Rakesh S K (15A3HP611) 

 Operations and Supply Chain Management 

 December 28, 2015

The GoalBOOK REVIEW

Introduction:

The Goal book by Eliyahu M. Goldratt is a real guide for those who want to achieve great success. The author

starts his work with a note that, there is simplicity inside every complexity. And he says that, in order to

achieve success, we have to find that simple things and capitalize on them. This book is about Alex Rogo, a

plant manager for UniCo’s Plant in Bearington. He is struck in a situation where he has to make his plant

productive and get back on the track within 90 days, if not the plant would be shut down. Alex battles a lot

along with his family problems, to get his plant back on track with the help of his Prof. Jonah. Finally, Alex is

able to achieve his Goal and move forward in his career, so what all did he do to achieve his Goal is what the

book says us.

The Team:

To achieve the success, team work is the most important thing in any given business situation. Here the team

was:

Alex Rogo: Plant Manager

Bill Peach: Divisional Manager

Bob Donovan: Production Manager

Stacey: Head, Inventory Control

Lou: Plant Controller

Ralph Nakamura: Planning

Jonah: Physicist, Consultant

Julie Rogo: Alex’s Wife

The Steps:

The systematic approach to solve any given problem will be a very effective method to achieve the success,

the steps here are:

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Define the Goal: The goal must be defined correctly, the goal is to make money and everything else you do is

the means to achieve the goal.

Theory of Constraints

Identify the Constraints: The next step is to identify the constraints you have on your way to achieve the

goal. Constraints are things which comes as a hurdle limiting your production capacity.

Exploit: Explore available options to get more products out of the constraint without increasing any capacity.

In the book we can see that they altered lunch breaks so that the constraint machine could be running non-

stop.

Subordinate/Synchronize: The Non-constraint resources produce at a higher rate when compared to that of

constraint resources. By limiting the non-constraint resources production, you lower the carrying cost of the

products waiting for the constraint resources to be finished.

Elevate: Try to reduce the workload off of the Constraint. The constraint needs to be able to produce at or

close to the level of demand. Using other resources to produce constraint items is a good way to do this.

Repeat: Start over again on these five steps. There will always be a constraint in a business that needs

attention. The more constraints identified and fixed throughout these steps the better off the business will

be.

Key Concepts:

− Throughput: Rate at which system generates money through sales.

− Operational Expenses: All the money system spends to convert inventory to throughput.

− Inventory: All the money system has invested in purchasing things it intends to sell.

− Bottleneck: Any resource whose capacity is equal to or less than the demand placed upon it.

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Areas of Problems:

Inventory management: Every machine was used with 100% capacity which in turn increased Inventories

due to capacity mismatch between adjacent machines/resources Inventory was high. Inventory turnover

period increase. Cash conversion cycle increase. Low Cash Inflow.

Bottleneck’s capacity: Capacity is less than or equal to the demand. Bottlenecks decided throughput of the

system as a whole. Bottleneck capacity could not be increased due to Capital Expenditure Constraint.

Robots: Robots were used, but production didn’t increase. Labour wasn’t laid off. Cost of materials didn’t go

down. So, there was no tangible effect of using Robots.

Orders: Most of the orders were not completed and being shipped on time, they were always getting late.

Expediting was a norm in the plants.

How did Alex Achieve the Goal?

Jonah advices Alex concentrate on the bottlenecks (constraints) to achieve his goals.

The first thing Alex has to do is to locate the bottlenecks in the system and try to remove them, this will help

him in controlling the flow of materials in the system, which will eventually decrease inventories, and work-

in-process levels, decrease operational expenses, and increase the throughput.

Alex and his team find two bottlenecks in the plant. One is the NCX-10 machine and the other is the Heat-

treat.

There are two things that should be done. They have to make sure that the bottlenecks' time is not wasted,

and make the bottlenecks work only on what will contribute to throughput today. They realize that by

running non-bottlenecks for efficiency, they have piled up inventories excess of demand which means

releasing materials faster than the bottlenecks can process it.

‘In the book, the concept of "constraint" is clearly explained by an example. Alex takes a group of boy scouts

on an overnight hike. The slowest boy in the group, Herbie, exemplifies all the characteristics of a constraint.

Because he is very slow, it becomes very difficult for Alex to keep the boys in line. Boys in front of Herbie hike

faster than the other boys. Herbie being a constraint causes large gaps between the boys in the line. This

hiking trip helps Alex discover some simple processes. He uses his findings to turn his plant in the right

direction.’

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This example also explains the concepts of Dependable events and Statistical fluctuations. Statistical

fluctuations imply that most of the factors critical to running a plant successfully cannot be determined

precisely ahead of time. In a system with dependable events, like an assembly line in a plant, if a process lags

behind all the process slows down. This explains the high level of inventories piled up in front of the NCX-10

machine and the Heat-treat in his plant. Although a non-bottleneck process can produce at full capacity,

throughput of the whole system will depend on the capacity of the bottleneck processes of the system.

If bottleneck processes lag behind the non-bottleneck processes, then higher work-in-process and excess

inventories will pile up. He finds that the throughput of the bottlenecks is the throughput of the whole plant,

and tries to increase the capacity of bottlenecks, thereby increase the throughput of the plant in general.

Let us look at the steps Alex and his team followed to improve the performance of their system by tackling

the constraints with specific examples:

1. Identification: They first identified the NCX-10 and the Heat-treat as the bottlenecks of the plant.

2. Exploit: They did everything for the bottlenecks to work at full capacity without wasting time. For instance,

they tried to keep them working during lunch breaks.

3. Subordinate: They tried to make sure that everything is marching to the tune of the constraints. They used

the red and green-tag system to make the plant operating smoothly.

4. Elevate: They brought some old machines and tried to offload some of the work from bottlenecks to these

machines.

5. Go back to step 1, but do not allow inertia to cause a system's constraint: They continuously checked the

system to prevent the emergence of new bottlenecks.

Conclusion:The key takeaways of this book are,

− Balance the flow with demand, not capacity.

− The level of activity of the system is determined by constraints in the system.

− Activating a resource and utilizing it are not the same. An hour lost at a bottleneck is an hour lost by the entire system.

− An hour saved at a non-bottleneck is worthless. Performance of an operation should be evaluated by its bottom line.

Alex and Lou identify three fundamental decision issues as critical to the success of any manager, they are,

− Knowing what to change.

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− What to change to?

− How to cause the change?

The above three questions are answered through the ‘Theory of Constraints’ approach.

***Thank you***

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