Key Takeaways from the Goal: A Process of Ongoing Improvement

by Matthew Kuo on September 5, 2013

in Class Notes, MBA

To learn more about Excel, go to the organized listing of all my Excel tutorial posts or review the
 

, by Eliyahu M. Goldratt, is a book pretty much every business school student is required to read.  Below are the key takeaways from this book:

Accounting vs. Operational Measures

  • Accounting cost figures misleading for operations purposes
  • Productivity per machine is meaningless; bottleneck should drive metrics

Linking Financial – Marketing – Operations Measures

  • Often mismatch top-level and lower-level metrics across departments (ROI vs. Sales vs. Productivity on non-bottleneck)

Managing by Bottlenecks

  • “An hour lost on the bottleneck is an hour lost for the entire plant”
    • Bottleneck has no “slack capacity”
    • Solution
      • Increase capacity
        • longer hours
        • more machines
        • more workers
        • outsource
      • Larger batches at the bottleneck
  • “An hour lost on a non-bottleneck is a mirage”
    • Do not overrun to be efficient: excess WIP chocks up the bottleneck
    • Do not optimize a non bottleneck at the expense of a bottleneck
    • Shorter and smaller batches at non bottleneck
  • “Manage the plant by the bottlenecks”
    • “Manage flows not capacity”
    • Quality control before and during the bottleneck
    • Make sure it is always running (have buffers)
    • Make sure most profitable product goes through
    • Throughput is profitable, efficiency is not

Additional Notes on Bottlenecks

  • Keep bottleneck running, subject the rest to the bottleneck
  • Batch sizes: Long on bottleneck, short elsewhere
  • Five steps of bottleneck management
    • Identify the system’s bottlenecks
    • Decide how to exploit the bottlenecks
    • Subordinate everything else to the bottlenecks
    • Remove the system’s bottlenecks
    • Identify the system’s new bottlenecks
  • Note: Bottleneck may be external (such as demand)
  • Gains from bottleneck management in
    • Increased revenue from $2 million and 31 orders to $3 million and 57 orders
    • Reduction of WIP by 12%
    • Bucky Burnside was delighted – 5 month order in 5 weeks
    • Order for 10,000 model T’s ensures survival of the plant for one year

Additional Takeaways

  • Always challenge the status quo and use a pragmatic approach
  • There’s always room for improvement
  • Look at overall system, not just the individual parts
  • When Operations is effective, you work better, not harder
  • Make sure to have the right metrics in place
  • Work as a team, foster the sharing of ideas
  • Importance of coordinating between Operations and Marketing

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