12/2/13 OPMG 332 The Goal Assignment The goal of a business is to make money.
According to The Goal by Eli Goldratt, the goal is to increase net profit while also increasing return on investment and cash flow. Jonah claims that a business must increase throughput, while simultaneously reducing inventory and operational expenses. Throughput is the rate of sales, inventory is measured by the money invested in products intending to be sold, and operational expenses are measured by money spent to convert inventory into throughput. One way to decrease the operational expenses would be to lay off workers. Jonah tells Alex that he shouldnt be concerned about the conventional cost accounting reports, but rather he should be concerned with the excessive inventory. UniCo was overproducing unnecessary parts to keep efficiency up. The robots the company had purchased did not increase sales at all even though it looked like they had increased productivity by 36 percent. All that was doing was increasing the money they had tied up in inventory they couldnt use. You want a balanced plant where the capacity of every resource is balanced exactly with demand from the market, but to balance your plant, you have to trim the capacity to demand, which decreases throughput and ultimately decreases demand and leads to a company going under. The two causes of this are dependent events and statistical fluctuations. These dependent events have to happen in order to move on to the next steps and the statistical fluctuations cant be determined precisely, which leads to errors. A bottleneck is any resource whose capacity is equal to or less than the demand placed on it, which can slow down production. Bottlenecks are important because, just like Herbie
slowing down the rest of the boy scouts hiking, a production process is only as fast as its slowest member, which increases the total time of the production process. Placement of processes can also affect bottlenecks, just like placing Herbie in front of the line. One of the bottlenecks in The Goal were the older machines. Their total process cycle time for all 4 of them was 16 minutes. They also required one manager per station which would mean they needed 10 machinists to run them. The newer machine, the NCX-10 robot, was one way they could decrease that bottleneck. Since the robot only took 10 minutes to process the same item and only required 2 operators, they would be able to save time and lower costs which would increase their efficiency. While UniCo already had the robot, it was not running at full capacity because they didnt have enough workers trained to operate it, which would take 6 months to do. Once they get enough workers trained to operate it and get it running at full capacity, it would help decrease bottlenecks. Another bottleneck at UniCo was quality control. Quality control should be placed before bottlenecks, so that they dont have to waste time and money creating a faulty item that they will have to scrap later. An additional bottleneck Unico had was that the operator couldnt tell the difference between an ordinary part and a bottleneck part. Trying to stay busy, he set up the machines to run for non-bottleneck parts rather than the bottleneck parts needed to run the next batch for the NCX-10. Because of that, they couldnt move on with the rest of the process so they werent moving towards their goal. They decided to make a system to distinguish the important parts from the non important parts. They mark all work in process materials with a green or red flag. The red tags need to be processed by a bottleneck and have
first priority. They were also numbered in case they get two different batches of red tag materials. The lower numbers have higher priority. This helps get the bottleneck materials processed faster rather than working on a lot of non-bottleneck material that isnt productive. They also created a material release system that triggers release of bottleneck material only when they are needed rather than being triggered at a non-bottleneck idle time, and used the same release system throughout the entire system. This way, when the bottleneck parts reach final assembly, the release of non-bottleneck materials coincides with the other routes. By doing this, they utilized their resources in a way that moved the system towards their goal, without clogging up the work in process inventories at both bottlenecks and non-bottleneck stations. At the end of the story, Alex talks about why it is important to focus your energy on the process of improvement rather than on the improvements themselves. Once improvement in performance started to level off, other companies started to catch up to UniCo. When Alex tried to tell everyone at his plants about that, no one listened to him. They assumed that since they had made one great improvement they would be fine, but in reality, no matter how far ahead of the competition you are, you have to continue to improve to stay ahead.
