Notes on “The Choice” by Eliyahu M. Goldratt and Efrat Goldratt-Ashlag

I have been reading Goldratt’s book “The Choice” and I’ve made some notes.

Chapter 1

Goldratt wants to live a full life.

Does this require genius?

No, you need to think like a scientist.

A scientist understands how his instruments are supposed to work. If it stops working that is an opportunity to find out more about why the theory about how works can be improved.

If you always work like a scientist you don’t get disappointed by plans going wrong.

“The more complicated the situation seems to be, the simpler the solution must be,” he recites.

Main obstacle to thinking like a scientist: people believe reality must be complex so they look for complex explanations and solutions to problems.

Chapter 2

big brand are clothing company. they think in five years they can increase their net profit to $1 billion per year in five years. Goldratt sez they can do $4 billion per year in five years.

Most popular items are about 30% of the items they provide.

Since they run out of the most demanded items their losses are higher than the percentage of missing items. They are out of the most demanded items after about 1 month of a six month season. the total amount of missed sales > all realised sales.

problems is that lifetime products < time to supply those products

regard being sold out as positive but it’s actually hiding a large missed opportunity.

also outlet sales of stuff that they can’t sell illustrate the problem

don’t know demand before start of season but try to forecast anyway. Find out demand in first two weeks of the season but the lead time is 2 months so they can’t use that information.

but the long lead time is a result of large quantities, but if they make smaller and more frequent orders in the same volume over the season the cost is the same.

big brand could offer to take back unsold stuff for a full refund. If they mostly hold and supply highly demanded stuff this won’t cost much.

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They want complex solutions like correctly weighting and adding 50 factors, which are qualitatively different (e.g. price and deliciousness are hard to add), to figure out just the right credence that is further updated by any piece of evidence. Then they just end up factoring in a bunch of local optima, that, in the bigger picture, have excess capacity, so they shouldn’t actually change the result (the desire to always update the credence on any good or bad evidence is wrong! they don’t know you can have excess!). Besides quickly checking that many factors don’t ruin an option (giving pass/fail grades to things that are not near the borderline between pass and fail), you should focus your more detailed attention on just a few important factors, which is simpler than trying to use 50 factors.

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Notes on more chapters

Chapter 3

efrat knew about shortages of popular clothes and outlet sales, but didn’t understand the cause and effect and come up with improvements.

Obvious in hindsight but why not in prospect?

Most people don’t want to come up with large improvements in industries but they still have problems they are blocked on. What psychological barriers stop people from solving such problems?

people with chronic problems hide those problems from themselves and put effort into less important problems, then lower their expectations.

Companies do similar stuff: aim at cost reductions instead of large improvements from solving shortages, and surpluses.

Need courage to decide to get rid of something that is at the foundation of your business such as forecasts for season. Don’t see how the perception that reality is simple could give a person the needed courage.

Chapter 4

what can help a person to think clearly?

Need to take inherent simplicity seriously as a practical way of viewing reality.

Motion of all the bodies in the world looks complex, but a lot of it can be understood with newton’s three laws.

if we keep asking why enough times we find simple root causes instead of just getting more and more causes.

Psychologists won’t agree reality is simple cuz people have freedom of choice.

But psychologists say ‘Tell me how you measure me and I’ll tell you how I will behave’ so they concede people are sometimes predictable.

Big brand was apparently complex, how can it be simple?

Is (A) a bunch of isolated stuff more complex than (B) a bunch of stuff linked together?

Depends on your definition of complexity.

Standard definition: more parameters needed to describe a system = more complexity.

But if the number of points you have to touch to change the whole system is small then number of independent parts are small. Different definition of complexity.

Big brand is like B: a bunch of stuff linked together. It has a lot of parts but they are linked together so changing one part of it can change lots of other stuff. So the amount of stuff you have to change is small - so big brand is simple by that definition.

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I’ve started writing a detailed breakdown/explanation of my dense paragraph. I may share and help if anyone tries to analyze and understand the paragraph.

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Chapter 5

if we look at all the details of relationships get overwhelmed by complexity.

But they are a result of simple cause and effect relationships.

Nature is harmonious with itself. There are no contradictions or conflicts.

But people have conflicts between one another and internal conflicts.

Two different techniques to measure height of a building give very different answers. Don’t say the height is the average of the two results. We must have made a mistake.

A person can have two conflicting desires. A conflict happens when you want a contradiction. Want wings on a plane to be strong, so give them supporting beams but also want them to be light.

Can treat any conflict like a contradiction. When fail to reach a compromise say that one of the underlying assumptions is wrong, and eliminate it.

second obstacle to solving problems is that people think conflicts are a given and compromise is necessary.

optimisation - how to find the best compromise instead of removing the cause of the conflict.

Chapter 6

how did inherent simplicity help solve the problems of big brand?

big brand was mostly doing the right thing. just looked at things that weren’t working well.

took simplicity for granted so problems must be caused by only one root cause - an unsatisfactory compromise.

other people gave up on solving those problems. smaller problems aren’t connected to main problem so solving them doesn’t help tackle large problems so ignore them.

more return for same effort when solving large problems.

Inherent simplicity - any conflict can be removed by removing an underlying false assumption. The underlying assumption for big brand was that they had to order the correct quantity of clothes in advance.

Can do the same for conflicts in relationships or individuals. Find a false underlying assumption and remove it.

in organisations false assumptions accepted as facts of life.

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Despite having read the thread that discusses credence, I’m not confident I follow how “credence” is being used here. Is it like weight, probability, something like that?

Yes. Credence = degree of belief = confidence level.

This is saying that people want complicated solutions. They want to weigh and add 50 factors together, but the factors they want to combine are incommensurable. They want to treat the factors as commensurable so that they can … and here I start to lose the thread of what Elliot is saying. I’m not clear what the relationship is between figuring out the right credence, updating, and evidence. I’m particularly unclear what “further updated” is referring to. Is figuring out the right credence and the credence being further updated part of the same process, or are these two separate steps?

They want to treat the factors as commensurable so that they can add them together to figure out the right credence. The credence can later be updated by new evidence.

(Note that my wording here is actually problematic. I say the credence can be updated, but really they think something more like that the credence should be or must be updated. The credence isn’t meant to be final.)

They are two separate steps.

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Here’s my attempt at coming up with an example: someone trying to pick a university builds a scoring system that takes into account “proximity to home” as one of the 50 factors, and assigns a higher score for that factor the fewer miles from home the school is. But really, what they care about is that they’re within a 3 hour flight from home. But their scoring system assigns extra weight to a school in their hometown over one a 3 hour flight away.

stuff falling within a certain range shouldn’t cause changes in the credence/weight people assign stuff. I think my previous comment had an example of this point (re school distance from home). I think this connects to breakpoints - like if the evidence or whatever doesn’t indicate that something has crossed a breakpoint, then your credence or whatever shouldn’t update and your analysis of what to do shouldn’t change.

Chapter 7

nature is simple and harmonious. not just lack of contradiction. apparently different issues often turn out to be related.

what do people think are the reasons for disharmony in relationships? they blame the other person for disharmony calling them egotistical or whatever.

third obstacle in the way of thinking clearly is blaming other people.

points toward getting rid of the other person, which usually doesn’t solve the problem

also ruins the harmony in a relationship.

to pursue promising opportunities need to collaborate with other people. disharmony prevents good collaboration.

why not blame people when they are at fault?

harmony exists in any relationship between people, but in most cases we don’t bother to find it

what about when one party demands a major change from the other party. other party may object.

big brand demanding change from its suppliers. Isn’t it reasonable to expect them to resist quick response to small orders?

Chapter 8

85% of company X’s income comes from big brand companies. a large client can get a lower price and low margins.

but X has ten clients none of whom are very large compared to the others.

X is in Europe so they can transport stuff to warehouses of clients in a few days, but production lead time is 2 months so they can’t take advantage of that.

not much setup so could cut lead time to one week. brands want to reduce inventory and will pay X to hold some of it for them. proximity and shorter production time means X can do this for a small price increase.

reducing lead time exposes excess capacity - can double sales without increasing manpower.

material cost is about 1/2 of selling price so making profit = current sales means increasing direct labour by 50%

But material cost is actually 75% not 50% cuz big brand companies can squeeze suppliers that are eager to grow. must increase sales and margins.

Give a premium price for rapid response. But dying is a batch process, don’t want to do it in small quantities. also can’t guarantee same colour in subsequent batches.

is all garments are made from one dyed fabric could just produce the fabric and do small runs of each garment. can forecast amount of different sizes that will be bought so can know how much cloth is needed.

number of models versus fabrics is 7 to 1. is that good enough?

30% roe skus run short, 30% have a surplus. run out in one month of three month season so sales could be made about 3 times larger.

X will buy fabric in advance but only make half of it into clothes then wait for more orders. leftover fabric will either be held at big brand’s expense or turned into more clothes at the end of the season.

this will increase inventory turns, which brands will want. offer can double X’s margins and increase sales.

Blaming other non-people is a problem too. Blaming or making excuses (which are similar actions) is one of the things talked about in The Reason People Don't Get Better At Chess According to Ben Finegold - YouTube

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Chapter 9

“for every relationship there is a change that will cause the parties to each achieve what they need from the relationship.”

blamed big brand for demanding a change from large up front orders to quick response to actual consumption, so didn’t look for a benefit to suppliers.

Blaming mind set blocked finding the deal.

Why blame others? Look for compromise. change shares of small cake. somebody has to get less - win lose. when not satisfied with end result will blame other party.

if we remove an underlying false assumption that enables us to increase the size of the cake and get a win win solution. win win solution always exists.

should assume a win win solution exists. if there is no acceptable compromise you don’t lose anything by assuming it exists and may profit.

start by looking for the other party’s win? the contractor would might assume the brand would want cheaper prices, but they would be wrong.

started by noticing the brand wants suppliers to hold inventory for them. then realises brand wants inventory turns more than lower prices.

want bigger win for our side have to arrange bigger win for other side. if there is such a win then why doesn’t the other party ask for it? they lower expectations to calculate to camouflage large chronic problems.

can identify bigger wins by looking for camouflaged problems

Chapter 10

how can supplier get higher margins? what about selling directly to retailers? need a new type of company: designing garments.

but supplier X already does this. already sell a lot to shops in their country. could sell to shops outside the country. why haven’t they done it? don’t have name, brand recognition and building it takes time and money.

Why do they need brand recognition? brand name stuff is more likely to sell and shops have to optimise what they display.

but shops do sell non-brand stuff. supplier X could offer clothes on consignment, but might not sell so they could get back a load of unsold stuff. shops won’t want to do it since non-selling stuff takes up shelf space that could be filled by selling stuff.

set prices to be lower than brand name prices instead. half of the brand price would still result in a substantial profit that is larger than the brand will pay the supplier. but the price is actually less than half, not enough for a good profit.

what if we can reduce the risk of stocking the non-brand stuff below the risk of stocking the brand stuff? some risk in stocking brand stuff as illustrated by clearance sales of non-selling brand stuff.

allow shops to buy based on actual consumption not forecasts and offer full refund for unsold stuff.

assume conservatively that total increase of sales is 50% (fewer shortages more high runners). for shops this doesn’t require any increase in overhead or employee costs.

most shops make less than 5% profit on sales. 50% increase of sales makes their profit on supplier’s stuff a factor of five larger than for standard manufacturer.

supplier could concentrate sales on a densely populated area with just one warehouse, so lots of profit for small inventory investment.

instead of trying to find a way to reduce the risk compared to brand, instead tried to reverse the gap by making the suppliers less risky than the brand’s stuff.

Chapter 11

Start by exploring a big win for the other side and then find a way to satisfy it.

Never say “I know”? why not?

conviction that you know might stop you from looking for fundamental improvements.

if everything can be substantially improved then there are opportunities all around us.

Chapter 12

goldratt report about a company that sells flour and maize. highest margin product is bread.

distribution solution - increase frequency of orders/deliveries. but bread is already delivered daily cuz it has short shelf life. customers care if bread is fresh out of the oven, but after that the time the bread was baked that day doesn’t matter. bread that was baked yesterday is bought less or not at all.

bread is produced, wrapped in plastic with shelf life of four days. expiration date on the bag and customers are sensitive to it.

retailer wants product but must consider the effect of leftovers and so orders conservatively. can’t forecast how much demand there will be on any given day so if the company offered more than daily delivery might increase sales.

sometimes can’t buy bread in the afternoon but most bread is bought in the morning so this would just increase sales by 10-30% but gross margins is 40-50% and transport costs are 3-5% so is increase in sales is greater than 10% it will produce a profit. If increase is 30% that’s even better.

For items that sell usually sell 50 per day would expect the variation from day to day to be in range 40-60, 20%. If selling 5 units per day expect some days it would sell only 1 or 2 units, so larger percentage variation. retailer will be more conservative with lower running items.

price of fancy bread ingredients 2 times those for normal bread. price paid for the bread by consumers is 3-4 times the price of normal bread. less is sold of each fancy bread and retailer has less experience with a new fancy bread so they will order conservatively.

if second delivery increases sales by 30% could cause large increase in sales of fancy bread. could also offer to take back unsold bread for a refund and refunds on ordinary bread would be paid for by increase in fancy bread sales since retailer conservatism on fancy breads is higher than for ordinary bread.

what about flour? Normally deliver once a week or less. moving to daily delivery will increase sales can cut inventory held by shops.

mills have to produce to availability. distribution have to keep track of what’s been ordered and replenish. sales have to agree to right inventory and then refresh actual consumption instead of just pushing to sell more.

increased volume while dropping production time from 24 hours to 8 hours.

sales for milled products now 90% higher - surprising.

replenishment eliminates shortages and also means less sales attention is required for slow movers, so can switch attention to fast movers.

bread sales 118% higher. why? competitors not eliminated. not customers of other shops. existing customers buying more bread.

customers prefer a new loaf even if an old one is available and people often shop after work hours.

an offer that gives a company a decisive edge can increase the size of a market rather than take a larger share of the existing market.

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Chapter 13

“the most precious opportunities to deepen our knowledge are whenever reality is significantly different than our expectation.”

Reported percentage increase in sales was wrong. They included shops they weren’t selling to a year ago, which distorted the figures. Increase per shop was about 60%.

Goldratt went to Holland to find out why he was wrong about the figures.

results were better than required. why rethink the solution? The fact that he was wrong about the size of the effect of the conservatism also refutes his ideas about the reason for the conservatism.

he thought the shop’s margin on its products was about 35% like supermarkets, but it is actually 15%.

so one unsold loaf wipes out profits of five sold loafs, so shops are more conservative in their bread orders.

How can we tell whether the new policy has removed the loss of sales from conservatism?

To eliminate the effect eliminate the cause. bread making company can take back a loaf for a full refund but this just shifts the loss to the bread maker rather than the shop. their margin per loaf is higher but will the increase of sales make up for the losses?

bread is plastic wrapped and has a four day shelf life so can sell it to institutional customers. can sell weak old bread to a biscuit company for more than flour.

since leftovers don’t damage the company if a driver sees there are no leftovers he gives the shop more tomorrow and if there are too many leftovers he cuts what he gives them tomorrow.

have to keep going and work out other implications of new understanding. since new policy will eliminate the shops’ conservatism only need one delivery a day.

also came up with another idea for increasing profit. replenishing to consumption frees up 3/4 of their warehouse space. also since only one delivery a day most of the trucks are unused for most of the day. so the company can ship additional fast moving goods without much increase in operating expenses.

making more products to distribute would require a lot of new investment, but they could use their sales and delivery abilities to sell stuff from other brands.

Chapter 14

How does one practice thinking clearly?

avoid circular logic

start with an effect and ask why it exists. sooner or later reach entities that can’t be directly sensed: abstract entities.

when dealing with people first attempt to find a cause often leads to an abstraction, such as “conservatism” or emotions like love and hate.

it’s easy to fool yourself when dealing with abstraction through circular logic: tautologies.

example: the team lost the game because they didn’t have enough motivation to win. how do you know? because they lost the game.

circular logic doesn’t imply that the given cause for an effect is wrong but that it hasn’t been substantiated.

“sales of our product are declining because the market taste is changing.” but many possible causes of declining sales: economic downturn, price increase etc.

if you also know that sales of an alternative product are rising may think sales decline is a result of changing tastes.

to substantiate a cause another observable effect of that cause is needed. then you want to look for a deeper cause.

if you don’t think a second effect exists you may give up on searching and keep your original idea.

inherent simplicity helps cuz it sez causes converge, so each cause will have more than one effect and there will always be another effect to look for. if you can’t think of another effect you’re thinking too narrowly.

in many cases another predicted effect is already known to us.

example: people resist change, the bigger the change the bigger the resistance. but many people look forward to changes like getting married or having a baby.

Popper: a test should be capable of showing an idea is wrong. most ideas are wrong and will be refuted.

people are careless about making derogatory claims like “people resist change”. this is part of our culture and biases us to ignore predicted effects that are incompatible with that claim.

This isn’t analysis. It’s restatement plus changing something to a synonym ( “complex” to “complicated”).

This is restatement not analysis. It changes some word forms like “weighting” to “weigh”.

This is restatement not analysis. There are two main changes. The first is restating the grammatical subject of “are”. The second is changing “qualitatively different” to “incommensurable” which isn’t a reasonable synonym.

JM has done grammar and text analysis at other times. But here it seems like he used some high school homework autopilots.

The purpose of the changes (like synonyms, word forms, and adding in an implied word) is to obscure what’s being done. Restatement with no changes wouldn’t look like thinking. It probably wouldn’t even fool a teacher who is barely paying attention.

Pointing out errors like this is basically thankless and also doesn’t fix the root causes. And there are way too many errors that could be pointed out.

It’s good practice for people who don’t have a lot of experience with it already, though. In other words, most audience members who noticed it would have benefitted by saying it. I think a bunch of people were fooled.

It’s not just JM who should appreciate the correction. It’s all those readers too. The strategy of hiding your errors with silence isn’t very good. It’s hoping for biased attention towards issues that people speak about. I guess the main point is to fool themselves, which does work pretty well. Similarly, the people who didn’t try at all can be judged for that choice. It’s meaningful.

People don’t appreciate this kind of correction because they don’t do anything productive with it. That is itself something important to understand and address, but the lead isn’t appreciated because people spend their lives trying to hide from their problems.

People don’t want to organize their lives and plan how to improve. This thread about The Choice contains no framing about AF’s goals. There’s no bigger picture about what plan it fits into and why that’s a good plan. It’s more of an isolated concrete – a tree not a forest. Similarly, there’s a lack of framing, goals or planning in JM’s posts about ET’s liberalism article. JM will likely stop and do something else before achieving something significant, considering there’s no clear goal. Like he watched some Max tutoring videos but then stopped without explanation.

Other people are broadly doing worse – it’s hard to find things that look like they even might be attempts to improve. For example, anon20 said they would study some CF stuff Personal Budgeting + Finance Help - #38 by anonymous20 and then just didn’t. They wasted people’s time giving them guidance about what to do and then didn’t do any of it. Other people also have agreed to try to learn something and then just not done it.

Even when people learn something – e.g. JM, AB, KS learned some grammar on FI list – they stop. They didn’t move on to next steps and use it as a building block. They learned some unnecessary details about grammar – local optima – but did not try to integrate grammar into some higher level philosophy learning. What’s the point of a basic starting point if you learn it in isolation and then switch topics?

The overall reason people don’t make progress is that they literally aren’t trying to, in the following sense: they do not have a plan they think will work to make progress that they follow over time. Any activities done without a connection to such a plan should not be expected to accomplish much.

The least you could do is choose to learn about some isolated concretes that are involved somewhere in someone else’s plan. Then maybe they’ll come in handy later if you ever try to plan. Reading The Choice is good for that since it’s some of the background material that can help with understanding CF. But it’s important to have realistic expectations and not be disappointed when this kind of poor substitute for a plan doesn’t accomplish much on its own.

Most people want to rely on other people’s planning indefinitely. They learn from curriculums and schools. They aren’t suited to be self-educated. Then they get a job and follow the plans of the CEO and managers. They don’t have to think about the bigger picture. They can do little tasks, for little pay, and someone else can worrying about planning how those tasks will contribute to a productive plan. Because they don’t understand the big picture well, they are stuck following instructions mindlessly. They don’t know what optimizations would actually be useful to the plan or what changes would actually be bad. Some people try to make local improvements, or complain a ton about dumb managers/rules/policies, but they’re often wrong about what is an improvement or what the purpose of the policies is.

Yeah that’s fair. I was kind of running out of steam as it is.

I think there is some motivation and fun that comes from having other people working on a project at the same time you are and who are roughly on the same level, with everyone trying to figure out stuff together, comparing their analyses and so on. I think that’s a common thing people experience. It came up on the FI list a couple of times at least (with Grammar the most, but I think there was some of that going on with the analyzing lies thread. And even a bit of it on the Pulling Your Strings analysis mb).

The issue with that as a motivation is it doesn’t keep going after the “class” ends.

(I mean this as like a side point or tangent to your comments and not as an attempt to disagree with them.)

So make a plan and a goal tree?

Maybe you know roughly how the tutoring videos fit into a goal tree, but you still don’t do them. What would that mean? That the goals you wrote down are not your goals. (Or some alternatives, e.g. that the connections in your tree are wrong.)

How do inaccurate stated goals happen? People lie to themselves. And people’s automatized goals and conscious goals differ. And people have contradictory goals.

What can you do about that? Learn about typical lying in our society. Use conscious control to practice and automate different goals. Learn something about logic and critical thinking and seek out contradictions.

What goes wrong? People get fooled by lies instead of learning to spot them. There aren’t very good teaching resources about lying. And people try to make poorly thought out revolutionary changes to their goals that are ivory tower, impractical, rationalist, etc. And people do a bad job of learning about contradictions.

I could go on. You need to go on. None of the things I said in this post are very clever. I bet you could think of things like this. You have to do your own thought process. I can give some examples, tips and criticisms but I can’t do it for you. Plus you haven’t asked for my help with it and and you don’t appear to want it.

I think people get stuck on doing analysis because they overcomplicate it and overreach. They introduce lots of errors instead of keeping it to simple stuff that they can have reasonable confidence in. That’s a choice.