The Goal Chap 7 - 12 Page 53-93

1. The Goal Chap 7 - 12Page 53-93 Eliyahu M. Goldrattand Jeff Cox Connie 3/8/05

2. Characters • Alex Rogo Plant Manager • Bill Peach Division VP UniCo • Fran Office Administrator • Martinez • Mike O’Donnell Local Union Pres. • Dempsey Supervisor • Ray Foreman • Bucky Burnside Customer • Bob Donava Production Mgr • Tony Master Machinist • Julie Rogo Wife • Jonah TOC Guru • Grandby Chairman of the Board • Sharon, Davey Children • Ethan Frost Division Controller • Johnny Jons Marketing Mgr • Lou Plant Controller • Stacey Potazenik Inventory Control Mgr

3. Chapter 7 • “Quality” time with daughter Sharon - report card with straight A’s • Reflection • Flunking out on business • Do I stay or do I go? • Decides to do everything I can for 3 months

4. Chapter 7 • How? • More of same won’t do • No time for school or reading • No money for consultants • Solution • Don’t take anything for granted • Watch closely, Think carefully • Take it one step at a time • Use what I have: eyes, ears, hands, voice, mind • ….Find Jonah

5. Chapter 8 • Goal for day is “Find Jonah” • Derailed • Bill demands meeting • Press inquires about plant closing • Telecom with Bill, Ethan, Lou • Project reviews from last week • Paperwork • The day is done - no Jonah

6. Chapter 8 • Search for Jonah’s phone # 6 hrs pass • Interrogation by mom • Feed by mom • Worried over by mom • Search of attic, basement, room • Recap of family history • At 1:00 am # is found & Alex calls a friend in Israel for J’s # • At 2:00 am pad full of #s • At 3:00 am leaves message for Jonah in London • About 4:00 am Al is called back

7. *Chapter 8, p.59 • “What is the Goal?” • “The goal of a manufacturing organization is to make money.” • “Everything else we do is a means to achieve the goal”

8. Chapter 8 • Measurement of results • Corporate Level • Net profit • Return on investment • Cash flow • Plant Level • “There is more than 1 way to express the goal..the goal stays the same..make money…”

9. *Chapter 8, P.60 • Plant Measurements • Throughput • Inventory • Operational Expense • Throughput - “rate at which the system generates money through sales”

10. *Chapter 8, Page 60, 61 • Inventory - “Inventory is all the money that the system has invested in purchasing things which it intends to sell” (Investment) • Operational Expense - “all the money the system spends …to turn inventory into throughput” (Expense)

11. *Chapter 8&9, P.62 • “…[numbers] are always talking about the organization as a whole, not local optimums” • How to derive operational rules for the plant?…Later! • Sleeps in until 11 and makes excuses • Late orders, customer complaints, testing machines down • Fight, numbers for Bill, reporters, & productivity tape at plant w/ Chairman of the Board, Granby(he likes the color of the robot)

12. *Chapter 9 P.65 • Exit pass from mom’s house • Eat breakfast • Explain phone call • Explain robots • Mom suggests returning the robots • Enough to eat, snack, hug • “Stop worrying!” lecture • Call so I can pay phone bill • Remembers what Jonah says: • “Is productivity really increased?” • Plant #’s say 36%

13. Chapter 9 • Had productivity gone up with the robots? • Did we sell more product?(throughput up?) • Did we reduce the number of people on the payroll?(operational expenses down?) • Had inventories gone down?

14. *Chapter 9, P.67 • Way to express the revised goal?: “Increase throughput while simultaneously reducing both inventory & operating expense”

15. Chapter 9 • Thoughts about Robots • Inventories have increased • Depreciation has increased • No jobs directly removed, shifted people • Operational expense increased • Efficiencies increased so cost per part dropped???

16. Chapter 9 • Facts about robots • No increase in sales • Work in process inventories went up (more product was released to floor to increase their efficiencies resulting in increased WIP) • Discussion on working on things with no orders and no parts for the orders they have • Not getting parts when they need them

17. Chapter 9, P. 71 • “Look, it’s the same game everybody plays. Whenever efficiencies take a drop, everybody draws against the future forecast to keep busy. We build inventory. If the forecast doesn’t hold up,…We’ve been building inventory for the better part of a year.” • The cost of parts goes down , not with production volume, but with sales volume

18. *Chapter 10, P. 74 Measures Inventory Money inside Operating Expense Money out Throughput Money coming in (Value added is not taken into account)

19. Chapter 10 • All Employee time is Operational Expense: • Direct • Indirect • Idle time • Operating time • Whatever

20. Chapter 10 Selling Price > investment + total operational in inventory expenses (Value of Product or Selling Price)

21. Chapter 10 • Costs sifted: • Inventory • Machines • Buildings • Parts • Knowledge that is sold • Operational Expense • Depreciation • Oil • Scrap • Lost Money • Knowledge used on process

22. Chapter 10 • Tells Bob, Stacey and Lou about 3 month Ultimatum • “We’ve got to look good for Granby” • “We’ve got to make the robots productive in terms of the goal” • Seeming conflicts in perceptions • Alex decides to meet with Jonah at 7 am in New York • No sleep • Angry family

23. Chapter 11, P. 84 • Jonah strikes a deal for Alex to “Just pay me the value of what you learn from me” • If plant folds, then nothing • If make millions, then pay accordingly • Alex starts defending the plants efficiencies and Jonah asks: “then why is your plant in trouble” • Jonah: “Most of the time, your struggle for high efficiencies is taking you……[away]from goal”

24. Chapter 11 • Is it okay for a production employee to be idle? • “A plant in which everyone is working all the time is very inefficient” • “Do you have a lot of excess inventories?”

25. *Chapter 11, P. 85, 86 • The Big Picture • “Out there in the world …is a market demand. Inside company are resources and capacity to fill that demand” • Balanced plant = capacity of resource = market demand • Old school thought: • Not enough capacity, cheating ourselves out of potential throughput • Too much capacity, wasting money & need to reduce operational expense, traditionally trim capacity

26. Chapter 11 • Why aren’t there balanced plants? Alex’s view: • Conditions always changing • Vendor sends bad parts • Work force • Absenteeism • Poor quality output • Employee turnover • Market conditions

27. *Chapter 11, P. 87 • Why aren’t there balanced plants? Jonah’s view: • “The closer you come to a balanced plant, the closer you are to bankruptcy” • Look at obsession with trimming capacity: • “When you lay off people do you increase sales?” No. “Do you reduce inventory?” No. “You improve only one measurement, operational expense.”

28. *Chapter 11, P.87 • Jonah: “The goal is not to reduce operational expense by itself. The goal is to reduce operational expense and reduce inventory while simultaneously increasing throughput.”

29. *Chapter 11, P.87 • Alex challenges: “If we reduce expenses and inventory and throughput stay the same, aren’t we better off?” • Jonah: “Only if you do not increase inventory and/or reduce throughput.” • J: “You assumed that if you trim capacity to balance with market demand you won’t affect throughput or inventory ..that assumption---which is practically universal in the western business world--is totally wrong”

30. Chapter 11 • Mathematical proof: “When capacity is trimmed exactly to ..demand, ..throughput goes down, and inventory goes UP • Carrying cost of inventory (operational expense) goes up. “So, it is questionable whether you can fulfill the intended reduction in total operational expense”

31. Chapter 11 • Dependent variables • Statistical fluctuation • Known • Unknowns • Don’t know all the facts ahead of time • “Where to, chief?”

32. Chapter 12 • Negotiations with family on division of time between work and home