Book the Goal a Process of Ongoing Improvement

¶ … Goal, (Goldratt and Cox, 1986) plant manager Alex Rogo turned to his former professor, Johah, after being told that the manufacturing plant will shut down if profits don't increase. Johah helps Alex turn the plant around my employing Jonah's Theory and Constraints (TOC) and Throughput Accounting practices to improve operational management. At the heart of TOC, is the notion that the goal of achieving greater profits requires the management of constraints that limit the system from getting more of what it is trying to achieve as will be discussed in this paper.

TOC uses three operational measurements that measure whether operations are working toward the goal (59-60):

Throughput - The rate at which the system generates money through sales.

Inventory - The money that the system has invested in purchasing things which it intends to sell.

Operational expense - The money the system spends in order to turn inventory into throughput.

Jonah states that the goal is not to improve one measurement in isolation. Rather, the goal is to reduce operational expenses and reduce inventories and increase throughput simultaneously.

A bottleneck is defined as any resource whose capacity is equal to or less than the demand placed upon it (137-138). The first objective of TOC is to identify the bottleneck that is holdup up everything else, gauge the input into the system by the capacity of the bottleneck, never let the bottleneck be idle, and then elevate the capacity of the bottleneck. Jonah asserts that the capacity of the entire plant is equal to the capacity of its bottlenecks and the only true way to increase throughput is by fixing the bottleneck. Thus, the actual operational expense of the bottleneck is the total expense of the system divided by the number of hours the bottleneck produces (157). Jonah elaborates further,

"Whatever the bottleneck produces in an hour is equivalent to what the plant produces. Every hour lost at a bottleneck is an hour lost in the entire system." (158)

Because of the enormous cost of bottlenecks, increasing the efficiency of bottlenecks is extremely important, even if the efficiency needs to be achieved at the expense of non-bottleneck processes. Further, once one bottleneck is eliminated, inertia should not take hold to prevent the identification and resolution of other bottlenecks.

Next, TOC introduces the idea of adjusting the flow of product to match demand. According to Jonah, capacity should not be balanced with demand (138). Instead, the right approach is to make the flow through the bottleneck slightly less than the demand from the market. The problem with using capacity is that it considers resources in isolation (136). Thus, trying to level capacity with demand to minimize operational expenses can quickly cause a plant to become unbalanced when the capacity is needed at a later time, requiring workers to be called back from lay offs, shifted to other areas of the plant or paid overtime.

Under TOC, bottlenecks drive the production rate of parts. Materials should be produced strictly according to the rate at which the bottlenecks need parts even if a greater rate can be produced (213). Since the pace of work will be dictated by a bottleneck or by the market, almost all work stations will have a certain amount of planned idle time. But, to attempt to utilize this idle time by building products would result in expensive excess inventory that cannot be sold. And, idle resources do not increase operational expenses. This concept displaces traditional thinking that once a resource is present it is already paid for and, therefore, might as well be used.

Interestingly, Jonah acknowledges the realities of efficiency as a traditional performance measure and the problems that imposing idle resources presents in a traditional plant environment (216). For example, workless would not be receptive to being idle if their performance evaluation is tied to their output. Policy constraints that are in conflict with planned idle time should be changed, but Jonah comes up an interim suggestion to decrease the unit of work to overcome worker's resistance to being idle. Jonah claims that breaking work into smaller chunks offers the advantages of faster turn- arounds, flexibility and smoother work flows.