The Goal, by Eliyahu Goldratt- book report

8 August 2016

A Process of Ongoing Improvement by Goldratt and Cox KEY IDEA The Goal centers around the protagonist Alex Rogo, who is a manager at a manufacturing and production plant for UniCo that is performing badly and is given three months to improve or face closing. His old physics professor, Jonah, is his guide and mentor through the story, using the Socratic Method, as Alex and his team learn to formulate what later becomes the Theory of Constraints to turn the plant around and eventually earn him a promotion to division manager. SUMMARY

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The story begins with outlining the problems Alex Rogo is facing. His plant is incredibly late on shipments because of inefficient processes. It takes the entire plant to make sure one order goes out before the end of the day. Rogo works in a high stress environment where daily, processes must be restructured just to get out an order of the most upset customer that day. His manager, Bill Peach, gives him an ultimatum of three months to turn the plant around or face closure. In addition to this, his marriage is suffering because of his long hours at work. Alex is deeply worried with this deadline.

Alex embarks on tracking down Jonah, his old physics professor, to help him begin to isolate the problems in his factory. Jonah uses the Socratic method of questioning Alex, instead of feeding him the answers directly to what he BOOK REPORT: THE GOAL 1 seeks. He forms a team of department heads; Bob the plant’s head supervisor, Lou his chief accountant, Stacey the inventory manager, and Ralph the data processing manager. With the team assembled, and the Socratic guidance of Jonah, they use the logic of the scientific method to discover bottlenecks within the plant.

Additionally, a hiking trip with his son’s boy scout group helps him stumble upon the solution to statistical fluctuations and independent events (embodied by Herbie, a boy carrying too much in his rucksack and walking slower than the rest of the group), which also allude to alleviating the bottleneck problem with in his plant. As a result of these experiences and problem solving meetings, the group learns to apply the earlier techniques to overcome new bottlenecks that develop later on. Along the way Alex learns that goal of business is to make money, and any efforts that detract from that prevent the company from reaching the goal.

Jonah helps Alex discover the three measurements of productivity and profit; operational expense, throughput, and inventory. Alex later revises what the goal is and states that the goal is to “increase throughput while simultaneously reducing both inventory and operating expense”. Balancing the flow of inventory through the plant becomes the key to solving their problem, instead of their previous answer of capacity. Alex and the team turn to restructuring the process of operations so time is not wasted at the bottleneck machines, which are the NCX-10 and Heat treatment processes/machines.

Because capacity was being taken up by quality control being performed on parts at those machines, they moved quality control ahead of them in their processes to effectively increase their capacity. They also create a green and red tagging system to help push through late orders quicker. These measures increased their throughput and decreased inventory and operating expense, achieving the goal by making the plant profitable. Although Alex is relatively unaffected by this since his company is making money, the company is using incorrect metrics in measuring the profitability of his plant.

 Because of their drastic innovation to old processes, Alex is promoted to manager of the division, with many of the team members being promoted as well, Lou going along with Alex to the division headquarters. Upon consulting with Jonah one last time, Alex starts on the last task for his team, to help him determine what techniques of effective managers. The fivestep process consists of: 1. IDENTIFY the system’s constraint(s). 2. Decide how to EXPLOIT the system’s constraint(s).

Lastly, Alex applies the Socratic method to his marriage problems with his wife Julie. This side story makes the book more realistic to its audience, all the while showing real life stresses of balancing work and personal struggles and how these methods of problem solving can be applied universally, not just in a business setting.

The lessons learned in The Goal are not strictly relevant to manufacturing business, they are about life and any problem you approach. The techniques of questioning taught through the Socratic Method allow you to draw your own questions and conclusions about problems encountered. Furthermore, the book outlines techniques on the creation of clear metrics on improvements and productivity in any business.

By asking what the goal(s) of the business is/are, and how throughput (the rate at which the system generates money through sales), operational expenses (all the money the system spends in order to turn inventory into throughput), and inventory (all the money that the system has invested in purchasing things it BOOK REPORT: THE GOAL 3 intends to sell) are defined in relation to those terms, thus key metric units and measurements can be formed when data is collected. Increasing throughput while decreasing operational expenses and inventory is the goal of business and is usually expressed as profits, or making money.

A huge lesson learned in this book is that numbers can be distorted, hence a true and accurate system of performance and profitability measurement cannot be based on what is assumed as an industry standard. Because many performance measurement techniques at UniCo are accepted at face value, the new profitability increases at Alex’s plant are underrepresented. The bottom line is not considered in his case, even though operating costs per unit are down and efficiencies are up, this productivity is being unrecognized. The lack in upper management’s questioning of metric definition is a real problem within many businesses today.

Productivity is meaningless unless you know what the goal is. This theme in the book looks to stress that exercising common sense and the Socratic method in creating metrics is essential in profitable and productive businesses. APPLICATION As I intend on owning my own business in the future, I will apply what I learned in the book by using the five step process for ongoing improvement when I hit an s-curve in profitability or efficiency. Being able to identify bottlenecks and constraints in my own business will enable me to be a problem-solver. I have received much advice already in my path to business owner.

Thus, applying the Socratic method to this advice will help me to be comparative and consider by which standards is this advice given. I want to stand out against my future competition, so my belief is that questioning the status quo in my methods will help me to produce a product and business that is truly unique in my intended market. Most of all, keeping the goal in sight is crucial. If you lose sight of what you are trying to achieve.

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