The Goal Report

The book The Goal, written by Eliyahu M. Goldratt, is about the manufacturing process and how it works together to achieve the goals of a firm. The Goal is about science and education. It is an attempt to show that we can postulate a very small number of assumptions and utilize them to explain a very large spectrum of industrial phenomena. The Goal is about new global principles of manufacturing and people thinking logically and consistently about their problems and therefore able to determine “cause and effect” relationships between their actions and the results. In the process some of the characters in the book, Alex Rogo - who is the plant manager, Jonah - a physicist and old friend of Alex, Stacey Patazenik – who manages inventory control for the plant, Bob Donovan - who is the production manager at the plant, Lou, and Ralph Nakamura- the manager of the system database, are able to deduce some basic principles which they use to save their plant and make it successful.

The book begins with Bill Peach, the division vice-president, showing up at the plant unannounced to meet with Alex Rogo who is the plant manager. Bill has received a complaint from Bucky Burnside, president of one of UniCo’s biggest customers, that his order was seven weeks late. But not only is Bucky’s order late, but every order within the plant is past due. Bill informs Alex that the division is facing the worst losses in its history and it is mostly because of Alex’s plant’s poor performance. Bill Peach informs Alex he has three months or less to turn the situation at his plant around or he will have to close the plant and Alex and several of his employees will be out of a job.

Alex ran into Jonah, a scientist and high school friend, one day while at the airport. A conversation was struck about the condition of the plant as the two men talked about what each did for a living. Alex tells Jonah that his plant uses robots and that the robots have increased productivity at his plant by thirty-six percent. Jonah points out to Alex that if his inventories did not go down, employee expense was not reduced, and the company is not selling and shipping out more products, then in fact the robots have not increased the plant’s productivity. Alex goes on to explain that his efficiencies are averaging well above ninety percent and his cost per part went down considerably. But this does not faze Jonah because he already knows based on the facts that the plant’s inventories did not go down, employee expense was not reduced, and the company isn’t selling and shipping more products, then productivity has not increased. In fact, he knows inventories are going through the roof and everything is always shipped late. Jonah is aware that Alex is actually running a very inefficient plant because he knows the measurements that Alex and most plants are using are all wrong and so is the thinking that is used in running and measuring the plant productivity. Jonah tells Alex the definition and equation he learned to define productivity is wrong. Jonah defines productivity as “the act of bringing a company closer to its goal.” 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. So Jonah leaves Alex with the task of figuring out what the goal of his plant really is.

After much thought Alex figures out the goal is to make money. Jonah then introduces him to three measurements which express the goal. The first is, throughput is the rate of which the system generates money through sales. The second, inventory is all the money that the system has invested in purchasing things which it intends to sell. The third, operational expense is all the money the system spends in order to turn inventory into throughput. In other words, for synchronized manufacturing, the goal of the firm, at the operational level, is to increase throughput while simultaneously reducing operating expense. Throughput is defined as goods sold. Inventory that is carried is valued only at the cost of the materials it contains. Operating expenses includes production costs, such as direct labor, indirect labor, inventory carrying costs, equipment depreciation, materials and supplies used in production, and administrative cost. This was not happening at Alex’s plant. His inventories had increased over the past six or seven months and operational expense also increased. This meant he had a lot of work to do to keep his plant open and he was now aware of it.

It takes a day out with the Boy Scots for Alex to discover one of his biggest problems at the plant – bottlenecks. A bottleneck is any resource whose capacity is less than the demand placed upon it and thus limiting the throughput. A nonbottleneck is a resource whose capacity is greater than the demand paced