The Goal

Highlights

• I have come to the conclusion that productivity is the act of bringing a company closer to its goal. 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.

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• The goal of a manufacturing organization is to make money.

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• If the goal is to make money, then (putting it in terms Jonah might have used), an action that moves us toward making money is productive. And an action that takes away from making money is non-productive.

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• On the paper, I write down the three measurements which Lou and I agreed are central to knowing if the company is making money: net profit, ROI and cash flow.

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• So this is the goal: To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.

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• “They’re measurements which express the goal of making money perfectly well, but which also permit you to develop operational rules for running your plant,” he says. “There are three of them. Their names are throughput, inventory and operational expense.”

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• “Throughput,” he says, “is the rate at which the system generates money through sales.”

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• “These definitions, even though they may sound simple, are worded very precisely. And they should be; a measurement not clearly defined is worse than useless.

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• “Inventory is all the money that the system has invested in purchasing things which it intends to sell.”

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• “Operational expense,” he says. “Operational expense is all the money the system spends in order to turn inventory into throughput.”

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• So the way to express the goal is this? Increase throughput while simultaneously reducing both inventory and operating expense.

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• Note: Goal from the factory's perspective

• What’s happening isn’t an averaging out of the fluctuations in our various speeds, but an accumulation of the fluctuations. And mostly it’s an accumulation of slowness—because dependency limits the opportunities for higher fluctuations. And that’s why the line is spreading. We can make the line shrink only by having everyone in the back of the line move much faster than Ron’s average over some distance.

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• “And with that in mind, how do we optimize the use of the bottlenecks? There are two principal themes on which you need to concentrate . . . “First, make sure the bottlenecks’ time is not wasted,” he says. “How is the time of a bottleneck wasted? One way is for it to be sitting idle during a lunch break. Another is for it to be processing parts which are already defective—or which will become defective through a careless worker or poor process control. A third way to waste a bottleneck’s time is to make it work on parts you don’t need.”

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• STEP 1. Identify the system’s bottlenecks. (After all it wasn’t too difficult to identify the oven and the NCX10 as the bottlenecks of the plant.) STEP 2. Decide how to exploit the bottlenecks. (That was fun. Realizing that those machines should not take a lunch break, etc.) STEP 3. Subordinate everything else to the above decision. (Making sure that everything marches to the tune of the constraints. The red and green tags.) STEP 4. Elevate the system’s bottlenecks. (Bringing back the old Zmegma, switching back to old, less “effective” routings. . . .) STEP 5. If, in a previous step, a bottleneck has been broken go back to step 1.

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• His efforts to improve flow were so successful that, by 1926, the lead time from mining the iron ore to having a completed car composed of more than 5,000 parts, on the train ready for delivery, was 81 hours!

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