Notes on ‘The Goal’ by E. M. Goldratt

Someone recently asked me to read a seemingly great book called ‘The Goal’ by Eliyahu M Goldratt. I’ll be compiling my chapter-wise notes below for future reference. Main focus would be on documenting the peculiar events, how they affect people’s rationale and my takeaways as I progress through the book. Therefore, this should effectively be useful for people reading this after they’ve read the book themselves.
Al is the type of guy who comes early so he can get work done efficiently
Chapter 1
The plant’s efficiency is down the drain, money is being lost; Order #41427 was the last straw for our EVP (Bill Peach). The wannabe CEO and the type of guy whose vehicle plate says NUMBER 1. Bill’s experience clearly taught him to exercise non-verbals to set precedence while putting forth his point — parking in Al’s spot, taking his seat in the office and the likes. He delivers the news and then resorts to the ancient Good cop Bad cop strategy. The situation must really be dire.
Plant Manager (Al) is the type of guy who comes early so he can get work done efficiently. The way Al initially handled the commotion in his morning coffee-less state shows his decision making and people skills are on point. Clearly, he seems to be got caught up in a bad situation here since, he was put in charge of a sinking ship just 6 months back and now has only 3 months to plug all the holes.
Now, the chief machinist has left, a critical machinery is down and #41427 still needs to be shipped tonight. The war is ON.
Al starts to contemplate his plant being added to the list of deaths in Bearington
Chapter 2
Bearington is a factory town on death bed. Al has childhood memories attached to it, the wife isn’t a big fan. Al starts to contemplate his plant being added to the list of deaths in Bearington. Order #41427 miraculously ships. That miracle being the shift manager (Donovan) getting everyone in the plant to work on it primarily inefficiently on non-approved overtime. But, it worked, made a lot of people happy.
Interestingly, Al seems mature enough to comprehend these shortcomings. His introspection reveals that even though he has the tools, something is missing. Something really elementary that’s failing them. Today, he even resorts to playing the blame game. Maybe tomorrow would be better.
Chapter 3
Al assesses that Bill has been overreacting recently; irrational even, desperate for a win. At a meeting involving division leads, it was revealed that it was because the entire goddamn division is in jeopardy! Al seems to be taking this news hard, very hard. This truly explains the rationale behind Bill’s behavior. The mandate from the meeting — productivity must increase.
Jonah tells Al that unlike what he likes to believe, he doesn’t really grasp the real goal of his organization
Chapter 4
At O’Hare airport, Al met an earlier professor of his (Johan). He was excited to tell him about how revolutionary the introduction of cutting edge robots have been in his plant. Instead, that conversation turned into a reality check for him shattering all delusions surrounding increased efficiencies.
Al seems flabbergasted during the entire conversation and was caught off-guard multiple times by the old timer. At the end, Jonah tells Al that unlike what he likes to believe, he doesn’t really grasp the real goal of his organization.
Chapter 5
Al appears quite lost and introspects heavily during Bill’s big meeting, its purposes and expected outcomes; rarely paying attention. He finally bails out of the meeting and resorts to driving aimlessly trying to take his mind away from ‘business’. Al again contemplates what Jonah mentioned earlier about real goal and in a pizza + beer driven introspection, he shuffles through some of the possible candidates for the goal — people, quality, efficiency, technology, sales, money? Finally he proclaims — it has to be money.
Chapter 6
Back at the plant, Al avoids people and goes straight to the floor. He now tries to relate each action with the objective of making money. Back in his office, he discusses his money being the real goal reasoning with his accountant (Lou). Lou enlightens him about some of the most essential metrics to weigh the money goal — net profit, ROI and cash flow. He breaks the news to Lou who then goes on to ramble for an hour regarding what he believes are the true causes of downfall of the plant. He’s basically letting off some steam.
Al contemplates a bit more till 10 PM. Damn! he forgot to call his wife and about the dinner with her. While returning, he thinks about asking questions relative to above metrics from his second shift supervisor (Eddie) but, refrains from it.
Chapter 7
Back at home, Al spends some time with his daughter who managed to get straight A’s in second grade! While in bed, he thinks about looking for another job but then establishes that for him, it would be like running away. He then shifts gears and again decides to tackle his work problem at a more elementary level. He decides to find Jonah again.
The conventional metrics used to measure money matters don’t really apply well at operational level
Chapter 8
The next day Al thinks about finding Jonah. Instead, his entire day is spent in meetings. While returning, he decides to pursue finding Jonah again and goes to his parent’s home to look for his old address book. He finally catches up with him. His assessment of an organization’s real goal was indeed correct! They discuss that the conventional metrics used to measure money matters don’t really apply well at operational level.
For that, Jonah suggests a different set of metrics — throughput, inventory and operational expense. Throughput is the rate at which the system generates money through sales. Inventory is all the money that the system has invested in purchasing things which it intends to sell. Operational expense is all the money the system spends in order to turn inventory into throughput.
Chapter 9
Still at his mother’s home, the next day, Al sleeps in. He calls his office and among other usual things he was told that The Chief (Granby) wants to shoot a marketing video in his plant. He assumed the choice of location was a mistake. He was incorrect. He returns back home to freshen up but, he keeps thinking about the conversation with Jonah last night; trying to relate the discussed points with his problem at hand.
He returns to work and straight away goes to Lou’s office and together with him and the Inventory Manager (Stacey) confirms his fears — since robots were introduced the throughput wasn’t affected while at the same time the inventory go up. Stacey also mentioned that they’ve also been making parts in surplus to have an optimum efficiency from the robots.
They also get Bob involved in the discussion and deduce that even though the robots increased inventories based on the [possibly incorrect] forecasts, the other parts needed for assembly weren’t always available which ultimately resulted in increased operational costs.
All have heated discussion trying to wrap their heads around the viability of the three metrics
Chapter 10
Al decides to explain all of his findings with this group and he does so. They all have heated discussion trying to wrap their heads around the viability of the three metrics and how they fit in the system. Al also tells the group about the impending doom. They eventually decide to catch up with Jonah again. Al discusses the uncertainty and confusion his staff is going through currently. Its decided that Al would travel to New York to meet up with Jonah over breakfast.
Chapter 11
Julie expectantly doesn’t take the news of his travel nicely. He leaves for NY; he had to meet Jonah! In NY Jonah says he cannot act as a consultant for them but, can give him a few rules to apply. It seems the plant can be saved after all. They discuss a fair payment system for Jonah.
Jonah mentions that a plant that has its people working all the time is highly inefficient. He also mentioned that trimming people according to market demand somehow results in decreased throughput and increased carrying cost of inventory effectively increasing operational expenses. Finally before leaving, Jonah mentioned about two phenomenons — dependent events and statistical fluctuations. Jonah asks Al to figure out how these apply to his situation.
Chapter 12
On returning home, Al and Julie have a fight about Al not giving enough time to the family. They patch up eventually after a little drama.
For each minor fluctuation in the group, everyone immediately behind is affected
Chapter 13
As promised earlier, Al goes to hiking with is son (Davey) but, upon reaching the spot he finds that he is the only adult among fifteen or so kids. During the hike, Al gives dependent events and statistical fluctuations a much deeper thought. He notices the distances that crawl up between groups while hiking and tries to deduce the reasons behind them based on above. For each minor fluctuation in the group, everyone immediately behind is affected.
Hence, the hike is a set of dependent events in combination with statistical fluctuations. Essentially, every one can slow down as much as they like simultaneously affecting everyone behind him but, they can only move as fast as the guy ahead of him. This cancels out averaging of fluctuations. He then tries to model the hike as a manufacturing plant based on this information.
Chapter 14
They all wait for lunch. Al is still thinking about his problem. He decides to design a small game with bowls, matches and a dice; mimicking a perfectly balanced system. He gets five kids to play this game. Effectively, he saw the effect of statistical fluctuations being cancelled out by dependent events — the kids at the later bowls lost; the balanced system model failed.
The system’s throughput is determined by the slowest kid
Chapter 15
Back on the trail, Al is still thinking why the balanced system failed. He notices that each kid has somehow rearranged himself according to his pace. No one is limiting anybody. This increases the length of the line further — the system’s throughput is determined by the slowest kid.
They come across a milestone. According to it they’ve been moving slow; very slow. Something needs to be done. He experiments by reverting the order of the line. The gaps no longer appear — but the speed is slower! They decide to make the slowest kid faster (Herbie) by distributing the bulk of the weight of his backpack. It works!
Chapter 16
Upon returning home he finds that his wife decided to stay away from him for a while leaving the daughter (Sharon) with his mother. He brings Sharon back and explain the situation simplistically to both the kids. He makes a couple of calls in the hopes to find to find his wife (Julie) but, to no avail.
The situation with Smyth’s order gives him a chance to showcase his findings
Chapter 17
In the rush to get the kids to school, he reaches office late and is immediately asked to deliver a late order in full from another plant manager (Smyth). Back in the office he’s told that he now reports to Smyth who has been promoted to division-productivity manager!
He arranges a staff meeting and explains his findings to them. They are skeptical about it. Then, the situation with Smyth’s order gives him a chance to showcase his findings. He chalks up a plan to complete the order by designated time compensating for statistical fluctuations and dependent events. Ultimately, he showed that throughput was actually controlled by the slowest element in the system.
Chapter 18
Al brings his mother home to manage the household. Back at the office, he discusses with his team about the importance of measuring operational capacity. They decide to contact Jonah again. He tells him about the two types of resources — bottlenecks and non-bottlenecks. Essentially, the bottleneck flow should be on par with market demand. Jonah tasks them with finding the bottlenecks in their system.
They start looking through their database in search for bottlenecks and eventually realize that this data is far from perfect and that the approach is too methodical. They decide to look for a ‘work center’ which the expeditors always go to when in short supply and that always have a huge work-in-progress ahead of them. They find two such ‘work centers’ — a giant machine and a heat treatment unit. Repositioning them in the workflow is out of question.
The actual cost per hour of a bottleneck is equal to the operating cost of the entire system per hour
Chapter 19
Back at home, Al discusses the issue with his newfound Herbies with his family. He had earlier discussed this issue with Jonah and has arranged for his visit. Al brings him to the plant where his team is waiting. They immediately go for a visit. Jonah instantly suggested that for a bottleneck, the machine needs to be operated optimally with as less breaks as possible. On the heat treatment bottleneck, he tells that they’re not using the unit optimally; losing money.
Then, Jonah analyses the bottleneck parts rejected by QC; it directly translates to wasted time and throughput. Parts must me QC’d before being put in a bottleneck, their work load distributed and they should only operate on current demand. Most importantly, the actual cost per hour of a bottleneck is equal to the operating cost of the entire system per hour.
Chapter 20
Al calls Julie’s parents and find that Julie is indeed there. She isn’t ready to talk to him yet. He vehemently sets up a staff meeting. They decide to implement the easier ones among Jonah’s suggestions first — QC before bottleneck operations and higher priority to overdue orders.
He goes to Julie’s parent’s house to meet her. Her mother doesn’t let him enter. He waits, she finally comes out and they go for a walk where they talk things through; more drama.
They decide to let everyone in the plant know about the importance of bottlenecks and devise a system for managing priority at each work station
Chapter 21
Al returns home and makes up his mind to ask Julie for a data. She agrees. Back at the office, they’ve prepared a list of overdue orders. They make up a plan to tackle the list. He has a small meeting with union guys (because of new rules with lunch time for bottleneck machine guys) and give them the wrap-up.
Back on the floor, Al sees that NCX-10 is not working but instead waiting for the parts to arrive. This was because the area they were supposed to arrive from were working on non-bottleneck parts without realizing the importance. They decide to let everyone in the plant know about the importance of bottlenecks and devise a system for managing priority at each work station.
On Saturday, he goes on a date with his wife.
Chapter 22
After a week of implementing the changes, they notice that they’ve already shipped a substantial number of late orders. Throughput is high! They’re moving in the right direction; probably not fast enough. Al asks Bob to look into other suggestions by Jonah regarding bottlenecks.
For the purpose of treating the parts coming out of bottlenecks fairly, they decide to add a small yellow tape to those so people know their importance. Surprisingly, Bob has managed to track down one of the machines to supplement the NCX-10 (Zmegma); this should greatly help.
Chapter 23
Al’s been going out with his wife and things are moving fine on that front. Back at the office, the computer guy (Ralph) tells Al that the heat furnace bottleneck is not being used optimally and that more data from it can be used to predict when an order can be shipped. Bob, tells similar thing was happening with NCX-10. They decide to have people permanently stationed at these bottlenecks.
During staff meeting, Bob recommends to get outfits across town to do surplus heat treatment, more people be stationed at bottlenecks and to get the NCX-10 supplement up and running. They decide to get these extra people from non-bottlenecks. Things work beautifully well.
One day, a heat-treat foreman (Mike) gave Al some interesting ideas to increase efficiencies (like overlapping orders, adding a switchable table); Al is impressed. Bob also mentioned to him another way to increase its efficiency.
Making the bottlenecks more productive has put pressure on other non-bottleneck parts
Chapter 24
With above measures, they managed to break the record for maximum orders out in a month for their plant; everyone toasts to it. Even Bill calls to thank him for the extra effort. They all celebrate till late and Stacey comes to drop Al off. Coincidentally, Julie had decided to come home today and she sees Al and Stacey in an unfortunate situation. She gets angry and leaves!
On next workday, Stacey told Al that the bottlenecks have spread. Making the bottlenecks more productive has put pressure on other non-bottleneck parts. He decides to get hold of Jonah again who would need to make another visit.
Stacey had called Julie and she seems to understand the misunderstanding.
Chapter 25
Jonah came and decides to visit the earlier bottlenecks. They notice that there is a huge pile of work-in-process before both bottlenecks. This was partly because the non-bottlenecks were giving more importance to these parts. Jonah explains them through a few diagrams that in no case a non-bottleneck determines the throughput of the system and when they perform above a bottleneck for efficiency purposes, it results in excess inventory.
This brings back Jonah’s point from earlier that a plant where everyone is working all the time is non-optimum and is far from balanced.
Let the bottlenecks control when to let more inventory into the system
Chapter 26
Back at home, he’s still thinking about the problem. His kids try to help. The solutions are similar (even to Jonah’s) — let the bottlenecks control when to let more inventory into the system. At office, Ralph mentioned he can predict when more red tags need to be released based on bottleneck work-in-process. Once such parts get released, he can track backwards and can control the release of non-bottlenecks too. They also decide to let non-bottlenecks take efficiency dive for a while if it involves lower inventory.
Chapter 27
At the division meeting, its revealed that Al’s plant is the only one with significant improvements. They also managed to clear their entire backlog. He doesn’t tell the full story of the turnaround. In a private conversation, Bill gives Al a higher target to let the plant off the hook. Al accepts the challenge.
While returning, Al thinks that they’re probably short on orders to be able to tackle that target. He goes to visit his wife where his kids are too, for now. They have a small fight but seem to make up before Al leaves.
He suggested to cut their batch sizes on half on non-bottlenecks
Chapter 28
Al returns home where he tells Jonah about the progress and the current issue. Jonah won’t be available for a few weeks. He suggested to cut their batch sizes on half on non-bottlenecks. This would essentially reduce the wait time and queue time for parts resulting in faster throughput. Of course, setup time will increase too. Jonah had also suggested to go to marketing and ask them to run a campaign promising earlier deliveries to customers. He convinces sales people (Johnny) to follow through.
Chapter 29
Julie is back home for the night. Among a lot of great news from the plant, one issue lingers — the cost per part has increased due to more setup time from of smaller batch sizes. Julie has got up and is interested in hearing about this. At office, Lou suggested a slight change in method of accounting to tackle this problem. This is against policy but, Al allows it.
Johnny calls and informs that they have a new order of 1000 parts but, it needs to be delivered in 2 weeks. This seems impossible. The team discusses the viability anyway. One of the suggestions was to cut batch sizes in half again. They accept the order but with 250 units per week after 2 weeks instead of 1000 units in 2 weeks.
However with this method, they aren’t quite meeting Bill’s target
Chapter 30
The numbers are in — they surpassed Bill’s target! He gets informed of a performance evaluation of the plant. While Al was away for a couple of days, Hilton Smyth had visited the plant for a robot videotape (instead of Chief Granby) and he had more than a few questions about how things were being run in the plant. When the performance evaluation team arrives, they find the irregularity in accounting methods and reprimand. Al expected to hear something from HQ about this but, that didn’t happen. However with this method, they aren’t quite meeting Bill’s target.
The guy who gave the big order (Bucky) is here with Johnny and are thanking everybody! They also have a big order coming from him. He goes to meet Julie before the big meeting at the HQ and they talk things through — everything looks good.
Chapter 31
At HQ in the big meeting, Bill isn’t there. Instead Smyth is filling in for him. Al explains the newly discovered fundamentals to the attendees but, it seems Smyth’s head is too thick to look over the increased cost per part issue. Al cannot take it. He goes to meet Bill and explain everything. Bill listens thoughtfully and then asks the meeting attendees to join them. Smyth still protests. Bill ignores him and delivers the news that the plant will live. Also, Al has been promoted to division head!
Al returns to the plant. He calls Jonah to inform him of the news and that he needs his help more than ever now. Much to Al’s disappointment, Jonah talked in riddles and asked him to find what are the techniques needed for management.
Chapter 32
Julie and Al have dinner in celebration of Al’s promotion and discuss the peculiarity of ways in which Jonah imparted his knowledge; it can be described as almost Socratic.
Lou tells him that using conventional accounting methods, the reduced inventory of the plant was reported as net loss in the last three months
Chapter 33
Back at the office, Lou tells him that using conventional accounting methods, the reduced inventory of the plant was reported as net loss in the last three months! This should be compensated in coming months. Finally, Lou mentions that he wants to be Al’s divisional controller — exactly what Al wanted. Al also asks Bob to be responsible for production of the entire division.
Bob said he had way too much fun in the last few months and would like to take this further as plant manager of the Bearington plant instead. Stacey accepts Bob’s position. She also mentioned about managing resources that aren’t really bottlenecks but, the sequence in which they perform actions are important — Capacity Constraint Resources (CCRs).
Chapter 34
Back at home, Al discussed the day with Julie and mentions that he still doesn’t have the answer to Jonah’s question. She suggests to talk it out with the team. He asked the team what he should do as a division head and they mentioned the usual set of actions. They discuss what to make of all the information that Al will receive after his promotion and how to make it useful. Everyone was clueless.
Chapter 35
The next day they continued the meeting with Ralph explaining how Mendeleev first organized the elements in periodic table. The task changes to investigating ways of finding intrinsic order in the data they gather. At home, Julie has started reading philosophy!
Improvement is practically driven by a process; a process of finding the weakest link
Chapter 36
The next day they start by describing the function of the devision as a function of ongoing improvement. Then Lou throws some light on the ongoing culture change — treating throughput with paramount importance followed by inventory and finally operating expenses. They concluded that improvement is practically driven by a process; a process of finding the weakest link (bottlenecks).
Chapter 37
The next day Stacey concluded that with the new computer generated priority scheme are not needed and are a burden! They indeed have more capacity in the bottlenecks without them. Eventually, they came up with following steps:
- IDENTIFY the system’s constraint(s)
- Decide how to EXPLOIT the system’s constraint(s)
- SUBORDINATE everything else to the above decision.
- ELEVATE the system’s constraint(s).
- WARNING!!!! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system’s constraint
They decide to take their findings to the HQ.
Chapter 38
Al, Ralph and Lou leave to meet Johnny in the hope to convince him to get more orders. Johnny is hesitant in the beginning because of market conditions. But, in the end they decide to accept an offer from a French guy at a very discounted price but, with a long term contract to allow filling of increased capacity. It won’t hurt local business and they’d still make money.
Al goes to the library to read some popular science books. He deduced that instead of collecting a lot of data, scientists move forward by making hypotheses and then use them as logical base. He discussed these with Julie who mentioned that this resemble the Socratic dialogues — IF…THEN.
Instead of collecting a lot of data, scientists move forward by making hypotheses and then use those as logical base
Chapter 39
Bill called, congratulating him on yet another great month. He calls him at HQ to understand this phenomenon in greater detail. Back at the plant they notice that orders are beginning to get delayed. They setup a meeting to tackle this issue. The issue was that sometimes the bottlenecks are starved and then the work comes in huge loads.
They discuss how if a resource before a bottleneck is down then, it doesn’t take much time for the bottleneck to consume its inventory. This puts a traveling constraint on all such resources prior to the bottleneck. They deduce that they need some time to build inventory and therefore, sales must be asked to not take orders demanding a delivery in less than 4 weeks, at least. This is a step back.
They come up with three steps — ‘what to change’, ‘what to change to’ and ‘how to cause the change’
Chapter 40
Lou and Al have been going daily to HQ for a couple of weeks and while returning Al expresses his concerns that other than his plant, the situation looks grim. They also ponder over the current issue with his plant and that they need to discuss it in more detail.
They discuss that any organization is composed of synchronized segments — like a chain. Essentially, the strength of an organization is determined by its weakest link. The question is finding the constraint in an organization. They come up with three steps — identifying ‘what to change’, ‘what to change to’ and ‘how to cause the change’.
Its clear that Jonah wanted Al and his team to figure these principles with their own process without any hand holding. Then and only then it would matter in the long run. Its amazing how Jonah had such insight! The division is definitely headed for a bright future under Al.