# The Goal - Book Review

Topics: Theory of Constraints, Network performance, Bottleneck Pages: 5 (1954 words) Published: October 31, 2010
Book Review of "Goal" 1. What is the problem? Alex Rogo was a plant manager at the Barrington Plant of Uniware, a division of UniCo. One day Bill Peach, division vice president visited his plant and found that there were lots of problems with schedule arrangement, quality, cost & inventory control in his plant. These problems had already made the organization lose money. At last Bill gave Alex three months to improve, otherwise, the plant would be closed. Three months?! That was all Alex Rogo was able to think about. Alex had to start to consider what was the goal of the manufacturing organization. What on earth was the GOAL of the manufacturing organization? Was it better customer service? Larger market share? Lower cost? High quality? just survival? Alex was always trying to find the answer. Finally he got the idea that the GOAL of a manufacturing organization was to make money. Next step for Alex was to find a way to measure if the manufacturing organization makes money or not. One way was Bottom Line Measurement, which was submitted by Mr. Lou, the plant controller. The bottom line measurement contains three components. They are Net Profit, Return on Investment (ROI) and Cash Flow. Net profit is absolute value the organization earns. ROI is a ratio, which can tell the relationship between return and investment. And organization can not survive without enough cash flow. To make money is to increase net profit, while simultaneously increase ROI and cash flow. The other measurement was developed by Jonah, who once taught Alex mathematical models when Alex was a student. This measurement is also composed by three elements, which are Throughout, Inventory and Operational Expense. Throughput is the rate at the system generates money through sales. Inventory is all the money that system has invested in purchasing things which it intends to sell. Operational expense is all the money the system spends in order to turn inventory into throughput. The goal for making money is improving throughput, also decreasing operational expense and inventory at the same time. To make it simpler and clear, the relationship between Throughput, Inventory and Operating Expense can be compared with the situation of hike, in which Alex and his son, Dave, participated. Alex let Ron lead the column in moderate pace. Ron can be regarded as consuming raw material, the trail between Ron and the rest is Inventory. If the distance between Ron and the last one is expanding, it can only mean that inventory is increasing. Throughput is the pace rate of last person's walking. So as the slower than average fluctuations accumulate, they work their way back to the last person, which means the last person had to slow down. Which also means that, relative to the growth of inventory, throughput for the system goes down. In terms of the hike, operational expense is the energy for everyone used. It is increasing any time they hurry to catch up, because they expend more energy than they otherwise would. Then what would happen to the plant in this analogy? ----Inventory was going up, throughput was going down, and operational expense was probably increasing. 2. What caused the problem? What caused such phenomenon? Alex had to turn to Jonah for help. Jonah just gave him

two pieces of golden advice: 1. Distinguishing the bottleneck resource and non bottleneck resource 2. Balancing the flow of product through the plant with demand from the market rather than balance the capacity. The bottleneck determined the effective capacity of the plant, just like Hebie who had the least capacity and actually determined how fast the troop as a whole could move. Identifying "Hebie" in the plant was no easy job. After Alex and his colleague analysized the plant resources, "Hebie" turned out to be NCX-10, which was the one of the most efficient machine with lowest cost and highest rate to produce the parts. Why such a good machine became a bottleneck? Because workflow were always...