the goal - eliyahu goldratt

8/12/2019 The Goal - Eliyahu Goldratt

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The Goal

A Process of Ongoing Improvement

Eliyahu M. Goldratt and Jeff Cox


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The Goal

Characters:Alex RogoPlant Manager

JonahPhysicist/Production Consultant

Bill PeachDivision VP of Manufacturing

Bob DonovanPlant Production Manager

Lou ____ - Plant Controller

Stacey PotazenikProduction Control Manager

Ralph Nakamuradata processing manager


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The Goal

Introduction: Whats your first impression of themanufacturing plant?

Plant out of control

VP of manufacturing expediting an order

New robots

Controlled chaos

Good at fighting fires

Excellent at getting order filled when pressed

Lots of inventory


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The Goal

Alex travels to corporate meeting with abunch of corporate speak.

Alex begins daydreaming.


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The Goal

Alex/Jonah Chance Meeting in Airport

AlexRobots increased productivity by 36% in

one department

Jonah Are plant inventories down? : No

Is employee expense less? : No

Shipping more product?: No

AlexMust keep robots running to maintain

efficiencies.

JonahThen Inventories must be sky high and

orders must be late.


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The Goal

Alex/Jonah Chance Meeting in Airportcont.

JonahIn your own words, what is productivity.

Alex Accomplishing your goals.

JonahCorrect, then what is the goal of your

company?

AlexTo be more productive? : No

To produce products? : No

To increase market share?: No

JonahHow can you be productive? You dont

know the goal.


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The Goal

What does Alex determine The Goal is?

To make money!!

How do you know you are making money (Alex

and Lou)?

Net profit (Income-Expenses)

Return on Investment

Cash Flow

Why are each of these important?


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The Goal

How do the making money measurestranslate to the production environment?

(Jonahs translation)

ThroughputIs the rate at which thesystem generates money through Sales

Inventoryall the money that the systemhas invested in purchasing things which it

intends to sell. Operational Expensesall the money the

system spends in order to turn inventoryinto throughput.


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The Goal

What was the common word in all threemeasurement definitions?

Money going into the system Money stuck inside the system

Money flowing out of the system


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The Goal

ThroughputIs the rate at which the system generates

money through Sales

Inventoryall the money that the system has invested

in purchasing things which it intends to sell.

Operational Expensesall the money the system

spends in order to turn inventory into throughput.

Where do the following fit?

Raw materials Direct labor

Indirect labor

Tooling, machines, building

Knowledge gained by employees


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The Goal

Alex meets Jonah in New York seeking helpto determine steps to take in achieving

the goal:

JonahDo you run a balanced plant? Do

you have any idle workers and is it good

or not?

AlexWe try to keep all our employees

productive


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The Goal

JonahImpossible to perfectly balance capacity

to demand, there even exists a mathematical

proof showing if you did, inventories go through

the roof?

AlexHows this possibleJonahDue to two phenomenon:

1. Dependent eventsa series of events must

take place before another begins.2. Statistical Fluctuationsthe length of events

and outcomes are not completely deterministic.

The combination of these phenomenon are the

issue.


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The Goal

Dependent eventsStatistical Fluctuations

Q. - Where does Alex first come to grips with this

(i.e. sees this first hand)?

A.During the boy scout hike.


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The GoalBoy scout hike> Manufacturing Plant

Observations: Each boy is an operation

The product is walk the trail

Each boy/operation is dependent on the one in front.

A sale is when the last operation/boy walks the trail. Throughput is the rate at which the last person walks the

trail.

Operating expense is the energy output of each boy.

Inventory (material inside the plant) is the distancebetween the first and last boy.

Fluctuations in operating speed is causing inventory to

increase and causing throughput to decrease. Attempting

to reduce gaps is increasing operating expense.


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The GoalBack to the Boy scout hike

After lunch the boy scouts self-arrange so that the fastest isup front and so on until Herbie is at the rear.

Q. What was the result?

A. Line got even longer.

Q. Did throughput improve (completing more miles)?

A. No, completed miles still dependent on last scout walking

the trail, plus inventory has increased.

Observation: however, everyone is always walking (no one is

idle). But goal is not being achieved.


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The GoalContinuing with the Boy scout hike

Q. How does Alex fix the boy scout hike?

A. Puts kids in order from slowest first to fastest last. The line

then stays compressed (i.e. inventory has gone down and

progress has improved because Herbie is setting the

pace and doesnt have to exert energy to catch up).

Q. How do they further improve throughput?

A. Off-loaded Herbies backpack. In oherwords, they

improved Herbies throughput so the entire boy troops

throughput improved.


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The GoalAlexs First Chance to Test the Boy Scout Theory

Hilton Smyths order

needs 100 parts by end of day

Parts require 2 operations, fabrication then weld by robot Each department averages 25 units per hour, with robot

working at almost exactly 25 unit pace.

Start fabrication at noon, transferring parts on the hour,

every hour.

Fabrication

(25/hour)

Weld

(25/hour)

Transfer

(once/hour)


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Expectation:

Hourly Part Count

Fabrication

(25/hour)

Weld

(25/hour)

Transfer

(once/hour)

noon 1:00 2:00 3:00 4:00

Fabrication 25 25 25 25

Welding 25 25 25 25


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Realization:

100

90

Hourly Part Count

Fabrication

(25/hour)

Weld

(25/hour)

Transfer

(once/hour)

noon 1:00 2:00 3:00 4:00

Fabrication 19 21 28 32

Welding 19 21 25 25


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The Goal

Q. So what have they learned to this point?

A. Have more capacity at downstream operations.


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The Goal

Q. What does Jonah suggest they do next?

A. Distinguish between bottleneck and non-bottleneck

resources.

Definition:

Bottleneckany resource whose capacity is equal to or less

than the demand placed upon it.

Non-bottleneckany resource whose capacity is greaterthan the demand placed upon it.


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The Goal

The next step for Alex and company is to identify thebottlenecks (i.e. find Herbie).

Q. So how do you find a bottleneck in a manufacturing plant?

A. Go out on the floor and find the operation with the mostinventory sitting in front of it.

Q. Is having a bottleneck a bad thing?

A. Not necessarily, all plants have to have a bottleneck.


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The Goal


Q. Once the bottleneck is identified, can you simply move the

machines/operations around like Herbie was moved tothe front of the line?

A. No, production steps often cannot be reorganized.

Q. So how do you solve the problem of moving Herbie to the

front?

A. Find more capacity for the bottleneck, dont try to move

them. Have enough capacity to meet demand.


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The Goal


Q. How do you find more capacity?

Make sure it is never idle (focus your attention on it). Increase cycle time on the machine

Add another duplicate machine

Outsource to another vendor

Reduce the demand (process change)

Inspect part quality before bottleneck (make sure bottleneck only

works on good parts)

Ensure process controls on bottleneck are good so bad parts arent

produced

Dont let it work on parts that arent needed.


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The Goal

Back to the story:

Q. Where does Alex and company find the bottleneck?

A. They find two bottlenecks, NCX-10 and Heat Treat

Q. What is thier first approach to improving the flow through

the bottlenecks and ultimately improving productivity.

1. Move QC in front of bottlenecks.

2. Make a list of all late jobs and what components from those

jobs flow through the bottleneck machines. They then

create a schedule/list in due date order and instruct the

bottleneck operators to only work on those jobs in that

order.


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The Goal

Back to the story:

Q. Does this scheduling system work (e.g. get late jobs completed

while always keeping bottleneck running)?

A. No, because the late job components are not always waiting in

front of the bottleneck machines.

Q. What do they do to rectify this?

A. Create a red tag (parts that travel through the bottleneck) / green

tag system for all jobs throughout the plant such that any jobwith a red tag which arrives at a machine is given priority. If

they are in the middle of a run, then if the run takes longer than

30 minutes to complete, stop that job and start the red tag job.

If no red tags, then ok to process green tag jobs. If more than

one red (or green tag), then process job with lower number on

tag.


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The Goal

Back to the story:

Q. What do they do next to further off-load the Herbies / bust the

bottleneck?

1. Gold tags placed on parts that have traveled through the

bottleneck everyone extra careful not to damage.

2. Dedicate personnel at NCX-10 and Heat Treat even though

they are idle much of the time, just dont let machine idle.

3. Send out some portion of heat treat parts to vendor in town.

4. Found old equipment (that is less efficient) to run in parallel toNCX-10.

5. Fully load furnace when possible (e.g. mix batches).

6. Reduce setup time with new fixtures.

7. Were able to process some parts differently so heat treat

wasnt required.


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The Goal

Back to the story:

Q. What were the results of these bottleneck busting tactics?

1. New monthly shipping record from old record of 2 million to

new record of 3 million.

2. 57 customer orders shipped versus old record of 31.

3. WIP Inventories reduced 12%.


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The Goal

What happens next?

The bottlenecks are apparently expanding material is backing up

at the milling machines, and non-bottleneck parts (green tags)

are not reaching assembly even though all bottleneck parts

(red tags) are available at assembly.


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The Goal

What happens next?

Jonah revisits plant and discusses relationship between

bottleneck(X) and non-bottleneck(Y) machines.

1) Y X 3) Y A 4) Y Product A

2) X Y X S X Product B

S

E

MB

L

Y


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The Goal

Jonah believes the new bottlenecks are not real bottlenecks, but

self-created bottlenecks. Why?

A. Material is being released to the plant just to keep the non-

bottleneck machines busy. This improves these machinesefficiency measures, but does not help the goal.

Jonah: A system of local optimums is not an optimum system at all;

it is a very inefficient system.

Lesson: Do not try to make non-bottlenecks work all the time. They

should be idle some of the time!


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The Goal

So how do you go about fixing the problem of keeping the non-

bottleneck machines working at the same rate as the

bottleneck?

Recall the boy scout hike: Herbie is in the middle of the line andcannot be moved, so how do you keep the kid in the front

walking at the same pace as Herbie?

Alexs kids: use a rope and a drum.

Rope: Attach a rope from Herbie (bottleneck machine) to the kid at

the front (assembly). The length of rope represents inventory.

Drum: Herbie tells the kid at the front to slow down or speed up

(beats the drum). Need some kind of signaling or

communication between assembly and the bottleneck.


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The Goal

How is the rope and drum concept implemented in the plant?

Identified it takes about 2 weeks from when parts are released

to the floor until they get to bottleneck.

Setup system that monitors when inventory is processed at thebottleneck. Material required 2 weeks later is then released to

the floor.

Non-bottleneck parts are released according using the same

principle but tied to assembly.

BottleneckMaterial Release2 weeks lead time

Communicate release


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The Goal

What is the result of this new release system?

WIP is down.

Revenues are up.

Efficiencies dropped initially, but have come back up. The backlog of orders is completely gone (satisfied customers).

How does management respond?

Happy

Somewhat skeptical success will last

Wants 15% more revenue next month!!


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The GoalIn order to improve by another 15% what does Jonah suggest as the

next logical step?

Cut batch sizes for non-bottleneckparts in half.

What is the impact of reducing these batch sizes?

WIP for non-bottleneck parts reduced by half.

Significantly reduce time parts spend in plant. Leads to

increased responsiveness (from 6-8 weeks to 3-4 weeks).

What about the time to handle increased number of setup? Doesnt

matter if occurs on non-bottleneck operations.

Process Time Setup Time Queue Time Wait for Assembly Time

Time parts spend in the plant


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The Goal

Also to help get the 15%, Alex calls the marketing/salesmanager and bets him he can reduce lead time to fill

orders. What does Alex expect to gain by reducing

lead times to ship from what used to be 4 months to

4 weeks?

Increased sales!!

The bottleneck had moved to customer demand.

Quick response on promised due dates shouldtranslate to a competitive advantage.


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The Goal

Everything is going good now except it looks like part costs aregoing up. However, in reality all costs have gone down. How

can this be?

The accounting rules:

Cost per part = raw material + direct labor + burden cost Burden cost is all the indirect labor costs.

Burden = direct labor x burden factor

Cost per part has risen because more setups are occurring because

of smaller batch sizes.

However, workers were idle, so the increased number of setups

didnt really increase costs.


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The Goal

What other performance measure made them not look asgood as they actually were.

Answer: Inventory

Inventory is counted as an asset on the balance sheet.

When the plant worked hard to reduce inventories to

improve their throughput and responsiveness, it

looked as if their assets had fallen.


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The Goal

Sacred Cows Slaughtered:

Worker efficiency

Optimal batch size

Releasing work to the floor to keep people busy

Accounting rules


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The Goal

Why Alexs plant was successful:

Change in Focus

from the cost world to the throughput world

Cost

Throughput

Inventory

Throughput

Inventory

Cost


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The Goal

What process did they use to shift their focus to the throughputworld?

The Theory of Constraints

Step 1: Identifythe systems constraints (NCX10 and oven)

Step 2: Decide how to exploitthe systems constraint (dont take

lunch break on bottleneck machines)

Step 3: Subordinateeverything else to the above decision (red tags

and green tags)

Step 4: Elevatethe systems constraint (bring back old Zmegmamachine, outsource heat treat)

Step 5: Warning!!If in a previous step, a bottleneck has been

broken, go back to step 1 (material release system, marketing),

but do not allow inertiato cause a systems constraint (red and

green tags eventually caused problems).


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The Goal

Final words from Alex on how to be an effectivemanager:

Help people to identify:

what to change? what to change to?

how to cause the change?


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The Goal

Finally some Philosophy:

What approach did Jonah use to help Alex and the plant succeed?

Find the answers/solutions by asking questions, the Socratic

approach. Let others convince themselves of the answers,

dont just give it to them.

Also used a common sense approach which went against

common practice. In other words, think!!

the goal - eliyahu goldratt

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