the goal by eliyahu m. goldratt - a book review
DESCRIPTION
A review as well as analysis of highly acclaimed book by Eliyahu M. Goldratt. The review consists of a Management Control System perspective.TRANSCRIPT
A BOOK REVIEW
INDEX CONTENT
1
2
3
4
5
6
7
8
KEY CONCEPTS
PROBLEM AREAS
CONTROL SYSTEMS
MANAGEMENT AUDIT
THE TRANSFORMATION
THE IMPLEMENTATION
KEY LEARNINGS
BRIEF INTRODUCTION
NEXT
Brief Introduction
Alex Rogo (Plant
Manager)
Julie Rogo (Alex’s wife)
Bill Peach (Division
Head)
Bob Donovan
(Production Manager)
Stacey(Head
Inventory Control)
Jonah(Physicist / Consultant)
Ralph Nakamura (Planning)
Lou (Accountant)
BRIEF INTRODUCTION
BRIEF INTRODUCTION
Alex’s Bearington plant is losing money.
He is given 3 months ultimatum to either make plant make money or plant will be closed.
He implements a few concepts suggested by Jonah.
He, with his team consisting of Stacey, Lou, Bob and Ralph improve the processes and culture at the plant.
As a result, Alex gets promoted as Divisional Manager.
NEXT
Key Concepts
KEY CONCEPTS
THROUGHPUT INVENTORY
OPERATIONAL EXPENSES
BOTTLENECK
Rate at which system generates money
through sales
All the money system spends to convert
inventory to throughput
All the money system has invested in purchasing things it intends to sell
Any resource whose capacity is equal to or less than the demand
placed upon it
TOC CONCEPT
Identify the Constraint
Exploit the Constraint
Subordinate and Synchronize to the
Constraint
Elevate performance of the Constraint
Repeat the process
The throughput of any system is determined by the Bottleneck Constraint. Hence to increase the throughput one must focus on identifying and improving this constraint.
NEXT
Problem Areas
ROBOTS
BOTTLENECK’S CAPACITY
THE INVENTORY
ORDERS
theproblemareas
PROBLEM AREAS
THE INVENTORY
Every machine was used with 100% capacity which in turn increased Inventories due to capacity mismatch between adjacent machines/resources
Inventory was high.
Inventory turnover period increase.
Cash conversion cycle increase.
Low Cash Inflow.
BOTTLENECK’S CAPACITY
Capacity is less than or equal to the demand.
Bottlenecks decided throughput of the system as a whole.
Bottleneck capacity could not be increased due to Capital Expenditure Constraint.
THE ROBOTS
Robots were used, but production didn’t increase.
Labour wasn’t laid off.
Cost of materials didn’t go down.
So, there was no tangible effect of using Robots.
THE ORDERS
Most of the orders were getting late.
Expediting was a norm in the plants.
NEXT
Control Systems
Y X
X Y
Y ASSEMBLY & X ASSEMBLY
Y PART-A but X PART-B
BASIC MODELS OF MANUFACTURING
The four basic models of manufacturing, shown as follows: Where X represents a Bottleneck and Y represents a Non-Bottleneck
• To make money by increasing net profit, while simultaneously increasing ROI and Cash Flow. SET GOALS
• Plant was making losses (Bill Peach’s revelation)MEASURE
ACHIEVEMENT
• Division was also making losses.CALCULATE VARIANCE
• Losses were not quantified thoughREPORT VARIANCE
• Less throughput due to bottleneck constraintsDERIVE CAUSE OF THE
VARIANCE
CONTROL SYSTEMS
CONTROL SYSTEMS
TAKE NECESSARY ACTIONS TO MINIMIZE
THE VARIANCES
Prioritized material coming to bottlenecks over other material.
Bottlenecks utilized to 100 % of time
Quality Check shifted before the bottleneck to let bottleneck process non-defective WIP
Consume the inventory to decrease levels of inventory and free money locked up in inventory
Production Planning and Material Sourcing Planning to avoid Interactive Bottleneck Situation.
Use of alternate resources to increase capacity of Bottleneck
Process Re-engineering
REPEAT THE STEPS UNTIL GOALS ARE MET
NEXT
Management Audit
APPRAISAL OF
CONTROL
Process re-engineering
Information gathered from shop floor and list of backlog orders
Ralph created system to efficiently predict time to engineer a sale.
Materials were sourced as per the demand and capacity constraint Resources to efficiently use bottlenecks
APPRAISAL OF CONTROL
PRODUCTION
Production Planning and Control
Inventory Planning
Capacity Utilization of Bottlenecks
Production Inspection (QC moved to before bottleneck)
APPRAISAL OF ORGANIZATION STRUCTURE
APPRAISAL OF ORGANIZATION STRUCTURE
MARKETING
Differentiation Strategy
New Marketing Campaign for 4 week delivery
Heightened brand image
Long term / Yearly contracts with French Customer.
BALANCED SCORECARD
INTERNAL BUSINESS PERSPECTIVE
• Production planning control
• Material sourcing• 4 week delivery
FINANCIAL PERSPECTIVE
• Cash Flow• Net Profit• ROI Increase• Sales backlog
CUSTOMER PERSPECTIVE
Increase in Orders:• New customer Burnside• Contract made with
French customer for 1 year INNOVATION &
LEARNING PERSPECTIVE
• Revenue per employee• Culture change from cost
world to throughput world
NEXT
The Transformation
REACTIVE
PROACTIVE
PREDICTIVE
THE TRANSFORMATION
REACTIVE
• In Bearington plant, expediting was a norm.
• Efficiency of the plant was down.
• Plant was making losses.
PROACTIVE
• Alex and team identified system constraints i.e. the bottlenecks.
• Gave high priority to parts that were to be fed to Bottlenecks over parts that were not going to be processed by bottlenecks.
• Bottlenecks time was not lost and it increased throughput.
PREDICTIVE
• Red tag and green tag priority system caused starvation of resources for green tagged parts.
• Increased QUEUE TIME for green tagged parts & increased WAIT TIME for Red Tagged parts.
• By analyzing the capacity of bottlenecks, the amount of production of green tagged parts could be calculated.
• This helped in material sourcing planning and predicting the Out Time of the order.
THE TRANSFORMATION
HOW DO THE MEASURES RELATE TO DECISIONS?
NP ROI CF
TP I OE
OPERATIONAL FINANCIAL
THROUGHPUT (TP) NP ROI CF
INVENTORY (I) NP ROI CF
OPERATIONAL EXPENSE (OE)
NP ROI CF
An effective decision simultaneously increases TP, decreases I, and decreases OE.
NEXT
The Implementations
What?
Increase in bottleneck
capacity
Efficiently use the
bottleneck capacity
THE IMPLEMENTATIONS
WHAT TO IMPLEMENT?
THE IMPLEMENTATIONS
HOW TO IMPLEMENT?
Realigning Quality Control
Prioritization (Tagging)
Recall some of the Old Machines
Dedicated Personnel
Material Release System
Reduce the Batch Size
NEXT
Key Learnings
KEY LEARNINGS
Balance the flow with demand, not capacity.
The level of activity of the system is determined by constraints in the system.
Activating a resource and utilizing it are not the same.
An hour lost at a bottleneck is an hour lost by the entire system.
An hour saved at a non-bottleneck is worthless.
Performance of an operation should be evaluated by its bottom line.
How to cause the
change
What to change to
Knowing what to change
KEY LEARNINGS
Alex and Lou identify three fundamental decision issues as critical to the success of any manager
THANK YOU