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293 of 297 people found the following review helpful:
5.0 out of 5 stars
The Theory of Constraints (TOC) will change the way you think, February 12, 2006
This review is from: The Goal: A Process of Ongoing Improvement (Paperback)
Eliyahu Goldratt's "The Goal" is an entertaining novel and at the same time a thought provoking business book. The story is about a plant manager, Alex Rogo, whose plant and marriage are going downhill. He finds himself in the unenviable position of having ninety days in which to save his plant. A fortuitous meeting with an old acquaintance, Jonah, introduces him to the Theory of Constrains (TOC). He uses this new way of thinking to ...
TOC postulates that for an organization to have an ongoing process of improvement, it needs to answer three fundamental questions:
1. What to change?
2. To what to change?
3. How to cause the change?
The goal is to make (more) money, which is done by the following:
1. Increase Throughput
2. Reduce Inventory
3. Reduce Operating Expense
Goldratt defines throughput (T) as the rate at which the system generates money through sales. He also defines inventory (I) as everything the system invests in that it intends to sell. Operating expense (OE) is defined as all the money the system spends in order to convert inventory into throughput.
The author does an excellent job explaining his concepts, especially how to work with constraints and bottlenecks (processes in a chain of processes, such that their limited capacity reduces the capacity of the whole chain). He makes the reader empathize with Alex Rogo and his family and team. Don't be surprised if you find yourself cheering for Alex to succeed.
The importance and benefits of focusing on the activities that are constraints are clearly described with several examples in "The Goal". One example from the book is the one in which Alex takes his son and a group of Boy Scouts out on a hiking expedition. Here Alex faces a constraint in the form of the slowest boy, Herbie. Alex gets to apply two of the principles Jonah talked to him about - "dependent events" (events in which the output of one event influences the input to another event) and "statistical fluctuations" (common cause variations in output quantity or quality). He realizes that in a chain of dependent processes, statistical fluctuations can occur at any step. These result in time lags between the processes that accumulate and grow in size further down the chain. This leads to the performance of the system becoming worse than the average capacity of the constraint.
It is interesting to note that TOC practitioners often refer to TOC concepts in terms of references from this book. For example, a constraint is often called a Herbie.
The Goldratt Institute (goldratt dot com) has illustrated TOC Analysis in the form of five steps used as a foundation upon which solutions are built:
1. Identify the constraint
2. Decide how to exploit the constraint
3. Subordinate and synchronize everything else to the above decisions
4. Elevate the performance of the constraint
5. If, in any of the above steps the constraint has shifted, go back to Step 1
Although this book is excellent in the context of Operations, the "Goal" to "make (more) money by..." is limited in its focus. It is concerned with the cost centers internal to a business. Business performance in today's increasingly competitive market depends on a variety of factors that exist outside the business. These include competitors, external opportunities, customers and the non-customers. Executives need to focus on these in order to see the bigger picture.
This book is necessary reading at the best MBA programs. In addition to being a review, this write-up was intended to serve as a summary of the core concepts of this book and TOC. If you are reading this as part of your coursework, please feel free to share the link with your fellow students.
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15 of 17 people found the following review helpful:
4.0 out of 5 stars
Concepts from The Goal, February 21, 2005
This review is from: The Goal: A Process of Ongoing Improvement (Paperback)
The author of this business novel thinks he's the Messiah. The gist of the 384-page book could have been expressed in a page, and some of it is obvious. But it may be useful anyway, and it's an entertaining read.
His schtick is that one can achieve great gains by identifying the bottlenecks ('constraints') that are blocking improved performance toward your goal, and then doing anything necessary to unblock those constraints - even if this means inefficiently using other non-bottleneck resources.
He says that one should think of the cost of each resource as including its effect on the whole system. So if a machine costs $1K/month to operate, but its rate of production is preventing the business from accepting or fulfilling extra orders that would represent $10K/month in profits, then the true cost of the machine is $11K.
It follows that anything one can do to remove that bottleneck would be worthwhile, provided it adds less than the amount saved to the cost and doesn't introduce a new bottleneck. It's fine if you have to overpay for other resources or use them inefficiently as long as you accomplish this.
It then becomes a matter of analyzing and brainstorming all the ways that bottleneck can be reduced. For instance:
- Can extra capacity be added, even if it is less efficient or uses antiquated equipment or is outsourced to a vendor?
- Can you prioritize the use of the bottlenecked resource so that high-profit and time-sensitive work comes first?
- Can you divert work that doesn't need to go through the bottleneck, even if it would then go through another more cumbersome process?
- Can you prevent work from reaching the bottleneck if Quality Control will eventually reject it?
- Can you increase the rate of output of the bottleneck resource by doubling up batches?
This logic applies regardless of the nature of the bottleneck - whether it relates to a machine (production capacity), marketing effort (how much business is coming in), or any other element of one's environment.
To help identify the bottlenecks and judge tradeoffs, one should identify one's goal as a measure (in a business context this is generally profits or ROI), then identify the factors that influence that measurement and create an equation. For instance,
Profits = Sales - Cost of Inputs - Cost of Transforming Inputs
or,
Return On Investment = (Sales - Cost of Inputs - Cost of Transforming Inputs) / Money Trapped In Unfinished Goods And Inventory
Essentially, his thesis is that by focusing on these bottlenecks, and analyzing and brainstorming their solutions, one takes advantage of the 80/20 rule by prioritizing those few factors that most greatly impact one's performance.
The most rewarding part of the book are the examples in the Testimonials section at the end. The testimonials describe creative solutions to tough bottleneck situations. The book doesn't help the reader come up with this type of creative solution - it only mentions where to look for the problem. Here are the memorable examples he cites:
1. A large office supply company (similar to Staples) was losing business to companies that were charging very low prices. Investigating this marketing bottleneck, they determined that from the customers' perspective, the larger problem was the overall cost of stocking and procuring and purchasing and tracking the office supplies.
Rather than competing on price, its owner fixed the Sales bottleneck with an innovative concept, where they arranged to place fully stocked cabinets filled with office supplies throughout their client companies, just like a hotel minibar. They'd visit each week, restock any items that were used, and charge the company for the items that were removed, thereby saving the company the aggravation and cost of even having to purchase or account for office supplies. They also supplied each customer with detailed information regarding what was used, when. In exchange for this unique convenience, they charged higher prices and achieved large profit margins.
2. A printing company, constrained by the number of presses available to print jobs, made more efficient use of its presses by routing jobs to different types of presses in a way that would maximize the total output of the presses.
3. A manufacturing company's output was limited by a saw that cut pipes. They dug up an old, inefficient saw, put it to work to remove that bottleneck, and increased output and profits significantly.
4. In the book itself, the protagonist's factory increased its Return On Investment (profit/money tied up) by shortening the time it took for a product to be manufactured (as doing that reduced the money tied up, hence increased ROI). This was accomplished by removing delays that were keeping costly unfinished products sitting around the plant. For instance, by reducing the 'batch size', a product would wait less time for its batch to be complete, allowing it to move to the next step of production sooner.
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7 of 7 people found the following review helpful:
3.0 out of 5 stars
Rolling down hill with my wife and my job, February 7, 2008
This review is from: The Goal: A Process of Ongoing Improvement (Paperback)
The "Goal" is tied to Fortune Magazine's small business editorial staff taking into consideration the epilogue is dedicated to case interviews by David Whitford, Fortune's "Small Business Editor at Large". To this extent, the book is an editorial for the commercial adventures of the author. On the other hand, unlike other business books, Goldratt manages to keep readers interest between applications by providing the drama of the day-to-day in the life of the principal player in the story, Alex Rogo (Plant Manager) who is positioned in the book to have [only] ninety days to save his plant, job, and marriage. We add to this a general disenchantment by Rogo's managers, the usual skepticism of labor unions, and we have an interesting read.
From a critical review perspective the book misses one important ingredient. There is no index of words or terms. So, the reader becomes displaced in note-taking and highlighting of sentences in the text. Not something all people enjoy when trying to synoptically reference the material; no matter how diligent they might be as scholars. In this regard, the book tries to pass itself off as a novel, when in reality it is a textbook, written in story form.
The story flow is straight forward. The book has a beginning, middle, and an end. Alex Rogo and his working associates deduce along as an academic and consultant named Jonah feeds vignettes of information throughout. Jonah gives Rogo the "Where's Waldo" approach to [a] next-move- dialog: then running to the airport or meeting leaving Rogo to search for answers in the nuanced language of the fog. Rogo then consults his fellow workers, his children, or his, about-to-be, estranged wife for clues to the answer. All while Rogo's boss has Rogo walking a widow's walk with traces of Snidely Whiplash - as Nell [that would be Rogo] remains tied to the railroad tracks. The drama leads to the reader wanting to identify with Rogo and help him prevail in [a] classic fight between good and evil - the company management in this case being uninformed, if not evil.
The book introduces situations known as "constraints" about which Rogo and company are to solve. These constraints revolve around production machines receiving too few, too many, or no production parts at all. Juxtaposed to the shop floor, the on the ground methodology begins with a simple example as Rogo Sheppard's a column of Boy Scouts on their way through the forest and the observation is made that if one of the Scouts does not walk at the same pace as the rest, the column comes apart This writer believes this may be the Goldratt version of Edwards Demining finding an oil spot on shop floor. Anyway, for the reader planning to examine the [whole] book, let me say that there will be times you do associate yourself with certain actors in the story - sometimes in a scary six degrees of separation, both business and personal.
No point in giving away the ending, however, one might imagine that all business books end rather well, and, for the record, please add an index in the next printing.
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