The Goal by Eliyahu Goldratt — Episode 2 (Chapter 5–8) Sketchnotes

Reference to Episode 1

Before we get to the main contents of today’s episode, let see why I started with this exercise?

This is a slow process. For this exercise, I am reading and re-reading this book. It is enlightening me in several ways. Certain lines resonate with me more, every single time. For example, the author has crafted the protagonist(Alex) in such a way that he takes a step back and looks at things around him and thinks out loud. At the end of chapter 5, Alex thinks, Everything is familiar, but seems new to me. I want to enjoy this journey and create a bite-sized capsule of sketches that could be used to revise and register in one’s mind. I could do this by using MS PowerPoint (PPT) but I prefer to do it by hand so that it sticks to my mind more and could be unique.

Alex contemplates on what might be the goal of an organization:

1. Economic purchasing is not a goal.
2. Creating job opportunities and employing more people is not a goal.
3. Technological advancement is not a goal.
4. Producing quality products in an efficient manner is not a goal.
5. Selling more products and capturing the market share is not a goal.
6. The goal is to make money.

An action that moves us towards making money is productive. An action that takes us away from making money is non-productive. But how to know if any action in the plant is productive or non-productive? This is a big question that comes to Alex’s mind.

Alex, with the help of Lou (his chief accountant), comes up with three measurements that are central to knowing if the company is making money.

1. Net Profit (Total Revenue — Total Expenses)
2. Return On Investment (ROI) = (Net Profit / Cost of investment) * 100
3. Cash Flow (a measure of survival)

The goal is to make money by increasing net profit, while simultaneously increasing ROI, and simultaneously increasing cash flow.

Alex’s relationship with Julie is going down the slide amidst all this chaos.

Jonah’s words of wisdom:

Measurements that express the goal of making money and also express the operational rules for running the plant.

1. Throughput: Rate at which the system generates money through sales.
2. Inventory: Money that the system has invested in purchasing things which it intends to sell.
3. Operational expense: Money the system spends in order to turn inventory into throughput.

Local optimums should be avoided, instead the system has to be optimized on the whole.