understanding the goal: the best-seller by eli goldratt and jeff cox

Hugh E. Cole Managing Partner Avraham Y. Goldratt Institute, LP

ASEM Member Benefit – www.asem.org/

Understanding THE GOAL: The best-seller by Eli Goldratt and Jeff Cox

Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

HOUSEKEEPING

•  Presentation will last 45 minutes

•  There will be time at the end for questions

•  Save all questions until the end

•  Please turn your phone on mute


3

3

•  Over 3 Million copies sold

•  Translated into more than 21 languages


Alex Rogo Jonah

“To ask, inquire…” “Seeks truth…”

UniCo Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

Alex Rogo

•  Late orders •  High cost •  Low efficiencies •  Two rounds of layoffs •  20% cutback •  Plant is losing money…

Meeting with the boss (Bill Peach)…

“You have 3 MONTHS…!”


Alex Rogo

•  Technology •  Computers •  Good people •  All materials needed •  Have a market!

“Something is wrong…”

Why can’t we make money?


Alex Rogo Jonah

Chance meeting at the airport…

Robots -> Productivity Improvement -> What is productivity?

Not equations! -> Can only be measured in terms of your Goal!

So…”what is the Goal of your manufacturing organization?”

Hint: “There is only one Goal, no matter what the company” Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

Alex Rogo

•  Produce products as efficiently as we can

•  Buy raw materials in the most cost-effective manner

•  Be a good employer •  Produce quality products •  Produce quality products

efficiently •  Stay on the leading edge of

technology •  Meet sales requirements •  MAKE MONEY!

“What is the Goal?” “What do we try to do?”

UniCo Copyright © 1995-2013. Avraham Y. Goldratt Institute, LP. All Rights Reserved.

Alex Rogo

Actually make more money today and in the future! Why is that important to know? •  It enables us to answer the question “what is

productivity?” •  An action that moves us toward making money

is productive.

•  An action that takes us away from making money is non-productive.

But how to measure? There is no shortage of measurements!

•  Hours worked vs. hours paid to work… •  Output per hour compared to standard… •  Cost of products… •  Direct labor variances… Problem: “…they don’t tell me if I made money!”


Throughput (T)

Investment ($I)

Inventory ($I)

$Operating Expense

($OE)

$Budget

Jonah

1.  Throughput (T) 2.  Investment (I) 3.  Operating Expense (OE)

Measurements??

System


Throughput (T)

Investment ($I)

Inventory ($I)

$Operating Expense

($OE)

$Budget

Jonah

1.  Throughput (T) 2.  Investment (I) 3.  Operating Expense (OE)

Throughput = Sales - TVC Net Profit = T - OE

System


Alex Rogo Jonah

Breakfast meeting… Alex: “Let’s talk about my Robots…” Jonah: “Forget about the Robots - you’ve got much more fundamental

things to concern yourself with.” Alex: “But what about my efficiencies?” Jonah: “Most of the time your struggle for high efficiencies is taking

you in the opposite direction of your Goal!”


“Two phenomena are found in every plant…”

1.  Dependent Events 2.  Statistical Fluctuations


A B C

•  C cannot accomplish more than what B provides to it. •  B cannot work until it receives parts from A. •  A cannot do its job until it receives Raw Material.

1. Dependent Events

Raw Material


2. Statistical Fluctuations

The output of any resource fluctuates over time.

15 10 5

On average, this resource will produce 10 units per hour On average, this resource will deliver in 10 hours On average, this customer will require 10 units per day

or

Probability Distribution

10

Time

Units


A B C Raw Material

D E F

Combine Dependent Events…

15

10

5or

10

15

10

5or

10

15

10

5or

10

15

10

5or

10

15

10

5or

10

15

10

5or

10

Jonah: “Alex, call me when you can tell me what the combination of the two phenomena mean to your plant.”

…with Statistical Fluctuations


Boy Scout Hike

Spreading troops mean high inventory. Closely packed troops mean lower inventory. How can we prevent the troops from spreading without losing speed/throughput?

Raw Material FG Work-in-Process

Herbie


Put Herbie in the lead. Made sure that those behind could close any gaps.

What did Alex do?

But the ‘troops became frustrated because it was too slow!

Herbie


What did Alex do next?

Herbie


Lightened Herbie’s load to enable him to speed up. Made sure that those behind could close any gaps.

What did Alex do next?

Herbie


“The maximum deviation of a preceding operation will become the starting point of a subsequent operation”.

What did Alex learn about Statistical Fluctuations and Dependent Events?


UniCo

How could Alex apply this learning to UniCo?


UniCo

Alex’s “system” (Big Picture)

Raw Materials

Conversion (Production)

FG Inventory

Discreet Orders

The Goal: Make more money now and in the future.

The Metrics: Throughput, Investment, Operating Expense

But how does the system achieve the Goal? (Details…)


Material Release

Raw Materials

Resources / Routing / BOM

FG Inventory

Orders

How Alex’s System achieves its Goal (Details…)

Flow



“What you have to do next, Alex, is to distinguish between two types of resources in your plant. One type is what I call a bottleneck resource. The other is, very simply, a non-bottleneck resource.”

“Bottleneck: Any resource whose capacity is equal to or less than the demand placed on it.”

Raw Materials

FG Inventory

Orders




NCX-10


Raw Materials

FG Inventory

Orders


FG Inventory



NCX-10 Heat Treat


Raw Materials

Orders



NCX-10

Yes, it is possible to have two bottlenecks, but first make sure they are really bottlenecks.

Raw Materials

FG Inventory

Heat Treat

Orders



NCX-10

In the case of the furnaces, they were bottlenecks because of the way they were operated - and Alex learned that they did not need to heat treat some parts that they processed.

Raw Materials

FG Inventory

Heat Treat


Orders



NCX-10

In the case of the furnaces, they were bottlenecks because of the way they were operated - and Alex learned that they did not need to heat treat some parts that they processed.

Raw Materials

FG Inventory


Orders


So he had to take another approach…

Unlike the Boy Scout hike, Alex’s slowest resource was not first in line!

Applying the Boy Scout Hike to UniCo


Applying the Boy Scout Hike to UniCo

Alex “tied a rope” from the first operation to the constraining operation, limiting the “distance” (time) between them, and limiting the work-in-process.

Raw Material FG Work-in-Process

He also exploited the use of Herbie by changing certain policies.



In the plant, the “tied Ropes” looked like this.

NCX-10

He also changed work rules for breaks, QA, and maintenance.

They controlled entry points for material release of routings that led to the NCX-10. The ropes effectively choked off release of materials to the rate and quantity required by the NCX-10 to make demands for both inventory and discreet orders.

Raw Materials

FG Inventory

Orders



NCX-10

He also changed work rules for breaks, QA, and maintenance.

Operating in this manner… •  WIP decreased •  FG inventory decreased •  Lead time decreased •  Due date performance improved •  Operating Expense Decreased •  Plant began “making money”!

Raw Materials

FG Inventory

Orders



NCX-10

Alex followed what is known as the Five Focusing Steps of TOC…

Until the CONSTRAINT moved to…

At which time Alex used his new-found capacity and decreased lead-time to acquire significantly more business!

The MARKET!

Raw Materials

FG Inventory

Orders


1.  Identify the system’s constraint(s). 2.  Decide how to Exploit the system’s constraint(s). 3.  Subordinate/Synchronize everything else to the

above decision. 4.  Elevate the system’s constraint(s). 5.  If in the previous steps a constraint has been

broken, go back to Step 1.

Do not allow inertia to become the system’s constraint!

WARNING

The Five Focusing Steps of TOC


QUESTIONS? Hugh E. Cole

AGI-Goldratt Institute [email protected]

www.goldratt.com


understanding the goal: the best-seller by eli goldratt and jeff cox

Business

heat treat

boy scout

changed work

raw materialfg

statistical

type iswhat

systems constraint

focusing steps