Notes on "The Goal" by Goldratt

[alanforr]

18

while alex is out julie calls the children and sez she loves them but not when she will return.

in the plant the next day they talk about fluctuations and dependent events and want to know how they can solve the problem.

calculating all the interactions with a computer would be impossible and wouldn’t give them more control.

bob asks about longer lead times, but that would just increase inventory.

alex sez the productive capacity of a resource can’t be calculated in isolation. its production depends on its location in the plant. trying to make capacity = demand has screwed up the plant.

how do other manufacturers survive is they are trying to balance capacity and demand? they reposed to the problems that process causes by moving workers, overtime, calling people back from layoff.

alex calls jonah. alex sez he knows he should optimise the whole system and the ones at the end should have more capacity than those at the start, but what’s next?

jonah sez a bottleneck is any resource that has less capacity than the demand placed on it. he sez alex should work out what resources are bottlenecks.

but where does demand come in? has to be related to capacity.

jonah sez should balance the flow of material through the plant with demand, not capacity.

the bottleneck constrains the flow of material through the plant. so the flow through the bottleneck should be related to the demand of the market. jonah sez it should be a bit less so you don’t lose money if demand declines.

bob asks if bottlenecks are bad and should be eliminated. jonah sez they are neither bad nor good. you just have to take them into account by controlling the flow through the bottleneck.

jonah sez they should try to find the bottlenecks, but he doesn’t have time to talk more and hangs up.

alex sez they should find the bottleneck and put it at the front of production.

ralph has been trying to find the bottleneck and finds out that some machines have been sold.

they want to find total market demand and machines with capacity less than the demand - bottlenecks.

they can calculate the demand from orders and demand from other parts of the business.

can calculate the capacity of any group of the same resources - a work centre. can divide the total that can be produced by the number of resources in the work centre to get the capacity of each one.

but doing all this will take months and they don’t have the time.

alex sez they should try to find the bottleneck without calculating all that stuff.

bob sez he knows where the problems usually start. stacey suggests talking to expeditors. also a bottleneck will have a pile of work in front of it. and if they all have piles, then look for the largest pile.

the ncx-10 has a lot of in process inventory. expeditors and supervisors have to wait for stuff from that machine.

alex doubts this cuz the machine is very efficient. bob sez it is very efficient, but it’s the only nix-10 they have.

previously they used three other machines to do the work of the ncx-10, each of which needed a guy to run it. ncx-10 only needs two guys for setups.

anyone who gets trained on it leaves cuz they can make more money elsewhere. unions want at the people doing setups on all the machines to be paid the same, so they can’t pay more for ncx-10 operators.

the heat treat department is also a bottleneck.

the furnaces usually aren’t full cuz expeditors want some particular set of parts run to finish a shipment rather than run them at full capacity. some batches are too small. and the batches are sometimes too big to fit and there is a small batch left over that has to be processed.

alex asks what would happen if they always fill the furnace. bob doesn’t know cuz it hasn’t happened.

alex discusses what to do about the bottlenecks. they can’t change the order of operations to put the bottlenecks at the end. they think they can’t add capacity without adding equipment and that costs money they don’t have.

[alanforr]

19

alex tells his children what’s happening at the plant, then he goes to the airport to pick up jonah.

earlier alex talked to jonah and told him he had two bottlenecks and couldn’t offload from them to other resources so jonah came to bearington.

jonah sez most plants don’t have bottlenecks, but they should.

they go to the plant and talk to bob, lou, stacey and ralph.

jonah asks if they want to increase the throughput and improve cashflow.

jonah sez they need to increase the capacity of only the bottlenecks so it is closer to demand. he asks to see the plant.

they go to the ncx-10 and it’s not currently operating. setup workers went on a union mandated break.

jonah sez the ncx-10 should always be running and they should talk to the union and explain why.

jonah asks if they still have the machines replaced by the ncx-10, but they got rid of a class of the machines necessary to supplement the ncx-10 to make room for a new pen to hold inventory.

jonah asks if there are any alternatives to heat treatment for any of the parts that go into the furnaces. but the engineering department won’t approve changes.

jonah asks if they can get other companies to do some of the heat treatment. they say this would cost money.

he points to the inventory in from of the furnaces and asks how much money it represents. some of the parts don’t contribute to throughput - they are doing this to increase efficiencies. but about 1000 are required for parts that sell for ~$1000 so the pile represents $1 million.

next jonah wants to see qc. he points to parts that have been rejected by qc and asks if they are bottleneck parts. they decide to check parts before they get to the bottleneck so they don’t lose bottleneck time on defective parts.

jonah asks for the cost the ncx-10 and the furnaces and they say $32.50 and $21 per hour respectively. jonah sez that’s wrong cuz it doesn’t take into account the fact that they’re bottlenecks but treats them in isolation. An hour lost at a bottleneck costs the equivalent of what the plant produces in an hour, which is $2375.

jonah recommends that any part that doesn’t contribute to throughput immediately should be processed elsewhere. and if other machines can do the same process those other machines should be used instead.

the next morning alex’s children say they heard music that julie’s father likes down the phone when she called to talk to them so alex thinks she’s staying with them.

[alanforr]

20

alex calls julie’s parents and tries to speak to her, but she doesn’t want to speak to him.

alex talks to lou, bob, stacey and ralph about jonah’s ideas.

they decide to move the qc points first cuz that’s the easiest thing to do, and then to talk to the unions about only taking lunch breaks when the bottlenecks are running.

they decide to prioritise orders in order of lateness - he asks ralph to get the relevant list of orders.

stacey is told to find out what parts are missing and coordinate with bob to get bottleneck parts through.

alex sez they should assume non-bottleneck parts are ready or will be ready by the time they need them at the bottleneck.

alex goes to julie’s parents’ house and parks outside until she comes out to talk.

julie sez she doesn’t know if she wants to be married to alex anymore.

everyone else has an opinion about what she should do and she wanted to make a decision without pressure from alex and the children.

alex asks if she’s having an affair and she sez no.

she sez she doesn’t feel as if she has the right to be unhappy but she is.

alex asks her to come back home and work on their problems. he sez if she stays away they’ll drift apart and get divorced. she still doesn’t know what she wants to do.

alex sez he loves her, she kisses him then walks away.

[alanforr]

21

alex calls julie and asks her to date him at 7:30.

stacey, bob, ralph and alex meet with the supervisors of the bottlenecks: ted spencer for the furnaces, mario demonte for the machining centre containing the ncx-10.

they have check all the overdue orders and found that 90% of them go through the bottlenecks, and 85% of those are waiting in assembly for parts.

they say they’ll make a list of the parts in order of priority and send them to the supervisors.

alex sez that if the expeditors want something else they should contact him.

then alex talks to mike o’donnell the local union president about the rule changes. alex explains that the plant may shut down if they don’t make the changes. o’donnell sez he’ll get back to alex.

alex goes to see what’s happening at the ncx-10 and it’s not running.

he asks mario why it’s not running. mario sez he worked through the first two items on the list, but they didn’t have the materials required for the third item so they talked to bob donovan who’s getting the material and they’re waiting for it to turn up. alex sez they should move on to the next item on the list.

the batch of bottleneck parts had to go through another machine. the operator didn’t know the batch was important so he ran another batch instead.

so alex decides to introduce a system so people will know the priority of batches and holds a meeting to explain it to the workers.

the batches will arrive with coloured labels. those with red labels take priority over those with green labels because the red batches are going to bottlenecks. if you’re working on a green batch and a red batch arrives you should start on the red batch in less than half an hour. the red batches are also numbered and the red batch with the lowest number takes priority.

the union agrees to the new break system.

alex goes to pick up julie at 7:30 and tells her parents about the new priority system at the plant.

[alanforr]

22

the plant has shipped 12 overdue orders, the remaining ones are all less than four days late.

they found that 5% of parts going to the ncx-10 and 7% going to the furnaces failed qc.

alex wants to improve so they have no late orders. he wants suggestions for offloading the bottlenecks.

alex talks to elroy langston from qc and barbara langston of employee communications. they tell him it is difficult to tell some of the post bottleneck parts from the pre bottleneck parts. they want to mark the post bottleneck parts with hello tape so they can easily be directed to assembly.

alex meets bob who shows him two machines: the zmegma and the screwmeister that together can do the same work as the ncx-10.

alex asks if they can produce the same quality. bob sez they aren’t automated so there will be some mistakes. they turn on the machines and the machines work.

23

alex has been out on a few dates with his wife, they haven’t talked about marriage or divorce.

ted spencer, the furnace guy, comes to see alex in his office at the plant. ralph nakamura has been asking ted to keep some records of the furnace: the time parts are taken into or out of the furnaces and the time between heats. ted wants ralph to stop.

alex asks ralph about this. ralph sez he wants the data cuz he thinks their data about heat treatment is inaccurate. ralph did some calculations and he thinks they should have been able to do 18-20 shipments but they only did 12. he checked the calculations for the ncx-10 and they matched but those for the heat treatment didn’t.

ralph talked to ted and saw that parts that could have come out at 3pm hadn’t come out at 5.30pm. the second shift foreman sammy said they were shorthanded and it didn’t hurt the parts to sit in the furnace. he turned off the furnace but the parts didn’t come out until 8pm. so ralph wanted accurate figures of how long they actually take to do the heat treatment to make more accurate projections.

ralph is working on a way to use the bottlenecks to predict when an order will ship.

alex talks to bob and sez he wants people staffing the furnaces all the time so parts can be moved in and out promptly. bob suggests loaning those people to other departments but alex sez they won’t keep up the habit of going back to the furnaces promptly.

bob sez there is a similar problem with the ncx-10. if the machine stops in the middle of the afternoon it sometimes sits idle for 30-40 minutes, so they decide to have somebody staffing the ncx-10 all the time too.

alex talks to lou. lou sez they can’t recall people from layoff, so they have to move people from non-bottleneck stations, which is okay cuz they have excess capacity.

if this turns non-bottlenecks into bottlenecks they say they’ll have to ask for more staff.

the policy is implemented and they find that one heat treat foreman, mike hailey, has 10% better throughput than the others. he is rearranging batches so they can fit in more parts per batch.

mike points out another improvement that could be made. they could make some steel plates that could go in either furnace so parts could be loaded in advance and switched with a forklift instead of being loaded with a crane or by hand and this could save a couple of hours a day and let them do an additional heat each week.

bob talks to alex about another issue. they made some non-bottleneck machines trim more off a part to gets parts through them faster and improve their efficiencies. this meant some of those parts had to be heat treated. but if they go back to the way those parts were trimmed before then they can remove 20% of the parts from the furnaces. they’re reducing efficiency to increase throughput.

[alanforr]

24

alex and his team are celebrating that they shipped 57 orders with a value of $3 million. their previous record was 31 orders with a value of $2 million, they also have a 12% decline of net in process inventory. bill peach calls to congratulate alex.

stacey drives alex hum cuz he’s drunk. julie is there and thinks stacey is a floozy. stacey offers to call julie and explain.

she then tells alex some non-bottleneck parts are running short. alex talks to jonah who offers to come to the plant

julie calls and sez she had come over to see him and admits that she misinterpreted what happened cuz she was disappointed at how late he came home. she wants to see him on wednesday.

25

Jonah comes to the plant and they investigate the shortages.

plant workers have been doing the bottleneck parts instead of the parts for which they have a shortage cuz that’s what the tag system dictated.

alex thinks the only solution is to expedite, jonah sez if he does that he’ll be expediting all the time.

they go to the bottlenecks and find there is a giant heap of parts waiting to be processed.

jonah explains that the problem is that the pre-bottleneck stations are faster than the bottlenecks, so if they work all the time parts will build up at the bottlenecks - excess inventory.

post-bottleneck stations will also run out of work because the bottlenecks can’t make enough inventory to keep them running all the time.

non-bottleneck stations that run in parallel with the bottlenecks to produce parts that will be combined with bottleneck parts will also produce more inventory than the plant can process if they operate all the time because they have more capacity than the bottleneck.

even a non-bottleneck station whose parts aren’t combined with bottleneck parts will produce excess inventory because they are producing more than the plant sells.

when any non-bottleneck station is working at its capacity it produces excess inventory which is against the goal.

alex protests that if they leave stations idle that will reduce their efficiencies. John points out that activating a resource is different from using it to work toward the goal.

the non-bottleneck parts are building up cuz they keep non-bottlenecks working all the time. this makes some non-bottleneck stations look like bottlenecks cuz it causes inventory to build up at those stations.

[alanforr]

26

alex talks about the problem with his children sharon and dave by talking about the scout hike.

there’s a line of kids on a hike in the woods. in the middle of the line is a scout called herbie who is slower than everyone else and we can’t move him from the middle. how do we stop the line from spreading out?

sharon suggests that the scouts should march in step to a drum beat by herbie.

dave suggests tying everyone together with ropes.

the length of the rope can be controlled and would make everyone march at the same speed, and it’s like an assembly line.

but the assembly line won’t work through the whole plant.

but we can have a rope or signal from herbie to the boy at the front.

alex decides to use computers to get information about when the bottlenecks are ready for inventory to be released to the system. he talks to jonah, stacey, bob and ralph.

ralph sez he can predict in advance what the bottleneck will be working on at a particular time. so he can forecast when stacey should release red tagged material.

ralph sez he can’t do this for the non-bottleneck parts. jonah explains that if ralph knows the red tag schedule he can calculate backwards from when those parts leave the plant to figure out a schedule for the non-bottleneck parts.

ralph sez it will take a while to work out the green tag schedule.

the next morning bob sez that the efficiencies in the plant will drop. stacey sez that excess inventory is a larger problem cuz it ties up a lot of money, but keeping workers idle doesn’t cost extra cuz they have to pay their salary anyway.

bob sez if the efficiencies decline bill peach might decide to close the plant. alex sez he won’t sacrifice the bottom line to improve efficiencies. he sez that if there is a lot of idle time bob should make sure it doesn’t show up in efficiency reports.

[alanforr]

27

at a meeting with plant managers and bill peach ethan frost sez that the increase of profit at the bearington plant has made uniware profitable but the other plants showed little or no improvement.

the bearington plant has timed the release of materials using the system designed by ralph. ralph has also been able to predict, within a day, when a shipment will leave the plant.

alex gives a report and sez he has wiped out the backlog of overdue parts.

later, in private, alex asks bill peach about whether he’s still going to close the plant. peach sez he won’t close the plant if it delivers 15% more profit.

alex goes to see julie with his children and asks her when she’ll come home. she sez she feels he wasn’t paying her enough attention and wouldn’t come home from work at regular times. alex sez he’s used to that from working in his father’s store.

julie sez she got alex sez that she got college, a teaching degree, marriage, a house, children, but it no longer seems to matter.

alex sez they should consider what they expect to get from the marriage. julie sez marriage doesn’t have a goal.

alex sez they should reconsider their preconceptions about what their marriage should be like and look at where they are now, what they want and how to move in that direction.

they agree to meet again on saturday.

28

that night jonah calls alex and sez he won’t be available for a few weeks.

alex sez he needs more improvement so the plant won’t be shut down.

jonah asks what has happened at the plant and gives some suggestions for what to do next.

the next morning alex is at the plant and talks to stacey. he tells her that the plant needs to sustain their improvement and that jonah suggested cutting batch sizes at non-bottlenecks and asks her what the consequences of the batch size cut would be.

stacey sez that they could have half of the work in process, cut inventories in half reduce the amount of cash tied up and improve cash flow. they’ll need the suppliers to decrease quantity in deliveries and increase the number of deliveries. alex sez that will benefit the suppliers too.

stacey sez they’ll need more setups, alex sez that’ll be fine.

alex holds a meeting to explain cutting the batch sizes to the others.

jonah sez material spends time going through the plant in four elements.

(1) time when the part is waiting for a resource to be setup - setup, (2) process time - when the part is being processed by a resource, (3) time when the resource is busy doing other stuff - queue time, (4) time when the part is waiting for another part that it will be combined with - wait time.

setup and process aren’t a large portion of time time inventory spends in the plant. queue and wait time consume more time.

for parts in bottlenecks queue is dominant. for parts in non-bottlenecks wait is dominant because they’re waiting for stuff from the bottlenecks.

the plant uses an economical batch quantity (ebq) formula to set batch sizes, but the ebq formula makes bad assumptions.

cutting batch sizes in half cuts the process, queue and wait time be half. that reduces the time parts spend in the plant by half. that reduces the lead time and speed of flow of parts through the plant increases.

so customers get orders faster and the plant can respond faster, which gives them a market advantage.

bob donovan sez setup time will increase and that will increase labour costs.

alex sez that doesn’t matter cuz an hour lost at the bottleneck is lost for the entire plant. since they started cutting release of material to non-bottlenecks they have idle time, which won’t be consumed by more setups.

jonah also suggested that they go to customers and promise earlier deliveries. they think they can do four weeks instead of 6-8 weeks.

on friday, alex goes to headquarters for a meeting with johny jons the sales guy. alex shows jons that they can predict shipping dates and sez their four months lead time has dropped to two months. alex asks if it would be better for sales if he could reduce the lead time to four weeks.

jons sez that’s ridiculous. it used to take them 6 months to ship an order they were supposed to deliver in four months.

alex sez he can do four weeks and needs more business. he asks jons to get him 5-10 orders.

alex bets jons a pair of shoes that they will deliver on time for four week orders.

[Elliot]

How are you liking the book?

[alanforr]

I like the book well enough to want to continue to make notes on it.

[Elliot]

Do you see much relevance to CF yet?

[alanforr]

Optimising for the bottlenecks by sometimes leaving non-bottlenecks idle sometimes is similar to not overreaching by avoiding filling up your schedule with junk that distracts you from doing important stuff well.

[Elliot]

When people fill up their schedules, that typically uses up additional bottlenecked resources like time or energy.

[alanforr]

29

alex is sleeping with julie but he’s having trouble keeping his mind off the plant.

the plant has got half a dozen new orders. they timed release of new materials for the bottleneck and efficiencies dropped for a while until they consumed excess inventories, but then they increased.

they implemented smaller batch sizes two weeks ago. before this non-bottlenecks were sometimes idle cuz they were waiting for a previous station to finish a batch. but since the batches are smaller the stations have less idle time between batches. so the idle time is more spread out and there is less idle time so efficiencies are higher.

inventories are lower too since the only work in progress is for current demand.

but cost of parts looks like it has gone up because of more setups cuz of smaller batch sizes, which doesn’t matter for the bottom line but looks bad politically. same setup time for fewer parts leads to more labour costs per part.

since they’ve reduced inventory and increased sales that labour cost is spread over more product so the cost of producing the product has decreased not increased.

measurement of labour costs assumes all the labour is fully occupied so more setups = more labour = more cost, but that’s wrong.

alex goes to work and meets lou. lou sez he can use cost of parts for the past two months instead of the past 12 months which is more representative and reduces the cost of parts problem. but that’s not standard accounting practice and ethan frost might not like it if he finds out.

jons calls and sez that bucky burnside wants 1000 model 12s in two weeks, which would be $1 million in sales. a competitor hadn’t filled it for 5 months and burnside had heard we’re turning orders around faster. filling the order could lead to them becoming burnside’s preferred supplier.

alex sez he will try to work out if they can do it. he has a meeting with bob, stacey and ralph. they think they could do it if they don’t work on anything else, but that would piss off other customers.

ralph suggests shipping some orders on time instead of early which would free up some bottleneck time and not create problems.

alex thinks that if they halve batch sizes again they might get higher throughput and be able to fill the order.

stacey sez a supplier isn’t going to be able to fill the order for 4-6 weeks for a part they can’t make in the plant. alex asks if they can stagger the shipments and use air mail to get the parts faster.

Alex tells jons he can do 250 units per week for four weeks, starting from two weeks after they get the order.

burnside accepts and sez he likes getting the model 12s in batches of 250 more than they like getting them all at once.

[alanforr]

30

they have a staff meeting.

they delivered the first shipment of the burnside order.

the smaller batches have increased the flow.

they’re up to 17% not just 15%

inventories are 40% of what they were three months ago and throughput has doubled.

bill peach congratulates alex on the plant performance and invites him to a review of the plant.

next week alex is offsite at a meeting.

hilton smyth has come to the plant to do a video of the robots in his capacity as productivity manager guy.

he was going to film in front of a robot for stacking stuff but it wasn’t running cuz it had no inventory and none on the way.

then smyth started asking questions about batch sizes.

two days later an audit team comes from hq and finds out that they’ve been calculating costs over the past two months rather than over the past year. when they recalculate it looks like costs have gone up.

johnny jons comes to the plant with bucky burnside. the last shipment was on time and had no quality problems. burnside came to congratulate the plant staff.

jons said burnside is going to order 10000 model 12 units per year.

alex goes to see julie the day before the plant review. julie sez they’ve drifted apart but she wants more of him in her life not less. she hasn’t wanted to go back to bearington because he’s paying more attention to her now. they agree to talk to one another for a couple of hours each night about their problems.

[alanforr]

31

alex goes to his review: it’s being run by hilton smyth and neil cravitz not bill peach.

alex explains that the goal of the plant is to make money not cut costs, then explains bottlenecks, inventory etc.

smyth sez this is common sense. alex sez it isn’t cuz he’s balancing flow with demand not the capacity. also the utilisation level of a worker isn’t determined by his individual potential but by bottlenecks.

alex sez an hour saved at a bottleneck is an hour saved for the system. an hour saved anywhere else is useless. hilton smyth insists that an hour saved anywhere saves time and that bottlenecks only limit throughput temporarily, but they don’t have much impact on inventory.

cravitz asks how they can measure the performance of the plant if not by efficiencies. alex sez it is measured by the bottom line.

hilton smyth sez the plant can’t be profitable for long if cost of products increase and profits have to decrease.

alex goes to bill peach directly to say smyth is going to makes a negative recommendation and explains why smyth is wrong.

peach calls in smyth, cravitz and johnny jons, and asks smyth for his recommendation.

smyth sez alex’s plant should be fixed so that cost per product decreases.

ethan frost sez the plant made a profit.

jons sez that alex’s plant delivers stuff in a short time and help blast the market.

smyth sez this is temporary and they should expect large losses in the future.

bill peach sez the plant won’t be closed cuz it’s making a profit.

smyth protests.

bill peach sez that he has met with granby and is being promoted and can pick his successor. alex will take over from him as division manager.

alex goes back to the plant and calls jonah to ask for help.

jonah sez alex should rely more on himself and should decide what he wants to know before calling again.

alex sez he wants to run an efficient division.

jonah sez previously alex wanted to run an efficient plant, now he wants to run an efficient division and it won’t stop there.

alex sez he wants to learn how to manage any size of organisation and his own life.

jonah sez he should learn what techniques are available for effective management.

[alanforr]

32

julie wants to toast alex’s promotion. alex feels his family paid too high a price for the promotion. julie sez the plant had problems and he had to solve them.

alex tries to give jonah credit, but julie points out alex came up with solutions himself. alex sez jonah gave him solutions in the form of pointed questions.

julie asks why alex didn’t think up the questions himself. alex sez jonah’s ideas seemed like common sense, but you only recognise ideas as common sense if they match your intuition.

alex sez he tried to explain jonah’s ideas but jonah’s practice of asking questions worked better.

if you try to explain stuff the person either understands what you’re saying or he doesn’t. if he doesn’t understand he’ll ignore you. if he does understand then he’ll think your point is below the belt.

but when alex tried to ask questions they were perceived as patronising.

jonah’s method of asking questions depends on him asking the right questions but also knowing what questions the other person will have.

alex wonders when jonah had time to learn so much about the shop floor when he was an academic.

33

alex wants lou to come with him to his new job, but thinks he won’t want to cuz he’s close to retirement and active in his community.

alex asks how much profit the plant will make and lou sez 20%.

lou sez he found a distortion in how they calculate profit that’s larger than the problem they had with product costs.

lou points out that inventory is a liability but it’s reported as an asset. wip inventory went down by 50% and finished goods inventory by 25% but this was recorded as a loss of assets and was only partly offset by the fact that they didn’t buy as much new materials.

when the inventory is put down a liability the plant made over 20% profit for the past 3 months.

everyone counts inventory as an asset, including the tax man.

lou sez he explained this to ethan frost, which is why frost supported him at the plant review.

lou sez he’s been thinking about the fact that he’s got old ideas and is close to retirement. he sez he’s been using bad procedures without understanding that he was doing harm. he thinks financial measurements should give them knowledge of to what extent they’re succeeding at making money and should make the parts of the business work together to serve the business as a whole. but current procedures don’t do that.

lou sez he wants to some with alex and develop a new financial measurement system that serves those objectives.

alex asks bob Donovan if he wants to be head of production for the whole division and he declines.

bob sez he learned so much from the changes introduced by the burnside order that he wants to stay at the plant and develop those ideas further.

instead of just saying yes or not to burnside they came up with a new offer based on what they could do and the client preferred it. bob thinks the lead time should be quoted case by case depending on the bottlenecks. and they shouldn’t always supply finished products in one batch. he’s been working on it with stacey and ralph.

but he can’t do that without being familiar with the details of the plant.bob sez he wants to be the new plant manager.

alex sez bob’s superintendents aren’t much good to replace him as production manager, but they both think stacey is good so they offer the job to her and she takes it.

stacey has been examining the queues in front of assembly and in front of bottlenecks - buffers. an item that is scheduled to be worked on for a bottleneck should always be there: if it’s not that’s a hole in the buffer. if there s hole they go to the foreman of the work centre and ask him to work on the hole next.

but they were always visiting the same 6 or 7 work stations - capacity constraint resources (ccrs). the holes have been getting worse ralph sez the ccrs have enough capacity and he’s right on average but if sales increase they’ll have chaos. they need to improve the ccrs too.

stacey wants to be production manager so she work out how to deal with improving ccrs.

ralph noticed that formerly most of his data wasn’t useful for answering the questions alex asked. he wants to develop a system to help reduce the time and effort needed to engineer a sale, to help stacey manage the buffers and to help lou calculate local performance.

[alanforr]

34

alex talks to julie about his work and asks her opinion.

julie helps alex realise that jonah cutting him off led to lou coming with the idea of a new measurement system, likewise with the ideas invented by bob, stacey and ralph.

she sez he should ask his team about what techniques are needed for management while he is still at the plant.

alex asks his staff what he should do when he gets to his new job at division.

lou sez he should talk to his new staff for fact finding.

stacey sez he should ask them about their problems and where they stand wrt clients.

bob sez he should find out about local politics, tour production facilities, visit some clients and large suppliers.

alex draws a bunch of shapes on a board to represent the facts he would gather and it looks like a big mess.

alex asks if a committee was trying to work out what was going on how would they do it?

they say the committee would start fact finding.

then they’d try to arrange the facts, and the staff come up with various ways the shapes alex drew could be sorted, but they think it would be a waste of time.

alex sez this idea of arranging the facts does harm in addition to wasting time. companies switch back and forth between arranging things according to product lines or according to functional capabilities. they also switch back and forth between centralisation to reduce duplicated effort and decentralisation to encourage entrepreneurship.

alex sez that the idea of collecting data then arranging it is futile.

35

next morning the staff meet again to try to solve alex’s problem.

ralph sez he had an idea. chemists had discovered a lot of elements like oxygen and hydrogen that other chemicals were made of. mendeleev came up with an idea for arranging the elements. he didn’t use colour, or whether they are gases or whatever.

alex suggests that mendeleev needed a numerical measure, so he could arrange them without being sidetracked by his subjective preferences.

mendeleev used atomic weight. he then noticed that each seventh element had similar chemical behaviour so he arranged them in a table with seven columns. he then spotted holes in the table and used them to predict the properties of undiscovered elements. other scientists were skeptical but mendeleev was right and the relevant elements were discovered, although they found out there was an 8th column: the noble gases.

alex sez they need to look for an intrinsic order in the facts they gather. so they need a technique for doing that and that technique would be useful for management.

later alex tells julie about this and she explains that she went to the library and read some plato.

she heard about the socratic method from alex, who heard about it from jonah so she decided to read about socrates by reading plato’s socratic dialogues.

alex sez that sounds boring. she sez they’re interesting like stories and she’s still reading the first one: protagoras.

[alanforr]

36

alex has a meeting at work.

stacey and bob are late cuz they’re dealing with problematic orders.

to manage the division alex has to clarify how he can apply jonah’s ideas in different situations, e.g. - to different plants, to sales etc.

stacey sez they should ask what their goal is as managers. lou sez the goal is to get the division to make more money now and in the future.

stacey sez more isn’t a specific number so that got can’t be achieved.

lou sez she’s right, and they need to move the company toward that goal. to do that they should start a process of ongoing improvement.

nobody knows what this means or how to do it, although hilton smyth uses the phrase “ongoing improvement” in his memos.

bob sez he’s seen a lot of ongoing improvement projects in plants and they’re always a pain in the neck.

bob sez they improved the plant by actually doing stuff rather than talking.

stacey sez the difference between these projects and what they did in the plant is mow they interpreted improvement.

lou sez the relevant measurements are throughput, inventory and operating expense.

most improvement projects focus on operating expenses. lou sez they’ve concentrated more on throughput and inventory, which changed by tens of percent, not operating expense, which changed by 2 percent.

alex wants to know how they’re going to get the division to concentrate on throughput.

bob sez that a process of ongoing improvement has to consist of steps they could do: they need to figure out what process they followed.

ralph sez the process and throughput ideas are connected. a complex organisation is like a chain composed of links. looking at cost is like looking at the weight of the links. but looking at throughput is like considering the strength of links cuz you have use all the links to get throughput. the strength of the chain is determined by its weakest link, which is like the bottleneck.

the process is

step 1 identify bottlenecks

step 2 decide how to exploit the bottlenecks

step 3 subordinate everything else to exploiting the bottlenecks

step 4 elevate the bottlenecks - make them more productive

step 5 look for more bottlenecks if a bottleneck has been broken

stacey sez they went through that process more than once and the nature of the bottlenecks changed.

they started out with production bottlenecks like the ncx-10 and then the market became the bottleneck. she suggests changing the word bottleneck to constraint since calling the market a bottleneck doesn’t make sense.

later alex asks julie how he’s going to continue the momentum.

alex can’t push for more orders cuz that will lead to more bottlenecks and get them back to expediting. but their results don’t justify more staff or machines.

julie sez they’ll have to wait until the plant generates enough money to justify investment.

[alanforr]

37

alex is in another meeting at the plant.

ralph sez there’s a problem. step 3 sez to subordinate everything to exploring constraints. so when a constraint changes they should change how they operate non-constraints.

the first time a constraint changed was when green tags parts were being released late to the bottlenecks cuz the constraint had moved to how they released work to the plant. this affected the non-constraints.

but they kept using red and green tags to prioritise, but now whatever they release is of the same importance.

stacey has been demanding that stations work on the red tags first and restricting incoming orders. at the capacity constraint resources (ccrs) they work on red tags first and this delays the arrival of green parts. they only notice this when there are holes at the buffer. so they should get rid of the tags.

alex asks is stacey is sure that they can take on more orders.

stacey sez yes cuz this explains why there are holes at the assembly buffer but not the bottleneck buffer. the fact that there are lots of holes means they will have a capacity problem some day, but not now.

did they make a change in on-constraints when the plant’s ability to make money was caused by lack of sufficient orders?

no they even kept releasing material according to the oven and ncx-10 and they were working to 100% of their capacity although they were no longer constraints.

stacey sez that when she realised the load at the bottlenecks was falling she issued orders to put products on the shelves cuz she thought an hour lost at the bottleneck was an hour lost for the entire plant. so they have about six weeks worth of finished goods.

lou sez those can be drawn down but it shouldn’t be done too rapidly cuz it will affect the bottom line.

stacey adds to step 5 but saying you shouldn’t let inertia cause a constraint.

lou sez that they have a new problem. all the sacred cows they had to slaughter came from cost accounting: local efficiencies, optimum batch sizes etc. but stacey had a similar problem with bottlenecks. so changing the constraint means you have to change how you’re working.

alex asks how much load there is on the bottlenecks due to shelf filling and she sez 20%. alex sez this means they can bing more stuff to market so he needs to go see johnny jons with lou and ralph.