Title: The GOAL (A Process of Ongoing Improvement)
Author: Eliyahu M Goldratt and Jeff Cox
Publication details: First Indian edition, 2004, Productivity and Quality Publishing Private Limited
Number of pages: 396 pages
Is increase in efficiency and cutting costs good? Not always as the book ‘The Goal’ demonstrates while revisiting some basic management fundamentals. It reveals how businesses can enhance productivity by applying the Theory of Constraints (TOC). Written in a fast-paced thriller style (I could not put it down), ‘The Goal’ is a gripping novel about Alex Rogo a plant manager who is desperately trying to save his plant and his marriage. A chance meeting with his old professor Jonah helps him turn the plant around by breaking out of conventional thinking like optimising resources or focusing on worker efficiency. The book shows how a system of local optimums is not optimum system at all. And yes his marriage is saved too
Eliyahu Goldratt uses Socratic questions, an inductive reasoning approach to teach TOC. Alex finds the path to plant profitability by responding to questions asked by Jonah. The story’s pace gives the reader time to examine the issues and come up with ideas before sample answers are provided. Jonah helps Alex understand that the goal of a plant is not to increase efficiency, reduce wage etc but to make money by balancing 3 critical areas of a plant’s operations viz., Throughput (the rate at which the system generates money through sales), Inventory (all the money that the system has invested in purchasing things which it intends to sell) and Operational Expense (all the money the system spends in order to turn inventory into throughput).
The book shows that a manager should be able to answer 3 important questions for an ongoing process improvement viz.,1)What to change?, 2)What to change to? and 3)How to cause the change? The economic concepts are easy to understand on account of the way they are presented. For instance manufacturing bottlenecks which determine the rate of production, can be identified by looking for a big stack of products waiting to be processed. This is illustrated through a hiking trip that Alex takes with his son and a game with match sticks and bowls. The slowest boy in the middle of the line of children hiking who is delaying others’ progress is a bottleneck. Alex’s discussions with his team also highlight the short comings of cost-accounting where inventory is viewed as an asset on the balance sheet.
The book shows numerous times how constraints can be dealt with by following 5 steps of 1) Identifying the constraint, 2) Exploiting the constraint (bottleneck), 3) Subordinating everything to the constraint, 4) Elevating ie., increasing the throughput of the constraints no matter the costs since they limit the entire system’s throughput and 5) Repeating the steps with new constraints. Step 2 could be as simple as maximizing a bottleneck machine’s output by not keeping it idle because of staff taking lunch breaks or doing a quality check before products get processed through the bottleneck machine. The book has several management techniques that can be applied to any business. For instance to communicate to everybody in the plant which parts need to be processed on priority the parts are tagged with different colours or clinching a large order customer order by reducing delivery time vis-a-vis competitors and meeting the order by despatching batches.
Since the book provides a solution for factories struggling with production delays and low revenues is it relevant for service organisations? (Hmm... have been hit by the Socratic bug!) Consider these applications of TOC. A US Bank reduced their loan approval time almost half by focusing on the 3 most important items. A South African hospital decreased patient waiting list from 9 months to below 4months by creating a patient buffer. Though the book was originally published 25 years ago the revised versions contains, in an interview with Eliyahu Goldratt himself, recent examples of organisations that prove the relevance of TOC for today’s context. This is definitely a must read management classic for all managers.