Notes on "The Goal" by Goldratt

Topic Summary:

I am posting notes I’m making while reading “The Goal” by Eliyahu Goldratt.

Goal:

My goal is to understand “The Goal” better.

Why are you posting this in Unbounded?

Do you want unbounded criticism? (A criticism is a reason that an idea decisively fails at a goal. Criticism can be about anything relevant to goal success, including methods, meta, context or tangents. If you think a line of discussion isn’t worth focusing attention on, that is a disagreement with the person who posted it, which can be discussed.)

I want unbounded criticism.

Introduction

Direct quote from the first paragraph: “Science is simply the method we use to try and postulate a minimum set of assumptions that can explain, through a straightforward logical derivation, the existence of many phenomena of nature.”

The book is about applying scientific methods to industry.

constructing this new science requires facing inconsistencies instead of running away from them.

the book is also about education. we can only learn by deductive processes. so jonah gets alex to derive ideas by asking questions.

textbooks shouldn’t present results. instead they should present a plot that lets the reader get the correct ideas himself.

1

bill peach’s car parked in alex’s space.

lots of people arguing about production problems.

peach is there to get order 41427 filled. the plant was working on another urgent order.

peach yells at master machinist who yells back and nobody is working.

alex sez peach’s order should be fulfilled though this wastes a setup.

alex missed calls from peach cuz he was fighting with his wife who sez he’s not paying her enough attention

plant had layoffs and 20% cutback, alex sez this delays orders.

peach sez alex’s efficiencies are too low, alex needs to use existing resources better.

the plant is losing money: this has to stop in 3 months or the plant will be closed.

the master machinist quit and on the way out set up the ncx-10 wrongly and now it’s broken and will be down until it’s fixed.

2

alex goes home to eat and then has to go back to the plant. his wife julie wants to go out but he doesn’t have time.

alex tells julie the plant might close and she’s glad cuz she’s unhappy in bearington - she has no friends.

bearington has suburbs, vacant shops and an unoccupied high rise.

another factory shut down. rumours say this was cuz of union problems.

ncx-10 haș been fixed. had to pay workers overtime to wait until it got fixed. order goes out at 11pm

goes out for burgers with production manager bob donovan.

donovan sez they got the order done fast. alex points out that running like that all the time would reduce efficiencies.

alex thinks something basic is wrong. the plant has good machines, robots, computers, people and materials.

competitors are selling so there is a market. making same quality and product design, but their price and delivery times are better.

alex has cut costs and has good efficiencies and materials on schedule, but orders are coming out late.

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3

peach calls a meeting at 8am with all the plant managers.

alex thinks he wants to assess their operations and start a new productivity drive.

in reality peach has been told the division has to improve by the end of the year or it will be sold and peach and alex will be fired.

division controller ethan frost sez the division is running short of cash.

peach sez stuff about efficiencies and productivity.

alex reaches for a pen to write down details about efficiencies and other stuff at the meeting and finds a cigar.

4

alex met jonah at an airport two weeks ago.

alex was jonah’s physics student.

alex tells jonah he’s a plant manager for unico and he’s going to talk at a robotics conference about robots improving productivity.

alex sez robots have increased plant productivity by 36%. jonah asks if profits went up 36% and alex admits they didn’t.

jonah asks if he shipped more products, or fired anyone or reduced inventories and alex sez no, so jonah sez productivity hasn’t increased.

alex sez efficiencies went up and costs went down.

jonah asks if the robots are running constantly. alex sez yes.

jonah asks if inventory has increased. alex sez yes.

jonah asks if they are missing shipping dates. alex sez yes.

jonah sez he’s studying the science of organisations - particularly manufacturing organisations and he’s seen these symptoms at many plants.

jonah sez he can tell alex’s plant less efficient than alex thinks and alex’s measurements of efficiencies are lying to him.

jonah asks alex what productivity is and alex sez stuff about formulas.

jonah asks alex what productivity actually means and alex sez it means achieving something. jonah sez specifically it means achieving something toward the company’s goal.

so productivity ie meaningless unless you know what your goal is.

alex sez productivities are the company’s goal.

jonah sez alex doesn’t know what the real goal is.

alex asks jonah to tell him what the goal is, and jonah advises alex to think about it.

5

alex sits in the meeting with peach thinking that nobody knows what’s going wrong and how to fix it.

alex decides to leave the meeting and sez he’s going back to the plant. but he goes and sits on a hillside outside the plant having beer and pizza.

alex tries to figure out what the goal is.

the plant needs materials so they have to be purchased in a cost effective manner, but the plant has lots of inventory of all this cost effectively purchased stuff sitting around in warehouses that cost the company money.

the plant employs people but that’s not its purpose and they have also fired people.

is producing products the goal? jonah said no. but the company has to make stuff since it’s a manufacturing company.

quality? the company has tried to increase quality and it’s still in trouble and companies making high quality products sometimes go bust.

what about quality and efficiency? but lots of quality products made with high efficiency are ditched by the companies making them.

what about keeping up with technology? no. r and d isn’t in charge of the company.

what about sales? making stuff doesn’t do any good if it sits in warehouses it has to be sold. but if stuff doesn’t sell for a profit, then the company will fail.

losing less money won’t help. the company has to make money from the plant or they’ll shut it down. so the goal is making money.

any action that moves the company toward making money is productive. any action that doesn’t do this is unproductive.

6

alex goes to the plant and sees workers sitting around. their supervisor tells him they’re waiting for parts.

alex sez he should find something for them to do and the supervisor gets them to move boxes.

alex wonders if the box moving actually helps the company make money: is it productive?

most people in the plant are working most of the time and the plant is still losing money.

alex looks at measurements of whether people are working, costs of products etc that are supposed to tell him if the plant is productive.

lou, the plant controller, comes to tell alex that peach found out he left the meeting and he was annoyed.

alex explains that making money if the goal and he asks lou how we know if the plant is making money.

lou sez he’d need measurements of how much money the company made.

alex suggests net profit. lou points out that if you don’t know how much money you spent to make that profit you might be spending a billion to make 10 million, which would suck. so return on investment ROI is better.

but a company can have a good roi and still run out of cash. so you need to measure cash flow too.

alex tells lou that the plant has to make money in three months or it’ll be shut down and they might be fired.

lou sez he knows what’s wrong and talks about unions, quality etc but if he already knows the problem then how come they’re still failing?

alex decides he has to improve net profits, roi and cash flow.

so alex decides he has to make a connection between net profits, row and cash flow and what the factory is doing, but he doesn’t know how.

alex calls his wife and realises he missed going out for dinner with her and alex’s daughter missed him too.

alex talks to eddie the second shift supervisor who updates him about what’s going on this shift. alex realises eddie knows nothing about how his work affects net profits, roi and cash flow.

I’ve also been reading The Goal! I got to chapter 17 a few weeks ago but haven’t picked up the book since then. I had not been taking notes, but that seems like a good idea.

I looked through what you’ve written so far and it aligns with what I remember reading (i.e. I don’t have any criticism).

7

alex goes home and tells hi daughter sharon he’s proud of her getting all As on her report card.

he considers looking for a new job but decides he doesn’t want to run away. he decides he also doesn’t want to study a load of theory in school cuz he doesn’t expect it would help. he decides to find jonah.

8

peach rebukes alex for leaving his meeting and insists on meeting him with ethan frost.

alex goes to visit his mother to get his old address book and find jonah’s number. alex’s wife julie dislikes visiting alex’s mother.

alex finds the address book, calls jonah and sez he thinks the goal of a manufacturing company is to make a profit as measured by net profit, roi and cash flow. but those measurements don’t mean much on the plant floor, so how can what measurements are relevant?

jonah sez there are three measurements relevant on the plant floor that are equivalent to the goal of making money: throughput, inventory and operational expense.

throughput is the rate at which the plant generates money through sales.

alex asks about whether production is relevant. jonah sez if something is produced and not sold then it’s not throughput.

inventory is the money the plant has invested in purchasing things it intends to sell.

operational expense is the money spent to turn inventory into throughput.

alex wants to say the value added by labour is part of the inventory.

jonah sez you shouldn’t take the value added into account because it leads to confusion over whether it is an investment or an expense.

alex wants to know how to express the goal in terms of throughput, inventory and operational expense, but jonah doesn’t have time to explain and tells alex he can figure it out but he has to take into account the plant as a whole instead of looking for local optima. alex doesn’t understand.

then jonah has to go and asks for a number where alex can be reached. alex gives jonah his office number.

9

Granby the CEO wants to come to the plant to have his picture taken with a robot. he saw a picture of one of the robots at alex’s plant and like the colour.

alex’s mother asks him about the visit and he tells her that the plant isn’t making a profit and she asks if he can return the robots if they don’t work.

alex remembers jonah’s questions about whether the robots led to the plant increasing its productivity and interprets them. Is the plant selling more product (throughput) or cutting staff (operational expense) or did inventory decrease?

alex realises that the goal can be expressed as you want to increase throughput while decreasing operational expenses and inventory.

alex doesn’t know if the robots have increased throuput but inventories have increased and operational expense increased too because the robots are depreciating and no staff were fired.

alex talks to lou, who is trying to prepare a report for bill peach. he asks if sales increased after the robots were introduced. lou checks and finds that sales have decreased.

alex asks lou about work in process parts produced by the robots and he sez alex should ask stacey. stacey sez the inventories increased.

the robots were only operating at about 30% efficiency and to increase that number she released parts to the robots so they would be working more.

the parts being produced aren’t used in orders and they can’t get enough of other parts they need to fill orders.

the cost of the produced parts decreased but the plant had to pay to keep them in inventory.

I have a comment on the idea itself, not how it summarizes the book (I forget exactly what the book said about this).

Sometimes increasing operational expenses or inventory is worthwhile if it helps you increase throughput enough (and the increase is stable enough). Increasing them has an upside and you have to look at the cost and benefit.

This contrasts with, say, increasing reason and decreasing superstition among scientists. There’s (to a reasonable approximation) no upside to a few more scientists believing in ghosts.

The book sez:

So the way to express the goal is this?

Increase throughput while simultaneously reducing both inventory and operating expense.

I think I have accurately summarised what alex thinks at that point in the book.

I agree that it can make sense to increase operational expense and/or inventory to increase throughput.

Increasing superstition is to some extent incompatible with a scientist’s job. Suitably deep scientific inquiry would lead to conclusions incompatible with the existence of ghosts and stuff like that. So the scientist has to choose between being excellent at his job and superstition.

10

alex is explaining jonah’s ideas to bob, stacey and lou.

stacey asks how jonah takes the value added by labour into account.

alex sez he doesn’t cuz it leads to confusion about what’s investment and what’s expense.

stacey sez we’re not selling employee time we’re selling products. bob sez if we’re selling a product we’re also selling the time invested in the product. lou sez employee time is operational expense.

stacey asks how we know the value of finished goods. lou sez the market price tells you that.

bob asks how tooling, machines and the building are taken into account. lou sez depreciation is operational expense and whatever is left over could be sold so it’s inventory.

any money lost is operational expense, anything that can be sold is inventory.

knowledge that helps turn inventory into throughput is operational expense. knowledge that can be sold is inventory, e.g. - a patent.

what about granby’s chauffeur? he helps granby have more time to think about important business stuff instead of driving, so he’s operational expense.

alex tells them the plant will be shut down in 3 months if it doesn’t turn a profit.

stacey suggests they stop pushing materials through the robots to reduce inventories, but that will make their efficiencies decrease.

they decide they need more guidance from jonah. alex calls him and sets up an appointment.

11

alex is going to new york for his appointment with jonah.

alex’s wife julie is unhappy that he is going away on such short notice. both alex and his wife interpret the other’s behaviour as being unfair.

alex meets jonah. jonah sez he doesn’t have time to act as a consultant but he will provide alex with basic rules he and his staff could apply to improve his plant.

alex sez he can’t pay jonah, who sez he should just pay jonah what he thinks the advice is worth in three months when the plant is due to close.

alex wants to talk about robots saying they’re expensive so he has to keep them productive. jonah asks by what standard he is measuring their productivity.

alex sez management cares about productivities, jonah asks whether they care about efficiencies more than profit and sez most of the time trying to get greater efficiencies moves you away from the goal.

jonah asks if it’s always bad for a worker to be idle. alex sez yes. jonah sez a plant where everyone is always working is highly inefficient.

alex sez he needs people working all the time to get stuff out of the door. jonah sez that having everyone working all the time creates excess inventory.

jonah sez alex should question how he is managing his capacity cuz he’s not doing it according to the goal.

jonah sez every manager wants a balanced plant where the capacity of every resource is matches demand from the market. they think that otherwise capacity is being wasted - alex agrees with this.

nobody manages to run a balanced plant. why? alex sez changing market demand.

jonah sez that’s wrong. the closer you get to a balanced plant the closer you are to bankruptcy. laying off people doesn’t increase sales or decrease inventory, it only reduces operational expense.

laying people off only helps if doing so doesn’t increase inventory and decrease throughput. in reality when you are close to capacity throughput decreases and inventory increases, along with the carrying costs of inventory.

this happens cuz of dependent events and statistical fluctuations. a dependent event is present when one event depends on another - you can’t make omelet without getting some eggs.

some dependent events can’t be precisely predicted, like the time a chef in a restaurant will take to make an omelet. you can only determine those events within some range.

if the chef knew that everyone at a banquet would have an omelet he would know how many eggs he would need. but he might drop one so he’d want some spare eggs.

alex doesn’t understand why statistical fluctuations are relevant. jonah sez they are relevant in combination with dependent events and alex should try to figure out how this is relevant to his plant. then jonah leaves for an appointment.

This is really important and the basic concept applies in many fields. No idle capacity (for workers or whatever else) means no margin for error.

In philosophy, we want robust ideas, not fragile ideas. Partly that means, loosely, that they are more than good enough to solve our problems. That way, if some stuff goes wrong, they’ll still work (unless the stuff that goes wrong is huge). There’s a margin for error.

One major, ongoing source of confusion is that we sometimes define our goal including margin for error within the goal, and we sometimes define our goal excluding margin for error so it has to be added additionally. When I said we need ideas that are more than good enough, that would be for a goal that doesn’t already include margin for error. But our life goals actually should include margin for error somehow. We want to do actions that will work well pretty reliably, so they need to be able to tolerate some negative variance (bad luck, things going worse than planned, people making mistakes, etc.).

BTW, Goldratt focuses on statistical/random fluctuations but semi-predictable-but-non-random errors made by people are also important and similar but not exactly the same because they are not really random; they can only be treated as approximately random for some purposes.

Another major, ongoing source of confusion is that, although people know about margin for error, they also think having idle employees (or idle robots) is wasteful and that stuff like a balanced plant is efficient (a system where the capacity of each step in a system is equal).

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12

alex comes home and asks julie where she was last night. he called her the previous night before his meeting with jonah.

she sez she was out and the children stayed with her friend jane.

julie sez she was lonely cuz alex works a lot and she needed somebody to talk to.

he sez he’ll be around more when he gets out of his current jam. she sez he’s said that many times and it hasn’t changed.

he sez he’ll try to get more time but he has to do paperwork after hours. julie suggests that he could do the paperwork at home.

she wants to go dancing with him this weekend. he goes to the plant to check up on it.

13

alex goes to a scout overnight hike with his son.

the scoutmaster doesn’t turn up so alex is in charge.

the troop are supposed to walk 10 miles along a trail to devil’s gulch and then walk back.

the trail has thick undergrowth on either side and they have to hike in single file.

alex thinks a person walks about 2mph so starting at 8:30am with 1.5 hours for breaks and lunch they should get to the gulch at about 3pm.

after they walk for a while the children have spread out a lot. alex goes to the back of the line to keep an eye on everyone and asks the first boy, Roy, to lead the way.

there is a slow fat boy Herbie who is slower than some of the others who would like to get past him.

alex starts thinking about the hike in terms of dependent events. ron has to walk the trail first, other boys have to follow him and alex has to follow all of the boys.

what about statistical fluctuations? alex sometimes walks a bit faster to keep up with the boys in front, say 2.5 mph and sometimes walks slower, say 1.2 mph when he is thinking about statistical fluctuations. the average is about 2mph.

in a plant the time to make a part might be 4.3 minutes on average, but fluctuates between 2.1 and 6.4 minutes. this is unpredictable so what can alex use instead of the average?

alex finds that the line of boys has spread out a lot and ron has got quite far ahead. alex asks the slower boys to speed up for a while and passes a message up the line for ron to hold up.

they take a break and then start going again and the line spreads out again.

herbie is making sure to keep up with the boy in front by speeding up when he gets too far behind the boy in front. so alex thinks they shouldn’t be spreading out since they all walk at the same average pace and fluctuations should be averaging out.

then alex notices ron is setting the pace. so every time somebody moves slower than ron the line lengthens. and each boy can’t go faster than the boy in front.

if event 2 is dependent on event 1 then event 2 can’t go faster than event 1 but it can go slower. the boy behind ron only has to make up for ron’s fluctuations, but alex who is at the back of the line has to change his speed to make up for the fluctuations of all of the boys in front.

alex is at the end of the line so he is like the product being sold. ron is like a station processing raw materials. the length of the trail between alex and ron is like inventory. the energy expended by the boys walking the trail is like operational expense. the distance between ron and alex is growing so that’s like the plant accumulating more inventory.

ron stops for lunch.

14

one kid sez they’re supposed to have lunch at rampage river, but they haven’t reached the river and it’s 12 noon and the boys are hungry so they have lunch.

alex starts thinking about a balanced plant. if he balanced capacity with demand wouldn’t increased inventory go away? how could jonah be right and everyone else wrong?

could he come up with a way of dealing with the kids so they wouldn’t spread out as they walked? could he adjust the capacity of the kids so they all walk at the same pace?

alex borrows some dice from a scout and finds matchsticks and some bowls. he puts the bowls in a row and places the matches in the last bowl. he will throw a die to determine how many matches you can move from one bowl to the next. throughput is the speed at which matches come out of the last bowl.

inventory is the total number of matches in all the bowls. assume market demand = average number of matches the system can process. the average number processed is the average of numbers on a die = 3.5. so after 10 rounds should have processed 35 matches. actually processed 20.

inventory moves through the system in waves not in a steady flow.

I have written a clojure program I wrote to simulate the system of bowls and matchsticks discussed by alex. The averages of the final product of a production run are usually less than 3.5 and you can see the inventory moving through the buckets. The forum won’t let me upload it, but I’d be willing to send it to anyone who asks, along with instructions on how to run it.

You need an extra round for each step in the system, minus one, to make it fair. Like you need enough rounds for one thing to be fully processed, plus 9 more rounds, before 35 would be the expected number processed (when incorrectly ignoring variance). I’m not sure if you took that into account.

EDIT: Oh maybe the game was set up so something can be fully processed on round 1? Rather than needing to get to the first bowl on round 1, then only able to move to the second bowl on round 2, etc. Cuz, thinking about it more, I think they did their turns sequentially rather than simultaneously.

I just enabled uploading all file extensions instead of a fixed list.

I think a round is supposed be set up so that something can be fully processed on round 1 and that the turns happened sequentially and I wrote my program with that assumption. And after 10 of those runs the average production on each run is usually below 3.5.

Okay, thanks.

To run it you’ll need to install leiningen, unzip the folder, navigate into it, run “lein repl” to get a repl. If you change the file and want the updated content in the repl then you can type (load-file “src/goal_matches/core.clj”) in the repl to re-run it. You should be in the goal-matches.core namespace when you start the repl, so you’ll be able run any of the functions in the namespace in the repl with your own input if you want.

goal-matches.zip (436.1 KB)