The Goal Summary And Book Review
Table of Contents:
- Who is this book for?
- Short review
- Characters in the book
- Summary - Chapter wise
- Learnings from The Goal
- About the author
- Video lectures by the author
Who is this book for:
Every manager worth his salt should read this book, at least once. Jeff Bezos has made it an essential read for his top managers in Amazon. This book was first published in 1984 and been a phenomenal success. It has sold over 10 million copies and has been translated in about 35 different languages.
The Goal is truly an exceptional book and a timeless classic. It’s a story about a fictional plant manager, Alex Rogo. Alex is an MBA graduate and is now heading one of the many plants of UniCo Manufacturing Corporation. Alex’s plant is in trouble. The orders are almost always late and his plant is consistently losing money. He wonders why they can’t ship on time with good quality at a reasonable cost.
Meanwhile, his wife is finding the small town not so fascinating. She is also having second thoughts about their marriage. His long hours at the plant are not helping his marriage either. Eventually, she moves in with her parents and leaves the two kids with him.
There comes a point when UniCo’s vice president, Bill Peach, gives him an ultimatum of three months to turn the plant around or it will be shut down. The future looks bleak.
Interestingly, to improve efficiency, the plant has recently got a robotic arm installed to assist in operations. Ever since this robotic arm got installed, there has been a total chaos on the floor. Alex suspects that the abysmal performance of the plant is somehow linked to this robotic arm but he cannot pinpoint the reason.
Alex has the option to look for another job but he decides he will do whatever he can to save the plant.
In a strange turn of events, Alex runs into his former physics professor, Jonah, who is now a top shot business consultant. In their short meeting at the airport, the professor employs the Socratic method and asks Alex a series of innocuous questions.
Jonah suggests that "Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive." He encourages Alex to find out the goal of his company, any company for that matter. And he assures him that there is one and only one goal of every company.
Jonah states that for generating profit, only three components of the system need to be in order:
- Throughput: this refers to the money generated by sales and needs to be maximized.
- Inventory: this refers to the money invested by the system in purchasing things that it intends to sell and must be minimized.
- Operational Expense: this refers to the money spent by the system in converting money into throughput and must be minimized.
Jonah has all the answers. All his suggestions are always spot on and produce results beyond expectations
Jonah explains Alex "theory of constraints". He suggests that the success of an entire factory(or any process) hinges on the bottleneck. An apt analogy would be that a convoy is only as fast as its slowest ship. Similarly, the whole factory can produce goods as fast as its slowest operation does. This slowest operation, the bottleneck can occur anywhere in the workflow, in the beginning, middle or in the end. For example, it could be an incompetent employee, an outdated machine or some company wide regulation. Once the bottleneck has been identified, all efforts should be directed towards eliminating it. In other words, one has to continue to follow the five steps and embark their journey on what the author calls as POOGI:
- Identify the system constraint(s)
- Decide how to exploit the constraint(s)
- Subordinate everything else to the above decision
- Elevate the system’s constraint and improve throughput
- If a constraint has been broken, Identify a new bottleneck and go back to step 1
All this may sound simple and self-explanatory that a chain is only as strong as its weakest link. But Eliyahu M. Goldratt paints a realistic picture of a company resisting common sense. For example, at one point Alex removes certain staff from other machines to make sure the bottleneck machine is never idle. The floor managers start panicking that the non-bottleneck machines are no longer working at their peak efficiency, even though these machines would continue to churn parts which will just sit and wait before bottleneck machine finishes its work. At another instance, when Alex asks staff to rearrange their lunch breaks so as to ensure the bottleneck machine is always running, the union representative jumps in and says that he is flouting the labor agreement. Further, old accounting methods initially fail to reflect the value of Alex’s breakthroughs and flag his results red.
The Goal is an absolute page turner. For a book about the operations management in a fictional plant, it is quite an achievement. The high point comes not in a conference room but on a hiking trail when Alex had to lead his son’s troop on a school trip. During the trip, Alex notices that group as a whole is never together and despite his best effort is always spreading out.
He eventually realizes that the fat kid is the bottleneck and the whole group will move only as fast as that fat kid. Once the realization sets in, he creates a line of all students and puts the fat kid in front. He further offloads the fat kid and the whole line immediately becomes nimble and starts to move faster.
There is a strange pleasure when one is reading the story and empathizing with Alex. You walk with him in his efforts to save the plant, in reasoning out the problems and in watching him succeed. You watch through Alex’s eyes as he struggles to deal with the bureaucrats at headquarters, the union representatives, the workers, the accountants. You root for him when he is saving the manufacturing plant and his marriage, in watching him succeed and in figuring out the operational problems at the floor. Once you have read the book you will feel smarter. You will feel as if you can simply step in and operate a plant yourself.
The anniversary edition is also carrying an interview with the author and testimonials from managers at major organizations from the likes of General Motors and others who had implemented the Theory of Constraints. While this additional text may take longer to finish the book but these interviews are absolutely worth their weight in gold. You will likely walk away smarter and with a deeper understanding of the involved concepts.
Characters in the book
- Alex Rogo: protagonist, the manufacturing plant manager
- Bill Peach: vice president of Unico
- Bob Donovan: the production manager
- Burnside: the customer who placed 100 piece order.
- Dave: Alex’s son
- Fran: Alex’s Secretary
- Herbie: the fat kid on the hiking trip who symbolizes a bottleneck in a manufacturing plant
- Hilton: the productivity manager
- Jonah: physicist and a globe hopping business consultant who also happens to be Alex’s college professor.
- Johnny Johns: division sales manager
- Julie: Alex’s wife
- Lou: the head accountant.
- Ralph Nakamura: data processing manager
- Sharon: Alex’s daughter
- Stacey: the plant inventory manager
Summary - Chapter Wise
Chapter 1 - The Goal
The chapter introduces the protagonist, Alex Rogo. He is an MBA graduate and is now heading one of the plants of M/s UniCo Manufacturing Corporation. One day he arrives at his office and discovers that Vice President of the whole division, Mr. Bill Peach is already waiting for him. Things started to heat up when he questions him about the status of order number 41427 which is seven weeks overdue. Bill gives him an ultimatum of 3 months to turn the factory around or it will be shut down. And that the order number 41427 has to be shipped the very same day.
Chapter 2 - The Goal
Alex reflects back on his life and wonders "I’m 38 years old and a crummy plant manager". His family has shifted recently to this small town, Bearington, a couple of months back. His wife, Julie, is struggling to get accustomed to this small city and tensions are rising in his marital life. After an argument with his wife Alex heads back to his plant only to find out that one of the machines is broken. The employees work for extra hours and the team somehow manages to ship the order and they feel a small victory in it. But this victory comes at the cost of reduced efficiency for the whole plant and further delay of subsequent orders.
Chapter 3 - The Goal
Mr. Bill Peach convenes a meeting next morning at the headquarters. In headquarters, Alex’s gets to know why Mr. Peach is acting so weirdly these days. A grapevine is that Mr. Peach has himself got an ultimatum to turn the division around in one year or the whole division will be sold out, along with Mr. Peach.
During the meeting, Mr. Peach gives a peek into how bad things are and what their targets should be for next quarter.
Chapter 4 - The Goal
During the meeting, for no particular reason, Alex recalls a conversation he had at the airport with his old physics professor, Mr. Jonah. Mr. Jonah is now a globe hopping business consultant. Without any prior knowledge, Mr. Jonah was able to deduce the problem of high inventories and late deliveries. Alex was stunned with the thought process of Jonah and wonders how he knows so much about Alex’s factory.
Mr. Jonah had to cut short the conversation to catch the flight but he leaves Alex with a question - "What is his company’s ultimate goal?"
Chapter 5 - The Goal
Alex decides to leave the meeting in between. Without any particular place to go, he gets into the car and drives aimlessly and keeps pondering over the question that Jonah had presented earlier - "What is his company’s ultimate goal?". During the short conversation, Jonah had mentioned that every company has just one goal and every action that brings you closer to that goal is productive. Actions which do not contribute to this goal are not productive.
After a pizza and a pack of six beers, it finally hits him, that the Goal of his company is to make a profit. Every action that brings the company closer to this Goal of making a profit is productive and every other action is non-productive.
Chapter 6 - The Goal
In the evening, Alex heads back to his plant and sits down with one of his employees. Together they brainstorm all the ways in which their plant can now move towards their newly defined Goal. They figured out that net profit, cash flow and return on investment - all of them have to be increased simultaneously. Their conversation ends late and when he calls home, things heat up between him and Julie.
Chapter 7 - The Goal
Alex reaches home in the wee hours and is surprised when his daughter greets him. He makes her sleep and starts to re-analyse the situation from a new angle. He realizes that he will need Jonah now for any further breakthrough.
Chapter 8 - The Goal
Alex apologizes to Peach for skipping the meeting and finally manages to speak to Jonah. Jonah explains that everything in an organization can be measured in terms of three operational measurements:
- Throughput: T is the rate at which the system generates money through sales.
- Inventory: I is all the money that system has invested in purchasing things which it intends to sell.
- Operational Expense: OE is all the money that the system spends in order to turn the inventory into throughput.
Their conversation ends abruptly as Jonah had to leave and Alex is left wondering how to relate the three terms with his day to day plant operations.
Chapter 9 - The Goal
Alex is still wrapping his head around the three terms which Jonah introduced when he is informed that head of the company has flown in to have a photo shoot with one of the robots. Alex starts wondering about the usefulness of robots in their factory. He sets up a brainstorming session with his team(Bob, the production manager, Stacy, the inventory control manager and Lou, the accountant). They all realize that the robots are actually hampering the productivity instead of improving it. The robots have increased the operating expenses without reducing any direct costs like labor. The freed up labor was merely shifted to the other parts of the plant. Since throughput did not increase and inventory remained same, the overall productivity of the plant decreased due to the newly installed robots.
Chapter 10 - The Goal
Alex and his team continue to explore the ramifications of the three terms - Inventory, Throughput and Operational Expense. In view of their manufacturing plant, they settle down on the following definition of these three terms:
- Inventory: I is the money currently inside the system.
- Throughput: T is the money coming in.
- Operational Expense: OE is the money which has to be paid to make throughput happen.
Bob remains skeptical that everything can be measured through these three simple terms. Lou explains that the whole plant, its machinery, the tools, the whole building are all different forms of inventory. Basically, the whole plant can be viewed as an investment which can be sold off at any point in time. Stacy concludes that "Investment is the same thing as inventory."
They realize that they will have to do something extraordinary with machines but how can they do that without lowering the efficiencies? Alex decides to speak with Jonah in person and flew to New York the same night.
Chapter 11 - The Goal
In New York City, Alex gets hold of Jonah. Alex briefs Jonah about the problems he is facing at the plant. He also informs him that he has a looming deadline of three months in which to fix everything.
Jonah assures Alex that all the problems can be sorted out in the available short span of time. He asks Alex to just ignore the robots for the time being and the efficiencies. He states that "A plant in which everyone is working all the time is very inefficient." Jonah explains to Alex that "a balanced plant is a plant in which the capacity of each and every resource is balanced exactly with demand from the market." Alex finds this quite intriguing and assumes that it is good to have a balanced plant. Jonah warns him and states that "the closer you come to a balanced plant, the closer you are to bankruptcy." Jonah asks another question to Alex: what is the impact of the combination of "dependent events" and "statistical fluctuations" on your plant? Both look harmless to Alex and he feels confident that both of them would fall in their place down the production line.
Chapter 12 - The Goal
When he returns to his hometown after his short meeting with Jonah, he gets into an argument with his wife regarding the unanswered phone calls. All the extra workload in the plant has started to take a toll on his marital life. His relationship with Julie is now not so nice. He promises her that he will set aside some time for her over the coming weekend.
Chapter 13 - The Goal
On Saturday morning, Alex wakes up to find his son all dressed up. He had completely forgotten that he had volunteered to lead the troop of boys for overnight Boy Scouts hike. During the hike, he observes that despite his best efforts the group always spreads out. It appears that Alex has stumbled upon the real meaning of "dependent events" and "statistical fluctuations". He compares a single file hike and his production plant and realizes the difficulty of compensating the loss due to the limits imposed by "dependent events". Even without any limit, the last event must always make up for all the previous losses to average out and that rarely happens if ever.[IMAGE OF DIE]
Chapter 14 - The Goal
Bowl And Matchsticks Game: Alex devises a game to model a balanced manufacturing plant. The game involves bowls, matches and a die from a pair of dice. In the game, work stations are represented by bowls, product inventory is represented by the matches and the single die is used to simulate statistical fluctuations or variations which naturally happens on the floor.
The bowls(i.e. workstations) are now arranged so as to mock a production line. The die representing the statistical fluctuations dictate that on a given day the maximum production of the production line could be six and minimum would be one.
To determine one day’s production, the die is rolled by each player and it determines how many matches(i.e. products) would be placed in his bowl for that day. For instance, if the first player rolls four, then he puts four matches in his bowl. If the next player rolls two, he can only move two matches from the previous bowl to his bowl. In this fashion, each operation is dependent on the previous operation for its input. The scouts roll the die several times in sequence to represent several days of production. During the course of the game, the bottleneck almost always appears at a different place.
The game demonstrated that when all the operations in a sequence of dependent events have the same capacity(i.e. A balanced plant), the combination of statistical fluctuations and dependent events will cause the bottleneck to moving from one operation to the other(i.e. Floating bottlenecks). In such a situation, one cannot know for sure where the bottleneck will show up next and will thus not be able to manage the system. Alex then concludes that "a balanced plant is not the answer".
Chapter 15 - The Goal
After getting a thorough understanding of "dependent events", Alex decides to let the slowest kid, Herbie lead the line. He also offloads the extra weight he is carrying and distributes it in rest of the line. This balances the fluctuations and also increased Herbie’s productivity and throughput of the entire pack.
Chapter 16 - The Goal
Sunday evening when Alex reached home, Julie was not there. She left a note stating that since Alex is not able to spend any time with her, she is leaving. Alex had promised her to spend the entire weekend with her but since the unexpected Boy Scouts hike came up, he couldn’t keep up his promise. Now he had to take care of the kids as well as the plant.
Chapter 17 - The Goal
With the new insights, Alex tries to explain the significance of "dependent events" and "statistical fluctuations" to his team. Initially, his team was hesitant but manages to convince them when he was able to ship an already long overdue order. The team is now all excited and is fairly convinced that they are all on the right path.
Chapter 18 - The Goal
The team has developed faith in their new leader Alex. But Alex himself remains unsure about the further steps. He decides to go back to the source, Jonah.
At this juncture, Jonah introduces Alex to TOC. He explains:
- "A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it."
- "A non-bottleneck is any resource whose capacity is greater than the demand placed on it."
Jonah further emphasizes that Alex MUST NOT try to balance capacity with demand, but instead balance the flow of product through the plant.
Armed with the new knowledge, Alex and his team inspect their plants for bottleneck and zeros in on the NCX-10 and heat treatment section.
Alex also realizes that production is a complex chain of the process and unlike the school trip, it cannot be moved around so easily. It looks like removing the bottlenecks will require more machines and more capital which will not be appreciated by the people at headquarters.
Chapter 19 - The Goal
Finally, comes the moment when Jonah visits the plant, in person. He explains to Alex that at a fundamental level if any plant is without a bottleneck, it means it has a ridiculous amount of excess capacity which is not good.
He further explains that every plant should have bottlenecks and that a system can only increase overall production by increasing the capacity at the bottlenecks.
Alex at this point is flabbergasted. To increase the capacity at the bottlenecks he has to purchase new equipment and machines but given the situation, he is in it is just impossible.
Here, Jonah suggests that while it's true that purchasing new equipment and machines will increase the capacity but he should also realize that the capacity at bottlenecks can be increased by improving the efficiency of existing machines.
Jonah further suggests that they can increase the capacity of bottlenecks by:
- Not having any downtime at the bottlenecks.
- Making sure that they are working on quality products and not wasting any time on non-urgent items.
- Reduce the workload on bottleneck by outsourcing some of the bottlenecks to outside vendors.
Jonah inquiries about some ballpark figures for how much it costs when the bottlenecks(NCX-10 and heat treatment) machines go down? Lou quotes $32 per hour for NCX-10 and @21 per hour for heat treatment.
Jonah further inquiries how much does it cost when the whole plant goes down and how many working hours are available per month? Lou says about $1.6 million and 585 hours.
Jonah now concludes that for every hour of lost work at the bottlenecks, the plant loses around $2735. This is because every second of lost throughput at the bottleneck translates into lost throughput of the entire plant. Every other decision should be subjugated to the fact that bottlenecks should operate with maximum efficiency.
Chapter 20 - The Goal
Alex reorganizes the work allotted to bottlenecks. He implements a variant of FIFO queue to ensure that the bottlenecks will always work on the most overdue orders first. Meanwhile, the scene shifts to his marital life and he comes to know that his wife, Julie had been with parents all this time. She lets him know that she needs more time.
Chapter 21 - The Goal
Alex and his team come up with a plan to ensure that bottlenecks are utilized to their capacity. They realize that they need a similar mechanism at upstream non-bottlenecks as well to prioritize which tasks should be completed first so that bottlenecks continue to work all the time. They come up with a system of red and green tags. Red tags indicate work that required by bottlenecks down the line and green to indicate work that feeds non-bottleneck operations.Alex promises to Julie and asks her out on the coming weekend. This time he manages to keep his promise and no emergencies crept up in the plant.
Chapter 22 - The Goal
Next Monday he walks into his plant to find out that their new system is working out pretty well. The company has managed to ship twelve long overdue orders. Alex is pleased but entirely satisfied. He calls for another brainstorming session. Bob, the production manager suggests that have some old machines which can complement and offload the NCX-10, one of the bottlenecks. He refurbishes the old machines and brings them into production, further improving the efficiency of the bottleneck.
Chapter 23 - The Goal
Efficiency is improving and things are looking good overall. This is when he notices that the bottlenecks are idle. He is informed that they had no work lined up and so in keeping up with the old philosophy, the workers were loaned out to other departments and in the meanwhile, the work kept accumulating at the bottlenecks.
Alex takes a call and dedicated one foreman to each bottleneck location all the time. One of those dedicated foremen discovers a way to improve the efficiency by full 10 percent by mixing and matching orders.
Meanwhile, Alex’s marital life is also falling in place and things are looking good.
Chapter 24 - The Goal
The team is super excited with the results and increase in performance and decides to celebrate. Later in the evening, Stacey(Alex’s secretary) dropped Alex at his home. Incidentally, Julie was also waiting there for him. She grew suspicious about the whole thing and again leaves for her parent’s house.
Meanwhile, in the plant, the new priority system has been put in place for all the parts feeding the bottlenecks. This has improved the efficiency of a bottleneck, the throughput of the plant has increased and overall inventory is decreasing. But now new bottlenecks are surfacing all over the plant. This surprised Jonah and he decided to visit the plant once again.
Chapter 25 - The Goal
After examining the situation, Jonah concludes that there aren’t any new bottlenecks. It was their old thinking and inertia which is causing the problem.
Per the new priority system, all workstations were currently working with a sole purpose of feeding the bottleneck. But at final some parts were missing because they did not require any work at the bottleneck workstation and therefore were produced at lowest priority, leading to shortages during the final assembly.
The system needed a way to balance the bottleneck parts as well as non-bottleneck parts. The system has to somehow incorporate matching the production of bottleneck parts with the non-bottleneck counterparts. This will further lead to a reduction of WIP inventory at the assembly line thereby contributing to The Goal.
Chapter 26 - The Goal
Ralph Nakamura, the data processing manager, pitches in an suggests that using the pending orders, he can prepare a software to create a production schedule for bottleneck parts. Jonah suggests that he should create a schedule for non-bottleneck parts as well using the same data. This will further reduce the WIP inventory and will eventually create a balance between bottleneck and non-bottleneck parts.
Chapter 27 - The Goal
Alex attends for another corporate meeting. This time he is expecting plenty of praises and appreciation for the work done by his team.
Instead, he receives flak. Of all the plants in UniCo Manufacturing Corporation, only his plant has managed do well and all the remaining ones were in the red zone.
He tries to talk to Mr. Peach, the Vice President, in private. He is told that if he can improve the bottom line by another fifteen percent, he might be allowed to keep his plant running. Alex has his reservations because now he will have to depend on the market to make up for this fifteen percent but he promises to achieve it.
The scene shifts to his marital life when he returns to spend time with his wife and kids. But he gets into an argument with his wife.
Chapter 28 - The Goal
Back in the plant, Alex is completely immersed in his own world. All he could think was how to improve the efficiency by another 15%. His train of thoughts is interrupted by a telephone call from Jonah. He has called in to inform him that he will not be available over the next few weeks. Alex informs Jonah about the new target of 15%. Jonah suggests that they should cut the batch sizes by half. This will have a multiple side effects:
- WIP Inventory will be reduced by 50%
- Their lead times will become shorter and they will be in a position to respond to the market quickly.
- All their costs will be cut in half.
But this would mean completely new way of working as well as negotiating new deals with the vendors. Later, Alex runs into Johnny Johns, the division sales manager. He requests him to assist him in achieving the 15% target and come up with a new strategy.
Chapter 29 - The Goal
Meanwhile, Mr. Burnside, a big customer approaches John and is willing to purchase 1000 products, if they promise it in just two weeks. If they manage to pull it off, they will place more orders in future. But given the existing load and capacity, it looks unlikely that the plant can handle this order. Only if they execute only this order and drop everything they are currently working on.
They realize that if they cut the batch size further by 50% they can produce 250 products per week and the whole order can be spread out and shipped in a month. The customer simply loves it and they seal the order.
Alex is now worried despite all the growth and productivity improvements that the new system has provided, it will make them look inefficient and Profit and Loss statement would look poor. Lou, the accountant, assures him not to worry about it and he will work on the reports and will take care of it.
Chapter 30 - The Goal
Lou, the accountant, declares that there has been an improvement of whopping 17%. Though there is a catch; the results were calculated according to his new accounting method. Per the old method, the improvement would be 12.8%.
Hilton, the productivity manager gets to know about this and brings the plant under audit.
A major portion of this outstanding results can be attributed to Mr. Burnside who placed 1000 piece order. He is so delighted with the results that he visits the plant in person and thanked each and everyone personally for delivering their order so quickly. He has decided to increase the order from 1000 to 10,000 products. This all seems fuzzy because tomorrow the fate of their plant will be decided at the division headquarters.
Chapter 31 - The Goal
The meeting at the headquarters starts on a bad note. Alex was expecting Mr. Peach to be there in the meeting with all other executives. Instead of Mr. Peach(VP), Mr. Hilton (the productivity manager) is heading the meeting. They are under the impression that the plant’s extraordinary growth is ephemeral and the plant will soon start to reel under major losses. Lou, the accountant makes an attempt to make them understand the shortcomings of the old model and that the actual growth per the new model is actually 20%. But it didn’t make any difference. This makes Alex uncomfortable and he decided to meet Mr. Peach and explain to him in person. Eventually, the decision is made and his plant will remain operational. He also gets to know that Mr. Peach has got a promotion. Alex has got a promotion too. He will be replacing Mr. Peach and will now be heading three plants instead of one.
Alex desperately calls Jonah, but Jonah declines until he has some specific questions in mind.
Chapter 32 - The Goal
Alex and Julie decide to celebrate this event and head over to an expensive restaurant. Over the dinner, they reflect on Jonah’s critical role in the events that have unfolded in last few months. They wonder why couldn’t they do it without Jonah’s questions and sporadic advice which all seems like common sense to them now.
Alex has now some new questions for Jonah. Specifically, how to bring other people on board and start using the techniques which their team has discovered organically. How can he do this to ensure that they don’t resist the change?
Chapter 33 - The Goal
As the new Vice President of the division, Alex assembles his new team. He promotes Bob, Lou, Stacey, and Ralph to higher positions. For himself, he is planning to fill in the shoes of plant manager.
Chapter 34 - The Goal
It about time they should take their model to a whole new level. Alex’s team has assumed their new roles. The concepts that were earlier suitable for only one plant has to modified keeping an eye on the whole division. Everyone will have to pitch now. They decide to meet every afternoon to discuss their new findings and fine tune the strategy.
Chapter 35 - The Goal
During the second day’s brainstorming session, they discuss periodic table of elements and how chemists managed to invent it. They wonder how scientists managed to neatly arrange and classify elements in a table when to the naked eye there was a complete chaos? They have to discover the approach prior scientists took and apply them to the massive problems in their organization. Those scientists began by observing the total chaos in its entirety and worked out the underlying order based on an internal property. This is how they should approach their problem. They must design a common framework considering the whole organization and examine the issues of the whole division.
Chapter 36 - The Goal
The team reflects on the process they have followed while they were at the plant. They name the five step process "Process Of On Going Improvement"(POOGI in short):
- Identify the system bottleneck(s)
- Decide how to exploit the bottleneck(s)
- Subordinate everything else to the above decision
- Elevate the system bottlenecks and improve throughput
- If a bottleneck is absolved in the previous step, Identify a new bottleneck and go back to step 1
In retrospect, this seemed utterly simple and obvious. They wonder why wasn’t it apparent to them during the time of chaos.
Chapter 37 - The Goal
The team realizes that the fifth step is a dangerous step. They should be mindful of the fact that if in Step 4, a constraint was removed, they should not create any new system constraint. They realize that some fictitious orders were created to keep the bottlenecks busy. Removing these fictitious orders can further free up 20% of the capacity. Alex and John devise ways to expand their market share.
Chapter 38 - The Goal
In Europe, John finds a new client. They are big enough to consume the excess free capacity. But the new client expects products at a significantly low price. But the deal could open up new avenues in Europe which can work as a foot in the door when reaching other large customers in Europe. Alex analyzes the situation from the lens of a physicist and concludes that the Europe order can be fulfilled purely from the freed up excess capacity and the only additional cost would be the raw materials. Despite lower profit, this will still add to the bottom line. Also since the customer is in Europe, their local pricing would remain unaffected.
Chapter 39 - The Goal
At the plant, a new problem crops up. It appears that all new orders are creating bottlenecks all over the plant. After a thorough analysis, the team decides that they should increase the inventory in front of the bottlenecks. This will ensure that all the workstations are utilized to their full capacity. But until the buffers are filled, their customers might face some hiccups with their deadlines. They estimate that this initial hiccup will last for about 4 weeks but is critical to be implemented to ensure consistently smooth and predictable output in future. After all, business is an ongoing process of improvement and should be treated like one.
Meanwhile, Mr. Peach asks Alex to visit Hilton’s plant and impart the new insights and practices.
Chapter 40 - The Goal
While looking for answers to Jonah’s questions, Alex comes up with his own set of questions:
- What to change?
- What to change to?
- How to cause the change?
It dawns upon him that answering these questions are the keys to good management. The skills required to answer the above three questions are the skills that should be inherently present in a good manager.
Learnings from The Goal
Dr. Goldratt suggests that science can be utilized to understand and solve many industrial problems. He states that the main requisite for expanding your knowledge and understanding in any field is the courage to face the inconsistencies and to question existing popular beliefs and methods. The Goal also demonstrates the effectiveness of Socratic approach towards problems. Dr. Eliyahu M. Goldratt has justified this by asserting that the deductive process is the only way through which we can learn.
About the author
Dr. Eliyahu M. Goldratt was an Israeli physicist, who later went on to become a business consultant. If you watch a few youtube clips of Goldratt(who passed away in 2011), you will realize that Jonah in this book is a barely-disguised stand-in for the Goldratt.
Lectures by the author
Below are some of the most influential online videos of the Eliyahu M. Goldratt.