. 'he
subse9uent event depends upon the ones prior to it
'A'&'&CA% )%UC'UA'&#"
'here are some .inds of information that -e cannot precisely predict. Li'e how long it will
ta'e a waiter to bring a chec' after every meal or the number of eggs that would be in the
fridge on any given day. 'hese types of information vary from one instance to the ne8t i.e.
they are sub:ect to statistical fluctuations.
n context with the story in the boo', *lex however feels that in case of a wor'er doing the
same !ob day in and day out, these fluctuations would average out over a period of time.
:onah however disagrees with him and as's *lex to reflect on these definitions in
combination and no singularly.
<=
13. CHAPTERS 7III $ I" 13. CHAPTERS 7III $ I"
THE HIKE
Chapters P G D are the most crucial and one of my favourite chapters of the boo'. n
these chapters the author has explained the meaning and practical application of all the
technical terms that he has defined till now. 7eading these two chapters ma'es ones concept
really clear and gives a whole new perspective about the boo'.
The chapters describe how *lex understood the combined application of the dependent
events and statistical fluctuations on a hi'e which he went to along with his son.
*lex went on a hi'e as a troop master with his son Bave. The plan for the troop was to hi'e
through the forest following a bla3ed trail to someplace called .Bevil-s ,ulchK. The distance
from the starting point to Bevil-s ,ulch was <J miles and the troop had to cover this distance
in a period of H hours i.e. at a rate of + mils per hour. They started off with 7on who was the
fastest in the lead, followed by the other boys with 4erbie who was the fattest and the
slowest at the end. *fter sometime time *lex noticed that the column of scouts had spread
out to some degree. * couple of gaps had appeared between the columns and he could barely
see the 'ids at the end of the line.
THE COLUMN OF TROOPS WITH RON IN THE LEAD
*lex commanded 7on to halt until everybody came together. 4owever after sometime the
gaps again started appearing. Loo'ing at the spread out column, *l ex started correlating
+J
DE"IL GULCH
START
RON DA"E HERBIE
RON DA"E HERBIE
RON DA"E HERBIE
AFTER 3& MINS
AFTER #& MINS
what was happening with his conversation with :onah on dependent event and statistical
fluctuations. t was then that he understood the combined effect of the two phenomenons.
7on who was the fastest was setting the pace. Every time someone moved slower than 7on,
the line lengthened. f one of the boys too' a step that was an inch shorter than the one 7on
too', the length of the whole column increased.
*lex then remembered his earlier argument that the statistical fluctuations were bound to
average out over a period of time. So *lex thought that when someone moved faster than
7on it would ma'e up for the spreading, averaging out the fluctuations.
4owever *lex realised that even if he were to wal' faster, he could close the gap only
between himself and the 'id in front of him. "nce the gap was closed he couldn-t go any
faster than the rate at which the 'id in front of him was going. *nd the 'id in turn couldn-t go
faster than the 'id in front of him and so on up the line to 7on. &hich meant that except 7on
each of their speeds depended upon the speed of those in front of them in the line.
Thus the hi'e was li'e a set of dependent events, in combinations with statistical fluctuations
in the form of speed of each person. The ability to go faster than the average speed was
restricted by the person in front. So everyone had got limits on how fast he could go. * boy
could go only so fast as those in front of him, but conversely there was no limit on a person-s
ability to slow down or stop. *nd if anyone slowed or stop the line would extend indefinitely.
Thus what was happening wasn-t an averaging out of the fluctuations in the various speeds
but an accumulation of the fluctuations. *nd mostly it was an accumulation of the slowness
and that is why the line was spreading.
ANALOGY TO THE PLANT
The author has established a beautiful analogy between the hi'e and the plant. Even in the
plant there are both dependent event and statistical fluctuations. The troops of boys were
analogous to a manufacturing system, and the troop produced a product in the form of a wal'
trial. 7on began production by consuming the unwal'ed trail before him, which was
e(uivalent to raw material. So 7on processed the trial first by wal'ing over it, then the other
boys behind him till 4erbie who was last. Each of the boys was li'e an operation that had to
be performed to produce the product in the plant. "nly after the last boy i.e. 4erbie had
+<
wal'ed the trial was the product sold, and thus the throughput would be the rate at which
4erbie wal'ed the trail and not 7on.
The amount of trail between 7on and 4erbie would be the inventory and the energy spend by
each 'id would be the operational expense. f the distance between 7on and 4erbie
increased, it would mean the inventory was increasing. 1ecause 4erbie was slowed down by
the fluctuating rates of others, so that the slower than average fluctuations accumulated, the
effect would wor' bac' to 4erbie. &hich meant that inventory grew and the throughput of
the entire system went down.
f inventory went up, so would the carrying cost on inventory that is an operational expense.
n terms of the hi'e, the operational expense was increasing every time the boys hurried to
catch up, because they spent more energy.
Thus inventory was going up, throughput was going down and operational expense was also
increasing in the hi'e and which was what was precisely happening to *lex-s plant.
++
14. CHAPTER " 14. CHAPTER "
THE SOLUTION
The hi'e and the column of students made *lex realise the problem that he was facing in his
plant. ?ow he needed to come out with some solution in order to 'eep the column of students
together.
*lex realised that the boy who would be moving the slowest at any given moment of time
would determine the throughput of the entire system. That person may be any boy who too'
a step shorter or wal'ed slower than 7on. Thus the boy slowing the troop down may not
always be 4erbie, but overall, 4erbie had the least capacity for wal'ing and so his rate
ultimately was bound to determine the troops rate. 4aving come to a conclusion that 4erbie
was the limiting factor, *lex tried to devise a way to ma'e 4erbie go faster and also the 'eep
the boys together in a single line.
First he removed all the excessive weight from 4erbie;s bac'pac' and distributed it between
himself and the other boys. Then he as'ed all the boys to stop and made them stand in a line
in the position they were currently wal'ing. 4e made everyone !oin hands and ta'ing
4erbie;s hand who was standing last, he reversed the whole column of troops, such that
4erbie was now in the lead, followed the other slower guys and the faster boys li'e 7on were
at the end of the column.
The result of the above two actions was dramatic, 4erbie because of the weight on this bac',
reduced could now really wal' faster and because nobody was allowed to overta'e anybody
the column remained compact as the faster boys at the end easily 'ept up with the slower
boys in the front.
The column of troops was now flying, doing twice the speed they were doing before and they
still managed to stay together. n the author-s language, inventory went down and throughput
increased.
+5
THE COLUMN OF TROOPS WITH HERBIE IN THE LEAD

+@
DE"IL GULCH
RON DA"E HERBIE
RON DA"E HERBIE
AFTER 12& MINS
AFTER 24& MINS
AFTER 1!& MINS
RON DA"E HERBIE
RON DA"E HERBIE
AFTER 3&& MINS
15. CHAPTER 7"II 15. CHAPTER 7"II
THE PROOF
n this chapter, the author proves the analogy that he had established between the plant and
the hi'e. &hen *lex observed that his team was not entirely convinced with his conclusions
from the hi'e he decided to prove it by ta'ing an actual example from the plant floor. 4e
selected a Bo t ?ow category !ob where a particular product had to pass through two
processes i.e. one manual and the other on the robots before it could be shipped. There were
in all <JJ units to be processed within H hours i.e. at the rate of +H units to be processed per
hour by each department.
The manual department was supposed to produce at the rate of +H units per hour. 1ut that
doesn-t mean they would always have +H units at the end of every hour. Sometimes they
would have a few pieces short and sometimes they will be a few pieces ahead. Thus the
process involved statistical fluctuations. The robot on the other hand was supposed to be
precise in its output. t would be setup for +H units per hour$ no more no less. Thus the
process was a dependent event i.e. the robots depended upon the manual department to
supply them with +H units per hour in order to begin processing. The planning was that from
<+ noon until @ pm, the manual department would produce <JJ units per unit at the rate of +H
units per hour. From < pm onwards the robots would begin processing on the first batch of
units send by the manual department thus finishing the !ob by H p.m.
E7PECTED SCHEDULE :
Bemand Q <JJ units, 9uota Q +H units per hour R S 2 indicates cumulative production.
12.&& 8 1.&& 1 .&& 8 2.&& 2.&& 8 3.&& 3.&& 8 4.&& 4.&& 8 5.&& 5 ;5
M*)1*<
D2;3.
+H
RJS
+H
R+HS
+H
RHJS
+H
R>HS
$$$$$$$$$$$$
R<JJS
$$$$$$$
R(=(3 $$$$$$$$ +H
RJS
+H
R+HS
+H
RHJS
+H
R>HS
$$$$$$$
R<JJS
ACTUAL PRODUCTION SHEET AT 5 PM 8
Bemand Q <JJ units, 9uota Q +H units per hour
R S 2 ndicates cumulative production.
+H
E F 2 ndicates cumulative shortfall in production as per target
12.&& 8 1.&& 1 .&& 8 2.&& 2.&& 8 3.&& 3.&& 8 4.&& 4.&& 8 5.&& 5 ;5
M*)1*<
D2;3.
<=
RJS EJF
+<
R<=S E$IF
+L
R@JS E$<JF
5+
RILS E$>F
$$$$$$$$$$$$
R<JJS EJF
$$$$$$$
R(=(3 $$$$$$$$ <=
RJS EJF
+<
R<=S E$IF
+H
R@JS E$<JF
+H
RIHS E$<JF
$$$$$$$R=JS
E$<JF
From the above production sheet we can see that in the first hour, the manual department
processed only <= units. The robots were capable of doing +H units, but since the manual
department could deliver only <= units, the true capacity of the robots became <= units for
that hour. Same with the second hour, the manual department could deliver only +< and so
the robots could process only +< units. Thus every time the manual department lagged behind
target, the effect was passed on to the robots.
4owever when the manual department delivered +L units, the robots could process still
process only +H units, which meant that when the final delivery of the 5+ units arrived at @
pm, the robot still had 5 units to wor' on from the last batch, so it couldn-t start on the batch
right away. Similarly at H pm, the robots still had to process <J units, which was exactly the
number of units, the manual department ever got behind the schedule.
Thus *lex proved the mathematical principle that the maximum deviation of a preceding
operation would become the starting point of a subse(uent operation.
+I
16. CHAPTER 7"III 16. CHAPTER 7"III
BOTTLENECKS
The author has so far proved that one cannot measure the capacity of a resource in isolation.
ts true productive capacity depended upon where its position was in the plant. n order to
'now the position and the importance of a particular resource in an organi3ation, the author,
has classified all resources into + categories as follows/
BOTTLENECK RESOURCE>
&t is any resource -hose capacity is e9ual to or less than the demand placed upon it.
NON:BOTTLENECK RESOURCE>
A resource5 -hich is not a bottlenec. resource5 is a non;bottlenec. resource.
4aving seen the actual demonstration of the effect of dependent events and statistical
fluctuations on the production system, *lex and his staff come to the conclusion that they
had to change the way they thought about production capacity. :onah advices them not to
balance the plant capacity not according to the mar'et demand, but to balance the flow of the
product through the plant with the demand from the mar'et. Thus the author here gives amn
important rule/
4A%A"CE )%#3 and "#' CAPAC&'(
The idea is to ma'e the flow through the bottlenec' e(ual to demand from the mar'et.
HERBIES AT THE PLANT
&ith the above advice from :onah, *lex and his team set out to identify the bottlenec's or
4erbie as they decided to call them in the plant. Since they were short of time and the data
available was inade(uate and inaccurate, they decided to the identify the bottlenec's using
the help of the expeditors as they would be able to tell them which parts are missing or are in
short supply most of the time and which departments are responsible for the supply of the
parts. The departments where the parts were to come from would invariably posses the
4erbie in the plant. *lso !ust as on the hi'e one could identify the slower boys by the gaps in
the line and greater the gap, greater would be the inventory, in case of the plant a 4erbie
would have a huge pile of wor' in progress sitting in front of it.
8sing the above methodology, *lex and his team identifies the first bottlenec' as/
+>
BOTTLE NECK ? 1> NC7 8 1& MACHINE
The reasons why ?CP 2 <J was classified as a bottlenec' was/
The machine had stac's of wor' in progress inventory in front of it dating bac' to a
couple of wee's,
The expeditors also confirmed that they were always waiting for parts from this machine,
The machine was installed + years earlier to replace 5 different machines, thus reducing
processing time from <@ minutes to <J minutes, however, earlier there were 5 sets of the
machines whereas the ?CP 2<J was the only one of its 'ind. &hich meant that though
the processing time reduced, there was no increase in the number of units being
processed annually and,
The employee turnover on the machine was very high as it was in demand in the mar'et
and it too' six months to train a new person to operate the machine.
BOTTLE ? 2> HEAT 8 TREATMENT DEPARTMENT
The reasons why 4E*T 2 T7E*TAE?T department was classified as a bottlenec' was/
The parts put in the furnace had to remain in it anywhere from I hours to <I hours.
*fterwards, the parts had to go through a cool down to air temperature process outside
the furnace. Thus a lot of time was lost in this process.
The furnaces never operated at full capacity because the batch si3es were either too small
to fill up the furnace capacity and sometimes the batch si3e was too big, that + runs were
re(uired.
Thus *lex and his team had discovered two bottlenec's in their plant. They were holding
everything up and as a result there were piles and piles of inventory stac'ed up in front of
them. *nd unli'e the boys on the hi'e, they couldn-t be rearranged at the start of the
operations and were stuc' in the middle of the line.
+L
1. CHAPTER 7I7 1. CHAPTER 7I7
COST OF A BOTTLENECK
*ccording to the author the main problem in case of bottlenec's was that they were not
maintaining a flow sufficient to meet demand and to ma'e money and so the only solution to
the problem was to find ways to increase their inherent capacity. The essence of the problem
lied in finding enough capacity for the bottlenec's to become more or e(ual to the mar'et
demand. n most organi3ations, the bottlenec's always have some hidden capacity because of
the wrong thin'ing of the managers.
:onah visited the bottlenec's one by one and discovered a couple of issues regarding the
bottlenec's such as/
The machines were idle.
1ottlenec's were producing units for which there was no immediate demand
The bottlenec's were processing units which were faulty, thus wasting precious time of
scrap
There was no optimum utili3ation of the limited number of hours available on the
bottlenec's.
:onah then went on to explain *lex and his team the importance of the bottlenec's and how
precious were the hours available on them. 4e explained them that every time a bottlenec'
finished a part, if facilitated the shipment of a product, which meant an average of a <JJJ
dollars in sales per unit.
The author here states that calculating the per hour cost of a bottlenec' in isolation of the
whole production system was a flaw which most people committed. *ccording to him the
cost of operating the bottlenec's should be calculated ta'ing into consideration the fact that
the capacity of the plant is e(ual to the capacity of the bottlenec'. Thus whatever the
bottlenec's would produce in an hour is e(uivalent of what the plant produces in an hour, so
an hour lost at a bottlenec' was an hour lost for the entire system. *nd hence the cost per
hour of a bottlenec' would be the cost for the entire plant to be idle for one hour.
The cost in case of *lex-s plant could be calculated by dividing the total operating expenses
for a month by the number of hours the bottlenec' produced. &hich in their case wor'ed out
+=
to be O +>5H per hour as against O +< per hour if the cost of the bottlenec' is calculated in
isolation.
OPTIMISATION OF BOTTLENECKS
:onah identified 5 ways in which *lex could optimi3e the use of bottlenec's.
<. Ensure that time on the bottlenec's was not wasted. The different ways in which time
could be wasted are/
1y 'eeping it idle during lunch brea's
)rocessing parts which were already defective
&asting a bottlenec's time on parts, which were not needed immediately for sale.
+. Aa'ing the bottlenec's wor' only on what would contribute to the throughput today and
not in the future.
5. ncrease bottlenec' capacity by ta'ing off some load and giving it to non$bottlenec's.
5J
1!. CHAPTER 77 8 77I" 1!. CHAPTER 77 8 77I"
CORRECTI"E STEPS
*lex and his team too' the following corrective actions after :onah;s visit to their plant and
its comments on the utili3ation of the bottlenec's
1. 0C BEFORE BOTTLENECKS
Aoved the 9uality Control inspection points before the bottlenec's in order to inspect the
parts before they could be processed by the bottlenec's. This eliminated about H to > T of the
parts, which were defective from being processed by the bottlenec', thus gaining additional
throughput.
2. NEGOTIATIONS WITH THE UNION
?egotiated with the union to eliminate bottlenec' idle time by as'ing the wor'ers wor'ing on
the bottlenec's to ta'e their brea's only during the hours when the bottlenec's were
operating or busy.
3. NEW PRIORITY SYSTEM
ntroduced a new priority system for processing orders. 8nder this system, all the wor' in
progress was mar'ed by a tag with a number on it. The tags were of two colours 2 red and
green. * red tag indicated the wor' attached to it had first priority and would be put on
materials that re(uired processing on the bottlenec's. &hen a batch with a red tag arrived the
wor'er was supposed to start wor' on it with half an hour after completing the !ob on hand.
n case of + batches with the same colour, the number on the tag had to referred and the
materials with the lowest number had to be wor'ed upon.
4. CHANGE IN CONTROL PROCESSES POST 0C
Since 9C was installed before the bottlenec's, it was necessary that the parts coming out the
bottlenec's had to be handled with great care in order to avoid any damages. So a system of
yellow tags was introduced. 8nder this system a yellow tag on the materials indicated it had
5<
been processed by the bottlenec's and so the parts had to handled with great care and
caution.
5. AC0UIRE SUBSTITURE MACHINERY
1ob managed to ac(uire free of cost the machines which the ?CP 2<J had replaced. The
machines were put into operations and as a result the capacity of the plant increased by those
many number of units.
I. ASSIGNED DEDICATED SETUP CREW
*ssigned a dedicated setup crew to the bottlenec's so that, they would be always attended to
and new batches would be loaded immediately once the previous batch was finished being
processed. This further eliminated any idle time on the bottlenec's caused due to non$
attendance of people at the machines when processing stopped.
. STANDARD OPERATING PROCEDURES FOR HEAT TREATMENT
Formulated standard operating procedures in case of bottlenec's such as filling up the
furnace to its optimum capacity using different parts if the batch of any one order is too small
or big to fill up the furnace.
!. INCENTI"E $ REWARDS
Disited the crew at the bottlenec's fre(uently so as to motivate them and to ma'e them feel
important and also suggested that rewards would be given to anyone who could improve the
output at he bottlenec's.
#. CHANGE IN MFG PROCESS FOR CERTAIN PARTS
Eliminated heat treatment process in case of all those parts in whose case it was not specified
or re(uired by the engineering department, but the management was doing it a part of normal
routine.
5+
THE RESULT
* result of all the above improvement steps that *lex and his team too' was that, that were
able to set up a new plant record. They were able to ship H> orders amounting to 5 million
dollars. The wor' in progress declined by <+ percent and delays had reduced to <H days from
HL days.
55
1#. CHAPTER 7" $ 7"I 1#. CHAPTER 7" $ 7"I
NEW BOTTLENECKS%
*fter the initial euphoria of the success of the above factors, *lex and his team suddenly
discovered that shortage of parts was now felt from some of the non bottlenec' resources and
also piles and piles of inventory were getting accumulated at the assembly shop and the stoc'
in front of the bottlenec's started increasing again. *lex thought that perhaps with the
increase in the throughput, they must have loaded the plant to such a level that they must
have run out of capacity on some other resource in addition to those identified earlier.
Aa'ing the bottlenec's more productive must have put more demand on other non$
bottlenec' wor' centres. f the demand on the other wor' centres had gone above <JJ
percent, then it must have resulted in the creation of a new bottlenec'.
*t this !uncture the author reminds us of one of his earlier statement A plant in -hich
everyone is -or.ing all the time is very inefficient; which is what was precisely happening
in *lex-s plant.
The author then goes on to explain some basic relationships between bottlenec's and non$
bottlenec's with the help of 5 diagrams/
DIAGRAM I
4e denotes a bottlenec' by the alphabet UP- and a non$bottlenec' by the alphabet by U6-. n
the above diagram machine 6 is feeding parts to bottlenec' P. 1y definition a non$
bottlenec' has extra capacity and so 6 will be faster in filling demand than P. 1oth P G 6
would have the same capacity in term of hours per month Esay IJJ hoursF. Since P is a
bottlenec', the plant will need all the IJJ hours of P to meet the demand. 1ut the plant may
need only @HJ hours of 6 to e(ual the demand. n this case 6 would be left with a surplus
capacity of <HJ hours. f the plant released more materials to 'eep 6 busy, then the parts,
which 6 produced in those <HJ hours, were bound to get stuc' as wor' in progress inventory
5@
Y :::: 7
in front of the bottlenec' as all the IJJ hours of P were already being utili3ed. Thus pushing
more material than the system can convert into throughput was resulting in excess inventory.
DIAGRAM II
Similarly in a situation where P is feeding 6, only @HJ hours of the total capacity of 6 can be
used productively. f 6 is exclusively depending upon P to feed it with inventory, the
maximum number of hours it can wor' is determined by the output of P. Thus after wor'ing
for @HJ hours 6 will be starved for inventory, which is (uite acceptable.
DIAGRAM III
n this case there are + routes. n one route, 6 feeds parts directly to the *ssembly shop,
which is also a non$bottlenec'. "n the second route, parts reach the assembly shop after they
have being processed by P. n case both P and 6 are 'ept wor'ing continuously for every
available hour, excess inventory from 6 will reach the *ssembly shop and get piled up there
because LJ percent of the products would re(uire at least one part from P, resulting in piles
of inventory getting accumulated in front of the assembly shop converting it into a
bottlenec'.
From the above linear combinations we observe that in no case does 6 ever determine the
throughput for the system. &henever 6 is operated at a level above P it results only in
excess of inventory and not throughput.
Thus the author gives us a very simple rule/
5H
7 :::: Y
Y ::::
7 ::::
ASSEMBLY
'HE %E2E% #) U'&%&A'&#" #) A "#" 4#''%E"EC, & "#' 6E'ER!&"E6
4( &' #3" P#'E"'&A%5 4U' 4( #!E #'HER C#"'RA&"' &" 'HE
('E!.
n context with *lex-s plant, a ma!or constraint was the ?CP 2 <J machine. &hen a non$
bottlenec' did more wor' than the ?CP 2 <J, it did not increase productivity, but did exactly
the opposite i.e. created excess inventory, which was against the goal.
*lex li'e most other managers was wor'ing under the fundamental wrong assumption that,
#"E !U' !A,E 'HE 3#R,ER PR#6UCE #"E HU"6RE6 PERCE"' #)
'HE '&!E5 #R E%E +E' R&6 #) 'HE! '# <A2E= !#"E(.
The author here ma'es a very interesting point that ma'ing an employee wor' and profiting
from that wor' are two different things. Similarly activating a resource and utili3ing a
resource are not synonymous.
Utilising a resource means ma.ing use of the resources in a -ay that moves the system
to-ard the goal.
Activating a resource is li.e pressing a #" s-itch of a machine5 so that it -ould run
-hether or not there is any benefit to be derived from the -or. its doing.
Thus really spea'ing activating a non$bottlenec' to its maximum is an act of maximum
stupidity.
The implication of these rules is that we must not see' to optimise every resource in the
system. * system of local optimums is not an optimum system at all, it is a very inefficient
system.
THE DIAGNOSIS
*lex and his team realised that they were releasing materials faster than the bottlenec's could
process them. &hat happened was that even as throughput increased, they continued loading
the plant with inventory !ust to 'eep their wor'ers busy. This increased the load dumped on
the milling machines Enon$bottlenec'sF and pushed them beyond their capacity. The priority
red tags were processed and the green tags 'ept piling up. So not only did they create more
inventory at the ?CP 2 <J machine and the 4eat Treatment department, but due to the
5I
volume of the bottlenec' parts, they also clogged the flow of another wor' centre and
prevented non bottlenec' parts from reaching the assembly shop, and in the process creating
a new bottlenec'.
They decided to withhold the materials for the red parts instead of pushing them out as soon
as the first bottlenec' had nothing to do. The milling machines would then have time to wor'
on the green parts and the parts, which were missing, would reach the assembly on time.
Thus they had to find the way to release the material for the red parts according to the rate at
which the bottlenec's needed material. They needed some 'ind of signal to lin' the
bottlenec's with the release of material schedule. They also made a system so as to predict
when to release material based on the data 'ept of the bottlenec's. The system could predict
several wee's in advance what each bottlenec' would be wor'ing on at a particular time.
1ased on what was in the (ueue and the average setup time along with the process times for
each type of part the system could predict the re(uirement of materials to about plusCminus a
day or two. This allowed them to 'eep a three$day stoc' of wor' in progress in front of each
bottlenec'. They also developed a system to attac' the inventory problems in front of the
assembly. 8sing a schedule for releasing red tag materials based on the bottlenec's the
system could also determine a schedule for the final assembly. "nce the data regarding when
the bottlenec' parts would reach the final assembly was available the system could calculate
bac'wards and determine the release of the non$bottlenec' materials along each of their
routes. n this way the bottlenec's determined the release of all the materials in the plant.
*lex concluded by saying that its going to produce the same effect as moving the bottlenec's
to the head of production which is what he had intended to do.
5>
2&. CHAPTER 77"II : 77I7 2&. CHAPTER 77"II : 77I7
THE NEW CHALLENGE
n these chapters the author has shown how to ma'e the optimum utili3ation of the idle time
available on the non$bottlenec's, which was available due to scheduling as per the capacity
of the bottlenec's.
*lex approached 1ill after three months and told him about the improvements in his plant.
4e also informed 1ill that there was no need now to shutdown the plant. 4owever 1ill said
that he was not convinced that the improvement was !ust a flash in the pan and he would
consider *lex-s statement if he showed a bigger improvement of <HT or more on the bottom
line than the previous month.
BATCH SI@E MIRACLE
:onah adviced *lex and his team to cut the batch si3es of the parts in half on non$bottlenec's.
* cut in the batch si3es meant that at any one time they would have half the wor' in progress
on the plant floor. Thus they would need only half the investment in wor' and progress to
'eep the plant running. 1y negotiating with the vendors they could cut all the inventories in
half and reduce the amount of cash tied up any one time, which would ease the pressure on
the cash flow and thereby pushing up the profits.
*ccording to the author the total time from the moment the material comes into a plant to the
minute it goes out as finished product could be divided into four elements as follows/
<. SETUP TIME 2 t is the time the part spends waiting for a resource while the resource is
preparing itself to wor' on the part.
+. PROCESS TIME 2 t is the amount of time the part spends being modified into a new
and more valuable form.
5. 0UEUE TIME 2 t is the time the part sends in line for a resource while the resource is
busy wor'ing on something else ahead of it.
@. WAIT TIME 2 t is the time the part waits not for a resource but for another part so they
can be assembled together.
Setup and process times are a small portion of the total elapsed time for any part. 1ut (ueue
and wait time often consumes large amount of time that the parts spend inside the plant. )or
parts going through bottlenec.s 9ueue is the dominant portion -hereas in case if a non;
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bottlenec. -ait is the dominant time because they are -aiting in front of assembly for
parts that are coming from there bottle nec.s. This means that in each case the bottlenec's
are what dictate the total elapsed time. *nd hence the bottlenec's also dictated inventory as
well as throughput.
* reduction in batch si3es by half would also reduce by half the process time of a batch,
which in turn reduced the (ueue, and wait time by half as well. This would reduce the total
time spent by the part in the plant and condense the total lead$time. This would result in
faster turnaround on orders and with customers getting a faster response it would serve as an
advantage in the mar'et place ultimately increasing the sales of the parts.
4ere it is very normal for a person to assume that due to the reduction of batch si3es in half it
would proportionally increase the set up times and thereby increasing the cost per part.
4owever the author lays to rest any such fears reminding us that !ust as an hour lost at a
bottlenec' is an hour lost for the entire system, li'ewise
.An hour saved at a non;bottlenec. is a mirage.
*ccording to the author when we start withholding materials from the plant floor until the
bottlenec's are ready for them, the non$bottlenec's would then have idle time.
4ence it was perfectly o'ay to have more set ups or non$bottlenec's0 because all the extra
setups would consume only the idle time that is inherently available on the non$bottlenec'.
Thus saving setups at a non$bottlenec' didn-t ma'e the system one bit more productive. The
time and money saved is an illusion.
n case of *lex even if they were to double the number of setups it wouldn-t consume all the
idle time. :onah further advises *lex to approach the mar'eting department and convince
them to conduct a new campaign, which would promise customers delivery within six wee's.
This would clearly be a mar'et winning strategy and profits were bound to increase.
21. CHAPTER 777 21. CHAPTER 777
THE "ICTORY
The results of the above improvements and strategies adopted by *lex and his team were/
5=
nventory levels had fallen and were continuing to fall rapidly.
1y withholding materials they were no longer cho'ing on wor' in progress.
)arts were reaching the bottlenec's when they were supposed to and the flow through the
plant was much smoother that before.
7ate of shipments grew dramatically and efficiencies were on a high.
The best news was that they had completely wiped out their bac'log of overdue orders
and had caught up with orders on hand.
Throughput was up.
The plant got plenty of new orders and increased customer loyalty.
The wor' force was now more occupied productively than before.
The stac's and piles of parts and subassemblies had shrun' to half their former si3e.
They had shipped the excess inventory as finished product.
The most notable part was that, they hadn-t filled the plant again by dumping new wor'
in progress on the plant floor. The only wor' in progress on the plant floor was for the
current demand.
The improvements also helped *lex in regaining orders from 1uc'y 1urnside, their
biggest and most prestigious customer.
The plant recorded a remar'able increase of +<T in the bottom line consistently for a
period of three months.
Finally at end of five months *lex and his team-s efforts were rewarded. *lex was
promoted to 1ill-s position at the group level.
@J
22. CHAPTER 777I 8 7777 22. CHAPTER 777I 8 7777
THE SOCRATIC APPROACH
* reading of the boo' ma'es us realise that the solutions that :onah caused *lex and his team
to develop had one thing in common. They all made common sense and at the same time they
went against everything *lex and his team had ever learnt. They wouldn-t have had the
courage to implement them, if it weren-t for the fact that they had to sweat to construct them.
f it weren-t for the conviction and the ownership that they developed during the process,
they wouldn-t have had the guts to put the solutions into practice.
The author says we refer to something as common sense only if it is in line with our own
intuition0 i.e. at least intuitively we 'now it all along.
Then why is there so often the need for an external trigger to help us realise something that
we 'now intuitivelyM
*ccording to the author these intuitive conclusions are probably mas'ed by something else
that is not common sense, but thic' layers of common practice. :onah-s way of leading to the
answers through as'ing (uestions i.e. his Socratic approach was very effective at peeling
away the thic' layers of common practice. Spelling out answers when one is trying to
convince someone who blindly follows such common practices is totally ineffective. t is
ama3ing how deeply ingrained are things that we have been told and practiced, but never
spent the time to thin' about on our own.
Thus, the essence of :onah-s teaching was to persuade other people to peel away the layers of
common practice and overcome their resistance to change.
@<
The author gives us a five$step procedure to overcome any problems that we might face.
S32;1> IDENTIFY the systems constraintEsF.
S32;2> Becide how to E7PLOIT the systems constraintEsF.
S32;3> SUBORDINATE everything else to the above decision.
S32;4> ELE"ATE the system-s constraintEsF.
S32;5> WARNING9999 f in the previous steps a constraint has been bro'en, go bac' to
step<, but A( )(3 *<<(B INTERTIA to cause a system-s constraint.
THE GOAL 8 "ALUE TO A MANAGEMENT STUDENT
The boo' explains how to see businesses as systems as well as any other boo' on this
sub!ect.
The metaphor of how to speed up a slow$moving group of boy scouts will be visceral to
anyone who has done any hi'ing with a group.
The boo' helps us learn how to improve the performance of a system by providing us
with a replicable process that we can apply to analysing any human or engineering
system.
&e get to experience the power of the Socratic method as a way to stimulate our mind to
learn, and to use Socratic (uestions to stimulate the minds of others to become better
thin'ers and doers.
The author used problem simulation as a practical way to help us experience the learning
process they are advocating.
The boo' is unusually good in bringing home the conse(uences of letting our businessC
professional life interfere with our family life.
The pacing of the boo' is especially good. &e are given time to stew with issues and
come up with our own ideas before sample answers are provided by *lex and his team in
the novel. 8nli'e many boo's that ta'e complicated ideas and oversimplify them so the
ideas lose their meaning, this boo' simplifies ideas in ways that enhance their meaning
by ma'ing the ideas easier to see and employ.
@+
t accurately describes the behaviour of manufacturing facilities, including such fundamental
concepts as bottlenec's, constraints, and the impact of variability. "ne reason why it has
been so broadly read is that it frames these concepts in the guise of a novel. This ma'es the
ideas easy to read and digest.
IMPORTANT LESSONS TO BE LEARNT
Some of the lessons of the boo' include the following/
&hen we are productive we are accomplishing something in terms of goals. Every action
that brings a company closer to its goal is productive. The goal of a manufacturing
organi3ation is to ma'e money.
1ecause of variability, a factory cannot be run at <JJT of capacity. "r, as :onah says,
.the closer you come to a balanced plant, the closer you come to ban'ruptcy.K
"ne of the biggest problems in improving the factory is collecting the right data. *lex
eventually concludes, .&e#re going to have to accept the fact that we#re not going to have
perfect data to wor' with.K
.*n hour lost at the bottlenec' is an hour lost for the entire system. The actual cost of a
bottlenec' is the total expense of the system, divided by the number of hours the
bottlenec' produces.K This suggests managing bottlenec's very closely.
?on$bottlenec's do not need to be regulated so closely, and should not be operated to
maximi3e utili3ation. :onah says that .activating a non$bottlenec' to its maximum is an
act of maximum stupidity.K
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