A BOOK REVIEW ON

THE GOAL-A PROCESS OF ONGOING

IMPROVEMENT
BY

ELIYAHU M. GOLDRATT AND JEFF COX

SUBMITTED BY:-

NOEL P (1020913)

SUJEETH REDDY (1020922)

TONY K JOHN (1020923)

SURIA UNNIKRISHNAN (1020948)

SWATI JAIN (1020951)

 EXECUTIVE SUMMARY

The Goal written by Eliyahu Goldratt and Jeff Cox. The 40-chapter book is actually a
business book written in the form of a novel that makes it interesting to read unlike other
business textbook. As a novel, the book is entertaining but at the same time, very informative
for management or accounting students as well as for the real-life company managers and
CEOs who wanted to apply different managerial practices. This report summarizes the novel
and makes analyses in relation to Operations Management.

The story takes place at a fictitious town called Bearington where the Uniware
manufacturing plant of the UniCo company is situated. Whatever products the plant
manufactures was not mentioned in the novel. The plant is headed by the 38-year old plant
manager Alex Rogo who is also the lead character of the novel. Alex is a dedicated and
workaholic employee as described in the novel. His dedication to his work posed some
family problems: losing time for his wife aside from her not being used to living at his
hometown where there is a big difference form the city life his wife is used to.

Mr. Bill Peach is the other character who can be considered as the protagonist who
confronted Alex about the overdue order at the beginning of the story. Mr.Peach is the
Division Vice President of the company. Jonah plays the role of an “angel in disguise” to
Alex life. He was Alex’s college Physics professor. They happened to come across each other
at the airport during Alex’s business trip. Jonah was the one who made Alex realized the
problems confronting Alex and the plant. Jonah played as a business consultant and adviser
as it seems like he knows how to run a manufacturing plant. He made Alex realized the real
goal of the company and the things that should be accomplished to be able to achieve that
goal.

Other characters in the story are the people who comprise Alex team: Lou, from the
accounting department, Bob from the production department, Stacey from inventory control,
and Ralph who has a good background in computer and the one who did the schedule for the
production and release for bottleneck parts. Herbie, the slow kid in the hiking who serves as
the bottleneck is also worth mentioning.

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The story progresses through Alex’s struggles at home and in the plant. Just as in everyday
life, there are several victories followed by setbacks. However, through hard work and with
the use of a skilled team and Jonah’s help, Alex is able to make the plant the most productive
one within the UniWare division. Alex is promoted to lead the UniWare division as president
and is entrusted with implementing Jonah’s business model throughout the entire division.
Alex’s marital life also improves because he and his spouse resolve their conflicts.

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 TABLE OF CONTENTS

Title Page No

1. Author Profile …………………………………………………….. 4

2. Audience of the Book ………………….…………………………. 5
3. Book Detail.……………………………………………………….. 5
4. Chapter Wise Summary …………………………………………... 6
5. Description of the Theories ………………………………………. 15
6. Applications in Real Time ………………………………………... 19
7. Critique ………………………………...………………………….. 21
8. Personal Learning ….……………………………………………… 22
9. Conclusion ………………………………………………………… 22
10. Readings ………………………………………………………….. 23

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ABOUT THE AUTHOR

Eliyahu Moshe Goldratt (born March 31, 1948) is an Israeli physicist who became a business
management guru. He is the originator of the Optimized Production Technology, the Theory
of Constraints (TOC), the Thinking Processes, Drum-Buffer-Rope, Critical Chain Project
Management (CCPM) and other TOC derived tools. He has authored several business novels
and non-fiction works, mainly on the Theory of Constraints.

Life: Born in Israel into a rabbinic family Goldratt went on to become a physicist. He
obtained his Bachelor of Science degree from Tel Aviv University, and his Masters of
Science and Doctorate of Philosophy degrees from Bar-Ilan University.

Known for: Theory of Constraints, Cause and Effect thinking, Slayer of Paradigms

Fields: Theory of Constraints, Operations Research, Organizational Psychology,

Management Science.

Jeff Cox, a writer for the past 25 years, works in concert with the business executives and
consultants to create fiction that brings to life the concepts in organizational improvement. He
has published eight works of fiction ,published as either novels or parables. He has been
working as a writer since 1981. His latest work is Velocity, which is about combining Lean
operations, Six Sigma and Theory Of Constraints to achieve breakthrough in performance.

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AUDIENCE OF THE BOOK

If you are in production, accounting, or organizational part of business, this book is a must
read. Simple logic works in any business field, and Eliyahu is a business genius who can
shape simple logic into advanced tools to solve major problems.

Highly recommend this book to all entrepreneurs, and managers in corporate environment.
After reading “The Goal” we will look at business as system, and will have a greater
perspective of solving problems in businesses.

BOOK DETAILS

Price: 933

Availability: e-book in pdf format is available.

Publisher: North River Press

Edition: Paperback Anniversary

Language: English

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CHAPTER WISE SUMMARY OF THE BOOK

Chapter One

The first chapter gets the reader acquainted with Mr. Alex Rogo and his apparent problems
with his production plant. This is shown through a confrontation between Mr. Rogo and his
boss Mr. Peach, the Division Vice President. The dispute is over an overdue order #41427.
Through their conversation it’s learned that Mr. Peach will not settle for anything less than
the order being shipped today, and since the plant is neither productive nor profitable, Alex
has three months to show an improvement or the plant will be shut down.

Chapter Two

This chapter gives insight to Alex’s home life. Since moving back to his hometown six
months ago, it seems adjustment isn’t going well for his family.It’s great for Alex, but it’s a
big change from the city life that his wife is used to. You also experience Mr. Rogo’s
background through his reflections back on his travels to eventually find himself back where
he started. "He’s now 38 years old and a crummy plant manager".Meanwhile, the order
#41427 does get shipped, but not very efficiently. All hands in the plant are working on one
order with forbidden overtime to boot.

Chapter Three

Mr. Peach calls a meeting at headquarters for all plant managers and his staff. At the meeting
everybody finds out how bad things are and are given goals to achieve for the next quarter.
Through the grapevine, Mr. Rogo finds out perhaps why Mr. Peach has been acting so erratic
lately, the Division has one year to improve or it’s going to be sold, along with Mr. Peach.

Chapter Four

While at this meeting, Alex thinks back on a recent business trip where he ran into an old
physics professor, Jonah, at the airport. Jonah puzzles Alex with how well he knows how
Alex’s plant is doing. Jonah has no knowledge of where Alex is employed. Johan predicts
the problems of high inventories and not meeting shipping dates. He also states that there is

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only one goal for all companies, and anything that brings you closer to achieving it is
productive and all other things are not productive.

Chapter Five

Alex decides to leave the meeting at the break. He has no particular place he would like to
go; he just knows this meeting isn’t for him, not today. He needs to understand what the
"goal" is. After a pizza and a six pack of beer it hits him, money. The "goal" is to make
money and anything that brings us closer to it is productive and anything that doesn’t isn’t.

Chapter Six

Mr. Rogo sits down with one of his accountants and together they define what is needed in
terms of achieving the goal. Net profit needs to increase along with simultaneously increasing
return on investment and cash flow. Now all that is needed is to put his specific operations in
those terms.

Chapter Seven

Alex makes the decision to stay with the company for the last three months and try to make a
change. Then he decides he needs to find Jonah.

Chapter Eight

Alex finally speaks to Jonah. He is given three terms that will help him run his plant,
throughput, inventory, and operational expense. Jonah states that everything in the plant can
be classified under these three terms. "Throughput is the rate at which the system generates
money through sales." "Inventory is all the money that the system has invested in purchasing
things which it intends to sell." "Operational expense is all the money the system spends in
order to turn inventory into throughput." Alex needs more explanation.

Chapter Nine

Alex fresh off his talk with Jonah gets word that the head of the company wants to come
down for a photo opportunity with one of Alex’s robots. This gets Alex thinking of the
efficiency of these robots. With the help of the accountant, inventory control woman, and the
production manager, Alex discovers the robots increased costs, operational expenses, and
therefore were less productive. Implementing the robots increased costs by not reducing
others, like direct labour. The labour was shifted to other parts of the plant.

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Chapter Ten

After explaining everything, Alex and his staff (Bob from production, Lou from accounting
and Stacey from inventory control) hammered out the meaning of throughput, inventory and
operational expense until satisfied. Lou, states the relationships as follows. "Throughput is
money coming in. Inventory is the money currently inside the system. And operational
expense is the money we have to pay out to make throughput happen." Bob is skeptical that
everything can be accounted for with three measurements. Lou explains that tooling,
machines, the building, the whole plant are all inventory. The whole plant is an investment
that can be sold. Stacey says, "So investment is the same thing as inventory."Then they
decide that something drastic is needed to be done with the machines. But how can they do
that without lowering efficiencies? Another call to Jonah is placed and Alex is off to New
York that night.

Chapter Eleven

The meeting with Jonah is brief. Alex tells Jonah of the problems at the plant and the three
months in which to fix them. Jonah says they can be fixed in that time and then they go over
the problems the plant has. First, Jonah tells Alex to forget about the robots. He also tells
Alex that "A plant in which everyone is working all the time is very inefficient." Jonah
suggest that Alex question how he is managing the capacity in the plant and consider the
concept of a balanced plant. According to Jonah, this "is a plant where the capacity of each
and every resource is balanced exactly with demand from the market." Alex thinks a balanced
plant is a good idea. Jonah says no, "the closer you come to a balanced plant, the closer you
are to bankruptcy." Then Jonah leaves Alex with another riddle, what does the combination
of "dependent events" and "statistical fluctuations" have to do with your plant? Both of those
seem harmless and should work themselves out down the production line.

Chapter Twelve

This short chapter tries to capture the essence of the problems the job is causing at home with
the extra workload. The marriage is very strained because of the devotion Alex needs to give
to the plant.

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Chapter Thirteen

Stuck for the weekend as troop master, Alex discovers the importance of "dependent events"
in relation to "statistical fluctuations". Through the analogy between a single file hike through
the wilderness and a manufacturing plant, Alex sees that there are normally limits to making
up the downside of the fluctuations with the following "dependent events". Even if there were
no limits, the last event must make up for all the others for all of them to average out.

Chapter Fourteen

Finally, through the dice game or match bowl experiment, it becomes clear that with a
balanced plant and because of "statistical fluctuations" and "dependent events" throughput
goes down and inventory along with operating expenses goes up. A balanced plant is not the
answer.

Chapter Fifteen

Fully understanding the "dependent events", Alex puts the slowest kid in the front of the hike
and he relieves him of extra weight he has been carrying in his backpack. This balances the
fluctuations and increases the kid’s productivity, which increased the throughput of the team.

Chapter Sixteen

Well, after the camping trip the boys arrive home to find the mother has disappeared. All the
stress of his job was too much for her so she left. Now the kids and the job are all Alex’s
responsibility. This was supposed to be a weekend for Alex and his wife, but when the hike
came up it seemed to be the last straw for her.

Chapter Seventeen

Alex tries to portray his new revelation to his team at the plant. Nobody seems interested. But
the walk in the woods becomes apparent when it is put to the test for an overdue order in the
plant. Now even the production supervisor agrees.

Chapter Eighteen

In this chapter Jonah introduces Alex to the concept of bottlenecks and non-bottlenecks.
Jonah defines these terms as follows. "A bottleneck is any resource whose capacity is equal

9
to or less than the demand placed upon it. "A non-bottleneck is any resource whose capacity
is greater than the demand placed on it." Jonah explains that Alex should not try to balance
capacity with demand, but instead balance the flow of product through the plant. Later, Alex
and his team recognize the bottlenecks, the areas where capacity doesn’t equal demand, like
the slow kid Herbie on the hike. With this discovery goes the ideas related to reorganizing the
plant like Alex did with the hike. Production is a process and it cannot be moved around so
easily. Many processes rely on the previous one to be able to complete the next. Alex would
need more machines, which takes more capital, and division is not going to go for that.

Chapter Nineteen

Well, Jonah makes a visit to the plant. Jonah tells Alex that a plant without bottlenecks would
have enormous excess capacity. Every plant should have bottlenecks. Alex is confused. What
is needed is to increase the capacity of the plant? The answer is more capacity at the
bottlenecks. More machines to do the bottleneck operations might help, but how about
making them run more effectively. Jonah tells them that they have hidden capacity because
some of their thinking is incorrect. Some ways to increase capacity at the bottlenecks are not
to have any down time within the bottlenecks, make sure they are only working on quality
products so not to waste time, and relieve the workload by farming some work out to
vendors. Jonah wants to know how much it cost when the bottlenecks (X and heat treat)
machines are down. Lou says $32 per hour for the X machine and $21 per hour for heat treat.
How much when the whole plant is down? Around $1.6 million. How many hours are
available per month? About 585. After a calculation, Jonah explains that when the
bottlenecks are down for an hour, the true cost is around $2,735, the cost of the entire system.
Every minute of downtime at a bottleneck translates into thousands of dollars of loss
throughput, because without the parts from the bottleneck, you can’t sell the product.
Therefore, you cannot generate throughput.

Chapter Twenty

Alex organizes the bottlenecks to work on only overdue orders from the most overdue to the
least. He then finds his wife. She is at her parent’s house. Through their conversation it is
learned that she still needs to be away from everybody, even the kids.

Chapter Twenty-One

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The crew works out some of the details for keeping the bottlenecks constantly busy. In the
process they find that they need another system to inform the workers what materials have
priority at non-bottlenecks. Red and green tags are the answer. Red for bottleneck parts to be
worked on first as to not hold up the bottleneck machine, and green for the non-bottleneck
parts. That concludes another week. The true test will be next week.

Chapter Twenty-Two

Twelve orders were shipped. Alex is pleased, but he definitely needs more. He puts his
production manager on it. His production manager rounds up some old machines to
complement what one of the bottlenecks does. Things are looking up.

Chapter Twenty-Three

They are becoming more and more efficient, but lag time arouse with the two bottlenecks
because of workers being loaned out to other areas and not being at the bottlenecks when
needed to process another order. It seems there was nothing to do while waiting for the
bottleneck machine to finish the batch. Therefore, in keeping with the notion that everybody
needs to stay busy, workers were at other areas between batches. Alex decides to dedicate a
foreman at each location all the time. Then one of those dedicated foreman, the night
foreman, discovers a way to process more parts by mixing and matching orders by priority,
increasing efficiency by ten percent. Finally, one process being sent through a bottleneck
could be accomplished through another older way and therefore free up time on the
bottleneck.

Chapter Twenty-Four

Now that the new priority system is in place for all parts going through the bottlenecks,
inventory is decreasing. But lower inventory revealed more bottlenecks. This intrigues Jonah
so he’s coming to take a look.

Chapter Twenty-Five

"There aren’t any new bottlenecks", says Jonah. What actually has happened is a result of
some old thinking. Working non-bottlenecks to maximum capacity on bottleneck parts has
caused the problem. All parts are stacked up in front of the bottlenecks and others are
awaiting non-bottleneck parts for final assembly. There needs to be balance. The red and

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green tags need to be modified. It seems as if the bottlenecks will again control the flow, by
only sending them exactly what they need and when they need it.

Chapter Twenty-Six

Ralf, the computer wiz, says he can come up with a schedule for bottleneck parts and when
they should be released. This will alleviate any excess inventory in front of the bottlenecks,
but what about the non-bottlenecks? Jonah says with the same data out of the bottlenecks to
final assembly, you should be able to predict non-bottleneck parts as well. This will make
some time, but there are enough parts in front of the bottlenecks to stay busy for a month.

Chapter Twenty-Seven

There is another corporate meeting. Mr. Peach doesn’t praise Alex like Alex thinks he
should. Alex decides to talk with him in private. Mr. Peach agrees to keep the plant open if
Alex gives him a fifteen percent improvement next month. That will be hard because that
relies heavily on demand from the marketplace.

Chapter Twenty-Eight

Fifteen Percent!! Fifteen Percent!! Just then Jonah called to let Alex know that he will not be
available to speak with in the next few weeks. Alex informs him of the new problem of more
inventories and less throughput. Jonah suggests reducing batch sizes by half. Of course, this
will take some doing with vendors, but if it can be done, nearly all costs are cut in half. Also,
they get quicker response times and less lead times for orders. Sounds good.

Chapter Twenty-Nine

Alex is propositioned with a test. They can greatly increase sales, current and future, if they
can ship a thousand products in two weeks. Impossible without committing the plant to
nothing but the new order? That is a wrong decision. How about smaller batch sizes. Cut
them in half again. Then promise to ship 250 each week for four weeks starting in two weeks.
The customer loved it.

Chapter Thirty

Seventeen percent!! That was great, but it’s not derived from the old cost accounting model.
The auditors sent down to the plant from Division find just 12.8% improvement. Most of it
accounts from the new order. Which by the way, the owner of the company that placed the

12
order came down personally to shake everybody’s hand in the plant and to give a contract to
them for not a thousand parts but ten thousand. Anyway, tomorrow is the day of reckoning at
division.

Chapter Thirty-One

Well the meeting at Division started out rough. Alex thought he would be meeting with Mr.
Peach and other top executives. Instead, he met with their underlings. He decides to try and
convince them it doesn’t work. Just before leaving he decides to see Mr. Peach. It’s a good
thing he did, because he just got promoted to Mr. Peach’s position. Now Alex has to manage
three plants as the whole division. He calls Jonah desperately and asks for help. Jonah
declines until he has specific questions.

Chapter Thirty-Two

Alex decides to ask Jonah how he can get other people to understand these techniques that his
team has discovered without being condescending.

Chapter Thirty-Three

Now is the time to assemble Alex’s team for Division. Surprisingly the accountant with two
years to retirement is on board, but the production manager isn’t. He wants to be plant
manager to continue their efforts. Everything is totally into place at the plant but more is
needed for division.

Chapter Thirty-Four

Alex is firmly engrossed with the problems of taking over the division. With advice from his
wife he decides to enlist the help of his team at the plant. Every afternoon they will meet to
solve the problem. After the first day it is obvious , they will need them all.

Chapter Thirty-Five

The second day they are led in a discussion about the periodic table of elements, and how the
scientists actually got a table of any sort. Maybe that is how they will solve the massive
problems of division, by understanding how the scientists started with nothing and achieved
order. A way to define them by their intensive order is needed.

Chapter Thirty-Six

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The team finally comes up with the process:

Step one – identify the system’s bottlenecks

Step two- decide how to exploit those bottlenecks

Step three- subordinate everything else to step two decisions

Step four- evaluate the systems bottlenecks

Step five- if, in a previous step, a bottleneck has been broken, go to step one. It seems so
simple, just different.

Chapter Thirty-Seven

The team decides to revise the steps:

Step one – identify the systems constraints

Step two – decide how to exploit the systems constraints.

Step three – subordinate everything else to step two decisions.

Step four – evaluate the systems constraints.

Step five- warning!!! If in the previous steps a constraint has been broken, go back to step
one, but don’t allow inertia to cause a system constraint.

It also has been discovered that they have been using the bottlenecks to produce fictitious
orders in an effort to keep the bottlenecks busy. That will free up twenty percent capacity,
which translates in to market share.

Chapter Thirty-Eight

Talking with the head of sales. Alex finds out that there is a market order to fill the capacity.
It’s in Europe, so selling for less there will not affect domestic clients. If it can be done, will
open a whole new market. Then Alex ponders Jonah’s question, to determine what
management techniques should be utilized. Alex determines how a physicist approaches a
problem. Maybe this will lead to an answer.

Chapter Thirty-Nine

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Alex experiences a problem at the plant. It seems all the new orders have created new
bottlenecks. After analyzing the problem, they agreed to increase inventory in front of the
bottlenecks an tell sales to not promise new order deliveries for four weeks, twice as much as
before. This will hurt the new relationship between sales and production, but it is needed.
Production is an ongoing process of improvement, and when new problems arise they need to
be dealt with accordingly.

Chapter Forty

Finally, struggling with the answer to Jonah’s question, Alex comes up with some questions
on his own: What to change? What to change to? How to cause the change? Answering these
questions are the keys to management, and the skills needed to answer them are the keys to a
good manager and ultimately the answer to Jonah’s question.

DESCRIPTION ABOUT THE THEORIES AND ISSUES DEALT IN THE BOOK

The Goal is an interesting and informative business book that covers many of the issues
facing businesses today. These issues include bottlenecks, activating versus utilizing
resources, small batch sizes, work in progress, the concept of a "Balanced Plant", "the real
goals" of an organization, and the Theory of Constraints. In this novel, Al Rogo learns there
are three things that a manager must be able to do in order to manage and that is to learn what
to change, what to change to, and how to cause the change.

The real goal of any organization is to make money. No company exists to lose money or
to produce a product out of the goodness of their heart. Therefore, the real goal is to make
money. There are three measurements which "express the goal of making money perfectly
well, but which also permit (development of) operational rules for running (a) plant. These
measurements are throughput, inventory and operational expense. According to Goldratt,
these are defined as follows.

"Throughput is the rate at which the system generates money through sales.

"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.

The balanced plant concept is a mistake that managers have been trying to achieve for
years. Efficiency ratios do not increase sales. There are dependant and statistical variables
that impact the way the plant should be running. The balanced plant concept is based on
balancing capacity with efficiency. By balancing your plant with your capacity, you are
insuring bankruptcy. The reason is due to dependent events and statistical fluctuations. A
dependent event (or series of events) is one that must take place before another can begin; the
subsequent event depends on the prior ones. A statistical fluctuation is an event that may vary
from one instance to the next. Statistical fluctuations average themselves out over time (i.e. a
worker can average 25 pieces per hour but his exact output will likely be more or less than
that number each hour). To balance a plant accurately, you must look at dependent events and
statistical fluctuations together.

The Theory of Constraints is the key concept in the book. The Theory of Constraints (TOC)
consists of three parts: A set of problem-solving tools - called the TOC Thinking Processes
(TP) - to logically and systematically answer the three questions essential to any process of
on-going improvement: "What to change?", "To what to change to?" and "How to cause the
change?”. A set of daily management tools - taken from the TOC Thinking Processes - that
"can be used to significantly improve vital management skills, such as communication,
effecting change, team building and empowerment; and; innovative, proven solutions created
by applying the TOC Thinking Processes to specific application areas, such as Production,
Distribution, Marketing and Sales, Project Management, and Setting The Direction of The
Company.

The Theory of Constraints is composed of views of the short run and the long run. In the
short run most costs are fixed, so we could maximize profit by increasing throughput and
reducing inventories and operating costs. The theory of constraints helps identify methods to
maximize operating profits when faced with a mix of bottleneck, and non-bottleneck
operations. The bottleneck is the resource that is limiting throughput.

In the long run most costs are not fixed and should not be treated as such. However, in the
long run we are all dead. For this topic consider that you are a manager of a plant focused on
the short run and facing a lot of fixed constraints. Faced with these constraints you need to
maximize the contribution margin per unit of the constraining factor. You would aim at

16
achieving higher operating income by identifying the bottleneck resource or work-station,
having the bottleneck process at capacity, move resources to the bottleneck, less resources to
other, non-bottleneck stations, eliminating idle time, reducing set-up times, minimizing
defects, only making what you plan to use, and bettering co-ordination of factory processes.

The theory of constraints may be of the most benefit where factory operations have
developed in an ad hoc manner. Becoming aware of a bottleneck allows analysis to improve
operations. These improvements can result in increased production allowing increased sales.
These improvements can result in lower costs to produce the same level of production. These
improvements can result in a higher quality of product because the constraining resource was
adversely impacting quality.

The theory of constraints may be of least value for a factory where operations have been
continually optimized over time. The bottleneck may be a constraint that employees are well
aware of. The bottleneck remains because nobody has come up with a cost-effective method
for removing the constraint, or even increasing throughput through the constraining
operation, or there is a longer term project to replace the operation.

Another logical step in getting to the real goal of the company is the decrease batch sizes.
Then there will only be half that amount of work-in-progress on the floor at a time, thereby
cutting inventories in half. By processing smaller and smaller batches, you can improve
overall efficiency of the plant. By holding back materials, non-bottleneck processes now had
extra capacity, or time when nothing was being run on the machine. With the extra time,
these processes have the time to do extra set-ups, thereby allowing the smaller batches.
Instead of running very large batches of one part, and having parts destined for bottlenecks
waiting behind it, you start doing smaller batches, increasing the number of deliveries
between processes (this amounts to beginning a just-in-time inventory scheme). The extra
set-ups don't cost any extra in labour, because the processes were no longer being run at full
capacity. The plant in The Goal was only running at capacity equal to throughput demand. By
reducing batch sizes, they reduced the time it takes to process a batch, This also means
reduced queue time and wait time, thereby reducing inventory. With less time sitting in piles
waiting, total process time and overall lead-time is shortened. With a shortened lead-time, the
whole production process is able to respond to market demand faster.

In the book, Rogo came to a lot of his decisions simply by paying attention to everyday life.
One of the most important and influential discoveries was learning about bottlenecks. He

17
found his bottlenecks in his plant simply by going on a hike with his young son's Boy Scout
troupe. He observed that Herbie, a larger boy who had trouble keeping up with the others.
The other boys walked around him leaving him in the back of the pack. This put the fastest
walkers way out ahead, leaving Herbie (and those behind him) behind. Soon, Rogo gets the
idea of what's happening and decides to unload the extra pressures off Herbie (the excess
weight in his backpack) by spreading the job among the other boys. Then he puts Herbie in
front of the troupe, and tells the other boys that no one is permitted to pass Herbie. At this
point, he realizes that the rest of his plant must follow the bottlenecks or the "Herbies" as they
call them throughout the book. Each "Herbie" has to work to its fullest capacity, while the
rest of the plant's machines work to the capacity of the bottlenecks. This creates a harmony in
the plant, orders start to get out on time, there is less work-in-process, and costs are lowered
because of this.

By following these processes outlined above, the plant was able to save itself from certain
closure. Rogo was able to hold on to his job, and actually gain a promotion giving him
control over all the plants in this division. He would now have to bring this same style of
management to the entire division.

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A REAL TIME EXAMPLE BASED ON THE TOC MODEL

Goldratt’s business model is based on two principles. The first principle defines three ways to
measure whether or not businesses are achieving the goal of making money. These three
measurements are interrelated and easy enough to apply to any process. The three
measurements are throughput, inventory and operation expense. The second principle of
Goldratt’s model relates dependent events and statistical fluctuations to the manufacturing
process. Dependent events are processes that must first take place before other ones can
begin. An example would be a car assembly line. Before the engine is put into the car, the
frame must be finished and the steering wheel cannot be attached until the steering column is
put into place, and so on. Statistical fluctuations occur when one is unable to precisely predict
events or quantities. The book presents an excellent example illustrating this principle. Alex
and Jonah sit in a restaurant and Jonah points out that they are able to precisely predict the
capacity of the restaurant by counting the available seats. On the other hand, they are unable
to predict how long the waiter will need to fulfil their order. This uncertainty is referred to as
statistical fluctuations.
.
The business model illustrated in The Goal: A Process of Ongoing Improvement is titled as
Theory of Constraints. It suggests that companies should scale their entire production to the
process within the system with the lowest capacity; the bottlenecks. This will make the
system appear less efficient, because areas in the factory may stay idle if they have a much
higher capacity than bottleneck areas. However, implementing this approach will directly add
to the bottom line. The Theory of Constraints uses dependent events and statistical
fluctuations as its base.

One real time example of a company that improved its efficiency using TOC is i2
technologies. i2 Technologies was founded in 1988 by Sanjiv Sidhu. Prior to founding i2,
Sidhu worked for Texas Instruments and optimized production by creating software
applications based on constraints of the production cycle. Texas Instruments was not
interested in commercialising Sidhu’s software, which prompted him to establish i2

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Technologies. i2 Technologies offers supply chain optimization to its customers. i2
Technologies creates systems that optimize how companies react to changes in supply and
demand, and integrates these systems within the entire workflow of the company.

One of the foremost principles of i2 Technologies is to reduce inventories. Goldratt’s TOC

states clearly that excess inventory indicates two things: (1) the overall system has not scaled
production to the system with lowest capacity, and (2) the system wastes money by stocking
excess inventory that is not immediately converted to throughput, yet raises operational
expense.

One solution i2 Technologies developed was called RHYTHM. RHYTHM was a software
application that helped companies connect with suppliers and customers over the
Internet. It helped customers respond to market changes and gather intelligence. This
software was completely based on TOC and minimized the inventories that companies held at
any given time. It also decreased operational expenses by eliminating costly department
overhead needed to communicate effectively with suppliers and customers using traditional
communication channels, such as telephone and postal mail. Although RHYTHM has been
obsolete for 3 years, other such programs are still being developed and deployed by i2
Technologies.

The software applications that i2 Technologies develop add directly to the bottom line of a
company. Because of this, i2 is often listed as a TOC consultant. The most notable principle
used by i2 Technologies is called Closed-Loop Supply Chain Management. Closed-Loop
Supply Chain Management provides companies with tools to effectively identify the
constraints of their supply chain. Constraints within supply chains directly impact the ability
of a company to increase throughput. Closed-Loop Supply Chain Management is a closed-
loop system because it provides immediate feedback, which in turn adjusts critical aspects of
the supply chain, including synchronization of goals, measurements, and communications
across groups (i2 Technologies, 2005). Having an effective supply chain that reacts to a
changing market and customer demands will increase the ability of companies to reduce
operational expense, inventory, and ultimately increase sales, which directly affects the
company’s profit potential.

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i2 Technologies has shown that the Theory of Constraints can effectively help any company
work more efficiently and increase the bottom line. i2 Technologies has embraced TOC and
used it to write software that enables a business to operate according to TOC. Using this
customer-oriented approach, i2 Technologies was ranked 8 among the top 100 fastest
growing companies in 2000 according to Fortune Magazine. i2 Technologies is valued at $7
billion and maintained a 3-year revenue growth of 7%.

A survey was conducted on implementation of TOC in industries by Steven J. Balderstone

and Victoria J. Mabin, School of Business and Public Management,Victoria University of
Wellington, New Zealand. In the survey of over 100 cases, no failures or disappointing results
were reported. The following are the changes that took place :

 Lead-Times: Mean Reduction 69%

 Due-Date-Performance: Mean Improvement 60%
 Cycle-Times: Mean Reduction 66%
 Inventory Levels: Mean Reduction 50%
 Revenue / Throughput: Mean Increase 68% (outlier exclusive)

Some substantial improvements in operational variables as well as financial variables were

reported. On average, inventories were reduced by 50%, production times (measured by lead-
times, cycle times or due date performance) improved by over 60%, and financial measures
improved by over 80%. In addition, inventory reductions were accompanied by lead-time
reductions.

CRITIQUE

Overall the book was excellent and easy read. This book would be ideal for anyone interested
in simplifying ways to improving any process - whether it is manufacturing or service
oriented

What we enjoyed about this book most of all, was the layout. The layout consisted of telling a
story about Alex in a novel form, which included dialog, plot, etc. After all, Alex represents
the average person - job going down the tube and marriage shortly following it. The source of

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the problem the whole time was following the rules that were and are continuously engraved
into everyone each day.

PERSONAL LEARNING: The Importance of Continuous Improvement

The most important personal learning for all of us is to always strive for continuous
improvement. Competitive forces in our economy compel firms constantly to seek new ways
to improve performance. Improvements in quality have not satisfied customers' demand for
quality, but instead have led to even higher demands for quality. The same is true of product
features, product diversity, on-time delivery, lead times and many other aspects of business
performance.

CONCLUSION

“The Goal” portrays an understandable and practical approach to analyze and solve a
problem. The details within the book are presented in such a simple and clear way, the
context of them are transparent to other lines of business and not limited to the operations of
a manufacturing plant. The first person narrative style emphasizes the thought processes of
examining such a problem and gives the reader a chance to follow the same thought process
even while reading the story.

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