The Goal; Book Review

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The Goal
The Goal, by Eliyahu Goldratt is a novel focused on the challenges and improvement of operational efficiency. The book is about Alex Rogo, a thirty something year old, probably has an undergraduate degree in engineering and an MBA. He is married with 2 children, working as an executive for UniCo for the past 15 years. He began his career as project engineer, now works as a plant manager of manufacturing factory in Bearington, his home town. His boss is Bill Peach, division manager at the VP level. UNICO produces machined assemblies furnished to plants in the UniWare division as components of end-items, or are sold directly as spare parts assemblies to larger end-user customers. They employ well trained and competent staff with experienced managers who possess increasingly broadened responsibilities as the company has grown. Their customers expect quality products, delivered on time and reasonably priced. Upper management has been efficient at overall cost reduction in operations and provide detailed financial performance reporting, multi level production functional cost budgets produced and managed with precision. They have seen savings in production time and increases in station production rate due to automation throughout the plant, all while being able to meet the demands of a unionized workforce to maintain equality in its labor relations.

Alex’s plant, on the other hand, had orders nearly two-months behind scheduled delivery date and more than $20 million in warehoused inventory. Deliverable items were being expedited through the factory, increasing overtime and special handling in numerous areas. Sales were declining, material costs increasing; efficiency metrics were showing alarming decreases across the board. The division was facing a cash shortage, and was not going to be able to pay bills or meet payroll. Alex is given a 3 month ultimatum to turn the plant around otherwise unprofitable plants would be shut down and sold. Meanwhile, Alex’s personal life was falling apart. He was continually overworking, bringing work related problems home and directing his frustration and anger towards his wife and kids. Just as he feels there is no way he’ll survive he runs into his old physics professor, Jonah. After some small talk he explains his situation and expresses his confusion of the current state of things since the firm’s investments in automating the plant has increased productivity. Jonah helps Alex begin to look at things from a different perspective. Jonah queries Alex about key indicators of productivity such as decreasing inventory, reducing expenses, and increases in sells. He is quick to point out the fallacy of logic in Alex having accepted many things without questioning common sense purpose and application. Jonah defines productivity as accomplishing something in terms of goals and leaves Alex dwell on what the goal is… Alex returns to his plant and meets with the plant controller and determines the goal of any business is to increase net profit while simultaneously increasing return on investments and cash flow, ultimately to make money. They are stumped at how to do all three at same time. Alex decides to contact Jonah and explains a business must increase throughput while simultaneously reducing inventory and operational expenses. He defines throughput as the rate of sales, and that inventory incorporates the money invested in things intended to be sold; operational expenses include all the money spent to convert inventory to throughput. Hurrying away, Jonah asks how to measure throughput without the use of conventional cost accounting reports as he rushes off to other pressing commitments. Jonah provides Alex the groundwork to determine the answers to underlying concepts, always leaving Alex to discover the answers alone. Alex begins to focus on how to increase throughput, while simultaneously reducing inventory and operational expenses. After meeting with his colleagues he concludes the...
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