The Goal by Eliyahu Goldratt Summary.
The Goal Book Summary.
Hey Friends, The Goal by Ekiyahu Goldratt. In The author of this business novel thinks he's the Messiah. The gist of the 384-page book could have been expressed in a page, and some of it is obvious. But it may be useful anyway, and it's an entertaining read.
The best procedure improvement novel I've seen, this exemplary work clarifies the exceptionally critical Theory of Constraints through genuine models and a shockingly decent story.
His schtick is that one can achieve great gains by identifying the bottlenecks ('constraints') that are blocking improved performance toward your goal, and then doing anything necessary to unblock those constraints - even if this means inefficiently using other non-bottleneck resources.
He says that one should think of the cost of each resource as including its effect on the whole system. So if a machine costs $1K/month to operate, but its rate of production is preventing the business from accepting or fulfilling extra orders that would represent $10K/month in profits, then the true cost of the machine is $11K.
It follows that anything one can do to remove that bottleneck would be worthwhile, provided it adds less than the amount saved to the cost and doesn't introduce a new bottleneck. The Goal
It's fine if you have to overpay for other resources or use them inefficiently as long as you accomplish this.
It then becomes a matter of analyzing and brainstorming all the ways that bottleneck can be reduced. For instance:
- Can extra capacity be added, even if it is less efficient or uses antiquated equipment or is outsourced to a vendor?
- Can you prioritize the use of the bottlenecked resource so that high-profit and time-sensitive work comes first?
- Can you divert work that doesn't need to go through the bottleneck, even if it would then go through another more cumbersome process?
- Can you prevent work from reaching the bottleneck if Quality Control will eventually reject it?
- Can you increase the rate of output of the bottleneck resource by doubling up batches?
This logic applies regardless of the nature of the bottleneck - whether it relates to a machine (production capacity), marketing effort (how much business is coming in), or any other element of one's environment.
To help identify the bottlenecks and judge tradeoffs, one should identify one's goal as a measure (in a business context this is generally profits or ROI), then identify the factors that influence that measurement and create an equation. For instance,
Profits = Sales - Cost of Inputs - Cost of Transforming Inputs
or,
Return On Investment = (Sales - Cost of Inputs - Cost of Transforming Inputs) / Money Trapped In Unfinished Goods And Inventory
Essentially, his thesis is that by focusing on these bottlenecks, and analyzing and brainstorming their solutions, one takes advantage of the 80/20 rule by prioritizing those few factors that most greatly impact one's performance.
The most rewarding part of the book are the examples in the Testimonials section at the end. The testimonials describe creative solutions to tough bottleneck situations.
The book doesn't help the reader come up with this type of creative solution - it only mentions where to look for the problem. Here are the memorable examples he cites:
1. A large office supply company (similar to Staples) was losing business to companies that were charging very low prices.
Investigating this marketing bottleneck, they determined that from the customers' perspective, the larger problem was the overall cost of stocking and procuring and purchasing and tracking the office supplies.
Rather than competing on price, its owner fixed the Sales bottleneck with an innovative concept, where they arranged to place fully stocked cabinets filled with office supplies throughout their client companies, just like a hotel minibar.
They'd visit each week, restock any items that were used, and charge the company for the items that were removed, thereby saving the company the aggravation and cost of even having to purchase or account for office supplies.
They also supplied each customer with detailed information regarding what was used, when. In exchange for this unique convenience, they charged higher prices and achieved large profit margins.
2. A printing company, constrained by the number of presses available to print jobs, made more efficient use of its presses by routing jobs to different types of presses in a way that would maximize the total output of the presses.
3. A manufacturing company's output was limited by a saw that cut pipes. They dug up an old, inefficient saw, put it to work to remove that bottleneck, and increased output and profits significantly.
4. In the book itself, the protagonist's factory increased its Return On Investment (profit/money tied up) by shortening the time it took for a product to be manufactured (as doing that reduced the money tied up, hence increased ROI). This was accomplished by removing delays that were keeping costly unfinished products sitting around the plant.
For instance, by reducing the 'batch size', a product would wait less time for its batch to be complete, allowing it to move to the next step of production sooner.
The Goal book's exercises have some common sense in typical, regular daily existence, yet its most noteworthy utility is for those associated with procedure improvement in enterprises, for example, producing, conveyance, administrations, and retail.
Great book The Goal by Ekiyahu Goldratt., loved reading it. It clearly highlights how unit level measurements doesn’t add to company goal though unit level metrics look good.
Thank You.
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