The Goal [Constraint Theory] P83

Post Length: 3 min

In Review: The Goal

Author: Eliyahu Goldratt

Length: 11 hrs 45 min

Reco: amazing ya [5/5 bananas]

This column shows every major project that has been approved in concept and is now awaiting executive sign-off on the business plans.

There were more than five business altering proposals, but this was the first time everyone was looking at them in the same place at the same time.

It was overwhelming and perplexing. How did we end up with so many?

Eli’s book covers this with constraint theory. Our problem wasn’t approval, that was a bottleneck because at max efficiency the business wasn’t designed to work through more than one proposal every 3-6 months.

The real issue? Concepts.

Concepts alone are harmless, you may have 1000 of them. But if you approve them without thinking through the next part of the process, you may stall your business and revenue generation because nobody can keep track of it all anymore.

Every action that brings a company closer to its goal is productivity. Every action that does not bring a company closer to its goal is non-productivity. - Eli

Taking manufacturing as the focal point of his book, he gives a handful of principles that will keep the three main targets in focus, which are …

Revenue as measured by Thru-put: products sold and delivered

Return on Investment as measured by Inventory: All the money invested in things that system intends to sell

Cash Flow as measured by Operational Expenses: All the money the company spends to turn the inventory into thru-put

If the end goal is to be profitable, everything must work towards that goal. Where it was most relevant to business development was in reference to bottlenecks. Take this statement and see if you can relate it to your business:

The cost of a bottleneck is not the cost of that operation for one hour - it is the cost of all things that are effected in the organization because of it. If 80% of all work is lost, adjust that machines production.

Example- By cutting batch size in half on Y before it gets to bottleneck X, you will now have less tied up in inventory and therefore more cash on hand making you more profitable … and that is the goal.

In reference to bottlenecks, Eli gives five things to consider, run your process through this list …

  1. Identify the system’s constraints [common pitfall, only talk about the most efficient things]

  2. Decide how to exploit the system’s constraints

  3. Subordinate everything else to the above decision

  4. Elevate the system’s constraints

  5. Warning - If in the previous steps a constraint has been broken, go back to step one but do not allow inertia to cause a system’s constraint

Finally in reference to the bottleneck, factor in time wasted, because not all production is tied to thru-put:

  1. Sitting idle, not in use at all like on a lunch break

  2. Processing parts that are defective, that will be scrapped. That time can’t be recouped

  3. Working on parts you don’t need - anything that isn’t within the current demand - because you are sacrificing future money for present money. Can your cash flow sustain it, if not you are out of business.

This is applicable to humans and robots. Having everyone working all of the time at max capacity isn’t just unreasonable, it actually contributes directly to losses.

Making an employee work and profiting from that work are two different things. - Eli

Using Ford as an example, Eli shows the power of never losing sight of the end goal. Ford’s was to improve flow of parts to a finished product.

By 1926 the lead time from mining the iron ore to having a complete car comprised of more than 5000 parts on the train ready for delivery was 81 hrs. Over 90 years later no one in the world is even close to that lead time.

Working is not the goal, thru-put is, and Ford nailed it.

Schedule time to assess your goals, and then calibrate your process to achieve them. Don’t tell me your goal and then show me a process that doesn’t get you there. As Darren Hardy said:

If you tell me you want to lose weight and you have Doritos on your fingers, I am going to trust the Doritos every time.

Love, Ando

Ando McCall