"Summary of the Goal Book"- A management book on Operations Management

 In “The Goal: A Process of Ongoing Improvement”, Eliyahu Goldratt aims to tackle the problems which the production industries face and challenges the common business practices by using the ‘Theory of Constraints’.

The main character Alex Rogo, a manager at a production plant is given three months to save his plant. The plant is facing heavy losses as most of the orders did not ship on time and had to be expedited and the inventory was piling up. Alex takes help of his old physics teacher Jonah who uses the Socratic approach to help him.

Jonah asks Alex to ponder about the ultimate goal of the company. Alex realises that the goal of the company is to make money and all the actions which help the plant in making money are productive. Jonah further defines 3 terms for measurements: Throughput – “The rate at which 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." Everything in the plant can be classified by these 3 terms. The goal is to increase throughput while decreasing inventory and operational expenses. Jonah then asks Alex to find the bottlenecks i.e. the machines with capacity less than the demand placed on it in the plant. He further states that the plant can increase productivity only by increasing the capacity of the bottleneck operations. Alex identifies the bottlenecks and works out on a detailed plan to keep the bottlenecks fully utilized. Also, a plan is made to release the materials only when needed to reduce the work in process inventory.

To further improve productivity Jonah recommends to reduce the batch size by half. Alex realises that this will help to reduce the total lead time by decreasing the queue and wait time and thus they can respond faster to market demands. Also, he finds out the flaws in the old accounting policies particularly in finding the cost per part.

Alex’s plant is now making huge profits and as a result, he is promoted. Alex’s team formulates a five step Process of On-Going Improvement. These are 1) Identify the system’s bottlenecks. 2) Decide how to exploit those bottlenecks. 3) Subordinate every other decision to 'step two decisions.’ 4) Elevate the systems’ bottlenecks. 5) if, in a previous step, a bottleneck has been broken, go back to the beginning. Alex finally realises that as a manager he must learn to solve his own problems without anybody’s help by asking suitable questions.

My experience with the use of ‘Theory of Constraints’

I worked at a construction site for some time during my tenure at an EPC company. We faced the problem that the pipe rack construction was lagging behind schedule. Pipe racks are steel framed structures used to support pipes and cables. It consists of different members such as beams, columns, struts, bracings etc. We procured the material from vendors and then and welded them at site. The vendors released the material in batches and payment was made based on the tonnage of material received, while our firm received payment from the client based on our overall progress. Even though the vendors dispatched the material on time still we lagged behind schedule and our progress was low which severely impacted our cash flow.

The goal here was to complete the pipe rack construction as early as possible. Upon talking with the construction workers, we realised that the vendors used to send the larger parts which were easier to fabricate and also had higher tonnage first to receive early and a higher percentage of payment. Also, the site workers had to segregate the received parts which took up a lot of time. Without receiving some of the smaller matching parts which had low tonnage the workers were unable to complete the structure which also slowed our progress. We were paying the vendors but were not receiving payment from client as we showed low progress.

To remove these constraints, we had a meeting with the vendors and it was decided that during each dispatch the vendor would send all different types of parts in definite proportions. Also, all these parts are to be segregated at the vendor’s shop itself. We had to pay the vendors more but eventually it significantly improved construction time for pipe rack which showed in our overall progress.