The Goal
The Goal

The Goal

Science is simply the method we use to try and postulate a minimum set of assumptions that can explain, through a straightforward logical derivation, the existence of many phenomena of nature. (Location 61)

I sincerely believe that the only way we can learn is through our deductive process. Presenting us with final conclusions is not a way that we learn. At best it is a way that we are trained. That’s why I tried to deliver the message contained in the book in the Socratic way. Jonah, in spite of his knowledge of the solutions, provoked Alex to derive them by supplying the question marks instead of the exclamation marks. I believe that because of this method, you the reader will deduce the answers well before Alex Rogo succeeds in doing so. (Location 82)

Note: The book poses questions and gets the reader to learn through deductive processes

I view science as nothing more than an understanding of the way the world is and why it is that way. At any given time our scientific knowledge is simply the current state of the art of our understanding. I do not believe in absolute truths. I fear such beliefs because they block the search for better understanding. Whenever we think we have final answers progress, science, and better understanding ceases. (Location 94)

Tags: science

Note: .science science is our current understanding rather than absolute truth

“What’s wrong with my thinking? It’s no different from the thinking of most other managers.” “Yes, exactly,” says Jonah. “What’s that supposed to mean?” I ask; I’m beginning to feel somewhat insulted by this. “Alex, if you’re like nearly everybody else in this world, you’ve accepted so many things without question that you’re not really thinking at all,” says Jonah. (Location 684)

productivity is the act of bringing a company closer to its goal. Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive. (Location 707)

Tags: goal, productivity

Note: .productivity .goal productivity is the act of bringing a company coser to its goals

productivity is meaningless unless you know what your goal is,” (Location 714)

Tags: productivity

Note: .productivity productivity is useless unless you know your goal

I remember the old line, “We’re losing money, but we’re going to make it up with volume.” A company will sometimes sell at a loss or at a small amount over cost—as UniCo has been known to do—just to unload inventories. You can have a big share of the market, but if you’re not making money, who cares? (Location 857)

Note: ..marketshare .profit

I reach for my briefcase, take out a yellow legal pad and take a pen from my coat pocket. Then I make a list of all the items people think of as being goals: cost-effective purchasing, employing good people, high technology, producing products, producing quality products, selling quality products, capturing market share. I even add some others like communications and customer satisfaction. (Location 869)

If the goal is to make money, then (putting it in terms Jonah might have used), an action that moves us toward making money is productive. And an action that takes away from making money is non-productive. (Location 879)

Tags: goal

Note: .goal

“Let’s say you figure it out and you come up with $10 million net profit . . . an absolute measurement. Offhand, that sounds like a lot of money, like you really raked it in. But how much did you start with?” He pauses for effect. “You see? How much did it take to make that $10 million? Was it just a million dollars? Then you made ten times more money than you invested. Ten to one. That’s pretty goddamned good. But let’s say you invested a billion dollars. And you only made a lousy ten million bucks? That’s pretty bad.” “Okay, okay,” I say. “I was just asking to be sure.” “So you need a relative measurement, too,” Lou continues. “You need something like return on investment . . . ROI, some comparison of the money made relative to the money invested.” (Location 969)

Tags: roi

Note: .roi

“it is possible for a company to show net profit and a good ROI and still go bankrupt.” “You mean if it runs out of cash,” I say. “Exactly,” he says. “Bad cash flow is what kills most of the businesses that go under.” “So you have to count cash flow as a third measurement?” He nods. (Location 979)

Tags: netprofit, cashfow, roi

Note: .roi .cashfow .netprofit

So this is the goal: To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow. (Location 1033)

Now then, I ask myself, how do I build a direct connection between the three measurements and what goes on in my plant? If I can find some logical relationship between our daily operations and the overall performance of the company then I’ll have a basis for knowing if something is productive or non-productive. . . moving toward the goal or away from it. (Location 1037)

Tags: metrics, goal, productivity

Note: find the relationship between the daily activities and the goals of the company

“They’re measurements which express the goal of making money perfectly well, but which also permit you to develop operational rules for running your plant,” he says. “There are three of them. Their names are throughput, inventory and operational expense.” (Location 1220)

Tags: measurements

Note: .measurements

“Throughput,” he says, “is the rate at which the system generates money through sales.” (Location 1225)

Tags: through put

“Inventory is all the money that the system has invested in purchasing things which it intends to sell.” I write it down, but I’m wondering about it, because it’s very different from the traditional definition of inventory. “And the last measurement?” I ask. “Operational expense,” he says. “Operational expense is all the money the system spends in order to turn inventory into throughput.” (Location 1234)

Yes, the goal is to make money. I know that now. And, yes, Jonah, you’re right; productivity did not go up thirty-six percent just because we installed some robots. For that matter, did it go up at all? Are we making any more money because of the robots? And the truth is, I don’t know. I find myself shaking my head. But I wonder how Jonah knew? He seemed to know right away that productivity hadn’t increased. There were those questions he asked. One of them, I remember as I’m driving, was whether we had been able to sell any more products as a result of having the robots. Another one was whether we had reduced the number of people on the payroll. Then he had wanted to know if inventories had gone down. Three basic questions. (Location 1339)

Note: Sell more products, reduce headcount, reduce inventories

That’s how Jonah knew. He was using the measurements in the crude form of simple questions to see if his hunch about the robots was correct: did we sell any more products (i.e., did our throughput go up?); did we lay off anybody (did our operational expense go down?); and the last, exactly what he said: did our inventories go down? (Location 1348)

Increase throughput while simultaneously reducing both inventory and operating expense. (Location 1355)

“So the bottom line is this: to give the robots more to do, we released more materials.” “Which, in turn, increased inventories,” says Stacey. “Which has increased our costs,” I add. “But the cost of those parts went down,” says Lou. “Did it?” I ask. “What about the added carrying cost of inventory? That’s operational expense. And if that went up, how could the cost of parts go down?” “Look, it depends on volume,” says Lou. “Exactly,” I say. “Sales volume . . . that’s what matters. And when we’ve got parts that can’t be assembled into a product and sold because we don’t have the other components, or because we don’t have the orders, then we’re increasing our costs.” (Location 1437)

“Interesting, isn’t it, that each one of those definitions contains the word money,” he says. “Throughput is the money coming in. Inventory is the money currently inside the system. And operational expense is the money we have to pay out to make throughput happen. One measurement for the incoming money, one for the money still stuck inside, and one for the money going out.” (Location 1466)

If you’ve got a machine, the depreciation on that machine is operational expense. Whatever portion of the investment still remains in the machine, which could be sold, is inventory.” “Inventory? I thought inventory was products, and parts and so on,” says Bob. “You know, the stuff we’re going to sell.” Lou smiles. “Bob, the whole plant is an investment which can be sold—for the right price and under the right circumstances.” And maybe sooner than we’d like, I think. Stacey says, “So investment is the same thing as inventory.” (Location 1499)

Tags: inventry

Note: .inventry

What’s happening isn’t an averaging out of the fluctuations in our various speeds, but an accumulation of the fluctuations. And mostly it’s an accumulation of slowness—because dependency limits the opportunities for higher fluctuations. And that’s why the line is spreading. We can make the line shrink only by having everyone in the back of the line move much faster than Ron’s average over some distance. (Location 1998)

Each of us is like an operation which has to be performed to produce a product in the plant; each of us is one of a set of dependent events. Does it matter what order we’re in? Well, somebody has to be first and somebody else has to be last. So we have dependent events no matter if we switch the order of the boys. I’m the last operation. Only after I have walked the trail is the product “sold,” so to speak. And that would have to be our throughput—not the rate at which Ron walks the trail, but the rate at which I do. What about the amount of trail between Ron and me? It has to be inventory. Ron is consuming raw materials, so the trail the rest of us are walking is inventory until it passes behind me. (Location 2012)

it really doesn’t matter how fast any one of us can go, or does go. Somebody up there, whoever is leading right now, is walking faster than average, say, three miles per hour. So what! Is his speed helping the troop as a whole to move faster, to gain more throughput? No way. Each of the other boys down the line is walking a little bit faster than the kid directly behind him. Are any of them helping to move the troop faster? Absolutely not. Herbie is walking at his own slower speed. He is the one who is governing throughput for the troop as a whole. (Location 2226)

whoever is moving the slowest in the troop is the one who will govern throughput. And that person may not always be Herbie. Before lunch, Herbie was walking faster. It really wasn’t obvious who was the slowest in the troop. So the role of Herbie— the greatest limit on throughput—was actually floating through the troop; it depended upon who was moving the slowest at a particular time. But overall, Herbie has the least capacity for walking. His rate ultimately determines the troop’s rate. (Location 2231)

“You know, the most Pete was ever behind was ten pieces. Kind of funny how that’s exactly the number of pieces we ended up short.” “That’s the effect of the mathematical principle I was trying to explain this morning,” I say. “The maximum deviation of a preceding operation will become the starting point of a subsequent operation.” (Location 2576)

“This much is clear to me. We have to change the way we think about production capacity. We cannot measure the capacity of a resource in isolation. Its true productive capacity depends upon where it is in the plant. And trying to level capacity with demand to minimize expenses has really screwed us up. We shouldn’t be trying to do that at all.” (Location 2626)

Note: The capacity of a resource should take the capacity of other dependent resources into account

we shouldn’t be looking at each local area and trying to trim it. We should be trying to optimize the whole system. Some resources have to have more capacity than others. The ones at the end of the line should have more than the ones at the beginning—sometimes a lot more. (Location 2641)

“A bottleneck,” Jonah continues, “is any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. (Location 2647)

Tags: bottleneck

Note: .bottleneck a bottleneck resource has capacity equal or less than the demand placed on it. Eg Brent

He points to the NCX-10 and says, “You have on this machine only so many hours available for production—what is it. . . 600, 700 hours?” “It’s around 585 hours a month,” says Ralph. “Whatever is available, the demand is even greater,” says Jonah. “If you lose one of those hours, or even half of it, you have lost it forever. You cannot recover it someplace else in the system. Your throughput for the entire plant will be lower by whatever amount the bottleneck produces in that time. And that makes an enormously expensive lunch break.” (Location 2923)

Tags: bottleneck

Note: .bottleneck

“These are bottleneck parts.” It dawns on me what he’s getting at. “We lost the time on the bottleneck,” I say. Jonah whirls toward me. “Exactly right!” he says. “And what does lost time on a bottleneck mean? It means you have lost throughput.” “But you’re not saying we should ignore quality, are you?” asks Bob. “Absolutely not. You can’t make money for long without a quality product,” says Jonah. “But I am suggesting you use quality control in a different way.” I ask, “You mean we should put Q.C. in front of the bottlenecks? (Location 2998)

“What you have learned is that the capacity of the plant is equal to the capacity of its bottlenecks,” says Jonah. “Whatever the bottlenecks produce in an hour is the equivalent of what the plant produces in an hour. So . . . an hour lost at a bottleneck is an hour lost for the entire system.” (Location 3030)

Tags: bottleneck

Note: .bottleneck

how do we optimize the use of the bottlenecks? There are two principal themes on which you need to concentrate . . . “First, make sure the bottlenecks’ time is not wasted,” he says. “How is the time of a bottleneck wasted? One way is for it to be sitting idle during a lunch break. Another is for it to be processing parts which are already defective—or which will become defective through a careless worker or poor process control. A third way to waste a bottleneck’s time is to make it work on parts you don’t need.” (Location 3045)

Tags: bottlenecks

Note: .bottlenecks

“I mean anything that isn’t within the current demand,” he says. “Because what happens when you build inventory now that you won’t sell for months in the future? You are sacrificing present money for future money; the question is, can your cash flow sustain it? In your case, absolutely not.” “He’s right,” admits Lou. “Then make the bottlenecks work only on what will contribute to throughput today . . . not nine months from now,” says Jonah. “That’s one way to increase the capacity of the bottlenecks. The other way you increase bottleneck capacity is to take some of the load off the bottlenecks and give it to non-bottlenecks. (Location 3050)

Tags: bottleneck

Note: .bottleneck

After I tell him the symptoms, Jonah asks what we’ve done since his visit. So I relate all the history to him—putting Q.C. in front of the bottlenecks, training people to give special care to bottleneck parts, activating the three machines to supplement the NCX-10, the new lunch rules, assigning certain people to work only at the bottlenecks, increasing the batch sizes going into heat-treat, implementing the new priority system in the plant. (Location 3808)

Tags: bottlenecks

“Correct. By definition, Y has excess capacity,” says Jonah. “So if you work Y to the maximum, you once again get excess inventory. And this time you end up, not with excess work-in-process, but with excess finished goods. The constraint here is not in production. The constraint is marketing’s ability to sell.” As he says this, I’m thinking to myself about the finished goods we’ve got crammed into warehouses. At least two-thirds of those inventories are products made entirely with non-bottleneck parts. By running non-bottlenecks for “efficiency,” we’ve built inventories far in excess of demand. (Location 3934)

the level of utilization of a non-bottleneck is not determined by its own potential, but by some other constraint in the system.” (Location 3951)

Tags: bottleneck

Note: .bottleneck

activating a resource and utilizing a resource are not synonymous.” He explains that in both rules, “utilizing” a resource means making use of the resource in a way that moves the system toward the goal. “Activating” a resource is like pressing the ON switch of a machine; it runs whether or not there is any benefit to be derived from the work it’s doing. So, really, activating a non-bottleneck to its maximum is an act of maximum stupidity. (Location 3968)

we must not seek to optimize every resource in the system,” says Jonah. “A system of local optimums is not an optimum system at all; it is a very inefficient system.” (Location 3972)

Tags: optimise, system

Note: .system .optimise dont seek to optimise every resource in the system

“Julie, I’m not having second thoughts about you. But you’re the one who can’t figure out what’s wrong with us. Maybe if you tried to think about this logically instead of simply comparing us to the characters in a romance novel (Location 4271)

If you consider the total time from the moment the material comes into the plant to the minute it goes out the door as part of a finished product, you can divide that time into four elements. One of them is setup, the time the part spends waiting for a resource, while the resource is preparing itself to work on the part. Another is process time, which is the amount of time the part spends being modified into a new, more valuable form. A third element is queue time, which is the time the part spends in line for a resource while the resource is busy working on something else ahead of it. The fourth element is wait time, which is the time the part waits, not for a resource, but for another part so they can be assembled together. (Location 4343)

Note: Setup, process, queue and wait

an hour saved at a non-bottleneck is a mirage.” “A mirage!” he says. “What do you mean, an hour saved at a non-bottleneck is a mirage? An hour saved is an hour saved!” “No, it isn’t,” I tell him. “Since we began withholding materials from the floor until the bottlenecks are ready for them, the non-bottlenecks now have idle time. It’s perfectly okay to have more setups on non-bottlenecks, because all we’re doing is cutting into time the machines would spend being idle. Saving setups at a non-bottleneck doesn’t make the system one bit more productive. The time and money saved is an illusion. Even if we double the number of setups, it won’t consume all the idle time.” (Location 4372)

“According to the cost-accounting rules that everybody has used in the past, we’re supposed to balance capacity with demand first, then try to maintain the flow,” I say. “But instead we shouldn’t be trying to balance capacity at all; we need excess capacity. The rule we should be following is to balance the flow with demand, not the capacity. (Location 4863)

Tags: flow

Note: .flow balance flow with demand

“We’ve assumed that utilization and activation are the same. Activating a resource and utilizing a resource are not synonymous.” And the argument goes on. I say an hour lost at a bottleneck is an hour out of the entire system. Hilton says an hour lost at a bottleneck is just an hour lost of that resource. I say an hour saved at a non-bottleneck is worthless. Hilton says an hour saved at a non-bottleneck is an hour saved at that resource. (Location 4871)

What was the nature of the answers, the solutions, that Jonah caused us to develop? They all had one thing in common. They all made common sense, and at the same time, they flew directly in the face of everything I’d ever learned. Would we have had the courage to try to implement them if it weren’t for the fact that we’d had to sweat to construct them? Most probably not. If it weren’t for the conviction that we gained in the struggle—for the ownership that we developed in the process—I don’t think we’d actually have had the guts to put our solutions into practice. (Location 4996)

You forced us to view production as a means to satisfy sales. I want to change the role production is playing in getting sales.” (Location 5183)

Tags: production

Note: .production is a means to satisfy sales

That’s why I was so happy with our new method, timing the release of material according to the bottlenecks’ consumption. (Location 5203)

Tags: bottlenecks

Note: .bottlenecks

“I do think that meeting the people is important,” Stacey interrupts the laughter. “Financial numbers only reveal a small fraction of the picture. You have to find out what the people think is going on. What do they see as problems? Where do we stand vis-a-vis the clients?” “Who has a grudge against whom?” Bob contributes, and then in a more serious tone. “You also have to get a sense of the local politics.” “And then?” “And then,” Bob continues. “I’d probably take a tour of the various production facilities, visit some of the big clients, and probably even some suppliers. You’ve got to get the full picture.” (Location 5289)

Tags: consulting

Note: .consulting do fact finding, what do people think is going on, what are the key problems

This overconcern about the ‘proper way to arrange things’ manifests itself in other harmful ways.” “What do you mean?” Lou asks me. “I mean the merry-go-round that we’re all too familiar with; arranging the company according to product lines and then changing it according to functional capabilities—and vice versa. Deciding that the company is wasting too much money on duplicated efforts and thus moving to a more centralized mode. Ten years later, we want to encourage entrepreneurship and we move back to decentralization. Almost every big company is oscillating, every five to ten years from centralization to decentralization, and then back again.” (Location 5342)

“We were busy reducing costs that didn’t have any impact on reducing operating expenses.” “Correct,” Lou continues. “But the important thing is that we, in our plant, have switched to regard throughput as the most important measurement. Improvement for us is not so much to reduce costs but to increase throughput.” (Location 5555)

Tags: kanban

Note: .kanban focus on throughput

STEP 1. Identify the system’s bottlenecks. (After all it wasn’t too difficult to identify the oven and the NCX10 as the bottlenecks of the plant.) STEP 2. Decide how to exploit the bottlenecks. (That was fun. Realizing that those machines should not take a lunch break, etc.) STEP 3. Subordinate everything else to the above decision. (Making sure that everything marches to the tune of the constraints. The red and green tags.) STEP 4. Elevate the system’s bottlenecks. (Bringing back the old Zmegma, switching back to old, less “effective” routings. . . .) STEP 5. If, in a previous step, a bottleneck has been broken go back to step 1. (Location 5610)

Tags: bottlenecks

Note: .bottlenecks

‘how much inventory do we need?’ is not the real question either.” “I see,” Stacey says thoughtfully. “It’s a trade-off. The more inventory we allow before the bottleneck, the more time is available for upstream resources to catch up, and so, on average, they need less spare capacity. The more inventory the less spare capacity and vice versa.” (Location 6071)

“Now it’s clear what’s happening,” Bob continues. “The new orders have changed the balance. We took more orders, which by themselves didn’t turn any resource into a new bottleneck, but they did drastically reduce the amount of spare capacity on the non-bottlenecks, and we didn’t compensate with increased inventory in front of the bottleneck.” (Location 6074)

“If the first thinking process should lead us to answer the question ‘what to change?’ the second thinking process should lead us to answer the question ‘what to change to?’ I can already see the need for a third thinking process.” “Yes, so can I. ‘How to cause the change.’ ” Pointing to the fifth step I add, “with the amount of inertia that we can expect in the division, the last one is probably the most important.” (Location 6283)

“What are we asking for? For the ability to answer three simple questions: ‘what to change?’, ‘what to change to?’, and ‘how to cause the change?’ Basically what we are asking for is the most fundamental abilities one would expect from a manager. Think about it. If a manager doesn’t know how to answer those three questions, is he or she entitled to be called manager?” (Location 6290)

We should learn to be able to do it without any external help. I must learn these thinking processes, only then will I know that I’m doing my job.” “We should and can be our own Jonahs,” Lou says and stands up. Then this reserved person surprises me. He puts his arm around my shoulder and says, “I’m proud to work for you.” (Location 6300)

The daring nature of Ford’s method is revealed when one realizes that a direct consequence of limiting the space is that when the allotted space is full, the workers feeding it must stop producing. Therefore, in order to achieve flow, Ford had to abolish local efficiencies. In other words, flow lines are flying in the face of conventional wisdom; the convention that, to be effective, every worker and every work center have to be busy 100% of the time. (Location 6354)

Tags: flow

Note: .flow

Lean is now strongly associated with small batches and setup reduction techniques. (Location 6419)

In summary, both Ford and Ohno followed four concepts (from now on we’ll refer to them as the concepts of flow): 1. Improving flow (or equivalently lead time) is a primary objective of operations. 2. This primary objective should be translated into a practical mechanism that guides the operation when not to produce (prevents over production). Ford used space; Ohno used inventory. 3. Local efficiencies must be abolished. 4. A focusing process to balance flow must be in place. Ford used direct observation. Ohno used the gradual reduction of the number of containers and then gradual reduction of parts per container. (Location 6446)

Five Focusing Steps 1. IDENTIFY the system’s constraint. 2. Decide how to EXPLOIT the system’s constraint. 3. SUBORDINATE everything else to the above decisions. 4. ELEVATE the system’s constraint. 5. If in the previous steps a constraint has been broken Go back to step 1, but do not allow inertia to cause a system constraint. (Location 6736)