Professor Graham
IE 101
December 3, 2014
The Goal
”The Goal”, written by Eliyahu M. Goldratt and Jeff Cox is a story about a guy named Alex whose job is on the line as well as his factory unless he can break their old ways that is running the factory into the ground. I enjoyed reading this book for class because it expanded my knowledge about what engineers can go through. The story is very interesting on how it goes into depth with how an engineer may deal with his work problems as well as problems at home. After reading this book I feel like I have learned a great deal about running an efficient business and how to solve problems. I believe that this book is a great start in learning about becoming an engineer because it …show more content…
deals with basic problem solving situations such as finding bottlenecks and how to fix them. In the beginning you meet Alex Rogo and immediately you can tell the problem with his production plant. You can tell there is friction between Alex Rogo and the Division Vice President, Mr. Peach over the argument of the late order #41427. Mr. Peach insist that the order is shipped today and after being frustrated and realizing Alex’s plant is not productive nor profitable, he tells Alex he has three months at most to improve his plant or they will be shut down. Next you get to learn about Alex and his family along with their problems. Six months ago they moved to Alex’s hometown but his wife doesn’t enjoy the small town as much. It goes into talking about Alex’s past and how he became who he is now. "Here I am, thirty-eight years old, and a crummy plant manager!" (Pg 20). Going back to the problems at the factory, they have everyone working on the one late order and working overtime but they eventually get the order shipped. Alex goes to a meeting at headquarters where he finds out how bad things are and what they have to do to stay in business. Mr. Peach tells Alex that the Division has a year to improve or it will be sold and Alex will be without a job as well as Mr. Peach. While at this meeting, Alex finds a cigar in his jacket pocket and it goes to a flashback of how it got there. At the airport a while back he ran into Jonah, his old physics professor. Alex talks about his factory but never mentions the name. However, Jonah already knows how Alex’s plant is doing. Jonah predicts that there is problems with high inventory and late orders. Also Jonah mentions that there is only one goal for all companies. “Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive.” (Pg 32). After the flashback Alex decides to just leave the meeting at break. He doesn’t have anywhere to go but just wants to get away from the meeting. After driving around he stops to eat a pizza and drink some beer and think about what the “goal” is. The “goal” is to make money! Alex then talks to his accountant to discuss what is needed to achieve their goal of making money. They realize that net profit needs to increase as well as an increase in return on investment and cash flow. But how do they make this happen? Instead of leaving and trying to find a new job, Alex decides to stay the three months and try to make the changes needed to the factory but also that he needs to find Jonah for help. Alex finds Jonah and then is told the three terms to help run his factory, throughput, inventory, and operational expense. "Throughput is the rate at which the system generates money through sales." (Pg 60). "Inventory is all the money that the system has invested in purchasing things which it intends to sell." (Pg 60). "Operational expense is all the money the system spends in order to turn inventory into throughput." (Pg 61). But Alex still doesn’t fully understand and Jonah leaves him with just that. Later Alex finds out that the head of the company wants to show off the robots at Alex’s factory but Alex starts to think and realizes that the robots are less productive than they thought. Along with the help from his accountant, product manager, and inventory control, he found that the robots increased cost as well as operational expenses so they moved the direct labor from the robots to other jobs in the plant. After Alex explains everything to his staff (Bob working with production, Lou with accounting, and Stacey with inventory control), they find the meaning of the three terms that Jonah left them with. Lou says, "Throughput is money coming in. Inventory is the money currently inside the system. And operational expense is the money we have to pay out to make throughput happen." (Pg 73-74). Meanwhile, Bob isn’t quite sure that you can account for everything with only three measurements. Lou then explains how the three play a part in everything in the factory. Finally Stacey speaks and says how the whole plant is an investment which can be sold, “So investment is the same thing as inventory.” (Pg 75). They then realize with only three months to turn the factory around, they need to make drastic changes without lowering their efficiencies so Alex calls Jonah and ends up traveling to New York that same night. Alex and Jonah only had the chance to talk over breakfast while Alex stated the problems at the plant and how they only have three months to fix it. Jonah says that the problems can be fixed in time and probably even sooner after going over the problems. Alex is worried about the robots but Jonah tells him to forget about them. Also he says, "A plant in which everyone is working all the time is very inefficient." (Pg 84). Jonah asks Alex to question how he is managing the plant and wants him to consider running a balanced plant. Meaning "is a plant where the capacity of each and every resource is balanced exactly with demand from the market." (Pg 85-86). Alex soon decides that it’s a good idea to have a balanced plant but Jonah says no, "The closer you come to a balanced plant, the closer you are to bankruptcy." (Pg 86) Jonah then leaves after asking Alex what “dependent events” and “statistical fluctuations” have to do with the factory. Going back to Alex’s family life, his marriage is having problems due to more conflict with work. Alex is never home with his wife due to his time at the factory. Alex goes with his son on a backpacking trip for the weekend and thinks about what Jonah left him with. Using the kids in the line he realizes how he can relate it to his factory. He finds that the slow kid Herbie, is causing a wide gap in the line and they are not making good time. After playing a game with dice for an experiment, Alex realizes that “statistical fluctuations” and “dependent events” decreases and inventory and operating expenses increase. Now Alex realizes why a balanced plant is not the answer. Alex then puts Herbie at the front of the hike and reduces the weight in his backpack.
Balancing the load increases the productivity and makes the team go faster. After returning home from the trip with his son, they find that his wife is gone. His wife was tired of all the time for his job and was fed up with him after going on the hiking trip instead of spending time with her. She left Alex with the kids and didn’t say where she was going. Alex tries to explain a way to fix the factory using the hiking trip as an analogy but no one is interested and not even the production supervisor agrees. Alex calls Jonah back and Jonah explains what a bottleneck is and what a non-bottleneck is. “A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it. A non-bottleneck is any resource whose capacity is greater than the demand placed on it." (Pg 139) Jonah then suggest that Alex tries to balance the flow of the products through the factory. Alex and his team soon find the bottlenecks, which is Herbie in the hike. On the hike it was easy by moving Herbie to the front but the factory isn’t so easy and they need more machines but the division won’t allow it. Stuck on what to do Alex calls Jonah and he agrees to come visit the plant.
Jonah says that every plant should have bottlenecks which confuses Alex. Soon he realizes that they need more capacity at the bottlenecks. Jonah mentions them having a hidden capacity due to some of the thinking being incorrect. Ways to improve capacity would be to make sure the bottlenecks are always working on quality products and relieving some of the work load to other vendors. Jonah asks how much it costs when the bottlenecks are not working. Lou says “$32 per hour for the X machine and $21 per hour for heat treat.” (Pg 158). This means that when the whole plant is down it cost $1.6 million. With 585 hours to work in a month Jonah does some calculations and comes up with the true cost lost every hour is around $2,735, the cost of the entire system. Which means that every minute that the bottlenecks are down, it cost thousands because the products are not ready to be sold. Alex changes the bottlenecks to only work on overdue orders starting at the most overdue. Still thinking about his wife he calls her parents’ house and insist that she is there. They soon admit that she is there but she says she needs time away from Alex and the kids. After confusion on what work in the factory needs to be done first they come up with a tag system. Red tags need immediate attention because they are parts that go through the bottleneck and they are to work on those before the parts with the green tags. Using the new system they shipped twelve orders that week which pleased Alex but he knows it still needs to be more. To find another way to improve the system he asks his production manager to work on it. They are becoming more efficient, but hit a problem when they cannot finish a product because of the parts with the green tags are still being made. Alex also decides to keep everyone busy during idle time but dedicates a foreman for each location for all times. However on the night shift efficiency went up by ten percent so Alex went to see why. One of the foreman came up with a better way to process parts by mixing and matching orders while still using the priority system. They also found a way to free up time on the heat treat bottleneck after they had changed the rules to begin with. Their built up inventory is now decreasing due to the new priority system. But now with lower inventory more bottlenecks seemed to appear so Jonah came to take another look. There aren’t any new bottlenecks, says Jonah. Jonah says that it was a result from old thinking. Now they are making non-bottlenecks work maximum capacity for parts on the bottleneck which caused the problem. Bottlenecks are busy with stacks of work pilled in front while non-bottlenecks are holding up the final assembly process. There needs to be balance and the tags need to be updated. They now send the exact parts needed into the plant only when needed. They came up with a computer system that will have a schedule of when the bottleneck parts should be completed. It gets rid of the extra inventory in front of the bottlenecks but does nothing for the non-bottlenecks. Jonah tells them that with the data they should be able to predict the non-bottleneck parts as well as the bottleneck parts. While trying to figure out how to do what Jonah says, the bottlenecks will stay busy with a month’s worth of parts to work on. Mr. Peach doesn’t seem as impressed as Alex thinks he should be after having a meeting so Alex talks to him in private. Alex is trying to convince Mr. Peach to keep the factory open and Mr. Peach agrees only if Alex gives him a fifteen percent improvement for the next month. This will be very hard since it relies mostly on demand from customers. They finally have their fifteen percent that is needed to stay open and just after hearing the news Alex receives a call from Jonah saying that they will not be able to speak for the next few weeks. After asking Jonah about their new problem it is suggested that they cut the batch sizes in half. If it is possible all costs will cut in half and there will be faster response times as well as less lead times for orders. With their new success they get an order that seems impossible from the angry customer at the beginning of the book. Being able to make the order will increase sales for the present and the future. After deciding to cut the batch sizes in half again they come up with a way to compromise from the thousand products being shipped in two weeks to being able to ship 250 products each week for the next 4 weeks starting immediately. The customer actually liked that idea more and agreed. With a new way of measuring they find a seventeen percent improvement but the Division doesn’t agree with the new ways of measuring and use the old ways which only shows a 12.8 percent improvement. After completing the big order the customer comes down to personally thank every employee and shake their hands. Meanwhile they wait for the big meeting at headquarters the following day. The meeting didn’t go well because Mr. Peach and other top executives were not there to see the progress at Alex’s factory. Alex tries to convince them that the factory is doing better and the old measurements are wrong but they don’t want to listen. Frustrated after the meeting Alex goes to talk to Mr. Peach in his office. Mr. Peach agrees with Alex and ends up promoting him to take his position. With his new job he now has to run the entire division and all three factories. He immediately decides to call Jonah for help but Jonah doesn’t help unless Alex has specific questions to ask. Later Alex has dinner with his wife and after talking with her he asks Jonah how he can get people to understand these techniques that his team has found without being arrogant. Alex decides who he wants to take with him to Division but he is surprised when his accountant who is close to retirement was excited to join but his production manager was not. Instead of being production manager he chooses to stay at the factory and take Alex’s spot as plant manager to continue their work. After working things out at the plant, they realize the division needs much more work. Alex is ready to take over the Division but his wife helps him realize he should help his team at their own factory first. Then the team decides to meet every afternoon to fix the problem and it becomes obvious that they will need everyone. The second day someone brought up a discussion about the periodic table of elements and how it was decided. They think maybe that is how they will solve the major problems of the Division. They will try to understand how scientist started with nothing and found order. They need to find a way to define them by their intensive order. The team comes up with a five step process to help fix problems in the factory. “STEP 1. Identify the system’s bottlenecks” “STEP 2. Decide how to exploit the bottlenecks” “STEP 3. Subordinate everything else to the above decisions” “STEP 4. Elevate the systems bottlenecks” “STEP 5. If, in a previous step, a bottleneck has been broken go back to step 1.” (Pg 307). Later the team decides to go back and rethink the five steps and end up changing step five, “Warning!!! If in the previous steps a constraint has been broken, go back to step one, but don’t allow inertia to cause a system constraint.” Also due to the bottlenecks being idle, they had them working on extra work which was not helping so they stopped which freed up twenty percent capacity. The extra capacity freed up enough space for more orders to be made. Alex goes to talk with the head of sales and finds out about a market order to fill the capacity that they need. The customer wants to pay a lower price and since it is in Europe, selling for less won’t affect domestic clients. Alex then tries to think how a physicist approaches a problem and thinks maybe that will provide an answer. There is a big problem happening at the plant due to more orders causing more bottlenecks to appear. To fix the problem Alex and his team agree to increase the inventory in front of the bottlenecks. They also agree to tell sales not to promise new order deliveries for four weeks instead of two weeks. Although customers were getting used to the fast delivery and it was increasing sales and productions it had to be done. Being a factory of production, improvements are always going to be needed and changes should be made constantly to fix them. After trying to find the answer to Jonah’s last question, Alex discovers some questions of his own to solve, “What to change? What to change to? How to cause the change?” (Pg 337). He realizes that to become a good manager he cannot call Jonah for help but to think like Jonah and solve the problem on his own.