The Goal by Eliyahu Goldratt - Book Summary and Review

The Goal is a book about business/management principles written in the form of a fictional story. The author of the book, Eliyahu Goldratt is a business consultant and the man behind "Theory of Constraints".

The Goal by Eliyahu Goldratt

Jonah, a physics professor guides Alex Rogo, plant manager of a manufacturing unit, to turn his forever behind schedule plant into a profitable one. Jonah often teaches Alex by questioning and letting Alex come up with solutions.

Alex deals with crisis as and when they come, when delayed orders are expedited by upper management. "We made it through today's crisis. We won. Just barely."

Lost in individual unit efficiencies and measurements that are false indicators of profits, Alex fails to see the bigger picture.
"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"  - Jonah

Jonah questions Alex about the goal of the company.
"Productivity is meaningless unless you know what your goal is"
Making money is the goal of any corporate. Quality, efficiency, technology, highest market share are all means to the goal.

The goal stays the same, but we can state it in different ways, ways which mean the same thing as those two words: 'making money.'

• Increase throughput while simultaneously reducing both inventory and operating expense. 
• Throughput: rate at which the system generates money through sales.
• Inventory: all the money that the system has invested in purchasing things which it intends to sell.
• Operational expense: all the money the system spends in order to turn inventory into throughput.

A plant in which everyone is working all the time is very inefficient. What matters is being productive in terms of the goal.

The goal is not to improve one measurement in isolation. The goal is to reduce operational expense and reduce inventory while simultaneously increasing throughput.

Dependent events in combination with statistical fluctuations:

• Accumulation of the fluctuations is an accumulation of slowness—because dependency limits the opportunities for higher fluctuations.
• Covariance, the impact of one variable upon others in the same group:  A mathematical principle says that in a linear dependency of two or more variables, the fluctuations of the variables down the line will fluctuate around the maximum deviation established by any preceding variables.
• System of local optimums is not an optimum system at all.

Bottleneck resource: any resource whose capacity is equal to or less than the demand placed upon it. 

• Whoever is moving the slowest in the troop is the one who will govern throughput.
• You should not balance capacity with demand. Instead balance the flow of product through the plant with demand from the market. Balance flow, not capacity. 
• Make the flow through the bottleneck equal(or tiny bit less) to demand from the market. To increase the capacity of the plant is to increase the capacity of only the bottlenecks.
• Lost time on a bottleneck means you have lost throughput. 
• Actual cost of a bottleneck is the total expense of the system divided by the number of hours the bottleneck produces.
• Make the bottlenecks work only on what will contribute to throughput today.
• The level of utilization of a non-bottleneck is not determined by its own potential, but by some other constraint(bottleneck) in the system. 
• Activating a resource and utilizing a resource are not synonymous. 
• The bottlenecks are the indicators, when to let more inventory into the system. 
• Bottlenecks dictate inventory as well as throughput.
• An hour saved at a non-bottleneck is a mirage.

"Sacrificing present money for future money; the question is, can your cash flow sustain it?"

The strength of a chain is the strength of it's weakest link. Find intrinsic order, an order that already exists.
Goal is a process of on-going improvement.

1.  Identify the system's bottlenecks/constraints
2.  Decide how to exploit the bottlenecks
3.  Subordinate everything else to the above decision
4.  Elevate the system's bottlenecks
5.  Warning : If, in a previous step, a bottleneck has been broken go back to step 1, but do not allow Inertia to cause a system constraint.

Individual thinking/teaching/learning:

"Numbers were almost always right. However, if I checked the assumptions, they were almost always wrong."

•  Common sense gets masked by common practice.
• How to persuade other people, how to peel away the layers of common practice, how to overcome the resistance to change:'Don't give the answers, just ask the questions!'
• You have to gain the understanding for yourself in order to make the rules work.
• We can't achieve a goal that is open-ended.
• Derive the results logically from a hypothesis, based on one key relationship: IF ... THEN.
• Techniques must come from the need itself, from examining how the current situation is and how it should actually be: 'What to change?', 'what to change to?', and 'how to cause the change?'

Review:

Instead of simply quoting the business principles, this book drives the point home in the form of a story. With every crisis, the protagonist faces, a new principle is introduced. The theory of constraints is applicable not just to business systems, but also our own individual systems that drive us everyday. Apart from the business principles, it also makes some points about thinking, coming up with solutions and persuading others in the form of Socrates teaching by asking questions.

Rating : 3.5/5 

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