Throw away Conventions and Common sense to achieve your Goal
“Science for me is not about the secrets of nature or even about truths. 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 Goal, Eliyahu M. Goldratt
Many praises had been written about Eliyahu Goldratt famous book “The Goal” issued on 1984. One would think that in more than 30 years things would have changed especially when it comes to production and management perspective. It was written in the days where mobile phones were just invented and internet was not even online but the concepts and conventional postulates and methods of managing business are still with us. That’s what makes Goldratt book so significant.
Except for the fact that Goldratt actually telling a story to emphasise his theories which I find as a very interesting way to deliver what he has to say — I also found there many philosophical statements (after all Goldratt owned M.Sc. and Doctorate of Philosophy) and even a few social-political sayings the western economy is facing today.
Alex Rogo who came back to his hometown to run one of the mechanical parts plant of UniCo cooperation is the main character in the book. Only after 6 months in the role he gets the bad news — if his plant is not going to show some profit’s improvement it’s going to be closed in three months. And if that’s not enough for Rogo, he also got some family life struggles — which Goldhart assume many managers that are obsessed with their work experienced.
As his world falling apart and while sitting at a divisional meeting Rogo suddenly remembers a brief encounter with his professor — a physics that taught him mathematical models — that had taken place a few month earlier at the airport. On that meeting the professor — Jonah — asked him some fundamental question regarding his plant, suggested it’s not going the right direction. Rogo, who was at the airport in order to get to a conference and talk about how the new robots on his plant are so efficient, dismissed politely Jonah’s implications that his plant is in trouble, only to find out a short while later that Jonah was right.
From there, the book flows the whole process Rogo and his managerial team had taken in order to save the plant — a process that will be defined later on as the Theory of Constraint (TOC). A disk flipping first in their minds and then on the plant. Goldratt describes in a very detailed way the staff meetings, their thinking process not sparing any obstacle that might come on the way. For every unconventional point, he brings the opposition convention thinking by the relevant staff member covering all the possible options for a situation that makes you sometimes get to the point before Alex does.
Socrates and will robots change our world?
The book is really about showing the process and never accepting convention as they are or because that’s how it was done before. Even at the end when Alex tries to investigate management methods and what a good manager should do when he comes to a new place, his wife suggests — it is after all start with thinking process — just like what he did at his plant.
Going back to philosophical and political issues, the brief encounter at the airport, where Alex tells Jonah in enthusiasm about his talk about the robots that will improve industrial productivity reminded me the latest researchers that predict robots will replace the worker in 20–30 years. It was quite amazing for me to realise that we are still talking about something that we dealt with 30 years ago without asking any question.
Anyway, the dialogue between Alex and Jonah could demonstrate the method (in a Socratic way of questioning) Jonah uses to lead Alex to the understanding that the logic behind conventional thinking is not that profound and that there might be another way. In this case, it means the robots didn’t improve his plant performance. Later in the book, he will demonstrate similar processes about other conventional thinking like cost accounting and even growth model.
When Alex introduce Jonah with his talk topic “Robotics: a solution to America’s Productivity crisis in the new millennium”, Jonah was not that impressed as Alex thought he would be. Jonah asked him to answer a simple question whether the robots increased the productivity at the plant?.
Proudly Alex said it did improve productivity by 36%. “So your plant making 36% more money just by installing the robots?” was the next question on the dialogue. And Alex said “Well.. no” and explained it’s a bit more complicated since the improvement of 36% was taken place just in one department.
Jonah continued asking whether the usage of the robots made the plant sent even one more product to a client or whether he fired anyone as the results of installing the robots. He also asked whether the inventory went down. The answer to those three questions was negative.
“If you inventory haven’t gone down … and your employee expense was not reduced … and if your company doesn’t sell more products … then you can’t tell me these robots increased your plant productivity”, was what came next.
To that, Alex answered that his efficiencies went up by 90% and costs per part went down. “With such efficiencies you must be running your robots constantly”, said Jonah and Alex say “absolutely” otherwise he will lose their savings on the cost per part and then he go back to the efficiency mantra. And so it goes with the Q&A.
Later on, Jonah tells Alex that his plant is not efficient as he thinks and that the conventional measurements he uses are wrong. “You think you’re running an efficient plant. But your thinking is wrong”. The dialogue continues until Jonah has to go on his plane not without leaving Alex with the question of the book and if I may add a question for life — what is the goal?. “You can’t understand the meaning of productivity unless you know what the goal is. Until then, you are just playing along of games with numbers and words”, says Jonah and leave.
Socialism vs. Capitalism
After a long thinking process Alex gets to his plants’ goal, not before reviewing the whole list one can think about — cost-effective purchasing, employing good people, producing products, producing quality products, capturing market share, customer service, and etc. During this thinking process, Alex turns to his plant’s controller, Lou, to find the measurements needed to know if a company is going according to its goal only to find out the conventional measurements are wrong.
During the conversation with Lou, Alex confessed about the plant possible verdict and the reason he is looking for alternative measurements metrics to achieve his goal — not like net profit, ROI or cash flow. In that point, Lou says to Alex he is wasting his time by looking for different measurements since “The system is the system”.
“It’s all about the union’s fault”, Lou continues to describe the problem. “if everybody would just work harder; nobody gives a damn about quality; look at the foreign labor — we can’t compete on costs alone”.
This stuff that Lou expresses could be heard from an average plant controller even today. To realise that it is still relevant as it was 30 years ago is pretty amazing to discover. Nothing has changed. It is rather a social-political statement that is very relevant to our days and the constant battle between Capitalism vs. Socialism paradigms. The subject related to labour protection laws, unions, and the convention that when a business loses one of the immediate steps the management takes is to cut in the working force instead of thinking what was managed wrong to lead to the loss.
That approach of course proven to be wrong during reading the book. In later chapters, another related question is tested. If you happen to see your employee unemployed — is that a good thing or a bad one for the company? To put it in the right context making your employee work all the time even if he finished what he needed to do so that he won’t be idle or inefficient will help the plant performance or damage it?
The method: First find a bottleneck
The long thinking process Alex and his team pulled out together alongside the guidance questions of Jonah led to the conclusion that the robots were not that efficient after all. The robots increased the plant depreciation since they consider as new equipment. To return their investment the robots worked all the time making unnecessary parts. Either because there was no order to fill with that parts or if they had ordered there were other parts, not from the robots, that were leaked to fill the order.
Dealing with this extra inventory — like transference from one place to another and storage places also cost resources. They haven’t directly taken away any jobs from the plant. People were shifted to other places — which means the robots increased operational expense. The efficiencies of the robots went up which made the cost per part become down — but did it came down? How can cost per part go down when the operational expense went up?
They also discover that Stacy, the material manager, ordered after a while to reduce robot usage for only thirty percent of the time since there was not enough place in the plant for the inventory.
This led to the understanding that even though the robots did their job very fast “in an efficient way” there were other parts of the production chain that were slow so that if they want to release an order they must wait for the other parts. From there came the realisation that the behavior of the bottleneck or the weakest link in the production chain is the one to determine the final throughput to be shipped. This basically means that the performance of the plant determined by its weakest link in that case two physical machines — the NCX-10 (CAD machine) and the heat-treat (furnace).
To get to this bottleneck understanding or the Theory of Constraints Goldratt describes Alex thinking process when he had to go with his son to a camp and lead 15 children in a 10 miles forest hike. The conventional thought or what Alex thought was to divide 10 miles with 2 miles per hour, the average person walk — the time it would take them to get to the target. Alex thought that the walking rate will fluctuate according to the length and speed of each step but over time and distance, it will average around 2 miles per hour. However pretty soon he finds out that it doesn’t work like that and the gaps between the boys are only getting larger meaning he won’t get to the target in 5 hours.
This could be explained by that: the hike is a set of dependent events in a combination of statistical fluctuation. Each boy in the group is fluctuating in speed, faster and slower but the ability to go faster than average for the next boy is restricted. It depends on upon those ahead of each boy in the line. So what basically happened was that the gaps were just broadened more and more not convergent to the average.
I will leave you here to find out how he manage to solve it (hint: the weakest link) and how the understanding what was needed to be done on the hike led to the key for the survival of the plant. I will leave you here not without an important thought provoking statement Goldratt wrote in the book saying “Common sense is not so common and is the highest praise we give to a chain of logical conclusions”.