Seethalakshmi

Ranganathan

Professor: Lim Sungmook
Operations Management
November 28, 2017

Book Report on The Goal


“The Goal” written by Eli Goldratt is all about simplifying problems and
understanding the true goals of the organisation. We learn that it is very important to
detail out the problem at hand, identify the constraints and work towards improving
the output of that constraint. Using just one goal that is of making money, he (the
author) dedicated every activity to it. He said, "I view science as nothing more than
an understanding of the way the world is and why it is that way.” Well, Eli is a
physicist and he has a constant need to understand why things work the way they
do. We can see it in this book and the way he has related the various activities,
including the solutions his character came up with for the same. But before we go
on with discussing the matters at hand and summing them up in the form of various
stages, I would like to introduce the characters of the book, or the main cast if you
will, and also briefly talk about what the book tells us. 

1. Alex Rogo : Plant Manager

2. Bill Peach : Divisional manager

3. Bob Donovan : Production Manager

4. Stacey : Head Inventory Control

5. Jonah : Physicist/ Consultant

6. Ralph Nakamura : Planning 

7. Lou : Accountant

8. Julie Rogo : Alex’s wife. 

To put it all in a nutshell: Alex’s plant in Bearington is losing money, he is given a 3
months ultimatum to make up for the loss else the plant is closing down, he
implements a few concepts suggested by the physicist Jonah, along with his team
he manages to improve the processes and culture at the plant and finally he is
promoted to the position of Divisional Manager which was previously held by Bill
peach. The key concepts that I would like to point out are as follows: Throughput

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“We adjust
capacity so
the
bottleneck is
at the front
of
production.”
-Alex Rogo

rate which is the rate at which the system generates money through sales,
Inventory which is all the money the system has invested in purchasing materials,
Operational expenses which is all the money the system spends to convert
inventory to throughput and finally, the bottleneck which is any resource whose
capacity is equal to or less than the demand placed on it. In the book, Eli introduced
the concept of TOC (Theory of Constraints) which is a very important method of
improvement or a tool used for the purpose of improvement in production
processes and widely popular amongst project managers and operations managers. 



Problem Areas! 

The problem areas, as identified in the book are the inventory, bottleneck capacity,
robots and the orders (definitely the orders!). Let’s first look at the inventory. Every
machine was used with 100% capacity, due to which the amount of inventories
increased and there was definitely a mismatch between the adjacent machines/
resources. This led to a very high turnover period, cash conversion cycle and very
low cash inflow. This not only caused a mess up in the production planning but also
seriously affected the financials of that particular plant. The bottleneck’s capacity is
identified to be less than or equal to it’s demand but the bottleneck’s capacity could
not be increased due to the constraint of capital expenditure. In the case of robots,
they were put to use but this did not increase the production whatsoever. The cost
of materials did not go down and due to this, there were no tangible effects or
obvious effects of using the robots. The orders were getting late and expediting was
a norm in the plant.

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What are the control systems? 

Under the basic models of manufacturing, X represents a bottleneck and Y
represents a non-bottleneck.

The various control systems that can be implemented are : 


Set Goals : To make money by increasing Net profits and also simultaneously
increasing ROI and cash flows. 

Measure the achievements : The plant was making losses! (Bill Peach’s revelation). 

Calculate the variances : The division was also making losses. 

Report the variances : The losses were not quantifiable ones. 

Derive the causes for the variances : The culprit was less throughput due to
bottleneck constraints.

Necessary actions to minimise the constraints :

1. Prioritise materials coming to bottleneck instead of other materials.

2. Process re-engineering (to improve the cycle time as well as the quality).

3. Alternate resources to improve the capacity of the bottleneck.

4. Consume the inventory and prevent the accumulation of the same, to prevent
blockage of funds.

5. Shift the quality check before the bottleneck stage to help bottleneck assess
the non-defective Work In Progress materials.

6. Bottlenecks utilised to 100% of the total time.

Management Auditing : 



Appraisal of control: Ralph created a system to efficiently predict a time to help
prepare for sale. Materials were sourced as per the demands and accurate
information was gathered from the shop floor and a list of backlog orders created.

Production: Inventory planning was made efficient, Quality check was moved to
before the bottleneck and the capacity utilisation of the bottleneck was determined. 

Marketing: Differentiation strategies were formulated to help counter competition, a
new marketing campaign for a 4 week delivery was introduced, long term contracts

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or deals were made with French customer Djangler and the result was a much more
heightened brand image. 




Balance Scorecard : 


Financial
Perspective

1. Cash flow
2. Net Profit

3. ROI case

4. Sales backing

Internal
Customer’s Business
Perspective 
 Perspective: 

1. Contract 1. Production
made with planning
french customer
 control.

2. New 2. Material
customer sourcing.

(Burnside). 3. 4 week
delivery.

Innovative and
Learning
perspective: 

1. Revenue per
employee.

2. Cost to
Throughput
change.