Overview
The goal by Eliyahu Goldratt and Jeff Cox’s book The Goal: A Process of Ongoing Improvement outlines how to turn an underperforming manufacturing business profitable. It uses a fictional scenario to communicate proven manufacturing turnaround methods.
The primary impediment to making an operation profitable is limitations, or bottlenecks, that prohibit the facility from operating at full capacity. These bottlenecks are caused by idle machinery, poor work flow, inefficient worker utilization, and other faults. The main effect of the problems is that orders are filled late. As a result, unsatisfied customers refuse to do business with the factory and spread the word about their dissatisfaction.
Rogo, the fictitious manager, consults with a manufacturing operation turnaround specialist about his and his executive team’s plans to make the facility profitable before a three-month closure deadline. The team acknowledges that bottlenecks are the primary cause of the operation’s lack of profit. They devise strategies to overcome these bottlenecks, resulting in profitability, until other constraints emerge. The crew must next work quickly to overcome these obstacles.
After dealing with a variety of obstacles that change over time, the team creates a set of guidelines for resolving them all. Those principles serve as a roadmap for coping with limits that exist not only in their facility, but in all industrial processes.
Key Takeaways
Any manufacturing business seeks to generate a profit.
Throughput, or the amount of product moved through a factory via sales, is one of three profitability metrics.
Inventory, or the money spent by a factory to purchase things for sale, is a second indicator of profitability.
The third indicator of profitability is operational expense, which is the money spent by the plant to convert inventory into throughput.
Bottlenecks, or restrictions in the manufacturing system, are the most significant hindrance to a plant earning as much as it should.
The first step in addressing a bottleneck is to identify its components.
The second step in overcoming a bottleneck is determining how to use it.
The third step in overcoming a bottleneck is to prioritize utilizing the problem.
The fourth step in overcoming a bottleneck is to take preventative measures to avoid it happening again.
The fifth stage in overcoming a bottleneck is to apply the identification and resolution procedure to the next bottleneck, as bottlenecks tend to shift from one portion of a manufacturing operation to another.
Key Takeaway 1;Profitability is the primary goal of all manufacturing operations.
Analysis
When the fictitious industrial efficiency expert Jonah questions Alex Rogo, the plant manager of the Bearington firm, about the aim of his operation, Rogo is first unsure. That is because businesses have numerous objectives that appear to be candidates for an overarching aim, such as being the industry leader in quality or increasing market share. However, Rogo eventually recognizes that the purpose of any manufacturing enterprise is to make money.
The closure of Japan’s Zama manufacturing factory on February 26, 1992, is a famous example of what happens when a plant loses sight of its goal. This was Japan’s first-ever auto manufacturing closure. The reason for the shutdown was simple: Nissan couldn’t make money at its aging factory. In the 1970s and 1980s, Japanese car manufacturing superiority dragged the American auto industry down, but by the 1990s, the Americans had recovered in quality and reduced their costs enough to compete with the Japanese. Nissan abandoned a goal nearly as vital as making money when it closed the plant: lifetime employment. Japanese firms traditionally retain employees from the day they are employed until they retire. Nissan was obliged to relinquish that ambition when their Zama facility failed to produce money, highlighting the notion that a manufacturing plant’s sole fundamental goal is to make money.
Key Takeaway 2 Throughput, or the amount of product moved through a factory via sales, is one of three profitability metrics.
Analysis
A factory can produce a high volume of goods while failing to generate profits. If the product remains in the production warehouse rather than being shipped to customers, it does not contribute to the bottom line. As a result, the amount of production achieved by a plant does not accurately reflect the facility’s value to the organization. The real measure is how much product the factory sells. Throughput is a measurement of production and sales.
Throughput means that plant managers must prioritize sales as much as output. This necessitates that they educate themselves about sales. They must understand not just the fundamentals of sales, but also those of marketing and promotion. Furthermore, they must comprehend the concepts of public relations, as one of the goals of public relations is to assist marketing and sales departments in increasing sales. Plant managers understand why their products outperform competitors’ products, but marketing, sales, and public relations teams may not. That means plant managers must collaborate with marketing, sales, and public relations personnel to create proposals for selling such products.
Key Takeaway 3 Inventory, or the money spent by a factory to purchase things for sale, is a second indicator of profitability.
Analysis
Throughput is a positive indicator of bottom-line success since the more sales a company has, the higher its revenue. In contrast, inventory levels are a negative, or inverse, indicator of bottom-line success. This is because having more inventory increases a company’s cost and decreases its profit for the same throughput.
Excess inventory costs a business money in at least three ways. First, it must spend money to purchase the materials, which then sit inactive. Second, it takes room to hold inventory, which could be employed to manufacture additional product. Third, it requires time for employees to track and manage inventory. This means that keeping inventory at a minimum is critical to profitability. Following World War II, a cash-strapped Japan addressed these difficulties by creating a new technique of acquiring supplies for its operations known as just-in-time manufacturing. The objective is for vendors to send material to a factory right before it is needed. This moves inventory burden from the factory to the vendor. This strategy has proved so important to Japanese manufacturers’ success that factories in the United States and other parts of the world began using it as early as the late 1970s [2].
Key Takeaway 4 The third indicator of profitability is operational expense, which is the money spent by the plant to convert inventory into throughput.
Analysis
Like inventory, operating expense is a negative, or inverse, indicator of a factory’s bottom-line success. This is because the higher a plant’s operational expense, the less profit it generates for the same throughput. Operational expenses can include material costs, machine repair costs, labor costs, and energy expenditures. That means that decreasing operating expenses must be a collaborative effort across the entire factory.
In recent decades, lean manufacturing has gained popularity as a method of lowering operational costs. It entails an ongoing endeavor to eliminate waste at all levels of a manufacturing system. Toyota, the pioneer of lean manufacturing, identified seven wastes that a factory should eliminate: overproduction, wait times instead of continuous-flow production, unnecessary transportation of materials from one factory floor spot to another, the use of complicated, high-cost equipment when simpler equipment would suffice, excessive inventory, unnecessary physical motions that factory employees must perform, and an excessive number of defective products. Lean manufacturing has been applied in factories all across the world, with additional wastes added to Toyota’s original seven [3].
Key Takeaway 5
Bottlenecks, or restrictions in the manufacturing system, are the most significant hindrance to a plant earning as much as it should.
Analysis
Factory operations are extremely complicated because they must account for so many variables, such as the number of materials used in the manufacturing process, how and where the materials are processed, what employees do during the operation, and how work flows from one point in the factory to another.
With so many variables at work, bottlenecks are unavoidable in industrial operations. A bottleneck is a point where production slows or ceases. This might be due to a variety of factors, including insufficient material reaching a piece of equipment, personnel delays in setting up the equipment to process the material, or equipment failure. A bottleneck’s impact on an activity extends far beyond the workstation affected. A bottleneck controls how much the factory produces by slowing down the entire manufacturing process.
Before newspapers automated their operations, newspaper production managers had terrifying occupations. One explanation was that there were numerous areas in the manufacturing process where a bottleneck may emerge. A article moved from a reporter to an editor, then to a typesetter, a page builder, a stereotyper, and last to a press gang who loaded the metal plates onto a printing press and ran it. A bottleneck could develop at any stage. A reporter could submit a story late. An editor may edit it late due to a high volume of stories requiring editing at the same time. A typesetter’s machine might and frequently did break down, as most typesetting machines, even before computerization in the 1980s, were designed in the late 1800s. A page builder may run out of material for completing a page. A stereotyper’s machine might break. Furthermore, the paper roll used to print the newspaper could break while it was feeding the press, delaying the print run. In addition to the intricacy of the production flow, a newspaper production manager’s job was frightening since any blockage had to be overcome swiftly or papers would be delivered late. Some newspapers, for example, ship their publications by rail to the farthest reaches of their distribution network. If papers did not reach the trains before they left, they would not be delivered to clients on time.
Key Takeaway 6 The first step in addressing a bottleneck is to identify its components.
Analysis
At first look, it appears that detecting a bottleneck would be simple. Remember, however, that a manufacturing process is extremely complicated, with hundreds, if not thousands, of variables at play. Bob Donovan, Alex Rogo’s production manager, followed Jonah’s advice to identify the major bottleneck at the Bearington facility by looking for one workstation with capacity equal to or less than the demands placed on it.
Identifying a bottleneck can be time-consuming, and most manufacturing organizations lack this resource. It is frequently a trial-and-error, best guess approach, with staff moving on to their next hunch when the first proves incorrect. Some companies are now employing advanced analytics to identify bottlenecks faster than humans. By examining the data, they can observe how different aspects of an industrial operation interact and how those interactions affect production. Advanced analytics have been notably prominent in the medicine, chemistry, and mining-processing industries, but because to their effectiveness, they are spreading to other industries as well. As an example of its success, one pharmaceutical company employed analytics to optimize its manufacturing process, increasing the amount of vaccine it could manufacture by 50%. This boosted the company’s profits by millions of dollars [4].
Key Takeaway 7 The second stage in resolving a bottleneck is determining how to address it.
Analysis
Fixing a bottleneck frequently necessitates resolving a number of issues that contribute to the bottleneck’s existence. Prioritizing orders so staff could handle the most pressing ones first was one approach Rogo took to address the bottleneck at the machine that was not being operated to capacity. Another stage was to rearrange workers’ lunch schedules so that the machine would not be idle while they ate.
A manager will occasionally discover that a bottleneck is caused by a single issue, such as a critical machine failing frequently. However, most bottlenecks are caused by a combination of factors, such as material shortages, work flow challenges, and worker training issues. While one manager or employee may be able to quickly solve a bottleneck with only one issue, a team approach is the best way to address bottlenecks with several difficulties. This is because no single person, manager, or employee is likely to be conversant with every aspect of a multiple-issue bottleneck. Making the bottleneck a team effort allows a manager to delve into the specific issue while leveraging the skills of many people to solve the larger problem.
Key Takeaway 8 The third step in overcoming a bottleneck is to prioritize problem resolution.
Analysis
A plant manager must prioritize the removal of a bottleneck because it determines the overall production of the factory. To maximize a manufacturing plant’s production, all links in the chain must function smoothly. A bottleneck reduces output not only at a certain workstation, but also throughout the facility, diminishing earnings. Although some may believe that a manufacturer can increase production at one workstation beyond the bottleneck to compensate for decreased production at the bottleneck, this method is rarely successful. This is due to the fact that output at non-bottleneck workstations is typically already at its peak.
Fixing a bottleneck as a top priority entails directing all available resources to the problem simultaneously. In terms of manpower, this entails not only throwing more people at the problem, but also the best ones. Here is one example. Heather serves as executive editor of a newspaper with five copy editors. One day, two of the five call in sick. This causes a bottleneck since three copy editors are insufficient to edit the tales that arrive on the copy desk without generating a backlog. If the backlog persists, the stories will not be able to progress to the next stage of the production process in time for the paper to publish and distribute that day. As a solution, Heather requests that the managing editor and city editor stop what they are doing and also alter the copy. She chooses them because they edit better and faster than anybody else in the newsroom. This implies they will have to give up their managerial responsibilities for a while, but resolving the bottleneck is an emergency that must be addressed.
Key Takeaway 9 The fourth step in overcoming a bottleneck is to take preventative measures to avoid it happening again.
Analysis
Fixing a bottleneck the first time requires all hands on deck, as if it were an emergency. A manager and his staff must apply whatever Band-Aids are required to initially solve the situation. If they do not want to go through the anguish of dealing with the same bottleneck repeatedly, they must create a solution to keep the problem from reoccurring.
Although each bottleneck is unique, plant managers can devise systematic solutions to help handle a variety of comparable bottleneck problems. Preventative maintenance is one example of machinery. The more labor done to keep a machine in optimal condition, the less likely it will break, resulting in a loss of production and profit. Some industries may experience weeks of output loss as a result of a machine breakdown due to the difficulty in acquiring parts or identifying and flying in specialists who can perform extensive repairs. The time and money spent on preventive maintenance for such devices will save them from breaking as frequently. Less downtime will result in higher factory profits [5].
Key Takeaway 10 The fifth stage in overcoming a bottleneck is to apply the identification and resolution procedure to the next bottleneck, as bottlenecks tend to shift from one portion of a manufacturing operation to another.
Analysis
Alex Rogo’s crew was relieved when they used the plant’s two largest bottlenecks, which were jams at a crucial machine and a heat treatment furnace. The team was taken aback when more bottlenecks appeared. Bottlenecks move because all links in a manufacturing operation operate together, and using a bottleneck to speed up production can put pressure on another link, causing a bottleneck there.
Bottlenecks move, therefore a factory crew must continually be on the lookout for the next one. The easiest approach to do this is to develop a plan for dealing with bottlenecks as a continuous process. The Japanese coined the term kaizan to characterize their continual improvement approach to manufacturing. It requires never-ending efforts to enhance products, services, and processes. Workers should be provided incentives to prevent bottlenecks. This would entail compensating them for anticipating bottlenecks and devising strategies to address them. A continuous improvement strategy to bottlenecks can help a plant deal with them far better than a crisis-by-crisis method [6].
Important People
Alex Rogo is the plant manager at UniCo Manufacturing’s fictional Bearington factory. The storyline of the book The Goal is that Rogo’s plant must become profitable within three months or the business would shut it down.
Jonah: Jonah is a world-traveling, well-known manufacturing efficiency expert who assists Rogo in making the Bearington enterprise profitable.
Author’s Style
Although Eliyahu Goldratt chose the unique structure of a fictional narrative to explain his thoughts on turning around an unsuccessful industry, Jeff Cox, a professional writer, penned The Goal. Cox made the fictional approach work.
Cox delivers a story with suspense on multiple levels that keeps readers engaged. The primary cause of concern is whether Rogo can turn his plant profitable. Although readers believe there will be a happy ending, this is not confirmed until near the end of the novel.
There is also conflict between Rogo and his employer, Bill Peach, who wants that the factory become successful or it would be closed; between Rogo and an archenemy at his firm, Hilton Smythe; between the Bearington plant and some of its dissatisfied clients; and between Rogo and his wife, Julie.
Cox employs the Socratic approach of Jonah, a plant turnaround expert, to assist readers grasp the manufacturing efficiency concepts weaved throughout the novel. Jonah nearly never responds directly to Rogo’s questions. Instead, he asks leading questions, as Socrates did when he was teaching, to encourage Rogo and his team members to think critically and come up with their own solutions. In the book’s introduction, Goldratt states that this is the best way to learn.
Anyone who has ever ran a factory will recognize the value of using a fictional scenario to convey lessons about dealing with bottlenecks. These readers can recognize not just their own factory’s challenges in Rogo’s story, but also, like Rogo’s team, how their teams failed to turn around their factory using conventional thinking.
Authors’ Perspective
The late Eliyahu M. Goldratt was an Israeli physicist who became one of the world’s most recognized manufacturing efficiency gurus. His ideas for turning around an unproductive business are central to the book, The Goal. He developed the Theory of Constraints based on one of the book’s main themes, that production bottlenecks affect a plant’s total output. Factory managers have embraced the notion, as well as other concepts like just-in-time inventory delivery and lean manufacturing, to guide their own operations. In addition to operating an international manufacturing operations consulting firm, Goldratt authored several novels and nonfiction works. All provide insight into his industrial efficiency strategies.
In the mid-1970s, Jeff Cox worked for a public relations business and became a professional writer. In 1982, he met Eliyahu Goldratt and decided to collaborate on a novelized version of his Theory of Constraints. This book became The Goal. Cox also collaborated with William Byham on the book Zapp. Since then, he’s authored six more fictitious business books and released a sci-fi thriller under the moniker Alex Kaine.
