Analysis: Goldratt's The Goal
Since its release, Eliyahu M. Goldratt’s The Goal: A Process of Ongoing Improvement has changed the way companies do business. The Goal tells a story of Alex Rogo, a manager at a production plant owned by UniCo Manufacturing and how he helps save his plant from being unprofitable to successful by managing from a new point of view (thanks in large part to his distant contact, Jonah). There are many ideas that can be taken away from the theories expressed in The Goal, whether applied to a manufacturing or service organization.
One of the ideas Eliyahu M. Goldratt discusses pertains to the title of his book. The top goal any organization should have (whether manufacturing or service) is to make money. It must also be understood that everything else is just a means to getting closer to the organization’s goal. In other words, organizations must be able to earn net profit while getting a return on their investments and allocating cash flow in the appropriate places. Three terms are used to measure/express an organization’s goal: Throughput, Inventory, and Operational Expense.
Throughput is the rate at which the system generates through sales. When applying throughput to a service organization in the restaurant industry, it is important for a restaurant to maximize throughput by properly seating their customers at a high capacity while turning tables over to new customers at an efficient rate. Inventory is all the money that the system has invested in purchasing parts, which it intends to sell. Restaurants must be able to sell items on their menus so they are able to decrease their inventory and convert it into throughput. Operational expenses are all the money the system spends in order to turn inventory into throughput. In the restaurant industry, having low, but efficient operational expenses will lead to a strong profit. For example, making sure to have enough cooks to compensate for high volumes of customer demand gives cooks the ability to be proactive, instead of reactive. Also, spending money for proper cooking equipment leads to better efficiency, which helps meet customer demand and increase throughput. Finding a good balance between throughput, inventory, and operational expenses can be very difficult for organizations. Alex struggled throughout The Goal trying to find the balance between these measurements, but began to see good things happen to him and UniCo Manufacturing when he was able to understand their relationship with one another.
Another concept brought up in The Goal pertains to the relation between dependent events and statistical fluctuations. Jonah explains dependent events as “…an event, or series of events, [that] must take place before another can begin...” (87-88). For example, in a restaurant, customers must order their meals before the cooks can begin to prepare it. Jonah also talks to Alex about statistical fluctuations, which are the changes in information from one instance to the next. One example of statistical fluctuations in the restaurant industry is how long it may take a waiter to bring over a check to a customer or how many ounces of pounds of meat are needed for a particular day. As Alex began to understand on Davey’s boy scout hike, dependency can limit the opportunities for higher fluctuations, so it is important to understand how these two ideas relate to understanding throughput, minimizing inventories, conserving operating expenses when needed.
Another concept Alex had to understand when trying to distinguish the kind of resources at the plant was whether a resource was a bottleneck or non-bottleneck. A bottleneck resource is any resource whose capacity is equal to or less than the demand placed upon it. Therefore, a non-bottleneck resource is a resource whose capacity is greater than the demand placed upon it. As Jonah explained to Alex when discussing the plant operations, “…you should not balance capacity with demand. What you need to do instead is balance the flow of product through the plant with demand from the market” (139). It would not make sense to focus on the capacity of customers paying to the cashier after their meal at a restaurant because it would not have a positive effect on the overall flow of operations. Whenbottlenecksare identified, it is important that the time spent at there is not wasted. A cook should not waste time cooking a meal that has spoiled (or defective) ingredients. It is also helpful to take some of the pressure off the bottleneck and onto the non-bottleneck resources. If every process is running through the bottleneck, the bottleneck will lose capacity. Alleviating pressure onto non-bottlenecks helps gain overall capacity and increase throughput.
All of the concepts, which have been discussed so far, relate to the main idea of The Goal, which is the Theory of Constraints (TOC), which generally means a process or chain is only as strong as its weakest link. In order to meet the overall goal, an organization must be able to apply the rules of TOC to their operations.
The first step of the TOC process is to identify the constraints (or bottlenecks) present in the system. In Alex’s case, the oven and NCX-10 were bottlenecks throughout the UniCo Manufacturing plant. In the case of a restaurant, an assembly for sandwiches could be a constraint in the overall system.
The second and third steps of the TOC process can be fulfilled using similar procedures. The second step of the TOC process is to decide how to exploit the constraint in the system, while the third step is to subordinate everything else to the second step. Alex had to release the oven and NCX-10 had to be running during the lunch break in order to exploit the constraint. To subordinate to the oven and NCX-10, Alex made the orders go to the tune of them by using tags depending on certain factors of an order. This kind of method helps buffer the constraint. In the restaurant industry, it would help a sandwich assembly stay busy with work, but never exceed the demand of its customers.
The fourth step of the TOC process is to elevate the system’s constraints. Alex brought back the old Zmegma machine, that while decreasing effectiveness, increased capacity and thus, throughput. Bringing a machine into a restaurant to help in the sandwich assembly would be an example of applying this step to the restaurant industry. The last step in the TOC process is if there is a constraint which has been broken, repeat the TOC process and do not let inertia set in. If a company is not changing as an organization, it will inhibit the overall process of ongoing improvement.
Many of the concepts from Goldratt and his TOC were very unconventional compared to typical business practices. However, Goldratt’s TOC has shown the importance of strategic capacity planning and constraint management. These concepts have implemented the proper thinking processes for managers to understand what, when, and how to change a constraint in order to meet the goal of an organization.
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