The%20Goal

1
The Goal

• A Process of Ongoing Improvement
• Eliyahu M. Goldratt and Jeff Cox

2
The Goal

• Characters
• Alex Rogo Plant Manager
• Jonah Physicist/Production Consultant
• Bill Peach Division VP of Manufacturing
• Bob Donovan Plant Production Manager
• Lou ____ - Plant Controller
• Stacey Potazenik Production Control Manager
• Ralph Nakamura data processing manager

3
The Goal

• Setting
• City of Bearington location?
• Pennsylvania, Ohio, Indiana manufacturing town
• UniCo Corporation Manufacturing Plant
• probably 15 years old
• other impressions?

4
The Goal

• Introduction Whats your first impression of the
  manufacturing plant?
• Plant out of control
• VP of manufacturing expediting an order
• New robots
• Controlled chaos
• Good at fighting fires
• Excellent at getting order filled when pressed
• Lots of inventory

5
The Goal

• Alex travels to corporate meeting with a bunch of
  corporate speak.
• Alex begins daydreaming.

6
The Goal

• Alex/Jonah Chance Meeting in Airport
• Alex Robots increased productivity by 36 in
  one department
• Jonah Are plant inventories down? No
• Is employee expense less? No
• Shipping more product? No
• Alex Must keep robots running to maintain
  efficiencies.
• Jonah Then Inventories must be sky high and
  orders must be late.

7
The Goal

• Alex/Jonah Chance Meeting in Airport cont.
• Jonah In your own words, what is
  productivity.
• Alex Accomplishing your goals.
• Jonah Correct, then what is the goal of your
  company?
• Alex To be more productive? No
• To produce products? No
• To increase market share? No
• Jonah How can you be productive? You dont
  know the goal.

8
The Goal

• What does Alex determine The Goal is?
• To make money!!
• How do you know you are making money (Alex and
  Lou)?
• Net profit (Income-Expenses)
• Return on Investment
• Cash Flow
• Why are each of these important?

9
The Goal

• How do the making money measures translate to
  the production environment?
• (Jonahs translation)
• Throughput Is the rate at which the system
  generates money through Sales
• Inventory all the money that the system has
  invested in purchasing things which it intends to
  sell.
• Operational Expenses all the money the system
  spends in order to turn inventory into throughput.

10
The Goal

• What was the common word in all three measurement
  definitions?
• Money going into the system
• Money stuck inside the system
• Money flowing out of the system

11
The Goal

• Throughput Is the rate at which the system
  generates money through Sales
• Inventory all the money that the system has
  invested in purchasing things which it intends to
  sell.
• Operational Expenses all the money the system
  spends in order to turn inventory into
  throughput.
• Where do the following fit?
• Raw materials
• Direct labor
• Indirect labor
• Tooling, machines, building
• Knowledge gained by employees

12
The Goal

• Alex meets Jonah in New York seeking help to
  determine steps to take in achieving the goal
• Jonah Do you run a balanced plant? Do you have
  any idle workers and is it good or not?
• Alex We try to keep all our employees
  productive

13
The Goal

• Jonah Impossible to perfectly balance capacity
  to demand, there even exists a mathematical proof
  showing if you did, inventories go through the
  roof?
• Alex Hows this possible
• Jonah Due to two phenomenon
• Dependent events a series of events must take
  place before another begins.
• Statistical Fluctuations the length of events
  and outcomes are not completely deterministic.
• The combination of these phenomenon are the
  issue.

14
The Goal

• Dependent events Statistical Fluctuations
• Q. - Where does Alex first come to grips with
  this (i.e. sees this first hand)?
• A. During the boy scout hike.

15
The Goal

• Analyzing the boy scout hike
• Observations
• the walking speed of individuals fluctuate
• All may have the same average walking speed, but
  gaps continue to lengthen, why?
• There is no limit to how much an individual can
  slow down, but your top speed is dependent on the
  person in front.
• Fluctuations are accumulating over time, and the
  slow fluctuations tend to accumulate faster
  because they are not limited like the fast ones.

16
The Goal

• Boy scout hike gt Manufacturing Plant
• Observations
• Each boy is an operation
• The product is walk the trail
• Each boy/operation is dependent on the one in
  front.
• A sale is when the last operation/boy walks the
  trail.
• Throughput is the rate at which the last person
  walks the trail.
• Operating expense is the energy output of each
  boy.
• Inventory (material inside the plant) is the
  distance between the first and last boy.
• Fluctuations in operating speed is causing
  inventory to increase and causing throughput to
  decrease. Attempting to reduce gaps is
  increasing operating expense.

17
The Goal

• Play the matches game?
• Setup 5 players, 5 bowls, matches, 1 die
• Dump all matches in bowl 1
• Roll one die (starting with player 1) and pass
  that many matches from your bowl to the next
  person down the line
• Pass die to next player who rolls die and moves
  that number of matches from their bowl to next
  player, cannot pass more matches than what is in
  your bowl.
• Continue for each player, with last player
  handing die back to player 1.
• What is the average number rolled on a die?
• After 20 rounds, how many matches should the last
  player produce?

18
The Goal

• Back to the Boy scout hike
• After lunch the boy scouts self-arrange so that
  the fastest is up front and so on until Herbie is
  at the rear.
• Q. What was the result?
• A. Line got even longer.
• Q. Did throughput improve (completing more
  miles)?
• A. No, completed miles still dependent on last
  scout walking the trail, plus inventory has
  increased.
• Observation however, everyone is always walking
  (no one is idle). But goal is not being
  achieved.

19
The Goal

• Continuing with the Boy scout hike
• Q. How does Alex fix the boy scout hike?
• A. Puts kids in order from slowest first to
  fastest last. The line then stays compressed
  (i.e. inventory has gone down and progress has
  improved because Herbie is setting the pace and
  doesnt have to exert energy to catch up).
• Q. How do they further improve throughput?
• A. Off-loaded Herbies backpack. In oherwords,
  they improved Herbies throughput so the entire
  boy troops throughput improved.

20
The Goal

• Alexs First Chance to Test the Boy Scout Theory
• Hilton Smyths order
• needs 100 parts by end of day
• Parts require 2 operations, fabrication then weld
  by robot
• Each department averages 25 units per hour, with
  robot working at almost exactly 25 unit pace.
• Start fabrication at noon, transferring parts on
  the hour, every hour.

Fabrication (25/hour)
Weld (25/hour)
Transfer (once/hour)
21
The Goal

• Alexs First Chance to Test the Boy Scout Theory
• Expectation
• Hourly Part Count

Fabrication (25/hour)
Weld (25/hour)
Transfer (once/hour)
  noon 100 200 300 400
Fabrication 25 25 25 25  
Welding   25 25 25 25
22
The Goal

• Alexs First Chance to Test the Boy Scout Theory
• Realization
• 
  100
• 
  90
• Hourly Part Count

Fabrication (25/hour)
Weld (25/hour)
Transfer (once/hour)
  noon 100 200 300 400
Fabrication 19 21 28 32  
Welding   19 21 25 25
23
The Goal

• Q. So what have they learned to this point?
• A. Have more capacity at downstream operations.

24
The Goal

• Q. What does Jonah suggest they do next?
• A. Distinguish between bottleneck and
  non-bottleneck resources.
• Definition
• Bottleneck any resource whose capacity is equal
  to or less than the demand placed upon it.
• Non-bottleneck any resource whose capacity is
  greater than the demand placed upon it.

25
The Goal

• Jonah then suggests balancing the flow of product
  through the plant with demand from the market.
  Not to balance the capacities of operations with
  demand.
• Q. What determines the flow of product through
  the plant.
• The bottleneck resources.

26
The Goal

• The next step for Alex and company is to identify
  the bottlenecks (i.e. find Herbie).
• Q. So how do you find a bottleneck in a
  manufacturing plant?
• A. Go out on the floor and find the operation
  with the most inventory sitting in front of it.
• Q. Is having a bottleneck a bad thing?
• A. Not necessarily, all plants have to have a
  bottleneck.

27
The Goal

• The next step for Alex and company is to identify
  the bottlenecks (i.e. find Herbie).
• Q. Once the bottleneck is identified, can you
  simply move the machines/operations around like
  Herbie was moved to the front of the line?
• A. No, production steps often cannot be
  reorganized.
• Q. So how do you solve the problem of moving
  Herbie to the front?
• A. Find more capacity for the bottleneck, dont
  try to move them. Have enough capacity to meet
  demand.

28
The Goal

• The next step for Alex and company is to identify
  the bottlenecks (i.e. find Herbie).
• Q. How do you find more capacity?
• Make sure it is never idle (focus your attention
  on it).
• Increase cycle time on the machine
• Add another duplicate machine
• Outsource to another vendor
• Reduce the demand (process change)
• Inspect part quality before bottleneck (make sure
  bottleneck only works on good parts)
• Ensure process controls on bottleneck are good so
  bad parts arent produced
• Dont let it work on parts that arent needed.

29
The Goal

• Back to the story
• Q. Where does Alex and company find the
  bottleneck?
• They find two bottlenecks, NCX-10 and Heat Treat
• Q. What is their first approach to improving the
  flow through the bottlenecks and ultimately
  improving productivity.
• 1. Move QC in front of bottlenecks.
• 2. Make a list of all late jobs and what
  components from those jobs flow through the
  bottleneck machines. They then create a
  schedule/list in due date order and instruct the
  bottleneck operators to only work on those jobs
  in that order.

30
The Goal

• Back to the story
• Q. Does this scheduling system work (e.g. get
  late jobs completed while always keeping
  bottleneck running)?
• A. No, because the late job components are not
  always waiting in front of the bottleneck
  machines.
• Q. What do they do to rectify this?
• A. Create a red tag (parts that travel through
  the bottleneck) / green tag system for all jobs
  throughout the plant such that any job with a red
  tag which arrives at a machine is given priority.
  If they are in the middle of a run, then if the
  run takes longer than 30 minutes to complete,
  stop that job and start the red tag job. If no
  red tags, then ok to process green tag jobs. If
  more than one red (or green tag), then process
  job with lower number on tag.

31
The Goal

• Back to the story
• Q. What do they do next to further off-load the
  Herbies / bust the bottleneck?
• Gold tags placed on parts that have traveled
  through the bottleneck everyone extra careful not
  to damage.
• Dedicate personnel at NCX-10 and Heat Treat even
  though they are idle much of the time, just dont
  let machine idle.
• Send out some portion of heat treat parts to
  vendor in town.
• Found old equipment (that is less efficient) to
  run in parallel to NCX-10.
• Fully load furnace when possible (e.g. mix
  batches).
• Reduce setup time with new fixtures.
• Were able to process some parts differently so
  heat treat wasnt required.

32
The Goal

• Back to the story
• Q. What were the results of these bottleneck
  busting tactics?
• New monthly shipping record from old record of 2
  million to new record of 3 million.
• 57 customer orders shipped versus old record of
  31.
• WIP Inventories reduced 12.

33
The Goal

• What happens next?
• The bottlenecks are apparently expanding
  material is backing up at the milling machines,
  and non-bottleneck parts (green tags) are not
  reaching assembly even though all bottleneck
  parts (red tags) are available at assembly.

34
The Goal

• What happens next?
• Jonah revisits plant and discusses relationship
  between bottleneck(X) and non-bottleneck(Y)
  machines.
• Y X 3) Y A
  4) Y Product A
• X Y X S
  X Product B
• 
  S
• 
  E
• 
  M
• 
  B
• 
  L
• 
  Y

35
The Goal

• Jonah believes the new bottlenecks are not real
  bottlenecks, but self-created bottlenecks. Why?
• Material is being released to the plant just to
  keep the non-bottleneck machines busy. This
  improves these machines efficiency measures, but
  does not help the goal.
• Jonah A system of local optimums is not an
  optimum system at all it is a very inefficient
  system.
• Lesson Do not try to make non-bottlenecks work
  all the time. They should be idle some of the
  time!

36
The Goal

• So how do you go about fixing the problem of
  keeping the non-bottleneck machines working at
  the same rate as the bottleneck?
• Recall the boy scout hike Herbie is in the
  middle of the line and cannot be moved, so how do
  you keep the kid in the front walking at the same
  pace as Herbie?
• Alexs kids use a rope and a drum.
• Rope Attach a rope from Herbie (bottleneck
  machine) to the kid at the front (assembly). The
  length of rope represents inventory.
• Drum Herbie tells the kid at the front to slow
  down or speed up (beats the drum). Need some
  kind of signaling or communication between
  assembly and the bottleneck.

37
The Goal

• How is the rope and drum concept implemented in
  the plant?
• Identified it takes about 2 weeks from when parts
  are released to the floor until they get to
  bottleneck.
• Setup system that monitors when inventory is
  processed at the bottleneck. Material required 2
  weeks later is then released to the floor.
• Non-bottleneck parts are released according using
  the same principle but tied to assembly.

Communicate release
Bottleneck
Material Release
2 weeks lead time
38
The Goal

• What is the result of this new release system?
• WIP is down.
• Revenues are up.
• Efficiencies dropped initially, but have come
  back up.
• The backlog of orders is completely gone
  (satisfied customers).
• How does management respond?
• Happy
• Somewhat skeptical success will last
• Wants 15 more revenue next month!!

39
The Goal

• In order to improve by another 15 what does
  Jonah suggest as the next logical step?
• Cut batch sizes for non-bottleneck parts in half.
• What is the impact of reducing these batch sizes?
• WIP for non-bottleneck parts reduced by half.
• Significantly reduce time parts spend in plant.
  Leads to increased responsiveness (from 6-8 weeks
  to 3-4 weeks).
• What about the time to handle increased number of
  setup? Doesnt matter if occurs on
  non-bottleneck operations.

Process Time
Setup Time
Queue Time
Wait for Assembly Time
Time parts spend in the plant
40
The Goal

• Also to help get the 15, Alex calls the
  marketing/sales manager and bets him he can
  reduce lead time to fill orders. What does Alex
  expect to gain by reducing lead times to ship
  from what used to be 4 months to 4 weeks?
• Increased sales!!
• The bottleneck had moved to customer demand.
  Quick response on promised due dates should
  translate to a competitive advantage.

41
The Goal

• Everything is going good now except it looks like
  part costs are going up. However, in reality all
  costs have gone down. How can this be?
• The accounting rules
• Cost per part raw material direct labor
  burden cost
• Burden cost is all the indirect labor costs.
• Burden direct labor x burden factor
• Cost per part has risen because more setups are
  occurring because of smaller batch sizes.
• However, workers were idle, so the increased
  number of setups didnt really increase costs.

42
The Goal

• What other performance measure made them not look
  as good as they actually were.
• Answer Inventory
• Inventory is counted as an asset on the balance
  sheet. When the plant worked hard to reduce
  inventories to improve their throughput and
  responsiveness, it looked as if their assets had
  fallen.

43
The Goal

• Sacred Cows Slaughtered
• Worker efficiency
• Optimal batch size
• Releasing work to the floor to keep people busy
• Accounting rules

44
The Goal

• Why Alexs plant was successful
• Change in Focus
• from the cost world to the throughput world

Throughput
Cost
Inventory
Throughput
Cost
Inventory
45
The Goal

• What process did they use to shift their focus to
  the throughput world?
• The Theory of Constraints
• Step 1 Identify the systems constraints (NCX10
  and oven)
• Step 2 Decide how to exploit the systems
  constraint (dont take lunch break on bottleneck
  machines)
• Step 3 Subordinate everything else to the above
  decision (red tags and green tags)
• Step 4 Elevate the systems constraint (bring
  back old Zmegma machine, outsource heat treat)
• Step 5 Warning!! If in a previous step, a
  bottleneck has been broken, go back to step 1
  (material release system, marketing), but do not
  allow inertia to cause a systems constraint (red
  and green tags eventually caused problems).

46
The Goal

• Final words from Alex on how to be an effective
  manager
• Help people to identify
• what to change?
• what to change to?
• how to cause the change?

47
The Goal

• Finally some Philosophy
• What approach did Jonah use to help Alex and the
  plant succeed? Find the answers/solutions by
  asking questions, the Socratic approach. Let
  others convince themselves of the answers, dont
  just give it to them.
• Also used a common sense approach which went
  against common practice. In other words, think!!