The Goal

Highlights

I dared to interweave into the book a family life struggle, which I assume is quite familiar to any manager who is to some extent obsessed with his work. This was not done just to make the book more popular, but to highlight the fact that we tend to disqualify many phenomena of nature as irrelevent as far as science is concerned.

I usually go in early to catch up on all the stuff I’m too busy to do during the day, because I can really get a lot done before the phone rings and the meetings start, before the fires break out. But not today.

Based on observation, I’d say this plant has four ranks of priority for orders: Hot …Very Hot …Red Hot… and Do It NOW! We just can’t keep ahead of anything.

Finally it’s determined almost all the parts needed are ready and waiting—stacks of them. But they can’t be assembled. One part of some sub-assembly is missing; it still has to be run through some other operation yet. If the guys don’t have the part, they can’t assemble, and if they can’t assemble, naturally, they can’t ship.

“Yeah, sure,’’ says Ray. “Hey, I just want to know what to do.’’

I see him behind my desk and hear him telling me how he’s going to show me how to get the orders out the door. Right, Bill. You really showed me how to do it.

So we made it through today’s crisis. We won. Just barely. And now that Donovan is gone and the effects of the alcohol are wearing off, I can’t see what there was to celebrate. We managed to ship one very late order today. Whoopee.

and that’s why we’ll be just another fine company in the Who-Knows-What Corporation after the big boys at headquarters put together some merger with some other loser. That seems to be the essence of the company’s strategic plan these days.

Something is wrong. I don’t know what it is, but something

Something is wrong. I don’t know what it is, but something basic is very wrong. I must be missing something.

What makes me mad sometimes is that I’m always running so hard that—like most other people, I guess—I don’t have time to pay attention to all the daily miracles going on around me. Instead of letting me eyes drink in the dawn, I’m watching the road and worrying about Peach.

I resent his style—he’s always promoting some new thing he’s doing, and most of the time what he’s doing isn’t any different from the things everyone else is doing.

“Sure they have,’’ I say. “We had—what?’’ I scan the ceiling for the figure. “I think it was a thirty-six percent improvement in one area.’’ “Really… thirty-six percent?’’ asks Jonah. “So your company is making thirty-six percent more money from your plant just from installing some robots? Incredible.’’

“Check your numbers if you’d like,’’ says Jonah. “But if your inventories haven’t gone down . . . and your employee expense was not reduced… and if your company isn’t selling more products—which obviously it can’t, if you’re not shipping more of them—then you can’t tell me these robots increased your plant’s productivity.’’

“Alex, if you’re like nearly everybody else in this world, you’ve accepted so many things without question that you’re not really thinking at all,’’ says Jonah.

“My compliments,’’ he says. “When you are productive you are accomplishing something in terms of your goal, right?’’

“What I’m telling you is, productivity is meaningless unless you know what your goal is,’’ he says.

Jonah ignores her. “Alex, you cannot understand the meaning of productivity unless you know what the goal is. Until then, you’re just playing a lot of games with numbers and words.’’

Now I’m wondering if Jonah might be closer to the truth than I first thought. Because as I glance from face to face, I get this gut hunch that none of us here has anything more than a witch doctor’s understanding of the medicine we’re practicing. Our tribe is dying and we’re dancing in our ceremonial smoke to exorcise the devil that’s ailing

I see it now. The goal of a manufacturing organization is to make money.

If the goal is to make money, then (putting it in terms Jonah might have used), an action that moves us toward making money is productive. And an action that takes away from making money is non-productive. For the past year or more, the plant has been moving away from the goal more than toward it. So to save the plant, I have to make it productive; I have to make the plant make money for UniCo. That’s a simplified statement of what’s happening, but it’s accurate. At least it’s a logical starting point.

Then it occurs to me: those three guys are doing something now, but is that going to help us make money? They might be working, but are they productive?

And even though I could perhaps have those guys shifted to someplace where they could produce, how would I know if that work is helping us make money? That’s a weird thought.

Every moment, lots and lots of things are happening down there. Practically everything I’m seeing is a variable. The complexity in this plant—in any manufacturing plant—is mind-boggling if you contemplate it. Situations on the floor are always changing. How can I possibly control what goes on? How the hell am I supposed to know if any action in the plant is productive or non-productive toward making money?

And I sit here listening to Lou pronounce his opinions, which all sound good as they roll off his tongue, and I wonder why it is that we’re slipping minute by minute toward oblivion, if we’re really so smart.

I would want to see increases in net profit and return on investment and cash flow—all three of them. And I would want to see all three of them increase all the time.

Net profit, ROI, cash flow—that’s just headquarters talk to Eddie.

that Eddie hasn’t heard of those terms. It’s just that those concerns are not part of his world. His world is one measured in terms of parts per hour, man-hours worked, numbers of orders filled. He knows labor standards, he knows scrap factors, he knows run times, he knows shipping dates. Net profit, ROI, cash flow—that’s just headquarters talk to Eddie.

It’s not that Eddie hasn’t heard of those terms. It’s just that those concerns are not part of his world. His world is one measured in terms of parts per hour, man-hours worked, numbers of orders filled. He knows labor standards, he knows scrap factors, he knows run times, he knows shipping dates. Net profit, ROI, cash flow—that’s just headquarters talk to Eddie.

“There are three of them. Their names are throughput, inventory and operational expense.’’

“Throughput,’’ he says, “is the rate at which the system generates money through sales.’’

And they should be; a measurement not clearly defined is worse than useless.

“The next measurement is inventory,’’ he says. “Inventory is all the money that the system has invested in purchasing things which it intends to sell.’’

“Operational expense is all the money the system spends in order to turn inventory into throughput.’’

That’s how Jonah knew. He was using the measurements in the crude form of simple questions to see if his hunch about the robots was correct: did we sell any more products (i.e., did our throughput go up?); did we lay off anybody (did our operational expense go down?); and the last, exactly what he said: did our inventories go down?

Increase throughput while simultaneously reducing both inventory and operating expense.

“Interesting, isn’t it, that each one of those definitions contains the word money,’’ he says. “Throughput is the 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. One measurement for the incoming money, one for the money still stuck inside, and one for the money going out.’’

“Yeah, okay, we do have a lot of a lot of excess, but what’s the point?’’ “Do you realize that the only way you can create excess inventories is by having excess manpower?’’ he says.

“Most of the factors critical to running your plant successfully cannot be determined precisely ahead of time,’’ he says.

“All right, look: I promise I’ll make more time for you and the kids,’’ I say. “Honest, I’ll spend more time at home.’’ “Al, it’s not going to work. Even when you’re home, you’re at the office. Sometimes I’ve seen the kids tell you something two or three times before you hear them.’’

She looks up at the sky and says, “Your job has always been on the line. Always. So if you’re such a marginal employee, why do they keep giving you promotions and more money?’’ I pinch the bridge of my nose.

could volunteer you to go along and help the troopmaster.’’

He says, “Dad, it’s seven o’clock!’’ “Seven o’clock? I’m trying to sleep. Aren’t you supposed to be watching television or something?’’ “We’ll be late,’’ he says. “We will be late? For what?’’ “For the overnight hike!’’ he says. “Remember? You promised me I could volunteer you to go along and help the troopmaster.’’

And I see this fat kid. He already looks a little winded. Behind him is the rest

And I see this fat kid. He already looks a little winded. Behind him is the rest of the troop. “What’s your name?’’ I ask as the fat kid draws closer.

And I see this fat kid. He already looks a little winded. Behind him is the rest of the troop.

By the time we’re finished, all we can hear is some snoring from the other tents, a few crickets… and the squealing tires of some idiot turning donuts out there on the highway.

“A bottleneck,’’ Jonah continues, “is any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. Got that?’’

“Oh, I see,’’ says Stacey. “The idea is to make the flow through the bottleneck equal to demand from the market.’’

“Hell, with engineering changes, shifting labor around, and all that happening all the time, it’s just plain tough to keep up with it no matter what,’’ says Bob.

good parts by weeding out the ones that are defective. If you scrap a part before it reaches the bottleneck, all you have lost is a scrapped part.

If you scrap a part before it reaches the bottleneck, all you have lost is a scrapped part. But if you scrap the part after it’s passed the bottleneck, you have lost time that cannot be recovered.’’

“The important thing is to maintain the flow. If we take a worker away, and we can’t maintain the flow, then we’ll put the worker back and steal a body from someplace else. And if we still can’t keep the flow going, then we’ll have no choice but to go to a division and insist that we either go to overtime or call a few people back from layoff.’’

I throw up my hands in frustration and say, “I guess the only solution is to expedite.’’ “No, actually, that is not the solution at all,’’ Jonah says, “because if you resort to expediting now, you’ll have to expedite all the time, and the situation will only get worse.’’

“By the way, do you remember when I told you that a plant in which everyone is working all the time is very in efficient? Now you’ll see exactly what I was talking about.’’

“we can form a simple rule which will be true in every case: the level of utilization of a non-bottleneck is not determined by its own potential, but by some other constraint in the system.’’

“Yes, and that’s a very close approximation of the second rule we can logically derive from the four combinations of X and Y we talked about,’’ says Jonah. “Putting it precisely, activating a resource and utilizing a resource are not synonymous.’’

“Putting it precisely, activating a resource and utilizing a resource are not synonymous.’’

“A system of local optimums is not an optimum system at all; it is a very inefficient system.’’

“Alex, the problem is you are not like that,’’ she says. “Other people go to work and come home at regular times.’’ “Yes, you’re partially right. I am not like other people,’’ I admit. “When I get involved in something, I really get involved. And maybe that has to do with the way I was brought up. Look at my family—we hardly ever ate together. Somebody always had to be minding the store. It was my father’s rule: the business was what fed us, so it came first. We all understood that and we all worked together.’’

“Whether they’re dumb or smart, I’m asking them because we’ve been living together for fifteen years and we have no clear understanding of what our marriage is supposed to do…or become…or anything!’’ I sputter. “We’re just coasting along, doing ‘what everyone else does.’ And it turns out the two of us have some very different assumptions of what our lives are supposed to be like.’’

One of them is setup, the time the part spends

One of them is setup, the time the part spends waiting for a resource, while the resource is preparing itself to work on the part.

“No, I don’t want to do that,’’ I tell him, thinking about us screwing up relations with a dozen customers just to please one. “Let’s try something else.’’

“When you talked to me then, it made me realize how little I know about what you do,’’ she says. “I wish you had told me more over the years.’’

“Al, I don’t know exactly what our goal is, or ought to be, but I think we know there must be some kind of need between us,’’ she says. “I know I want Sharon and Dave to grow up to be good people. And I want us to give each other what we need.’’

“You remember a long time ago, after we got married and we both had jobs, how we’d come home and just talk to each other for a couple of hours, and sympathize with each other about the trials and tribulations we’d suffered during the day?’’ I ask. “That was nice.’’

“But I’ll try to make it up to you,’’ she says. Then she smiles briefly and adds, “Since we’re walking down memory lane, maybe you remember the first fight we had, how we promised afterwards we’d always try to look at a situation from the other’s point of view as well as our own. Well, I think for the past couple of years we haven’t been doing that very often. I’m willing to try it again if you are.’’

“According to the cost-accounting rules that everybody has used in the past, we’re supposed to balance capacity with demand first, then try to maintain the flow,’’ I say. “But instead we shouldn’t be trying to balance capacity at all; we need excess capacity. The rule we should be following is to balance the flow with demand, not the capacity.

“Actually, I guess that I want to learn how to manage—a plant, a division, a company, any type or size organization.’’ After a second of hesitation I add, “It wouldn’t be bad to learn how to manage my life, but I’m afraid that would be asking for too much.’’

“Now. Your first assignment is to find out what techniques are needed for effective management.’’

Somehow I feel that you were right all along— what is this promotion if not just winning a point in the rat race?’’

But, come on, Julie, the fact that he elected to present them in the form of very pointed questions doesn’t change a thing.’’

What was the nature of the answers, the solutions, that Jonah caused us to develop? They all had one thing in common. They all made common sense, and at the same time, they flew directly in the face of everything I’d ever learned.

sharpened boomerang.’’ Then it dawns on me. Here’s the answer. This is the technique that I should ask Jonah to teach me: how to persuade other people, how to peel away the layers of common practice, how to overcome the resistance to change.

that I should ask Jonah to teach me: how to persuade other people, how to peel away the layers of common

it dawns on me. Here’s the answer. This is the technique that I should ask Jonah to teach me: how to persuade other people, how to peel away the layers of common practice, how to overcome the resistance to change.

Then it dawns on me. Here’s the answer. This is the technique that I should ask Jonah to teach me: how to persuade other people, how to peel away the layers of common practice, how to overcome the resistance to change.

“We didn’t say a flat no, or a flat yes, and then miss the due date by a mile, as we used to do. We re-engineered the deal; we came back with a counter-offer that was feasible and that the client liked even more than his original request.’’

“It was peculiar because normally we don’t take the initiative —but maybe there’s a way to make it standard. Don’t you see? We actually engineered a sale. We—in the plant, in production—engineered a sale.’’

All the time I’m buried out on the shop floor, thinking that my responsibility is to put out fires, and viewing the sales department as snake oil salesmen, spreading unrealistic promises to our clients. For me, this event was a revelation.

And then we took the time and reexamined it from basic principles.

“I do think that meeting the people is important,’’ Stacey interrupts the laughter. “Financial numbers only reveal a small fraction of the picture. You have to find out what the people think is going on. What do they see as

Now, someone else reveals to us that some rectangles exist. We check, and yes, he’s right. Here there is one and here and here and here. We’re making progress, the picture starts to unfold.’’

Almost every big company is oscillating, every five to ten years from centralization to decentralization, and then back again.’’ “Yeah,’’ says Bob. “As a president of a company, when you don’t know what to do, when things are not going well, you can always shuffle the cards—reorganize.’’ Mockingly he continues, “That will do it! This reorganization will solve all our problems!’’

“O.K. fellows,’’ I say firmly. “Bob’s last suggestion has really clarified what we’re dealing with here. We’re dealing with the fact that we haven’t got any idea of what we’re doing.

What type of order are we seeking? An arbitrary order that we superimpose externally on the facts, or are we trying to reveal an intrinsic order, an order that already exists there?’’

They continue to argue but I’m not listening any more. I’m stuck on Lou’s question, “How does one go about revealing the intrinsic order?’’ He asked it as if it were a rhetorical question, as if the obvious answer is that it is impossible. But scientists do reveal the intrinsic order of things . . . and Jonah is a scientist.

“I’m sick and tired of these big words. Everywhere I go, I hear the same thing.’’ He stands up, goes to the board, and mimicking a first grade teacher he intones “A process …of… on-going… improvement.’’

“That’s precisely what it is,’’ Lou says. “In the past, cost was the most important, throughput was second, and inventory was a remote third.’’ Smiling at me he adds, “To the extent that we regarded it as assets. Our new scale is different. Throughput is most important, then inventory—due to its impact on throughput and only then, at the tail, comes operating expenses. And our numbers certainly confirm it,’’ Lou provides the evidence. “Throughput and inventory had changed by several tens of percent while operating

STEP 1. Identify the system’s bottlenecks. (After all it wasn’t too difficult to identify the oven and the NCX10 as the bottlenecks of the plant.) STEP 2. Decide how to exploit the bottlenecks. (That was fun. Realizing that those machines should not take a lunch break, etc.) STEP 3. Subordinate everything else to the above decision. (Making sure that everything marches to the tune of the constraints. The red and green tags.) STEP 4. Elevate the system’s bottlenecks. (Bringing back the old Zmegma, switching back to old, less “effective’’ routings. . . .) STEP 5. If, in a previous step, a bottleneck has been broken go back to step 1.

Somewhere in the scientific method lies the answer for the needed management techniques. It is obvious. But what can I do? I cannot read a book in physics, I don’t know enough mathematics to get through even the first page.

“It’s how physicists approach a subject; it’s so vastly different from what we do in business. They don’t start by collecting as much data as possible. On the contrary, they start with one phenomenon, some fact of life, almost randomly chosen, and then they raise a hypothesis: a speculation of a plausible cause for the existence of that fact. And here’s the interesting part. It all seems to be based on one key relationship: IF… THEN.’’

“Lou, I think we did the exact thing that we knew we shouldn’t do.’’ “What are you talking about?’’ he says. “We haven’t done anything yet.’’ “We have gathered data, tons of data.’’

Lou is right, I am impatient. But shouldn’t I be? Did we save our plant by being patient? And then I see it. Yes, many small actions are needed, but that doesn’t mean that we can afford to be satisfied with actions that improve the situation. We must carefully choose which ones to concentrate on, otherwise. .

“Stop, stop,’’ he raised his hands. “You made your point. I guess I was inclined to deal with the open receivables issue just because there I know what to do, while in all the others . . .’’ “Afraid?’’ I ask. “Frankly, yes.’’ “So am I, so am I.’’ I mutter. “Where do we start?

“No,’’ he grins. “As a matter of fact everything that I’ve seen of long term planning should be more appropriately categorized under ‘long term bullshitting.’’’

What about the mentality that is so prevalent in headquarters, the mentality of covering your ass.

What about the mentality that is so prevalent in headquarters, the mentality of covering your ass. Haven’t you noticed that whenever we asked about something that doesn’t go so well, everyone almost automatically started to blame everybody else?’’

The lack of sensible long-term strategy, the measurement issues, the lag in product design, the long lead times in production, the general attitude of passing the ball, of apathy, are all connected. We must put our finger on the core problem, on the root that causes them all. That is what actually is meant by identify the constraint. It’s not prioritizing the bad effects, it’s identifying what causes them all.’’

The real constraints, even in our plant, were not the machines, they were the policies.’’

“That brings us to the real question, how does one go about identifying the system’s constraint? How can we zoom in on the most devastating erroneous policies.

“Here it is,’’ I announce, “here is the answer to Jonah’s question. I’m going to call him right now. You can imagine my first sentence: Jonah, I want you to teach me how to identify the core problem.’’

“But triggering breakthrough ideas by itself is not enough. An even bigger obstacle is to verify that this idea really solves all the resulting bad effects.’’

I stop and look at him. “What are we asking for? For the ability to answer three simple questions: ‘what to change?’, ‘what to change to?’, and ‘how to cause the change?’

“At the same time,’’ I continue, “can you imagine what the meaning is to being able to hone in on the core problem even in a very complex environment?

“We should and can be our own Jonahs,’’ Lou says and stands up. Then this reserved person surprises me. He puts his arm around my shoulder and says, “I’m proud to work for you.’’

“Yes and no,’’ I answer. “Yes, that’s what we have done. No Lou, without Jonah’s guidance all of us would be looking for new jobs today. Now I understand why he refused to continue advising us. Jonah said it to me in the clearest way. We should learn to be able to do it without any external help. I must learn these thinking processes, only then will I know that I’m doing my job.’’