The Goal by Elihayu M. Goldratt
The Goal by Eliyahu M. Goldratt is a business novel published in 1984. Although the book was published decades ago, its contents remain relevant in today’s business world. The Goal follows Alex Rogo, a manufacturing plant manager, try to turn around the plant he was assigned to in his hometown. Alex Rogo has to juggle his responsibilities in the plant, which are extremely demanding, with his responsibilities at home as a husband and father. The Goal offers interesting life-like applications and insights on the theory of constraints, which appears to be the root of all the challenges by Rogo and his plant. More importantly The Goal shows that the key to successful management is to not lose sight of the company’s goal.
At the beginning of the novel, Alex Rogo is excited about moving back to his hometown and managing his company’s, UniCo, plant there. However, his excitement quickly disappears as he realizes that the plant had been performing poorly and is on the verge of being closed down. On his very first day, the division vice president informs Rogo that he has 3 months to turn things around. However, before he could even begin to process this, he is faced with a problem—an order that is months overdue must be shipped out that day. Alex Rogo is thus overwhelmed and feels lost. Help, however, comes in the form of his old Physics professor who works as a process consultant, Jonah, whom he met at the airport on his day of arrival. Rogo merely recounts their conversation, wherein the professor asks him “What is this company’s ultimate goal?” And that is the main question that every manager should ask—something that Rogo seems to have forgotten for a moment, and something the entire regional division seems to be neglecting. The plant’s previous managers may have lost sight of UniCo’s ultimate goal of earning money that is why their plant operates at a dismal rate.
Rogo realizes that the company’s goal is to make money or profits—like all other companies. More specifically, as the plant controller, tells him, they need to increase the plant’s cash flow, return on investments, and net profits. As Jonah explains, things are quite simple: any activity that leads you to the company’s goal is productive, and anything that doesn’t is not. This insight from Jonah is quite interesting. At first it appears simplistic because operations management involves a lot of technical concepts. But at its very core, operations management is indeed all about optimizing a plant’s operations so that all steps in the production process is productive for the company.
Still, as we see in The Goal , this is easier said than done. And in order to optimize the production process, the manager must, according to Rogo, balance these three things: throughput, inventory, and operational expense. Goldratt makes it apparent that in order for Rogo to achieve this, he must utilize the Theory of Constraints (TOC). The Theory of Constraints focuses on bottlenecks in the production process that negatively impact profit. The Theory of Constraints’ purpose matches with that of Rogo’s company’s goal—to earn money. One of the most interesting things about the Theory of Constraints is that it is an efficient way to approach operational issues. As Goldratt demonstrates in The Goal, most companies only have very few true constraints, so focusing on these is logical. It would allow for significant improvement in the company without requiring significant investment of resources.
The Theory Of Constraints essentially provides a set of tools that a manager, or a change agent, can utilize to manage constraints and, consequently, increase profits. It (relies) on the idea that businesses can be viewed as a linked set of processes. Thus, it applies the adage “a chain is only as strong as its weakest link.” The Theory Of Constraints includes five steps: “(1) identify the System Constraint, (2) decide how to exploit the constraint to the company’s advantage, (3) subordinate everything else, (4) elevate the constraint, (5) return to step 1, but beware of inertia (Coughlin, 46). Awareness of a bottleneck enables the analysis to improve the operations as opposed to merely improving production. These enhancements can lead to lower costs for the same level of production, thereby increasing sales and profit.
Goldratt accurately demonstrates the chain-like nature of companies, where the activity of one group or department affects the activity of the others. But neither is it as simple as one group performing well leads to other groups performing well. It is possible for one group’s high production results in reduced ability of another group. In other words, good performance must be judged in the grand scheme of things—whether it contributes to the company’s goal of earning profits. Rogo, however, realizes this during a hike with his son and his Boy Scout Troupe. Herbie, a larger boy, kept falling behind largely due to the excess weight in his backpack. The other boys kept walking around him and creating a gap between them and Herbie. When Rogo pinpoints Herbie’s problems, he decides to spread the weight among the boys. He also puts Herbia in front of the group to set the pace so that no one gets left behind.
Rogo follows the same principle using the Theory Of Constraints process. He, together with his team, identifies two System Constraints—the NCX-10 machine and the heat-treat department. Rogo realizes that the NCX-10 machine becomes a bottleneck because it doesn’t run continuously. It stops working when the operators take their lunch breaks. On the other hand, the heat-treat department causes delays in a previous attempt to make employees constantly working. Since the heat-treat department only requires operators during the loading and unloading. These employees are asked to help out in other parts of the plant during the process. The backlog exists because the operators often fail to return on time to unload the machines so the plant’s overall process is delayed.
For step 2, Rogo gets some insight from Jonah: real productivity is not simply doing things, but doing things that are useful and will lead you to your goal. This implies that allowing the heat-treat department to stand around for a few hours is more productive in the bigger picture than making them do other things around the plant. He then makes the two bottlenecks the workcenters of the plant, so the plants entire production schedule revolves around their production schedule.
Another incredible step that Rogo takes is to decrease batch sizes. With overall efficiency in mind, Rogo holds back materials so non-bottleneck processes gain extra capacity or time when they are not producing. With the extra time, Rogo instructs them to do extra set-ups. This process increases the plant’s deliveries without additional cost since the inventory are being set up between production schedules of processes that don’t need to run at full capacity. The new process also reduces the time it takes to process a batch, which means reduced queue time and waiting time, and consequently, reduced inventory. With this, Rogo manages throughput and inventory. It should also be noted that since Rogo managed to turn things around without additional labor costs, he was also able to manage operational costs. So the plant is able to respond to market demand more efficiently
The concept of Theory of Constraints, as demonstrated by Goldratt, is quite simple. It does not require complex theoretical knowledge or analysis. It merely requires a keen observing eye. Rogo’s problems were not doubt complex and difficult, but he was able to resolve them by simply paying attention to the day-to-day processes in the plant. It was also interesting how he found the concept for the solution from a simple experience in hiking. Although Rogo knew exactly what the plant’s problems were, he did not apply an aggressive solution. The solutions he applied may raise eyebrows for some due to decreases in localized production of non-bottleneck processes. But as Goldratt’s novel shows, such a solution may not just be what the plant needs. The solution brought about by Rogo brought harmony throughout the plant, and in the process, improved its overall performance. Rogo’s decision may be likened to pulling back the bowstrings to release the arrow. And, in the end, as is the main point of the book, the ultimate key to any company’s success if for decision-makers not to lose sight of the ultimate goal.