Tags All Entries

The Goal: A Process of Ongoing Improvement

The goal refers to getting at the core principle of a problem. In this case, Goldratt argues that the goal of any company is to make money. From this first principle, he derives that actions taking towards the goal are productive, and actions taken against the goal should be eliminated.

Rather than quantifying things in terms of high level accounting metrics, he devises a series of simple metrics: throughput, inventory, and operational expense. The book argues that all actions of business can be broken down into these buckets.

A balanced plant is when the capacity of each and every resource is balanced with market demand. Seeking a balanced plant can lead in the opposite direction of the goal. Exactly balancing capacity with demand can slow throughput and increase inventory. This is because of statistical fluctuations in dependent events. Fluctuations in demand at various points within dependent events can cause inventory to build up and throughput to slow. This is because work can only move through the system as fast as the bottleneck within the dependent events.

A bottleneck is any resource with equal or less capacity than the demand placed on it.

Rather than balancing capacity with demand, you must balance flow of product through the system with market demand. The optimal way to do this is to find capacity in bottlenecks that balances them more with the market demand. How you find capacity will be depend on the situation.

You can identify bottlenecks by where inventory piles up (they will be in front of the bottleneck).

Links to this note