# The Goal  ## Metadata - Author: [[Eliyahu M. Goldratt, Jeff Cox, and David Whitford]] - Full Title: The Goal - Category: #books ## Highlights - Science for me, and for the vast majority of respectable scientists, is not about the secrets of nature or even about truths. Science is simply the method we use to try and postulate a minimum set of assumptions that can explain, through a straightforward logical derivation, the existence of many phenomena of nature. ([Location 60](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=60)) - Tags: [[blue]] - Somehow we have restricted the connotation of science to a very selective, limited assemblage of natural phenomena. We refer to science when we deal with physics, chemistry or biology. We should also realize that there are many more phenomena of nature that do not fall into these categories, for instance those phenomena we see in organizations, particularly those in industrial organizations. If these phenomena are not phenomena of nature, what are they? Do we want to place what we see in organizations to the arena of fiction rather than into reality? This book is an attempt to show that we can postulate a very small number of assumptions and utilize them to explain a very large spectrum of industrial phenomena. ([Location 69](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=69)) - Tags: [[blue]] - I think that Peach may be starting to lose it. Not that I suspect him of drifting toward a breakdown or anything. It’s just that everything seems to be an over-reaction on his part these days. He’s like a general who knows he is losing the battle, but forgets his strategy in his desperation to win. ([Location 507](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=507)) - Tags: [[blue]] - My first reaction is that it’s no wonder Peach has been acting like a madman lately. Everything he’s worked for is in jeopardy. If some other corporation buys the division, Peach won’t even have a job. The new owners will want to clean house and they’re sure to start at the top. ([Location 547](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=547)) - Tags: [[blue]] - Note: He finds out what’s really driving his boss and can now use that to help formulate strategy to appease him and save his plant - “Check your numbers if you’d like,” says Jonah. “But if your inventories haven’t gone down . . . and your employee expense was not reduced . . . and if your company isn’t selling more products—which obviously it can’t, if you’re not shipping more of them—then you can’t tell me these robots increased your plant’s productivity.” ([Location 635](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=635)) - Tags: [[blue]] - “You’re missing the point,” he says. “You think you’re running an efficient plant . . . but your thinking is wrong.” “What’s wrong with my thinking? It’s no different from the thinking of most other managers.” “Yes, exactly,” says Jonah. “What’s that supposed to mean?” I ask; I’m beginning to feel somewhat insulted by this. “Alex, if you’re like nearly everybody else in this world, you’ve accepted so many things without question that you’re not really thinking at all,” says Jonah. ([Location 682](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=682)) - Tags: [[blue]] - And he’s saying, “Alex, I have come to the conclusion that productivity is the act of bringing a company closer to its goal. Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive. Do you follow me?” ([Location 707](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=707)) - Tags: [[blue]] - “But it’s too simplified,” I tell him. “It doesn’t tell me anything. I mean, if I’m moving toward my goal I’m productive and if I’m not, then I’m not productive—so what?” “What I’m telling you is, productivity is meaningless unless you know what your goal is,” he says. ([Location 711](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=711)) - Tags: [[blue]] - “Your problem is you don’t know what the goal is. And, by the way, there is only one goal, no matter what the company.” ([Location 719](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=719)) - Tags: [[blue]] - what happens if a company doesn’t make money? If the company doesn’t make money by producing and selling products, or by maintenance contracts, or by selling some of its assets, or by some other means . . . the company is finished. It will cease to function. Money must be the goal. Nothing else works in its place. ([Location 876](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=876)) - Tags: [[blue]] - If the goal is to make money, then (putting it in terms Jonah might have used), an action that moves us toward making money is productive. And an action that takes away from making money is non-productive. ([Location 879](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=879)) - Tags: [[blue]] - So this is the goal: To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow. ([Location 1033](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=1033)) - Tags: [[blue]] - “They’re measurements which express the goal of making money perfectly well, but which also permit you to develop operational rules for running your plant,” he says. “There are three of them. Their names are throughput, inventory and operational expense.” ([Location 1220](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=1220)) - Tags: [[blue]] - “Throughput,” he says, “is the rate at which the system generates money through sales.” ([Location 1225](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=1225)) - Tags: [[blue]] - “Inventory is all the money that the system has invested in purchasing things which it intends to sell.” I write it down, but I’m wondering about it, because it’s very different from the traditional definition of inventory. “And the last measurement?” I ask. “Operational expense,” he says. “Operational expense is all the money the system spends in order to turn inventory into throughput.” ([Location 1234](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=1234)) - Tags: [[blue]] - So the way to express the goal is this? Increase throughput while simultaneously reducing both inventory and operating expense. ([Location 1355](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=1355)) - Tags: [[blue]] - “Tell me, Alex, do you have excess inventories in your plant?” he asks. “Yes, we do,” I say. “Do you have a lot of excess inventories?” “Well . . . yes.” “Do you have a lot of a lot of excess inventories?” “Yeah, okay, we do have a lot of a lot of excess, but what’s the point?” “Do you realize that the only way you can create excess inventories is by having excess manpower?” he says. I think about it. After a minute, I have to conclude he’s right; machines don’t set up and run themselves. People had to create the excess inventory. ([Location 1691](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=1691)) - Tags: [[blue]] - He says, “A balanced plant is essentially what every manufacturing manager in the whole western world has struggled to achieve. It’s a plant where the capacity of each and every resource is balanced exactly with demand from the market. Do you know why managers try to do this?” ([Location 1707](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=1707)) - Tags: [[blue]] - It’s starting to make sense. Our hike is a set of dependent events . . . in combination with statistical fluctuations. Each of us is fluctuating in speed, faster and slower. But the ability to go faster than average is restricted. It depends upon all the others ahead of me in the line. So even if I could walk five miles per hour, I couldn’t do it if the boy in front of me could only walk two miles per hour. And even if the kid directly in front of me could walk that fast, neither of us could do it unless all the boys in the line were moving at five miles per hour at the same time. So I’ve got limits on how fast I can go—both my own (I can only go so fast for so long before I fall over and pant to death) and those of the others on the hike. However, there is no limit on my ability to slow down. Or on anyone else’s ability to slow down. Or stop. And if any of us did, the line would extend indefinitely. What’s happening isn’t an averaging out of the fluctuations in our various speeds, but an accumulation of the fluctuations. And mostly it’s an accumulation of slowness—because dependency limits the opportunities for higher fluctuations. And that’s why the line is spreading. We can make the line shrink only by having everyone in the back of the line move much faster than Ron’s average over some distance. ([Location 1992](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=1992)) - Tags: [[blue]] - Note: There is capped upside (I can only go as fast as the person ahead of me) but UNCAPPED downside (if I stop, the whole line behind me grinds to a halt). The fluctuations compound AGAINST us rather than in our favor. This is true in most organizational planning. It’s why projects rarely come in under cost and ahead of time, and instead always cost more and take longer than anticipated. Literally straight out of Antifragile with long tailed distributions - Because, see, it really doesn’t matter how fast any one of us can go, or does go. Somebody up there, whoever is leading right now, is walking faster than average, say, three miles per hour. So what! Is his speed helping the troop as a whole to move faster, to gain more throughput? No way. Each of the other boys down the line is walking a little bit faster than the kid directly behind him. Are any of them helping to move the troop faster? Absolutely not. Herbie is walking at his own slower speed. He is the one who is governing throughput for the troop as a whole. ([Location 2226](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2226)) - Tags: [[blue]] - In fact, whoever is moving the slowest in the troop is the one who will govern throughput. And that person may not always be Herbie. Before lunch, Herbie was walking faster. It really wasn’t obvious who was the slowest in the troop. So the role of Herbie— the greatest limit on throughput—was actually floating through the troop; it depended upon who was moving the slowest at a particular time. But overall, Herbie has the least capacity for walking. His rate ultimately determines the troop’s rate. ([Location 2231](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2231)) - Tags: [[blue]] - “You want him to lead?” asks Andy. “But he’s the slowest one!” says another kid. And I say, “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.” ([Location 2266](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2266)) - Tags: [[blue]] - “The gain we made today is that we learned something. But I’ll tell you one thing: we’ve got to take a close look at our incentives here.” “How come?” asks Bob. “Don’t you see? It didn’t matter that Pete got his hundred pieces done, because we still couldn’t ship,” I say. “But Pete and his people thought they were heroes. Ordinarily, we might have thought the same thing. That isn’t right.” ([Location 2584](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2584)) - Tags: [[blue]] - “A bottleneck,” Jonah continues, “is any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it. Got that?” ([Location 2647](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2647)) - Tags: [[blue]] - “Yes, but as you already know, you should not balance capacity with demand. What you need to do instead is balance the flow of product through the plant with demand from the market. This, in fact, is the first of nine rules that express the relationships between bottlenecks and non-bottlenecks and how you should manage your plant. So let me repeat it for you: Balance flow, not capacity.” ([Location 2652](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2652)) - Tags: [[blue]] - “Oh, I see,” says Stacey. “The idea is to make the flow through the bottleneck equal to demand from the market.” “Basically, yes, you’ve got it,” says Jonah. “Actually, the flow should be a tiny bit less than the demand.” “How come?” asks Lou. “Because if you keep it equal to demand and the market demand goes down, you’ll lose money,” says Jonah. “But that’s a fine point. Speaking fundamentally, the bottleneck flow should be on a par with demand.” ([Location 2661](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2661)) - Tags: [[blue]] - “You know, you just gave me an idea. If we talk to the expeditors. They could probably tell us which parts they’re missing most of the time, and in which departments they usually go to look for them.” “What good is that going to do?” asks Ralph. “The parts most frequently in short supply are probably the ones that would pass through a bottleneck,” she says. “And the department where the expeditors go to look for them is probably where we’ll find our Herbie.” ([Location 2740](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2740)) - Tags: [[blue]] - “And I’ll tell you something I just thought of,” I say. “Out on the trail, you could tell the slower kids by the gaps in the line. The slower the kid, the greater the distance between him and the kid in front of him. In terms of the analogy, those gaps were inventory.” Bob, Ralph, and Stacey stare at me. “Don’t you see?” I ask them. “If we’ve got a Herbie, it’s probably going to have a huge pile of work-in-process sitting in front of it.” “Yeah, but we got huge piles all over the place out there,” says Bob. “Then we find the biggest one,” I say. ([Location 2746](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2746)) - Tags: [[blue]] - Jonah holds up his hands and says, “Wait a minute. On any non-bottleneck machine in your plant, no problem. Because, after all, some percentage of a non-bottleneck’s time should be idle. So who cares when those people take their breaks? It’s no big deal. But on a bottleneck? It’s exactly the opposite.” He points to the NCX-10 and says, “You have on this machine only so many hours available for production—what is it. . . 600, 700 hours?” “It’s around 585 hours a month,” says Ralph. “Whatever is available, the demand is even greater,” says Jonah. “If you lose one of those hours, or even half of it, you have lost it forever. You cannot recover it someplace else in the system. Your throughput for the entire plant will be lower by whatever amount the bottleneck produces in that time. And that makes an enormously expensive lunch break.” ([Location 2920](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=2920)) - Tags: [[blue]] - “You mean we should put Q.C. in front of the bottlenecks?” Jonah raises a finger and says, “Very perceptive of you. Make sure the bottleneck works only on good parts by weeding out the ones that are defective. If you scrap a part before it reaches the bottleneck, all you have lost is a scrapped part. But if you scrap the part after it’s passed the bottleneck, you have lost time that cannot be recovered.” ([Location 3004](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3004)) - Tags: [[blue]] - “The numbers are wrong, not because you have made a calculating error, but because the costs were determined as if these work centers existed in isolation,” says Jonah. “Let me explain: when I was a physicist, people would come to me from time to time with problems in mathematics they couldn’t solve. They wanted me to check their numbers for them. But after a while I learned not to waste my time checking the numbers—because the numbers were almost always right. However, if I checked the assumptions, they were almost always wrong.” ([Location 3022](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3022)) - Tags: [[blue]] - “What you have learned is that the capacity of the plant is equal to the capacity of its bottlenecks,” says Jonah. “Whatever the bottlenecks produce in an hour is the equivalent of what the plant produces in an hour. So . . . an hour lost at a bottleneck is an hour lost for the entire system.” ([Location 3030](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3030)) - Tags: [[blue]] - “The actual cost of a bottleneck is the total expense of the system divided by the number of hours the bottleneck produces,” ([Location 3038](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3038)) - Tags: [[blue]] - “First, make sure the bottlenecks’ time is not wasted,” he says. “How is the time of a bottleneck wasted? One way is for it to be sitting idle during a lunch break. Another is for it to be processing parts which are already defective—or which will become defective through a careless worker or poor process control. A third way to waste a bottleneck’s time is to make it work on parts you don’t need.” ([Location 3046](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3046)) - Tags: [[blue]] - “Then make the bottlenecks work only on what will contribute to throughput today . . . not nine months from now,” says Jonah. “That’s one way to increase the capacity of the bottlenecks. The other way you increase bottleneck capacity is to take some of the load off the bottlenecks and give it to non-bottlenecks.” ([Location 3053](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3053)) - Tags: [[blue]] - “Until now, we’ve expedited orders on the basis of who’s screamed the loudest,” I say. “From now on, late orders should get first priority over the others. An order that’s two weeks late gets priority over an order that’s one week late, and so on.” “We’ve tried that from time to time in the past,” says Stacey. “Yes, but the key this time is we make sure the bottlenecks are processing parts for those late orders according to the same priority,” I say. ([Location 3137](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3137)) - Tags: [[blue]] - “And, Bob, make sure the people you pick are good. From now on, we put only our best people to work on the bottlenecks.” ([Location 3629](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3629)) - Tags: [[blue]] - I nod. Yes, that sounds like a possibility. With the bottlenecks more productive now, our throughput has gone up and our backlog is declining. But making the bottlenecks more productive has put more demand on the other work centers. If the demand on another work center has gone above one hundred percent, then we’ve created a new bottleneck. ([Location 3792](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3792)) - Tags: [[blue]] - Note: Amdahl’s law in action. The slow part of the process was sped up until it was no longer the bottleneck - “And that is the problem,” says Jonah. “Because what happens to those extra hours of production from Y? Well, that inventory has to go somewhere. Y is faster than X. And by keeping Y active, the flow of parts to X must be greater than the flow of parts leaving X. Which means . . .” He walks over to the work-in-process mountain and makes a sweeping gesture. “You end up with all this in front of the X machine,” he says. “And when you’re pushing in more material than the system can convert into throughput, what are you getting?” “Excess inventory,” says Stacey. ([Location 3892](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3892)) - Tags: [[blue]] - By running non-bottlenecks for “efficiency,” we’ve built inventories far in excess of demand. ([Location 3938](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3938)) - Tags: [[blue]] - “Yes, and if we follow that thought to a logical conclusion,” says Jonah, “we can form a simple rule which will be true in every case: the level of utilization of a non-bottleneck is not determined by its own potential, but by some other constraint in the system.” ([Location 3950](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3950)) - Tags: [[blue]] - “What you’re saying is that making an employee work and profiting from that work are two different things.” “Yes, and that’s a very close approximation of the second rule we can logically derive from the four combinations of X and Y we talked about,” says Jonah. “Putting it precisely, activating a resource and utilizing a resource are not synonymous.” ([Location 3965](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3965)) - Tags: [[blue]] - “utilizing” a resource means making use of the resource in a way that moves the system toward the goal. “Activating” a resource is like pressing the ON switch of a machine; it runs whether or not there is any benefit to be derived from the work it’s doing. So, really, activating a non-bottleneck to its maximum is an act of maximum stupidity. ([Location 3969](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3969)) - Tags: [[blue]] - “And the implication of these rules is that we must not seek to optimize every resource in the system,” says Jonah. “A system of local optimums is not an optimum system at all; it is a very inefficient system.” ([Location 3971](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=3971)) - If Ralph can determine a schedule for releasing red-tag materials based on the bottlenecks, he can also determine a schedule for final assembly. Once he knows when the bottleneck parts will reach final assembly, he can calculate backwards and determine the release of the non-bottleneck materials along each of their routes. In this way, the bottlenecks will be determining the release of all the materials in the plant. I said, “You know, that’s going to produce the same effect as moving the bottlenecks to the head of production, which is what I’d intended for us to do.” ([Location 4088](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=4088)) - Tags: [[blue]] - “So are we just supposed to let everyone stand around out there?” asks Bob. “Why not?” asks Stacey. “Once the somebody is already on the payroll, it doesn’t cost us any more to have him be idle. Whether somebody produces parts or waits a few minutes doesn’t increase our operating expense. But excess inventory . . . now that ties up a lot of money.” ([Location 4113](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=4113)) - Tags: [[blue]] - “The rule he gave me last night is that an hour saved at a non-bottleneck is a mirage.” ([Location 4372](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=4372)) - Tags: [[blue]] - “Since we began withholding materials from the floor until the bottlenecks are ready for them, the non-bottlenecks now have idle time. It’s perfectly okay to have more setups on non-bottlenecks, because all we’re doing is cutting into time the machines would spend being idle. Saving setups at a non-bottleneck doesn’t make the system one bit more productive. The time and money saved is an illusion. Even if we double the number of setups, it won’t consume all the idle time.” ([Location 4374](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=4374)) - Tags: [[blue]] - Before we reduced batch sizes, it wasn’t uncommon for a work center to be forced idle because it didn’t have anything to process—even though we were wading through excess inventory. It was usually because the idle work center had to wait for the one preceding it to finish a large batch of some item. Unless told otherwise by an expeditor, the materials handlers would wait until an entire batch was completed before moving it. In fact, that’s still the case. But now that the batches are smaller, the parts are ready to be moved to the next work station sooner than they were before. ([Location 4456](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=4456)) - Tags: [[blue]] - What was the nature of the answers, the solutions, that Jonah caused us to develop? They all had one thing in common. They all made common sense, and at the same time, they flew directly in the face of everything I’d ever learned. Would we have had the courage to try to implement them if it weren’t for the fact that we’d had to sweat to construct them? Most probably not. If it weren’t for the conviction that we gained in the struggle—for the ownership that we developed in the process—I don’t think we’d actually have had the guts to put our solutions into practice. ([Location 4996](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=4996)) - Tags: [[blue]] - “I’ve given it a lot of thought lately. We need financial measurements for sure—but we don’t need them for their own sake. We need them for two different reasons. One is control; knowing to what extent a company is achieving its goal of making money. The other reason is probably even more important; measurements should induce the parts to do what’s good for the organization as a whole. What’s become apparent to me is that neither of these two objectives is being met. ([Location 5118](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5118)) - Tags: [[blue]] - “We didn’t say a flat no, or a flat yes, and then miss the due date by a mile, as we used to do. We re-engineered the deal; we came back with a counter-offer that was feasible and that the client liked even more than his original request.” “Yes,” I say, “it was good work. Especially considering what came out after that. But that was a peculiar set of circumstances.” “It was peculiar because normally we don’t take the initiative—but maybe there’s a way to make it standard. Don’t you see? We actually engineered a sale. We—in the plant, in production—engineered a sale.” ([Location 5156](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5156)) - Tags: [[blue]] - “I do think that meeting the people is important,” Stacey interrupts the laughter. “Financial numbers only reveal a small fraction of the picture. You have to find out what the people think is going on. What do they see as problems? Where do we stand vis-a-vis the clients?” “Who has a grudge against whom?” Bob contributes, and then in a more serious tone. “You also have to get a sense of the local politics.” ([Location 5289](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5289)) - Tags: [[blue]] - “I mean the merry-go-round that we’re all too familiar with; arranging the company according to product lines and then changing it according to functional capabilities—and vice versa. Deciding that the company is wasting too much money on duplicated efforts and thus moving to a more centralized mode. Ten years later, we want to encourage entrepreneurship and we move back to decentralization. Almost every big company is oscillating, every five to ten years from centralization to decentralization, and then back again.” ([Location 5343](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5343)) - Tags: [[blue]] - “You see,” he continues enthusiastically, “we, in our attempts to arrange the colored shapes, didn’t reveal any intrinsic order. Simply because in that arbitrary collection there was no intrinsic order to be revealed. That’s why all our attempts were arbitrary, all futile to the same extent.” ([Location 5464](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5464)) - Tags: [[blue]] - It doesn’t take much to encourage Bob to voice his true opinion. “Every plant in our company, has already launched at least four or five of those pain-in-the-neck improvement projects. If you ask me, they lead only to indigestion problems. You go down there, to the floor, and mention a new improvement project and you’ll see the response. People have already developed allergies to the phrase.” ([Location 5532](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5532)) - Tags: [[blue]] - “Everywhere, improvement was interpreted as almost synonymous to cost savings. People are concentrating on reducing operating expenses as if it’s the most important measurement.” “Not even that,” Bob interrupts. “We were busy reducing costs that didn’t have any impact on reducing operating expenses.” “Correct,” Lou continues. “But the important thing is that we, in our plant, have switched to regard throughput as the most important measurement. Improvement for us is not so much to reduce costs but to increase throughput.” ([Location 5553](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5553)) - Tags: [[blue]] - “You know, Alex, something is still missing. I have the feeling that the entire approach we took was different.” “In what way?” I ask. “I don’t know. But one thing I can tell you, we haven’t declared any improvement project, they grow from the need. Somehow it was always obvious what the next step should be.” ([Location 5569](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5569)) - Tags: [[blue]] - Note: A bottom up approach. Rather than top down edicts, they analyzed what was actually happening on the plant floor and responded to what the real issues and bottlenecks were - “In the ‘cost world’ as Alex called it, we are concerned primarily with cost. Cost is drained everywhere, everything cost us money. We had viewed our complex organization as if it were composed out of many links and each link is important to control.” “Will you please get to the point?” Bob asks impatiently. “Let him talk,” Stacey is no less impatient. Ralph ignores them both and calmly continues, “It’s like measuring a chain according to its weight. Every link is important. Of course, if the links are very different from each other then we use the principle of the twenty-eighty rule. Twenty percent of the variables are responsible for eighty percent of the result. The mere fact that we all know the Pareto principle shows us to what extent Lou is right, the extent to which we all were in the cost world.” Stacey puts her hand on Bob’s to prevent him from interfering. “We recognize that the scale has to be changed,” Ralph continues. “We choose throughput as the most important measurement. Where do we achieve throughput? At each link? No. Only at the end of all operations. You see, Bob, deciding that throughput is number one is like changing from considering weight to considering strength.” ([Location 5593](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5593)) - Tags: [[blue]] - STEP 1. Identify the system’s bottlenecks. (After all it wasn’t too difficult to identify the oven and the NCX10 as the bottlenecks of the plant.) STEP 2. Decide how to exploit the bottlenecks. (That was fun. Realizing that those machines should not take a lunch break, etc.) STEP 3. Subordinate everything else to the above decision. (Making sure that everything marches to the tune of the constraints. The red and green tags.) STEP 4. Elevate the system’s bottlenecks. (Bringing back the old Zmegma, switching back to old, less “effective” routings. . . .) STEP 5. If, in a previous step, a bottleneck has been broken go back to step 1. ([Location 5610](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5610)) - Tags: [[blue]] - 1. IDENTIFY the system’s constraint(s). 2. Decide how to EXPLOIT the system’s constraint(s). 3. SUBORDINATE everything else to the above decision. 4. ELEVATE the system’s constraint(s). 5. WARNING!!!! If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system’s constraint. ([Location 5726](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5726)) - Tags: [[blue]] - With glittering eyes she asks, “Do you know what you have just described? The Socratic dialogues. They’re done in exactly the same way, through exactly the same relationship, IF . . . THEN. Maybe the only difference is that the facts do not concern material but human behavior.” ([Location 5931](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=5931)) - Tags: [[blue]] - “It’s not the material that concerns me,” I say. “It’s the capacity. You see, when the problem that caused the stoppage is overcome, the upstream resources not only have to supply the current consumption of the bottleneck, at the same time they have to rebuild the inventory.” “That’s right,” Bob beams. “That means that there are times when the non-bottlenecks must have more capacity than the bottlenecks. Now I understand. The fact that we have bottlenecks and non-bottlenecks is not because we designed the plant very poorly. It’s a must. If the upstream resources don’t have spare capacity, we won’t be able to utilize even one single resource to the maximum; starvation will preclude it.” ([Location 6064](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6064)) - Tags: [[blue]] - “But what do you call first principles?” “I don’t know. Something basic that we accept without hesitation.” “Fine. I have one for you. Every organization was built for a purpose. We haven’t built any organization just for the sake of its mere existence.” ([Location 6182](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6182)) - Tags: [[blue]] - “If synchronized efforts are required and the contribution of one link is strongly dependent on the performance of the other links, we cannot ignore the fact that organizations are not just a pile of different links, they should be regarded as chains.” ([Location 6196](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6196)) - Tags: [[blue]] - determined by the weakest link, then the first step to improve an organization must be to identify the weakest link.” “Or links,” I correct. “Remember, an organization may be comprised of several independent chains.” ([Location 6203](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6203)) - Tags: [[blue]] - “What are we asking for? For the ability to answer three simple questions: ‘what to change?’, ‘what to change to?’, and ‘how to cause the change?’ Basically what we are asking for is the most fundamental abilities one would expect from a manager. ([Location 6290](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6290)) - Tags: [[blue]] - We should learn to be able to do it without any external help. I must learn these thinking processes, only then will I know that I’m doing my job.” “We should and can be our own Jonahs,” Lou says and stands up. Then this reserved person surprises me. He puts his arm around my shoulder and says, “I’m proud to work for you.” ([Location 6300](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6300)) - Tags: [[blue]] - The manufacturing industry has been shaped by two great thinkers, Henry Ford and Taiichi Ohno. Ford revolutionized mass production by introducing the flow lines. Ohno took Ford’s ideas to the next level in his TPS, a system that forced the entire industry to change its grasp of inventory from an asset to a liability. ([Location 6343](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6343)) - Tags: [[blue]] - Flow means that inventories in the operation are moving. When inventory is not moving, inventory accumulates. Accumulation of inventory takes up space. Therefore, an intuitive way to achieve better flow is to limit the space allowed for inventory to accumulate. To achieve better flow, Ford limited the space allotted for work-in-process between each two work centers. That is the essence of the flow lines, as can be verified by the fact that the first flow lines didn’t have any mechanical means, like conveyers, to move inventory from one work center to another. ([Location 6350](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6350)) - Tags: [[blue]] - The daring nature of Ford’s method is revealed when one realizes that a direct consequence of limiting the space is that when the allotted space is full, the workers feeding it must stop producing. Therefore, in order to achieve flow, Ford had to abolish local efficiencies. In other words, flow lines are flying in the face of conventional wisdom; the convention that, to be effective, every worker and every work center have to be busy 100% of the time. ([Location 6354](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6354)) - Tags: [[blue]] - In summary, Ford’s flow lines are based on the following four concepts: 1. Improving flow (or equivalently lead time) is a primary objective of operations. 2. This primary objective should be translated into a practical mechanism that guides the operation when not to produce (prevents overproduction). 3. Local efficiencies must be abolished. 4. A focusing process to balance flow must be in place. ([Location 6364](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6364)) - Tags: [[blue]] - Ohno faced an almost insurmountable obstacle when he came to apply the second concept. When the demand for a single product is high, dedicating a line to producing each component, as Ford did, is justified. However, at that time in Japan, the market demand was for small quantities of a variety of cars. Therefore, Ohno could not dedicate lines at Toyota. ([Location 6375](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6375)) - Tags: [[blue]] - Between each two work centers,6 and for each component separately, the accumulation of inventory is limited by setting a certain number of containers and the number of units per container. These containers, like every container in every industry, also contain the relevant paperwork. But, one page of the paperwork—usually a card (kanban in Japanese)—a page that specifies only the component code name and the number of units per container, is treated in an unconventional way. When the succeeding work center withdraws a container for further processing that card is not moved with the container, rather it is passed back to the preceding work center. This is the notification to that work center that a container was withdrawn, that the allotted inventory is not full. Only in that case is the preceding work center allowed to produce (one container of parts specified by the card). In essence the Kanban system directs each work center when and what to produce but, more importantly, it directs when not to produce. No card—no production. The Kanban system is the practical mechanism that guides the operation when not to produce (prevents overproduction). Ohno succeeded to expand Ford’s concepts by changing the base of the mechanism from space to inventory. ([Location 6389](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6389)) - Tags: [[blue]] - Ohno ignored all that body of knowledge since yielding to using ‘economical’ quantities would have doomed his quest to reduce the lead times. Rather, he insisted that the setups required are not cast in stone, that the processes can be modified to drastically reduce the setup time required. He led the efforts to develop and implement setup reduction techniques that eventually reduced all setup times in Toyota to be, at most, just a few minutes.10 It is no wonder that Lean is now strongly associated with small batches and setup reduction techniques. ([Location 6415](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6415)) - Tags: [[blue]] - Note: Very clearly the inspirations for the Lean Startup. Small batch sizes are the couple week long experiments advocated in lean startup. The few minute switching time is the directive to quickly learn and apply that learning from each experiment, and then start a new one - It should be noted that even though, in the last twenty years, every other car company has implemented one version or another of the Toyota system and reaped major benefits, the productivity of Toyota is unmatched by any other car company. This fact points to the importance of making the correct choice of the process that focuses the local improvement efforts. Unfortunately, the improvement efforts of other companies are misguided since they are aimed at achieving cost savings rather than being totally focused on improving the flow. ([Location 6432](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6432)) - Tags: [[blue]] - What is obliterating the picture is that the end result of focusing on flow and ignoring local cost considerations is a much lower cost per unit. Exactly like the end result of abolishing local efficiencies resulting in much higher efficiency of the labor force. ([Location 6441](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6441)) - Tags: [[blue]] - One of the ramifications of concentrating on cost reduction is that almost all initiatives to foster a process of on-going improvement quickly reach a point of diminishing returns and as a result many deteriorate to lip service. ([Location 6444](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6444)) - Tags: [[blue]] - In summary, both Ford and Ohno followed four concepts (from now on we’ll refer to them as the concepts of flow): 1. Improving flow (or equivalently lead time) is a primary objective of operations. 2. This primary objective should be translated into a practical mechanism that guides the operation when not to produce (prevents over production). Ford used space; Ohno used inventory. 3. Local efficiencies must be abolished. 4. A focusing process to balance flow must be in place. Ford used direct observation. Ohno used the gradual reduction of the number of containers and then gradual reduction of parts per container. ([Location 6446](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6446)) - Tags: [[blue]] - there is a difference between an application and the fundamental concepts on which the application is based. The fundamental concepts are generic; the application is the translation of the concepts for a specific environment. ([Location 6455](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6455)) - Tags: [[blue]] - The most intuitive base for the mechanism to restrict over-production is not space or inventory but time—if one wants to prevent production ahead of time one should not release the material ahead of time. Using time as the base is not only more intuitive and, therefore, more easily accepted by the shop floor, it has an advantage that makes it suitable for unstable environments—it is much less sensitive to disruptions in flow. ([Location 6522](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6522)) - Tags: [[blue]] - The robustness of the time-based mechanism stems from the fact that it directly restricts the overall amount of work in the system rather than doing it through restricting the amount of work between each two work centers. ([Location 6525](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6525)) - Tags: [[blue]] - The problem is that the time it takes material to be converted to a finished product, ready for delivery to the client, depends more on the time it has to wait in queues (waiting for a resource that is busy processing another order or waiting in front of assembly for another part to arrive) and not so much on the touch time to process the order. ([Location 6539](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6539)) - Tags: [[blue]] - What we learned from Ford, and more so from Ohno, is that we shouldn’t accept the size of batches as given; that economical batch quantities are not economical and instead we should and can strive to reach a one-piece flow. Armed with that conviction it is easy to realize that when a batch of parts is being processed (except in processes like mixing or curing) only one item is actually worked on while the other items in the batch are waiting. That means that in conventional companies that use batch sizes of more than ten units in a batch (which is the case in the majority of production environments) the touch time is actually less than 1% of the lead time. ([Location 6587](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6587)) - Tags: [[blue]] - The answer was given by Ford and Ohno. Through their work they, decisively, proved that contrary to the common belief, striving to constantly activate all resources all the time is not a recipe for effective operations. On the contrary, the exact opposite is true; to reach effective operations, local efficiencies must be abolished. But conventional companies do try to reach full activation of resources. Whenever the upstream resources are not bottlenecks (and that is the case in the vast majority of environments) they will, from time to time, run out of work. To prevent it, material is released; material that is needed for more remote orders (or even for forecasted orders). The unavoidable consequence is longer queues. Longer queues cause some orders not to be fulfilled on time which in turn is interpreted as: we should release the material earlier. And is also interpreted as: we don’t have enough capacity. It is not difficult to envision how such forces cascade companies up the slope. ([Location 6599](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6599)) - Tags: [[blue]] - A good starting point for improving flow will be to choose the time buffer to be equal to half the current lead time; ([Location 6606](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6606)) - Tags: [[blue]] - An effective rule to adjust the time buffer, without taking a risk of deteriorating the high due date performance, is to decrease the time buffer when the number of red orders is smaller than 5% of the number of total released orders and to increase it when the proportion of red orders is more than 10%. ([Location 6645](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6645)) - Tags: [[blue]] - It is essential to strengthen the tie between sales and operations—that is the real challenge. A system must be put in place to ensure that every due-date commitment is given only according to the yet unallocated capacity of the bottleneck. The bottleneck becomes the ‘drum beat’ for the orders, the ‘time buffer’ translates due-dates into release dates and the action of choking the release becomes the ‘rope’ that ties the order to the release of work. ([Location 6657](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6657)) - Tags: [[blue]] - Five Focusing Steps 1. IDENTIFY the system’s constraint. 2. Decide how to EXPLOIT the system’s constraint. 3. SUBORDINATE everything else to the above decisions. 4. ELEVATE the system’s constraint. 5. If in the previous steps a constraint has been broken Go back to step 1, but do not allow inertia to cause a system constraint. ([Location 6736](https://readwise.io/to_kindle?action=open&asin=B002LHRM2O&location=6736)) - Tags: [[blue]]