The Goal - Summary

ASSIGNMENT # 2

THE GOAL

About The Author – Dr. Eliyahu M Goldratt

Dr. Eliyahu M Goldratt was an internationally recognized leader in the development of new business management philosophies and systems. He was the originator of the Optimized Production Technique, the Theory of Constraints (TOC), the Thinking Processes, Drum-Buffer-Rope, Critical Chain Project Management (CCPM) and other TOC derived tools .He was a desirable educator by many of the world’s largest corporations, including General Motors, Procter & Gamble, AT&T, NV Philips, ABB and Boeing. He authored several business novels and non-fiction works, mainly on the application of the theory of constraints to various manufacturing, engineering, and other business processes

He obtained his Bachelor of Science degree from Tel Aviv University and his Masters of Science, and Doctorate of Philosophy from Bar-Ilan University. His popularity was mainly as creator of THEORY OF CONSTRAINT, a business strategy to reduce waste and excessive unutilized resources within any operation.

He created Avraham Y Goldratt institute in 1985 to promote TOC and help its implementation worldwide. He also remain involved in further development of TOC like critical chain and other application during his stay at institute. In early 2000 he created Goldratt Group whose purpose is to Make TOC the main way of managing organization.

THE GOAL – WHAT THE BOOK IS ALL ABOUT:

The Goal was the first book written by Eliyahu Goldratt on concept of TOC in a non-traditional approach to convey knowledge. It is a business textbook written in novel form, disguised as a love story.

 This book was first published in 1984 and due to its popularity and demand it has been revised and republished in 1992, 2004, and 2014. The book is known to be used in college courses and in the business world for case studies in operations management, with a focus geared towards the Theory of Constraints, bottlenecks and how to improve them, and applications of these concepts in real life. This book teaches student about continuous process improvement. Since it is written as a novel the interest of readers always remain high and also the concept of TOC can be learned in an easy way.

THE THEORY OF CONSTRAINT

The theory of constraint is based on a fundamental concept that every operation producing a product or service is a series of linked processes and each process has a specific capacity to produce the given defined output for the operation and in every case you will find a process that limits or constraint the throughput from the entire operation. Following figure will give an example of an operation producing a product.

Sequence of operations for Product

[pic 1][pic 2][pic 3][pic 4][pic 5][pic 6][pic 7]

The total operation is constrained by Process 3 at 4 per hour. Even with increased efficiencies and output at other processes, the total output of the entire operation will not going to exceed more than 4 per hour. In fact, increase in efficiencies and output at process 1, 2 & 4 will only going to increase inventory but not Sales.

GOAL OF UNICO:

When Jonah left Alex, after their first meeting at airport, with unanswered question of WHAT IS THE GOAL OF UNICO, Alex tries to find answer himself. He explored number of ways including cost effective purchasing as goal of company but then he realized that this goal leads them to several months of supply in stores. Then he considered providing jobs or quality products at low cost as the goal of Unico but then he rejected these ideas as Unico has laid off people in the past and he also remember that several companies with quality products at relatively low price end up with huge failures.  He also thought about technology as main goal of a manufacturing firm but rejected this idea once he realize that R & D is often took back seat in a manufacturing firm. He then argued about Sales and market share as goals but then realize that many a times company sell product at lower price over cost to make volumes. He then came to conclusion that even a large market share is worthless if you are not making money out of higher sales. So finally he came to the conclusion that making money is the goal of a manufacturing organization like UNICO.

CONSTRAINTS/CONFLICTS:

The main constraint of Unico was its delayed orders and this was resulting in unsatisfied customers and working capital being stuck up in huge amount of unfinished products. Unico is trying to measure performance with conventional system as the case with most organization around the world. But such system does not give you the real picture of how manufacturing floor is contributing in achieving ultimate goal of any company’s existence i.e. making profits. Unico was relying on proving itself profitable by being more efficient. They always tried to achieve higher efficiencies and lower unit cost. Since different operations have different capacities so achieving higher utilization at each and every operation resulted in excess inventories at some operations and idle time at others. As a result efficiencies improves but real productivity is lost. After meeting Jonah, Alex realizes that instead of making plant more efficient by producing more they have to focus on producing things that can sale. So anything that is not going to be sale is useless and reduce THROUGHPUT of system which is rate of sales not production. When rate of sales become your throughput then INVENTORY is basically all the products which organization is going to sell. Thus any product which is not going to be sell will not going to be produce and as a result will not become part of inventory and there will be no expense in producing such non saleable item. Hence operational expense will only constitute costs which occurs in producing saleable products.