The Goal: A Process of Ongoing Improvement by Eliyahu M. Goldratt, Jeff Cox
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Book Reviews of The Goal: A Process of Ongoing Improvement
Book Review: The Goal by Eli Goldratt
Summary: 5 Stars
Eliyahu Goldratt's The Goal is a highly recommended book that engineering students (IE/MFE) should read and learn. The book demonstrates the "Theory of Constraints" in a very interesting and fascinating manner. It vividly shows what the goal of a business and suggests a number of methods that are both practical and logical. These methods could be applied in manufacturing and service companies.
In the book, Eli Goldratt raised key issues that concern management and family decisions. The author empahsizes that fact that society can be a source of information and inspiration where relationships can be applied relating to the business world. This was illustrated by the author using the hiking experience that was an essential chapter of the book. Also, it encourages managers or future managers to use common sense in making decisions and consider alternative ways of approaching problems or challenges. Furthermore, managers should be able to identify the need for change. It is very important to know what changes to make, what to change to and how to cause this change.
The Goal is a fictional story of a man who is at his crossroads and tells what direction the man decides to take. The story is about a plant manager named Alex Rogo. Alex is just six months into his first plant manager's position at UniCo which is a division of UniWare. This manufacturing plant is located in Bearington, Massachusetts where Alex Rogo grew up. What the plant manufactured was unclear or never answered in the book.
The story begins when Alex's supervisor, Bill Peach, comes in the plant and changes everything. Bill Peach turns the plant upside down. Bill tells Alex that the production of his plant has gone down in the six months that Alex took over the plant mananger position. This situation created irate customers like Buky Busnside who has an order that is fifty six days overdue. Alex must get thsi order shipped before anything else. Bill Peach gives the plant an ultimatum that if the plant does not turn around in the next three months, he will recommend that the plant be closed. The next few days, Alex hears more of the same news at a corporate meeting and figures why Bill was upset. During the meeting Alex reaches for something in his pocket and comes across a cigar he received from a chance encounter from an old physicist he knew during his college days.
Waiting in between flights at O'Hare, Alex wandered into the airport and found himself sitting next ot the physicist name Jonah who worked on mathematical models wile he was an undergraduate engineering student. Alex and Jonah started talking. Alex mentioned that he si going to speak at a seminar and his topic is "Robotics: Solution for the 80's to America's Productivity Crisis." He tells Jonah that his plant has more robots than any other plant in the division. Jonah was not impressed. Jonah asks how much productivity has improved because of the use of the robots. Alex answers that just one department is producing 36 percent more. Before leaving Alex at the airport, Jonah raises this question to Alex, "What is the goal of hsi company?" Jonah tells him to think about it as he leaves Alex at the airport.
As Alex spends an entire afternoon thinking about "the goal", he finally comes up with the answer: The goal of the company is to make money and everything else they do is a means of achieving the goal. Once Alex figures this one out, he decides to get a hold of Jonah to learn more about productivity. As he gets a hold of Jonah at 2 a.m. in London, Jonah explains that an action towards the goal is productive, and an action away form the goal is unproductive. He also gives Alex three measurements: Throughput, the rate at which the system generates money thru sales. Inventory, all the money that the system invested in purchasing things which intends to sell. Finally, Operational Expense, all the money that the system spends in order to turn input into throughput. To make money, Alex must increase throughput while simultaneously reducing the inventory and operating expense. In a meeting in New York over breakfast, Jonah explains to Alex that Traditional manufacturing goals are always to run a balance plan where the capacity of each and every resource is balanced exactly with the demand from the market. But Jonah stressed that the closer you come to the perfectly balanced palnt, the closer you are to bankruptcy.
Alex is woken by his son woho reminds him that he promised to help lead the scout hike overnight. Alex leaves without saying goodbye to Julie, his wife, and finds himself the only parent helping on the hike. Throughout the course of the hike, Alex realizes that on overweight boy, named Herbie, slows down the middle and the end of the line. Alex does not understand why the line separates so greatly if all the boys are walking at two miles per hour. Eventually it dawns on him that Herbie is the statistical fluctuation and the rest of the line of kids are dependent events. He fixed the problem by putting Herbie in front of the line and distributing the load of Herbie's backpack to the rest of the scouts. As father and son returned home from the hike, Julie has left. Alex realizes that he needs to work on his marriage as much, if not more that his work. Both are on the rocks. This is where Alex reevaluates the way he has been looking at things for the past few months or maybe hsi entire life.
Alex's mother moves into the house to look after the kids. Alex calls Jonah to expale what he leared from the hike and how it relates to the factory. Honah explains that Alex has two kinds of resources, bottlenecks and non-bottlenecks. A bottleneck resource is one in which capacity is equal to or less than the demand placed on it. A nonbottleneck is where capacity is greater than demand placed on it. Alex must determine which processes are bottlenecks. Alex and his staff seach the plant to find bottlenecks.
Alex and his staff determine that the plant's bottlenecks are heat treat and the NCX-10. Jonah explains that they mus increase the capacity thru the bottlenecks in order to increase thoughput and improve cash flow. At this point Jonah introduces new ways for Alex and hsi staff to look at machine hours and costing. Over a few weeks, with many trial and error, Alex and his staff finally turn out the first month of profit along with lowering invetory and improving cash flow. Also, Alex starts to think about his marriage more and talks with Julie again. They even went on a few dates together. Alex begins to include Julie in his process of growth, by explaining to he the changes that are going on in the plant, and finds that she is very interested.
The next step for Alex is to cut his batch sizes to cut his invertories down and improve overall efficiency of the plant. With shortened lead time, the whole production process is able to respond to market demand faster. Alex starts promising sales that orders that used to take five months, will now only take four weeks due to the shorter lead times. The three months is up and Bill Peach still is not completely convinced whether or not this current success is not just a sudden spark. Bill tels Alex that if he does not see a 15% improvement the plant will close. Business is great and Lou, Alex's accountant, helped in showing a 17% improvement however according to traditional accounting this is only a 12.8% increase. Hilton Smythe, the productivity manager and rival aof Alex takes notes and make his rocommendation for the plant to be closed because of the awkward style of productivity. Alex haunts down Bill Peach to see what he has to say about this. Bill tells Alex to calm down and congratulated him on his new position as division manager. Bill wanted to see who would be able to see beyond conventional methods, in order to compete in the new market.
Alex is successful at home and at work. Julie decides to move back in after rekindling and working on their relationship. In her time away, Julie read about Socrates and found that Jonah had been using the Socratic method all along. She shows Alex that giving the answer isn not always the key but helping one ask the questions is the true answer.
The book is easy to understand and read. This book should be in every engineers book collection or library. I hope you guys enjoy reading it as much as I did.
Book Review: The Theory of Constraints (TOC) will change the way you think
Summary: 5 Stars
Eliyahu Goldratt's "The Goal" is an entertaining novel and at the same time a thought provoking business book. The story is about a plant manager, Alex Rogo, whose plant and marriage are going downhill. He finds himself in the unenviable position of having ninety days in which to save his plant. A fortuitous meeting with an old acquaintance, Jonah, introduces him to the Theory of Constrains (TOC). He uses this new way of thinking to ...
TOC postulates that for an organization to have an ongoing process of improvement, it needs to answer three fundamental questions:
1. What to change?
2. To what to change?
3. How to cause the change?
The goal is to make (more) money, which is done by the following:
1. Increase Throughput
2. Reduce Inventory
3. Reduce Operating Expense
Goldratt defines throughput (T) as the rate at which the system generates money through sales. He also defines inventory (I) as everything the system invests in that it intends to sell. Operating expense (OE) is defined as all the money the system spends in order to convert inventory into throughput.
The author does an excellent job explaining his concepts, especially how to work with constraints and bottlenecks (processes in a chain of processes, such that their limited capacity reduces the capacity of the whole chain). He makes the reader empathize with Alex Rogo and his family and team. Don't be surprised if you find yourself cheering for Alex to succeed.
The importance and benefits of focusing on the activities that are constraints are clearly described with several examples in "The Goal". One example from the book is the one in which Alex takes his son and a group of Boy Scouts out on a hiking expedition. Here Alex faces a constraint in the form of the slowest boy, Herbie. Alex gets to apply two of the principles Jonah talked to him about - "dependent events" (events in which the output of one event influences the input to another event) and "statistical fluctuations" (common cause variations in output quantity or quality). He realizes that in a chain of dependent processes, statistical fluctuations can occur at any step. These result in time lags between the processes that accumulate and grow in size further down the chain. This leads to the performance of the system becoming worse than the average capacity of the constraint.
It is interesting to note that TOC practitioners often refer to TOC concepts in terms of references from this book. For example, a constraint is often called a Herbie.
The Goldratt Institute (goldratt dot com) has illustrated TOC Analysis in the form of five steps used as a foundation upon which solutions are built:
1. Identify the constraint
2. Decide how to exploit the constraint
3. Subordinate and synchronize everything else to the above decisions
4. Elevate the performance of the constraint
5. If, in any of the above steps the constraint has shifted, go back to Step 1
Although this book is excellent in the context of Operations, the "Goal" to "make (more) money by..." is limited in its focus. It is concerned with the cost centers internal to a business. Business performance in today's increasingly competitive market depends on a variety of factors that exist outside the business. These include competitors, external opportunities, customers and the non-customers. Executives need to focus on these in order to see the bigger picture.
This book is necessary reading at the best MBA programs. In addition to being a review, this write-up was intended to serve as a summary of the core concepts of this book and TOC. If you are reading this as part of your coursework, please feel free to share the link with your fellow students.
Book Review: Put this book on your reading list ASAP
Summary: 5 Stars
First and foremost, this is the best business related novel I have read thus far. As a senior engineering student I spend a great deal of time with my nose in textbooks studying production system bottlenecks along with countless other production issues. Needless to say that the authors of these textbooks do not consider the dryness of the technical material a detraction, its engineering after all. In contrast, The Goal deals with many of the same issues my fellow classmates and I grapple with in an appealing and engaging approach. The way the author, E. Goldratt, weaves an interesting back story of a troubled engineer turned manager with an astute evaluation of complex production issues brings to life the dead equations and theory in our textbooks.
There are several cleaver analogies the author uses to explain the theory of constraints to the reader who may not be an engineer. The Boy Scout story involves a troupe out on a hike that seems to keep falling behind schedule and getting separated. The main character and troubled engineer, Alex Rogo, is the troupe leader and decides to solve the disorganization problem by conducting a few experiments. He finds that a plump scout named Herby is holding everyone back as he is the slowest hiker, then compares this situation with a production system and thus a bottleneck is explained.
The matchstick game is also a practical, basic explanation of constraints. The experiment sets up some scouts in a row, each with a bowl. They are to roll a die and pass the number of matchsticks prescribed by the die to the next scout down the line. If the number on the die is greater than the number of matchsticks they have in their bowl they are to pass their entire matchstick inventory to the next scout. Although each boy has the capacity to roll a 6 every time on his turn, statistically this is nearly impossible. This experiment demonstrates the variation production cells naturally experience and how this variation affects the next production center down the line.
There are some interesting characters that seem completely out of place in the story. One such character is Jonah, which is Alex's old college physics professor turned business consultant. As Alex's troubles mount Jonah becomes his professor once again, and like most college professors, only gives Alex enough information to solve the problem on his own. It is interesting that the Goldratt is himself a physicist turned business consultant. I would venture to say that the relationship between Jonah and Alex in the book is representative of the author and reader relationship; an expert advising a novice. Another reason Goldratt may have made Jonah a physicist was to lend an air of scientific method to business problem solving.
The book also provides some practical, simple tricks to deal with production problems. One of these is to relocate an in-process inspection operation before a bottleneck station to off-load production demand through it. I could go into all the technical issues dealt with in the book such as: how to increase throughput, reduce inventory and operating expenses, how to deal with changing bottlenecks, and the like but there are textbooks that better deal with that sort of thing.
It is worth mentioning that there are some really interesting production system modeling software packages out there, such as Arena, which can mimic production systems very well and facilitate system experimentation to solve throughput problems.
I sincerely wish that I had this book imbedded somewhere in my required reading list in my first year engineering courses, it would have made all those long hours of textbook work seem a little more relevant.
Michael Magallon
Book Review: TOC a great tool to apply in life and business
Summary: 5 Stars
Eliyahu Goldratt is a physicist who has applied all his science background to business management. He is a guru in the management field. He is the creator of Optimized Production Technology, Theory of Constraints, Thinking Process, Drum-Buffer-Rope and Critical Change Project Management.
This book is a novel which portraits the reality of Alex Rogo who manages a manufacturing facility and the issues and ventures that he goes through in his professional and personal life. It is more than a novel because it exemplifies and introduces Theory of Constraints (TOC) which is a thinking process that uses cause and effect logic to identify, exploit, subordinate and elevate constraints. By constraint, I mean anything that prevents the production plant to make money.
In the book, Alex is given an ultimatum that if he does not improve the efficiency of the plant in three months the corporate is going to close it. During his venture of figuring out how to increase the efficiency and productivity he has to brainstorm and closely analyze his current system to look for constraints. The idea of TOC is introduced to him by Jonah who is a friend of him and also a physicist. I believe that this character represents Goldratt's personality and role in real life. The role of Jonah is a consultant who constantly asks Alex questions in order for him to figure out how to identify the goal of the plant and then find the constraints which have to be reduced in order to fulfill the plant's goal of making profit through sales (throughput). Three measurements are identified in the book which are: Throughput, Inventory and Operational Expenses. The relations or interactions between these measurements are the places where the constraints take place.
As I mentioned earlier, the rest of the book is about different experiences where Alex has to apply the knowledge of TOC to solve problems and in order to identify the constraints he has to ask three main questions:
1. What to change?
2. What to change to?
3. How to cause the change?
After identifying the constraint he applies a 5 step process to work around the constraint or the bottleneck of the system:
1. Identify the constraint
2. Analyze and Exploit the constraint
3. Subordinate or control the constraint by implementing a continuous improvement process
4. If a change occurs then Elevate the constraint (increase the constraint's capacity)
5. Go back to step 1 but keep in mind that since TOC is a cause and effect logic, all the events are dependent on each other so this dependency might cause inertia to become a constraint.
I highly recommend this book. I believe that this book is a great eye opener on how to see not only manufacturing facilities but business in general. The systematic approach explained provides an accurate and general idea on how to apply TOC. A significant fact to mention is that TOC is really important, helpful and unique for each company and it has be built up from basics or from the beginning until a company can actually apply this concept. This is proven in the book when Alex is recognized of fulfilling in his manufacturing facility but then he gets in charge of three plants and that point he has a total new system which has different constraints and company's culture.
As an IE, I believe that there is always room for improvement, so I understand that the book is a novel but I believe that it could be more value adding if there is a reduction in content about Alex's personal life an increase on business management ideas. I believe that there is a lack on schematics, charts and tables which could be helpful as visual aids to understand the TOC process.
Book Review: Filled with Useful Knowledge
Summary: 5 Stars
Ever wonder why the best laid process improvement efforts failed to yield their expected results? In this book, Eliyahu M.Goldratt and Jeff Cox provide both an explanation as to why these efforts fail, and how & where to correctly focus one's improvement activities in the first place. Called the Theory of Constraints (TOC), the authors point out that all processes constitute an integrated system which has one, maybe two constraints at most. Improvement efforts need to be focused on the system constraint in order to achieve dramatic process improvements (i.e., reduced cycle times, less waste, more productivity, etc.). Changes elsewhere in the system (i.e., on non-constraints) result in essentially no improvement in the system's overall performance.
All systems have constraints. They can not be eliminated, only moved elsewhere in the system. Strangely, one of the most common constraint sources the author points out are the very policies/decisions that are put into place by an organization's management because they fail to consider their effects on the system constraint's performance.
This may seem obvious and "common sense", but the world is full of examples proving this to be typically a very "uncommon" way for most people to think and act. In The Goal, Goldratt & Cox show the primary force influencing people to do "wrong things right" ...measurement systems that focus one's attention primarily on localized improvements.
Rooted in modern managerial accounting practices, managers are rewarded (evaluated) for local process improvements/attaining local goals, thereby shifting their focus away from organizational level goals to their own individual group's needs. While senior management's thinking is that an improvement anywhere adds up to an improvement for the whole system, this ignores the real integrated nature of the organization (they are not a series of independent entities). Like a chain, therefore, improvements anywhere but at the weakest link does nothing to improve the chain's overall strength.
One of the things that makes this book unique from others is it's approach to educating the reader. Preferring the Socratic method of learning, the authors have structured their material into a story about a manufacturing company that needs to make immediate and dramatic improvements within a very short time frame. While making for one of the easiest "text books" to read, the reader has to be careful not to get caught up in the "story", as you will miss the underlying messages.
Each chapter is filled with useful knowledge and solutions that can be extracted and applied. (I continue to find "new" things each time I re-read it.) Some are subtle changes to long standing process related definitions, but now show how the application of the TOC principles would change one's decision making approach. How typical managerial accounting can lead one's decision making astray is one of the author's favorite "targets".