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The Goal: A Process of Ongoing Improvement

Eliyahu M. Goldratt and Jeff Cox

Last accessed on Monday October 2, 2017

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“it is possible for a company to show net profit and a good ROI and still go bankrupt.” “You mean if it runs out of cash,” I say. “Exactly,” he says. “Bad cash flow is what kills most of the businesses that go under.”

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

Note:all that matters ?

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

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Operational expense is all the money the system spends in order to turn inventory into throughput.”

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“Any money we’ve lost is operational expense; any investment that we can sell is inventory.”

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“One phenomenon is called ‘dependent events.’

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big deal occurs when dependent events are in combination with another phenomenon called ‘statistical fluctuations,’”

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“The idea of this hike is not to see who can get there the fastest. The idea is to get there together. We’re not a bunch of individuals out here. We’re a team. And the team does not arrive in camp until all of us arrive in camp.”

Note:ahlstrom

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If you consider the total time from the moment the material comes into the plant to the minute it goes out the door as part of a finished product, you can divide that time into four elements. One of them is setup, the time the part spends waiting for a resource, while the resource is preparing itself to work on the part. Another is process time, which is the amount of time the part spends being modified into a new, more valuable form. A third element is queue time, which is the time the part spends in line for a resource while the resource is busy working on something else ahead of it. The fourth element is wait time, which is the time the part waits, not for a resource, but for another part so they can be assembled together.

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We have been setting batch sizes according to an economical batch quantity (or EBQ) formula. Last night, Jonah told me that although he didn’t have time over the phone to go into all the reasons, EBQ has a number of flawed assumptions underlying it. Instead, he asked me to consider what would happen if we cut batch sizes by half from their present quantities.

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Jonah’s way of leading to the answers through asking questions, his ‘Socratic approach,’ is very effective at peeling away the layers—the thick layers—of common practice.

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