Alex Rogo is the main character in this book, Alex is married and has two school going children and he works in UniCo which produces machined parts that are used in the other divisions of the UniWare or sometimes sold to outside customers. UniCo is led by well trained staff as seen in the case of Alex who has a degree in engineering and an MBA. UniCo has been forced to come up with ways of reducing costs in its operations but at the same time its customers need high quality products delivered at the right time. The company has also introduced financial reporting in its every level of operations so as to allow for management of functional budgets in each and every department. UniCo has also introduced robotics in the plants to cut down on costs and the workers have a union to ensure that there is a good relationship between the workers. Alex’s plant has orders that are two months behind their delivery date and over $20million worth of finished goods stored in warehouses, just like most of the organizations in the world. Due to the way the plant is lagging behind in the delivery of its products there has been a reduction in the sales, decrease in efficiency and increase in cost of materials. This division is also suffering from cash problems and if this continues it may be unable to pay its bills. Alex is faced by all this problems and he is given a period of three months to rectify the problem or else UniCo sells the division. Alex spends a lot of time trying to improve the efficiency of the plant and as a result he has problems with his wife who says that Alex is not having time for her and this seems to be slowly tearing his family apart.
Luckily Alex meets Jonah his old physics professor who introduces him to a different way of thinking about his situation. Jonah who was in a hurry questions Alex about some of the key identifiers of productivity like reducing expenses and decreasing the inventory. Jonah then leaves Alex to think about productivity and its importance to a business. Alex then defines productivity as attaining a certain set of goals but the big question is what a goal means. Alex and his plant controller, Lou agree that the goal of any business is to make money through increasing net return on investment, increasing net profit and increasing the cash flow but they do not know how they can do al these at the same time. Alex then goes back to Jonah who tells him that any business should increase its rate of sales and at the same time reducing its operational costs and inventory. Jonah again leaves Alex without the answer of how he (Alex) is supposed to measure operational costs, throughput and inventory. Here we see Jonah providing Alex with some information but then leaving him to come up with the answers to the underlying concepts. Alex then forms a group that he hopes will come up with solutions to the plant before the three months are over. The group comprises of; Bob, the production manager, Lou, the controller, and Stacey the control manager of the inventory. The group then realizes that the cause of the large inventory is because the plant produces unnecessary parts in every stage so as to keep the efficiency at the required level but at the same time the plant uses the capacity that would have been used to produce the ordered parts in production of excess unordered parts. Alex and his team then try to understand the measures that need to be put into place but they are held back by some rules of productivity which states that if a plant does not produce then its efficiency will go down and they argue that they cannot just sit because there are no orders that have been made. They all agree that Jonah is their only solution.
Alex then goes back to Jonah and learns concepts that contradict what he had been taught before about plant operations. He learns that money is more necessary to a business than efficiency, a plant where every person is working at all the time is said to be efficient, and cost accounting is the worst enemy of productivity. Jonah notes that if businesses attain one or two of the elements of productivity measurement then the businesses are not working towards its set goals of reducing operational costs, cutting down on inventory while at the same time increasing the throughput. Jonah then reveals that a well balanced plant is where the capacity of the plant is equal to the demand from the market but at the same time if a plant is very close to being balanced then the closer it is to being bankrupt. There are two phenomena that may lead to this condition; statistical fluctuations and the dependant events. Statistical fluctuations are as a result of some types of foretelling information that cannot be ascertained properly and they affect the prediction of demand and the attempt to determine the productivity. Dependent events are those events that take place depending on the prior events. Alex takes his son for a hiking exercise where he learns that; inventory is equal to the distance between the leader and the last process and this should be put at minimal, the income of a business is measured by the rate of the slowest operation in the plant, there are those resources that should have more capacity than the others and operational cost is determined by the energy used up and it must be conserved.
Then there is the introduction of the bottlenecks and the non-bottlenecks by Jonah. A bottleneck is defined as any resource that requires a capacity equal to or less than the amount of demand placed on it while a non-bottleneck is any resource that requires a greater capacity than the demand placed on it. There are many rules that address the relationship between the bottlenecks and the non-bottlenecks. One of these rules is to balance the flow in relation to the demand. Capacity should be maintained slightly less than demand because if the bottleneck capacity is equal to the demand and the demand falls then the costs are expected to go up and this would lead to losses. It takes time for Alex with the assistance of the data processing manager to identify the bottlenecks but lastly they are identified as the heat treating furnace and the automation machine. This was so because this is where the plant had a lot of backlog. The robotic automation machine was expected to improve the efficiency of the plant but it needed a fully trained machinist to operate and therefore there was a lead time of six months. It was noted that I reality one cannot convert a bottleneck into a non-bottleneck but one can boost the capacity of a bottleneck so that it nears the demand. There is a lot of hidden excess capacity in the firm in that all the work waiting at the bottlenecks is composed of parts that are headed to the warehouses. There is need to place some controls on the bottlenecks to ensure that the bottlenecks do not produce products that are defective which would result to a waste of more bottleneck process time. The plant capacity is measured by the capacity of the bottlenecks and therefore the operation of the bottlenecks should be put at optimum level to avoid any loss of time by the bottlenecks. True process cost comprises of the market value of the finished goods that are waiting for the part to be completed at the point of the bottleneck. Bottleneck per unit cost can then be calculated by dividing the total plant operating cost by the hours that the bottleneck produces because the bottleneck is what determines the throughput of the plant. It is necessary to identify the bottleneck parts in any plant so that the parts do not pile up at the bottleneck process. Those parts that can be produced by another machine and they are not the bottleneck parts were then transferred to be produced by other old machines to increase the capacity of the bottleneck process. The problem in the furnaces is lack of personnel to make them loaded at any time and so more personnel were assigned to the furnaces. The foremen at the bottlenecks also develop ways of increasing throughput at their place of work and within no time the inventories were seen to be decreasing and more backlog orders were being catered for. Activating a resource is just turning on the resource while utilizing the resource is making use of the resource in a way that is aimed at moving the plant towards its goals. By knowing the time when the bottleneck parts reaches their final process in the production line can help time the release of the non-bottleneck parts into the line at that time.
After a plant has performed a load balancing to meet the demand without over-production then the next step is to reduce the capital that is used during the production. Reducing the batch sizes reduces the amount of time spent in the production process. Spending less time in the production will increase the speed of the throughput and at the same time ensure that the orders are worked on more promptly and it also enable the business to respond better to the market demands. There are four components of time which are; process time, queue time, wait time and setup time.
Now that the plant is able to respond better to the market demands Alex aims at increasing the throughput of the plant and he plans to do this with the plant sales manager. By the use of low quantity pricing and incremental deliveries they get a major contract. An internal audit carried out shown an increase in per- unit cost and therefore Alex had to explain this. He does this by showing the points that are opposite to the normal manufacturing assumptions; flow should be balanced with demand and not capacity, there are constraints in the system that determine the level of the activities from which the system can make profits and not by individual potential, saving time at a non-bottleneck is worthless, there is difference between activating a resource and utilizing it, losing time on a bottleneck means losing time in the entire system and that the performance of any operation should be assessed by its bottom line. This shows the plant as a combination of flexibility, delivery speed and low cost those are required by the market. Alex was then promoted to replace Bill peach as the division manager. These changes also saw the bottom line improve by 20% which was 5% more than what Alex had targeted (Goldratt and Jeff, 2004).
In conclusion it is clear that there are five steps towards improvement as follows;
(i) identification of the constraints in the system
(ii) Decision on the right way to exploit the constraints in the system
(iii) Support everything else in the system with the above decision.
(iv) Elevate the constraints that exist in the system
(v) If a constraint is broken in the previous steps then return to the first step and prevent inertia from causing a system constraint.
As a manager in a business there are three most important concepts in decision making; what to change, what to change to and how to carry out the change.
Goldratt, Eliyahu M.; Jeff Cox, (2004), the Goal: A Process of Ongoing Improvement. 2ND Edition, Great Barrington, North River Press