understanding the goal: the best-seller by eli goldratt and jeff cox
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Hugh E. Cole Managing Partner Avraham Y. Goldratt Institute, LP
ASEM Member Benefit – www.asem.org/
Understanding THE GOAL: The best-seller by Eli Goldratt and Jeff Cox
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
HOUSEKEEPING
• Presentation will last 45 minutes
• There will be time at the end for questions
• Save all questions until the end
• Please turn your phone on mute
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
3
3
• Over 3 Million copies sold
• Translated into more than 21 languages
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Alex Rogo Jonah
“To ask, inquire…” “Seeks truth…”
UniCo Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Alex Rogo
• Late orders • High cost • Low efficiencies • Two rounds of layoffs • 20% cutback • Plant is losing money…
Meeting with the boss (Bill Peach)…
“You have 3 MONTHS…!”
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Alex Rogo
• Technology • Computers • Good people • All materials needed • Have a market!
“Something is wrong…”
Why can’t we make money?
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Alex Rogo Jonah
Chance meeting at the airport…
Robots -> Productivity Improvement -> What is productivity?
Not equations! -> Can only be measured in terms of your Goal!
So…”what is the Goal of your manufacturing organization?”
Hint: “There is only one Goal, no matter what the company” Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Alex Rogo
• Produce products as efficiently as we can
• Buy raw materials in the most cost-effective manner
• Be a good employer • Produce quality products • Produce quality products
efficiently • Stay on the leading edge of
technology • Meet sales requirements • MAKE MONEY!
“What is the Goal?” “What do we try to do?”
UniCo Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Alex Rogo
Actually make more money today and in the future! Why is that important to know? • It enables us to answer the question “what is
productivity?” • An action that moves us toward making money
is productive.
• An action that takes us away from making money is non-productive.
But how to measure? There is no shortage of measurements!
• Hours worked vs. hours paid to work… • Output per hour compared to standard… • Cost of products… • Direct labor variances… Problem: “…they don’t tell me if I made money!”
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Throughput (T)
Investment ($I)
Inventory ($I)
$Operating Expense
($OE)
$Budget
Jonah
1. Throughput (T) 2. Investment (I) 3. Operating Expense (OE)
Measurements??
System
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Throughput (T)
Investment ($I)
Inventory ($I)
$Operating Expense
($OE)
$Budget
Jonah
1. Throughput (T) 2. Investment (I) 3. Operating Expense (OE)
Throughput = Sales - TVC Net Profit = T - OE
System
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Alex Rogo Jonah
Breakfast meeting… Alex: “Let’s talk about my Robots…” Jonah: “Forget about the Robots - you’ve got much more fundamental
things to concern yourself with.” Alex: “But what about my efficiencies?” Jonah: “Most of the time your struggle for high efficiencies is taking
you in the opposite direction of your Goal!”
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
“Two phenomena are found in every plant…”
1. Dependent Events 2. Statistical Fluctuations
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
A B C
• C cannot accomplish more than what B provides to it. • B cannot work until it receives parts from A. • A cannot do its job until it receives Raw Material.
1. Dependent Events
Raw Material
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
2. Statistical Fluctuations
The output of any resource fluctuates over time.
15 10 5
On average, this resource will produce 10 units per hour On average, this resource will deliver in 10 hours On average, this customer will require 10 units per day
or
Probability Distribution
10
Time
Units
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
A B C Raw Material
D E F
Combine Dependent Events…
15
10
5or
10
15
10
5or
10
15
10
5or
10
15
10
5or
10
15
10
5or
10
15
10
5or
10
Jonah: “Alex, call me when you can tell me what the combination of the two phenomena mean to your plant.”
…with Statistical Fluctuations
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Boy Scout Hike
Spreading troops mean high inventory. Closely packed troops mean lower inventory. How can we prevent the troops from spreading without losing speed/throughput?
Raw Material FG Work-in-Process
Herbie
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Put Herbie in the lead. Made sure that those behind could close any gaps.
What did Alex do?
But the ‘troops became frustrated because it was too slow!
Herbie
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
What did Alex do next?
Herbie
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Lightened Herbie’s load to enable him to speed up. Made sure that those behind could close any gaps.
What did Alex do next?
Herbie
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
“The maximum deviation of a preceding operation will become the starting point of a subsequent operation”.
What did Alex learn about Statistical Fluctuations and Dependent Events?
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
UniCo
How could Alex apply this learning to UniCo?
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
UniCo
Alex’s “system” (Big Picture)
Raw Materials
Conversion (Production)
FG Inventory
Discreet Orders
The Goal: Make more money now and in the future.
The Metrics: Throughput, Investment, Operating Expense
But how does the system achieve the Goal? (Details…)
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Material Release
Raw Materials
Resources / Routing / BOM
FG Inventory
Orders
How Alex’s System achieves its Goal (Details…)
Flow
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Resources / Routing / BOM
“What you have to do next, Alex, is to distinguish between two types of resources in your plant. One type is what I call a bottleneck resource. The other is, very simply, a non-bottleneck resource.”
“Bottleneck: Any resource whose capacity is equal to or less than the demand placed on it.”
Raw Materials
FG Inventory
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Resources / Routing / BOM
“Bottleneck: Any resource whose capacity is equal to or less than the demand placed on it.”
NCX-10
“What you have to do next, Alex, is to distinguish between two types of resources in your plant. One type is what I call a bottleneck resource. The other is, very simply, a non-bottleneck resource.”
Raw Materials
FG Inventory
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
FG Inventory
Resources / Routing / BOM
“Bottleneck: Any resource whose capacity is equal to or less than the demand placed on it.”
NCX-10 Heat Treat
“What you have to do next, Alex, is to distinguish between two types of resources in your plant. One type is what I call a bottleneck resource. The other is, very simply, a non-bottleneck resource.”
Raw Materials
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Resources / Routing / BOM
NCX-10
Yes, it is possible to have two bottlenecks, but first make sure they are really bottlenecks.
Raw Materials
FG Inventory
Heat Treat
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Resources / Routing / BOM
NCX-10
In the case of the furnaces, they were bottlenecks because of the way they were operated - and Alex learned that they did not need to heat treat some parts that they processed.
Raw Materials
FG Inventory
Heat Treat
Yes, it is possible to have two bottlenecks, but first make sure they are really bottlenecks.
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Resources / Routing / BOM
NCX-10
In the case of the furnaces, they were bottlenecks because of the way they were operated - and Alex learned that they did not need to heat treat some parts that they processed.
Raw Materials
FG Inventory
Yes, it is possible to have two bottlenecks, but first make sure they are really bottlenecks.
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
So he had to take another approach…
Unlike the Boy Scout hike, Alex’s slowest resource was not first in line!
Applying the Boy Scout Hike to UniCo
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Applying the Boy Scout Hike to UniCo
Alex “tied a rope” from the first operation to the constraining operation, limiting the “distance” (time) between them, and limiting the work-in-process.
Raw Material FG Work-in-Process
He also exploited the use of Herbie by changing certain policies.
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Resources / Routing / BOM
In the plant, the “tied Ropes” looked like this.
NCX-10
He also changed work rules for breaks, QA, and maintenance.
They controlled entry points for material release of routings that led to the NCX-10. The ropes effectively choked off release of materials to the rate and quantity required by the NCX-10 to make demands for both inventory and discreet orders.
Raw Materials
FG Inventory
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Resources / Routing / BOM
NCX-10
He also changed work rules for breaks, QA, and maintenance.
Operating in this manner… • WIP decreased • FG inventory decreased • Lead time decreased • Due date performance improved • Operating Expense Decreased • Plant began “making money”!
Raw Materials
FG Inventory
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
Resources / Routing / BOM
NCX-10
Alex followed what is known as the Five Focusing Steps of TOC…
Until the CONSTRAINT moved to…
At which time Alex used his new-found capacity and decreased lead-time to acquire significantly more business!
The MARKET!
Raw Materials
FG Inventory
Orders
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
1. Identify the system’s constraint(s). 2. Decide how to Exploit the system’s constraint(s). 3. Subordinate/Synchronize everything else to the
above decision. 4. Elevate the system’s constraint(s). 5. If in the previous steps a constraint has been
broken, go back to Step 1.
Do not allow inertia to become the system’s constraint!
WARNING
The Five Focusing Steps of TOC
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
QUESTIONS? Hugh E. Cole
AGI-Goldratt Institute hugh.cole@goldratt.com
www.goldratt.com
Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.
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