The Goal – Theory of Constraints, Essay Example

Introduction

The narrative of the book “The Goal” by Eliyahu M. Goldratt could occur in any town, in any plant, in any situation. It depicts a universal problem and situation companies face in the fast-paced competitive market. Productivity, competition, and quality assurance are the main issues highlighted in the book, all of which in the critical way to sustain growth. Analyzing the inputs and outputs of the manufacturing business as well as the influences is the first step towards identifying constraints and understanding system environment. Without that, a systematic thinking and the theory of constraints cannot be successfully applied.

The Goal – Main Ideas

The system’s goal should be determined by the manager. A manager needs to recognize the need for change, initiate and coordinate the plan, and solve the problems as they occur. That is exactly what Alex Rogo, the manager does in the book “The Goal”. The first realization is clear in the book, when Rogo says: “I’m all for shipping orders, Bob, but not the way we did it tonight”. When he sits down to think the events through he applies systems- thinking: that is when he realizes that the process needs to change alongside with the principles. He realizes the threat of competition: Japanese firms used to beat them in design and quality, but now they are better at delivery and price as well. That confirms that the problem lies in productivity of the system. As Jonah, Alex’s old professor explains: “Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive.” (Goldratt, 1984. p. 41)

The Theory of Constraints

In the book, it is evident that something is constraining the system. This means that change or transformation, according to Goldratt’s Theory of Constraints is necessary. First, it is important to identify the constraint, make a decision about what to do with it and how to initiate the change. The TOC identify areas in the system of production that causes the bottlenecks and offer strategies to remove the constraints that cause bottlenecks. The five focusing steps of the theory of constraint are present within the book, and it is evident that the road leading to change is not easy to comprehend.

• Identify the Constrain
• Decide how to exploit the constraint
• Subordinate and synchronize everything else to the above decisions
• Elevate the performance of the constraint identified.
• If any of the steps shifted, go back to Step A.

Alex Rogo goes through the same process within “The Goal”. Looking at systems as “chains”, the weakest link (constraint) can easily be identified. Finally, Rogo figures out that what others call “the goal” are indeed only tools to achieve it. The goal should be making profit for the company: statistics do not indicate profitability. At the root of everything the business needs to make a profit. He starts to focus on removing the constraints and making changes that take his business closer to its goal. In the end, he successfully manages to elevate the business’ profit margin and make profits.

Order 41427 and Business Issues

Bill Peach certainly did not apply systems- thinking when he forced the plant to ship out order 41424 the same day of it being produced. It was far from being a cost-effective operation and sabotaged the productivity and profitability of the other jobs in the plant. In addition, the machine’s downtime and repair costs increased operating expenses. While Peach looks at things from the whole business perspective, he cannot see the plant’s system. Statistical data and measurements do not apply for Rogo’s system. He has to come up with new performance measures. These should be simple measures to monitor performance. Jonah determines three measures Rogo can work with: “throughput, inventory and operational expense”. (Goldratt, 1984, p. 69)

Recommendations for Plant Profitability

In order to make a change, according to Jonah, “throughput, inventory and operational expense” (Goldratt, 1984, p. 70.) need to be improved at the same time. The main problem seems to be that the robots are not increasing output because they keep on producing parts the company does not have orders for. The system thinking is not applied for the operation of the plant. Jonah highlights the fact that there is a maximum throughput the system can produce, equal to what the bottlenecks are able to do. Therefore, the only way to increase productivity and ultimately profits is to increase the capacity of the bottlenecks. (NCX-10) This is the only way to turn the plant around in 3 months’ time. Identifying the constraints is not enough, however. A specific action plan needs to be developed in order to increase throughput within the system. Within the book, Rogo took some heavy things out of Herbie’s backpack. In a real life plant, there are other ways of increasing capacity of the bottlenecks: increasing productivity, running the machine for longer hours or putting quality control before the item reaches the bottleneck. These are feasible suggestions offered by Jonah.

Application of TOC

In my line of work (as a buyer procurement coordinator) it is important to maintain the levels of inventory required by the system and the market. Researching new ways of fulfilling orders, selecting vendors and documenting decisions often makes it hard to see through the system and identify bottlenecks. Indeed, my role within procurement is to keep product costs low; however, it is also important to analyze how the decisions within my department affect the system as a whole. The three measurements have to work together, according to Goldratt, and they have to be improved simultaneously. I realize that the Theory of Constraints allows every department -even purchasing- to have an impact on inventory cost throughput and operational expense. Influencing all three measurements at the same time should be the task of every department within my organization. Finding the constraints within the system and exploiting them would have an impact on the organization’s performance and profits. I would start improving the system processing by looking at statistical data on costs per item and waiting times. Wherever there is a delay in the system process, it is important to evaluate whether there is a bottleneck present within procurement. The capacity of the bottleneck needs to be increased in order to increase throughput. To put it simply, raw material that has a high demand and low supply causes problems in the end of the system. By eliminating the delays, the whole system’s performance can be increased.

Conclusion

Reading “The Goal” was an eye-opener for me and should be read by all managers in operations management systems. It does not only tell readers how to deal with the effects of bottlenecks, increase efficiencies and throughput, but proposes a more efficient system that works with a plant that is not balanced and has bottlenecks. Through creating excess capacity, market growth can be achieved, increased customer satisfaction would result in higher profits and inventory can be kept at the minimum.

References

Goldratt, E. (1984) The Goal: A process of ongoing improvement. Great Barrington, MA.: North River Press