Eliyahu M. Goldratt's The Goal

The Goal

Here are the principles behind the dramatic turnaround story in The Goal.

The goal of a manufacturing organization is to make money. Jonah poses this as a question: "What is the goal?" and Rogo actually struggles with it for a day or two, but any manager or executive that can't answer that question without hesitation should be fired without hesitation.

But then again, the goal isn't clear to everyone. One of the characters in the book, an accountant, responds to an offhand comment about the goal with a confused "The goal? You mean our objectives for the month?" That's sure to strike a chord with a lot of readers.

At an operational level, measure your success toward the goal with these three metrics:

Throughput - The rate at which the system generates money through sales.

Inventory - The money that the system has invested in purchasing things which it intends to sell.

Operational expense - The money the system spends in order to turn inventory into throughput.

You could rephrase it this way - and someone does, a bit later in the book:

Throughput - Goods out; the money coming in.

Inventory - Materials in; the money currently inside the system.

Operational expense - Effort in; the money going out.

Obviously, your job is to minimize expense and inventory and maximize throughput.

Adjust the flow of product to match demand. In particular, don't trim capacity to match demand. It's a standard cost-cutting procedure, sure. But you'll need that capacity later, if you're serious about increasing throughput.

Find bottlenecks. If manufacturing is what's limiting your throughput, then the problem isn't that people aren't working hard enough. You have bottlenecks in your manufacturing processes that are holding up everything else. Find the bottlenecks and do everything you can to fix them. Increase their efficiency, even at the expense of efficiency in non-bottleneck places, because the efficiency of a bottleneck directly determines the efficiency of the entire process, all the way through final payment. In the book, a variety of steps are taken to "elevate" and circumvent the bottlenecks. This is where the results start showing up on the bottom line. Soon the plant can actually use information from the bottleneck to do an effective job of scheduling work and (for the first time) reliably predicting when orders w...

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...deas in novel form. There were already a dozen essays or articles on manufacturing management paradigms; you couldn't sell those. Novels sell better than essays. They're more readable. Once you realize that managers will buy thousands of copies of a "business novel" and make it required reading for their subordinates, a novel is the only way to go. (Also, The Goal was originally intended as marketing for Goldratt's plant management software company.)

My main objection to The Goal is that it's fiction. Rogo makes a few changes, and his problems miraculously go away. It just works. Granted, the policies seem like good sense. But the unrealistic points are glossed over. Maybe plant managers in real life have the authority to adopt dramatic changes in the way they operate, the way Rogo did. Maybe it's easy to convince your top accountant that all his models are wrong, even though you have no accounting experience yourself. Maybe the average plant has an IT department that can create new scheduling software out of thin air in a few days. Maybe not. Goldratt claims a lot of real-life plant managers say they've turned The Goal into a documentary. That's a book I haven't read yet.