Goal Book

A BOOK REVIEW
INDEX CONTENT
1
BRIEF INTRODUCTION
MANAGEMENT AUDIT
KEY CONCEPTS
THE TRANSFORMATION
PROBLEM AREAS
THE IMPLEMENTATION
CONTROL SYSTEMS
KEY LEARNINGS
NEXT
Brief Introduction
BRIEF INTRODUCTION
Alex Rogo
Bill Peach
(Plant
Manager)
(Division
Head)
Julie Rogo
(Alexs wife)
Stacey
Ralph
Nakamura
(Head
Inventory
Control)
Bob
Donovan
(Production
Manager)
(Planning)
Jonah
Lou
(Physicist /
Consultant)
(Accountant)
BRIEF INTRODUCTION
Alexs Bearington plant is losing money.
He is given 3 months ultimatum to either make plant make money or plant will be closed.
He implements a few concepts suggested by Jonah.

He, with his team consisting of Stacey, Lou, Bob and Ralph improve the processes and
culture at the plant.
As a result, Alex gets promoted as Divisional Manager.
NEXT
Key Concepts
KEY CONCEPTS
Rate at which system
generates money
through sales
All the money system

spends to convert
inventory to throughput
All the money system has

invested in purchasing
things it intends to sell
THROUGHPUT
INVENTORY
OPERATIONAL
EXPENSES
BOTTLENECK
Any resource whose
capacity is equal to or
less than the demand
placed upon it
TOC CONCEPT
Identify the
Constraint
Repeat the process
Elevate performance
of the Constraint
Exploit the Constraint
Subordinate and
Synchronize to the
Constraint
The throughput of
any system is
determined by the
Bottleneck
Constraint.
Hence to increase
the throughput one
must focus on
identifying and
improving this
constraint.
NEXT
Problem Areas
PROBLEM AREAS
THE INVENTORY
the
problem
areas
BOTTLENECKS CAPACITY
ROBOTS
ORDERS
THE INVENTORY
Every machine was used with 100% capacity which in turn increased
Inventories due to capacity mismatch between adjacent machines/resources
Inventory was high.
Inventory turnover period increase.
Cash conversion cycle increase.
Low Cash Inflow.
BOTTLENECKS CAPACITY
Capacity is less than or equal to the demand.
Bottlenecks decided throughput of the system as a whole.
Bottleneck capacity could not be increased due to Capital Expenditure

Constraint.
THE ROBOTS
Robots were used, but production didnt increase.
Labour wasnt laid off.
Cost of materials didnt go down.
So, there was no tangible effect of using Robots.
THE ORDERS
Most of the orders were getting late.
Expediting was a norm in the plants.
NEXT
Control Systems
BASIC MODELS OF MANUFACTURING

The four basic models of manufacturing, shown as follows:
Where X represents a Bottleneck and Y represents a Non-Bottleneck
ASSEMBLY
&
PART-A
but
ASSEMBLY
PART-B
CONTROL SYSTEMS
SET GOALS
MEASURE
ACHIEVEMENT
CALCULATE VARIANCE
REPORT VARIANCE
DERIVE CAUSE OF THE
VARIANCE
To make money by increasing net profit, while

simultaneously increasing ROI and Cash Flow.
Plant was making losses (Bill Peachs revelation)
Division was also making losses.
Losses were not quantified though
Less throughput due to bottleneck constraints
CONTROL SYSTEMS
Prioritized material coming to bottlenecks over other material.
TAKE
NECESSARY
ACTIONS TO
MINIMIZE
THE
VARIANCES
Bottlenecks utilized to 100 % of time

Quality Check shifted before the bottleneck to let bottleneck process
non-defective WIP
Consume the inventory to decrease levels of inventory and free money

locked up in inventory
Production Planning and Material Sourcing Planning to avoid Interactive
Bottleneck Situation.
Use of alternate resources to increase capacity of Bottleneck
Process Re-engineering
REPEAT THE STEPS UNTIL GOALS ARE MET
NEXT
Management Audit
APPRAISAL OF CONTROL
Process re-engineering
APPRAISAL
OF
CONTROL
Information gathered from shop floor and list of backlog

orders
Ralph created system to efficiently predict time to engineer a
sale.
Materials were sourced as per the demand and capacity
constraint Resources to efficiently use bottlenecks
APPRAISAL OF ORGANIZATION STRUCTURE

Production Planning and Control
Inventory Planning
PRODUCTION
Capacity Utilization of Bottlenecks

Production Inspection (QC moved to
before bottleneck)
APPRAISAL OF ORGANIZATION STRUCTURE

Differentiation Strategy
New Marketing Campaign for 4 week delivery
MARKETING
Heightened brand image
Long term / Yearly contracts with French
Customer.
BALANCED SCORECARD
FINANCIAL PERSPECTIVE
CUSTOMER PERSPECTIVE
Increase in Orders:
New customer Burnside
Contract made with
French customer for 1
year
Cash Flow
Net Profit
ROI Increase
Sales backlog
INNOVATION &
LEARNING PERSPECTIVE
Revenue per employee
Culture change from cost
world to throughput
world
INTERNAL BUSINESS
PERSPECTIVE
Production planning
control
Material sourcing
4 week delivery
NEXT
The Transformation
THE TRANSFORMATION
PREDICTIVE
PROACTIVE
REACTIVE
THE TRANSFORMATION
REACTIVE
In Bearington plant, expediting was a norm.
Efficiency of the plant was down.
Plant was making losses.
PROACTIVE
Alex and team identified system constraints i.e. the bottlenecks.
Gave high priority to parts that were to be fed to Bottlenecks over parts that were not going to be processed
by bottlenecks.
Bottlenecks time was not lost and it increased throughput.
PREDICTIVE
Red tag and green tag priority system caused starvation of resources for green tagged parts.
Increased QUEUE TIME for green tagged parts & increased WAIT TIME for Red Tagged parts.
By analyzing the capacity of bottlenecks, the amount of production of green tagged parts could be
calculated.
This helped in material sourcing planning and predicting the Out Time of the order.
HOW DO THE MEASURES RELATE TO DECISIONS?

NP
TP
ROI
CF
OE
OPERATIONAL
FINANCIAL
THROUGHPUT (TP)
NP
ROI
CF
INVENTORY (I)
NP
ROI
CF
OPERATIONAL
EXPENSE (OE)
NP
ROI
CF
An effective decision simultaneously increases TP, decreases I, and decreases OE.
NEXT
The Implementations
THE IMPLEMENTATIONS
WHAT TO IMPLEMENT?
Efficiently use
the
bottleneck
capacity
Increase in
bottleneck
capacity
What?
THE IMPLEMENTATIONS
HOW TO IMPLEMENT?
Realigning
Quality
Control
Prioritization
(Tagging)
Recall some
of the Old
Machines
Dedicated
Personnel
Material
Release
System
Reduce the
Batch Size
NEXT
Key Learnings
KEY LEARNINGS
Balance the flow with demand, not capacity.
The level of activity of the system is determined by constraints in

the system.
Activating a resource and utilizing it are not the same.
An hour lost at a bottleneck is an hour lost by the entire system.
An hour saved at a non-bottleneck is worthless.

Performance of an operation should be evaluated by its bottom
line.
KEY LEARNINGS
Alex and Lou identify three fundamental decision issues as
critical to the success of any manager
Knowing
what to
change
What to
change to
How to
cause the
change
THANK YOU

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A BOOK REVIEW

He implements a few concepts suggested by Jonah.

All the money system

All the money system has

Repeat the process

Exploit the Constraint

Inventory was high.

Inventory turnover period increase.

Cash conversion cycle increase.

Low Cash Inflow.

Capacity is less than or equal to the demand.

Bottlenecks decided throughput of the system as a whole.

Bottleneck capacity could not be increased due to Capital Expenditure

Labour wasnt laid off.

Cost of materials didnt go down.

So, there was no tangible effect of using Robots.

Most of the orders were getting late.

Expediting was a norm in the plants.

BASIC MODELS OF MANUFACTURING

To make money by increasing net profit, while

Division was also making losses.

Losses were not quantified though

Less throughput due to bottleneck constraints

Bottlenecks utilized to 100 % of time

Consume the inventory to decrease levels of inventory and free money

REPEAT THE STEPS UNTIL GOALS ARE MET

Information gathered from shop floor and list of backlog

APPRAISAL OF ORGANIZATION STRUCTURE

Capacity Utilization of Bottlenecks

APPRAISAL OF ORGANIZATION STRUCTURE

HOW DO THE MEASURES RELATE TO DECISIONS?

An effective decision simultaneously increases TP, decreases I, and decreases OE.

The level of activity of the system is determined by constraints in

An hour lost at a bottleneck is an hour lost by the entire system.

An hour saved at a non-bottleneck is worthless.

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