The Goal

by E M Goldratt

  "Why?" she asks, as if she knows the answer but is anxious to hear it from me.

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  "Things start to be connected to each other. Things that we never thought were related start to be strongly connected to each other. One single common cause is the reason for a very large spectrum of different effects. You know Julie, it's like order is built out of chaos. What can be more beautiful than that?"

  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."

  "Interesting, very interesting. Come to think about it," I say, "my field, management, involves both material and people be- havior. If the same method can be used for each then it's proba- bly the basis for Jonah's techniques."

  She thinks about it for a while. "You're probably right. But if you are then I'm willing to bet that when Jonah starts to teach you those techniques you'll find that they are much more than techniques. They must be thinking processes."

  We each dive into our thoughts.

  "Where do we take it from here?"

  "I don't know," I answer. "Frankly, I don't think that all this reading really gets me closer to answering Jonah's question. Re- member what he said? 'I'm not asking you to develop the man- agement techniques, only to determine what they should be.' I'm afraid I'm trying to jump to the next step, to develop them. De- termining the management techniques must come from the need itself, from examining how I currently operate and then trying to find out how I should operate."

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  39

  "Any messages?" I ask Fran.

  "Yes," she answers, to my surprise. "From Bill Peach. He wants to talk to you."

  I get him on the phone. "Hey Bill, what's up?"

  "I just received your numbers for last month," he says. "Congratulations hotshot, you definitely made your point. I've never seen anything even remotely close to this."

  "Thank you," I say pleased. "By the way, what are the results at Hilton Smyth's plant?"

  "You must turn the dagger, huh?" he laughs. "As you pre- dicted, Hilton is not doing too well. His indicators continue to improve, but his bottom line continues to sink into the red."

  I cannot contain myself, "I told you that those indicators are based on local optimum and that they have nothing to do with the global picture."

  "I know, I know," he sighs. "As a matter of fact, I think that I knew it all along, but I guess an old mule like me needs to see the proof in black and red. Well, I think that I've finally seen it."

  "It's about time," I think to myself but to the phone I say, "So what's next?"

  "This is actually why I called you, Alex. I spent the entire day yesterday with Ethan Frost. It seems that he's in agreement with you, but I can't understand what he is talking about." Bill sounds quite desperate. "There was a time that I thought I understood all this mumbo jumbo of 'cost of goods sold' and variances, but after yesterday, it's obvious that I don't. I need someone who can explain it to me in straight terms, someone like you. You do un- derstand all this, don't you?"

  "I think I do," I answer. "Actually it is very simple. It's all a matter of..."

  "No, no," he interrupts me. "Not on the phone. Besides, you have to come here anyway-only one month left, you should get familiar with the details of your new job."

  "Tomorrow morning okay?"

  "No problem," he answers. "And Alex, you have to explain to me what you've done to Johnny Jons. He goes around claim-

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  ing that we can make a lot of money if we sell below what it costs us to produce. That is pure baloney." I laugh, "See you tomorrow."

  Bill Peach abandoning his precious indicators? This is some- thing I have to tell everyone; they'll never believe it. I go to Don- ovan's office, but he's not there, nor is Stacey. They must be on the floor. I ask Fran to locate them. In the meantime I'm going to Lou to tell him the news.

  Stacey reaches me there. "Hey boss, we have some problems here. Can we come in half an hour?"

  "No rush," I say. "It's not so important, take your time."

  "I don't agree," she says. "I'm afraid that it is important."

  "What are you talking about?"

  "It probably has started," she answers. "Bob and I will be in your office in half an hour. Okay?"

  "Okay," I say, quite puzzled.

  "Lou, do you know what's going on?" I ask.

  "No." he says. "Unless of course, you're referring to the fact that Stacey and Bob have been busy for the last week, playing expeditors."

  "They are?"

  "To make a long story short," Bob concludes the briefing of the last hour, "already twelve work centers are on unplanned overtime."

  "The situation is out of control," Stacey continues. "Yester- day one order was not shipped on time, today three more will be delayed for sure. According to Ralph, we're going downhill from there. He claims that before the end of the month we'll miss the shipping dates on about twenty percent of our orders, and not by just one or two days."

  I'm looking at my phone. It won't take more than a few days and this monster will ring off the hook with furious complaints. It's one thing to be consistently bad; the clients are used to it and they protect themselves by stocks or time buffers. But now we have spoiled them, they are already used to our good perfor- mance.

  This is much worse than I've imagined. It might ruin the plant.

  How did it happen? Where did I go astray?

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  "How come?" I ask them.

  "I told you," Bob says. "Order no. 49318 is stuck because of..."

  "No Bob," Stacey stops him. "It's not the details that are important. We should look for the core problem. Alex, I think that we simply accepted more orders than we can process."

  "That's obvious," I say. "But how come? I thought we checked that the bottlenecks have enough capacity. We also checked your seven other problematic work centers. Did we make a mistake in the calculations?"

  "Probably," Bob answers.

  "Not likely," is Stacey's response. "We checked and double checked it."

  "So?"

  "So, I don't know," Bob says. "But it doesn't matter. We have to do something now, and fast."

  "Yes, but what?" I'm a little impatient. "As long as we don't know what caused the situation, the best we can do is to throw punches in all directions. That was our old mode of operation. I had hoped that we learned better."

  I accept their lack of response as agreement and continue, "Let's call Lou and Ralph and move into the conference room. We must put our heads together to figure out what is really going on."

  "Let's get the facts straight," Lou says after less than fifteen minutes. "Bob, are you convinced that you need to keep using so much overtime?"

  "The efforts of the last few days have convinced me that even with overtime we are going to miss due dates," Bob answers.

  "I see," Lou doesn't look too happy. "Ralph, are you con- vinced that at the end of the month, in spite of the overtime, we are going to be late on many orders?"

  "If we don't find a smart way to solve this mess, without a doubt," Ralph answers confidently. "I can't tell you the dollar amount, that depends on Bob and Stacey's decisions of how much overtime to use and which orders to expedite. But it is in the neighborhood of over a million dollars."

  "That's bad," Lou says. "I'll have to redo my forecast."

  I throw him a murderous look. That is the major damage that he sees? Redo the forecast!

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  "Can we address the real issue?" I say in a freezing voice. They all turn to me waiting.

  "Listening again to what you're saying, I don't see a major problem," I say. "It is obvious that we tried to swallow more than we can chew. What we have to do is to determine by how much and then compensate. It is as simple as that."

  Lou nods his head in approval. Bob, Ra
lph, and Stacey con- tinue to look at me with poker faces. They even look offended. There must be something wrong in what I've said, but I can't see what.

  "Ralph, by how much are our bottlenecks overloaded?" I ask.

  "They're not overloaded," he says flatly.

  "No problem there," I conclude. "So let..."

  "He didn't say that," Stacey cuts me off.

  "I don't understand," I say. "If the bottlenecks are not over- loaded then..."

  Maintaining an expressionless face she says, "From time to time the bottlenecks are starved. Then the work comes to them in a big wave."

  "And then," Bob continues, "we don't have a choice but to go into overtime. That's the case all over the plant. It looks like the bottlenecks are moving all the time."

  I sit quietly. What can we do now?

  "If it were as easy as determining some overloads," Stacey says, "don't you think we would easily solve it?"

  She is right. I should have more confidence in them.

  "My apologies," I mutter.

  We sit quietly for a minute. Then Bob speaks up, "We can't handle it by shuffling priorities and going into overtime. We've already tried that for several days. It might help save some spe- cific orders but it throws the entire plant into chaos and then many more orders are in trouble."

  "Yes," Stacey agrees. "Brute force seems to push us more and more into the spiral. That's why we asked for this meeting."

  I accept their criticism.

  "Okay, it's obvious that we have to approach it systematically Anyone got an idea where to begin?"

  "Maybe we should start by examining a situation where we have one bottleneck." Ralph suggests hesitantly.

  "What's the point?" Bob objects. "We now have the opposite.

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  We are facing many, traveling bottlenecks." It's apparent that they've had that discussion before.

  I don't have any other suggestion, nor does anybody else. I decide to gamble on Ralph's hunch. It worked in the past.

  "Please proceed," I say to Ralph.

  He goes to the board and takes the eraser.

  "At least don't erase the five steps," Bob protests.

  "They don't seem to help us much," Ralph laughs nervously. "Identify the system's constraints," he reads. "That is not the problem now. The problem is that the bottlenecks are moving all over the place."

  Nevertheless, he puts the eraser down and turns to the flip chart. He draws a row of circles.

  "Suppose that each circle represents a work center," he starts to explain. "The tasks are flowing from the left to the right. Now, let's suppose that this one is a bottleneck," and he marks one of the middle circles with a big X.

  "Very nice," says Bob sarcastically. "Now what?"

  "Now let's introduce Murphy into the picture," Ralph re- sponds calmly. "Suppose that Murphy hits directly on the bottle- neck."

  "Then the only thing left to do is to curse wholeheartedly," Bob spits. "Throughput is lost."

  "Correct," Ralph says. "But what happens when Murphy hits anywhere before the bottleneck? In such a case, the stream of tasks to the bottleneck is temporarily stopped and the bottleneck is starved. Isn't this our case?"

  "Not at all," Bob brushes it away. "We never operated that way. We always make sure that some inventory accumulates in front of the bottleneck, so when an upstream resource goes down for some time, the bottleneck can continue to work. As a matter of fact, Ralph, we had so much inventory there that we had to choke the material release to the floor. Come on," he says impatiently, "that is exactly what you're doing on your computers. Why do we have to regurgitate what we all know by heart?"

  Ralph goes back to his seat. "I just wondered if we really know how much inventory we should allow to accumulate in front of the bottlenecks?"

  "Bob, he has a point," Stacey remarks.

  "Of course I have," Ralph is really annoyed. "We wanted three days' inventory in front of each bottleneck. I started with

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  releasing material two weeks before it was due at the bottleneck. Then it turned out that that's too much, so I cut it to one week and everything was okay. Now it's not okay."

  "So increase it back," Bob says.

  "I can't," Ralph sounds desperate. "It will increase our lead time beyond what we currently promise."

  "What's the difference?" Bob roars. "In any event we're slid- ing on our promises."

  "Wait, wait," I cut into their quarrel. "Before we do anything drastic, I want to understand better. Ralph, let's go back to your picture. As Bob pointed out, we do hold some stock in front of the bottleneck. Now let's suppose that Murphy hits somewhere before the bottleneck, then what?"

  "Then," Ralph says patiently, "the flow of parts to the bottle- neck stops, but the bottleneck, using the stock that accumulated right in front of it, continues to work. Of course that eats into the stock and so, if we don't build enough stock to start with, the bottleneck might go down."

  "Something doesn't match." Stacey says. "According to what you just said, we have to guarantee the uninterrupted work of the bottleneck by building stock that will last more than the time to overcome Murphy on the upstream resource."

  "Correct," says Ralph.

  "Don't you see that it can't be the explanation?" Stacey says.

  "Why?" Ralph doesn't get it, and neither do I.

  "Because the time to overcome a problem upstream did not change, we haven't faced any major catastrophies lately. So if the stock was sufficient to protect the bottlenecks before, it must be sufficient now as well. No Ralph, it's not a matter of insufficient stocks, it's simply new wandering bottlenecks."

  "I guess you're right."

  Maybe Ralph is convinced by Stacey's argument, but I'm not.

  "I think that Ralph might be right after all," I say. "We just have to carry his line of thought a little further. We said that when one of the upstream resources goes down, the bottleneck starts to eat into its stock. Once the problem is corrected, what do all the upstream resources have to do? Remember, if there is one thing that we can be sure of, it's that Murphy will strike again."

  "All upstream resources," Stacey answers, "now have to re- build the inventory in front of the bottleneck, before Murphy hits

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  again. But what's the problem? We released enough material for them."

  "It's not the material that concerns me," I say. "It's the ca- pacity. 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 bot- tlenecks../Vo w 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."

  "Yes," Ralph says. "But now the question is, how much spare capacity do we need?"

  "No, that is not the question," I gently correct him. "Just as your previous question, 'how much inventory do we need?' is not the real question either."

  "I see," Stacey says thoughtfully. "It's a trade-off. The more inventory we allow before the bottleneck, the more time is avail- able for upstream resources to catch up, and so, on average, they need less spare capacity. The more inventory the less spare ca- pacity and vice versa."

  "Now it's clear what's happening," Bob continues. "The new orders have changed the balance. We took more orders, which by themselves didn't turn any resource into a new bottleneck, but they did drastically reduce the amount of spare capacity on the non-bottlenecks, and we didn't compensate with increased inven- tory in front of the bottleneck."

  Everybody agrees. As usual, when the answer finally emerges it's plain common sense.

  "Okay Bob," I say. "What do you think you should do now?"


  He takes his time. We wait.

  Finally he turns to Ralph and says, "We have outstanding promises for very short delivery times on only a small percent of our order intake. Can you identify those orders on an on-going basis?"

  "No problem," answers Ralph.

  "Okay," Bob continues. "For those orders, continue to re- lease material one week in advance. For all others, increase it to

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  two weeks. Let's hope that that will be enough. Now, we have to rebuild the inventory in front of the bottlenecks and in front of assembly. Stacey, take all the necessary steps to put the plant, and I mean all the non-bottlenecks, to work throughout the weekend. Don't accept any excuses, it's an emergency. I'll notify sales that until further notice they should not promise any delivery in less than four weeks from receipt of the order. It will jeopardize their new campaign, but that's life."

  Right in front of our eyes the baton has been passed. It's obvious who is the boss now. I feel proud and jealous at the same time.

  "Bob has taken over very nicely," Lou says as we enter my office. At least this front is covered."

  "Yes," I agree. "But I hate to put him in a position where his first independent actions are so negative."

  "Negative?" Lou asks. "What do you mean by negative?"

  "All the actions he is forced to take are leading in the wrong direction." I answer. "Of course, he doesn't have any choice, the alternative is much worse, but still..."

  "Alex, I'm probably thicker than usual today, but I really don't understand. What do you mean by 'leading in the wrong direction?' '