The Goal

by E M Goldratt

  DW: It's interesting that a way of thinking about production problems that you found useful 15 years ago you still find useful today. Does that surprise you?

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  KK: Yes and no. The Theory of Constraints is a very scientific, logical process. And because of that, when the game changes you can always go back to the logic. Originally we just had to find the bottleneck, walk out there, ask three or four questions, and we knew what to go and do. Now we can change the way we design whole manufactur- ing processes to make sure they're better from the start. But the logic behind TO C-the conflict clouds, the current reality trees, the way we ask questions to uncover the constraint-all that still applies.

  I think the problem with too many other approaches is that once the first layer of problems goes away, and the crisis no longer exists, then it's, "Phew! We're done!" In the TOC world, you find yourself asking, "Where has the constraint gone, and what can I do to help break it?" So you're never done.

  I'd like to be able to tell you that as soon as I started telling people about these concepts, the whole organization immediately changed to the new paradigm. The fact is that it has taken years to get the process going, and the leverage to make improvements is still significant, es- pecially in a company as large as General Motors. It's much like the flywheel concept discussed in Good to Great, by Jim Collins. It's taken a while to get the flywheel turning, but it's starting to go at a pretty good clip right now!

  Interview with Eli Goldratt continued...

  DW: At Dow Corning it took about 5 years for TOC to spread from one section to a whole business unit In General Motors it took over ten years to be institutionalized throughout North America. Does it always take years to spread from the origin to the whole company?

  EG: Not necessarily. It depends on who took the initiative. If the ini- tiative was taken by a middle level manager, it naturally takes much longer compared to the many cases where the initiative was taken by a top manager. What is amazing is that the complexity of the organiza- tion is playing almost no role. In very large and complex organizations it takes TOC about the same time to become the dominant culture as it takes in small, relatively simple organizations.

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  DW: Can you give an example?

  EG: In order to prove my point let's take an extreme example. An example of an operation that is not only large and complex but also dominated by large uncertainties - a repair depot of the United States Marine Corps. This depot is overhauling helicopters. It's very large - several thousand people. It is very complex - the helicopters are disassembled to the smallest pieces. Even the paint is sandblasted off. Whatever has to be repaired is repaired. Whatever has to be replaced is replaced. And then you reassemble the whole airplane. One has to make sure that certain parts which were taken from the original airplane go back on the same airplane. What makes it even more complex is the fact that two intrinsically different modes of operation have to be synchronized. The disassembly/assembly lines are a multi-project environment. The repair shops that feed the lines are a production environment, and the two must work in tandem. The real challenge is the fact that the whole operation is dominated by high uncertainty - one doesn't know the content of the work until the helicopter is disassembled and inspected. Surprises all over the place. A real nightmare. Still, it took the commander less than a year to implement TOC. An implementation that was so solid that the process of on-going improvement continues with his successors.

  Interview with Robert Leavitt, Colonel, United States Marine Corps retired.

  Manager, Sierra Management Technologies

  DW: You were responsible for implementing a TOC-based program in the Marine Corps?

  RL: Yes, when I was commanding officer at the Naval Air Depot in Cherry Point, North Carolina. I started the implementation there, which they have continued. As a colonel I had in essence a $625 million company and 4,000 people working for me. Everybody says the government is always the last to get the message. I don't know if that's true. My personal belief is that the government gives guys like me the opportunity to try things a little differently.

  DW: Tell us about your implementation.

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  RL: We had problems delivering H-46s on time. The H-46 is a 25-to 30-year-old Boeing helicopter used extensively in the Marine Corps as part of their assault support role. Because the airplane is so old and in frequent need of maintenance, anything over a single-digit number of airplanes on our hangar deck meant that you took a shadow off the flightline. If you took a shadow off the flightline, that meant they didn't have an airplane to do their mission. Our negotiated norm for turnaround time was 130 days, and on average we were somewhere between 190 and 205 days.

  DW: Sounds like you had a problem.

  RL: A problem, yes. So we implemented critical chain, and ultimately cut the number of airplanes in flow from 28 to 14. We were able to sell that to our customers. And the turnaround time went from 200 days to about 135. Now that in and of itself is probably a significant improvement. But at the same time we were starting the process, they added 30 days more worth of corrosion work to be done to the cabin. We accommodated the 30 days within that 135-day delivery. So we went from what would have been about 230 or 240 days to 135.

  DW: Why did this approach work where others had failed?

  RL: We had looked at a lot of the project management solutions, including material resource planning (MRP). TOC was the one that worked from all dimensions; building teamwork, understanding vari- ability, and with a grounding in scientific thought. It was a holistic approach to solving the problems. It looked at the entire system and said, hey, once you find the key leverage point you'll get some sig- nificant returns. And then you can go back and find the next leverage point, or constraint.

  DW: Did it take you a long time to find the constraint?

  RL: No, it didn't. And within about 120 days we were already begin- ning to see the results.

  DW: What was the constraint that you found?

  RL: It was the schedule-the way the schedule was developed. The

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  biggest thing was the way we applied available resources; it didn't make any sense. The estimators and evaluators really had about two days worth of work and they were taking about 14. We figured out what was going on-why that was a problem, why the scheduler set that up-and then reorganized.

  DW: Bottom line?

  RL: Well, the way it worked with the government, we were funded for a certain number of airplanes each year. We started burning through the backlog and we actually produced a few extra airplanes. I know from talking to the new commanding officer down there that they've increased the amount of product every year as they've gone forward.

  DW: And you had another example?

  RL: I also implemented TOC in the tail rotor blade cell at Sikorsky Aircraft, the overhaul and repair division. We were averaging some- where between 15 and 19 tail rotor blades a month. It took us about 73 days to finish a tail rotor blade and we had as many as 75 or 80 tail rotor blades in flow. Well, we changed the flow to more than 30 tail rotor blades in process, which means our turnaround time actually was about 28 days.

  DW: How quickly did this improvement occur?

  RL: Three months. Now you can understand why I'm trying to build a consulting practice around TOC.

  Interview with Eli Goldratt continued...

  DW: I'd say almost everybody I've talked to who has read The Goal agrees with its messages. It also seems clear that many readers believe TOC to be founded on solid common sense. So why doesn't everybody implement TOC right away? Is it because TOC demands that cost accounting be discarded? Do the financial managers block the implementations?

  EG: Not at all. The notion that financial managers try to protect cost

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  accounting is completely false. As a matter of fact, financial managers are the only type of managers that knew, much before TOC, the fal- lacies of cost accounting. Moreover, in almost any company, the VP o
f finance is one of the few managers who sees the overall picture and is extremely frustrated to witness so many devastating local optima decisions which do not view the organization as a whole. What we see in reality is the exact opposite; the financial managers rarely oppose TOC. On the contrary, in many (if not most) implementations, they are the driving force.

  DW: That's hard to believe. Can I interview such an enlightened financial manager ?

  EG: As many as you want. As I said, such financial managers are the norm rather than the exception.

  Interview with Craig Mead, Book Manufacturing

  Vice President Finance, Thomson-Shore, Dexter, Michigan. DW: Tell me about Thomson-Shore.

  CM: We're in Dexter, Michigan, just outside Ann Arbor. Approxi- mately 40% of our customers are university presses. We would be considered a short-run printer, meaning we print runs of between 200 and 10,000 copies. We're also an ESOP company-98% of the stock is owned by the employees. We've had as many as 300 employees. Right now we're at 280.

  DW: I understand that everybody in your company has read The Goal.

  CM: We made it mandatory reading for all our employees. DW: Top to bottom? CM: Yes.

  DW: So what was the problem you were trying to correct with the help of The Goal

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  CM: Our main problem was with on-time delivery. We also had problems with a department-type mentality at the company. People had a hard time looking beyond their departmental responsibilities. Everybody was functional in thought.

  DW: Were you able to turn things around?

  CM: Yes. Before we started, we were at around a 70% on-time deliv- ery. After implementing the TOC policies and practices, we got up to around 95%.

  DW: Your first step was to have everyone read The Goal?

  CM: Yes, that was the first step. The next step was to bring in a TOC consultant. We put 30 people through a three-day training course on Theory of Constraints. From there the leadership group identified what we thought was the constraint and began to follow the Five Steps.

  DW: What was the constraint you identified?

  CM: In our business we have two areas of major investment One is in the press room and one is in the bindery. We basically settled on the press room as the constraint and began to manage the business with that in mind. As we focused on the constraint and began to subordi- nate everything else to that, we began to break down departmental barriers. It took a lot of education and training. We developed our own internal course for employees. Basically we took the three-day course, pared it down to about an hour, and had every employee go through that. The course dealt with the major concepts of constraint management, subordination, flowing work, and removing localized thought processes.

  DW: What changes did you make in the press room?

  CM: We chartered some teams to look at the various products that we made and began to challenge assumptions on how we use the presses. We make two types of books, a perfect-bound paperback book and a casebound hardcover book. We have sheet-fed and web presses. We began to devise rules on what type of books went on what pieces of equipment, to maximize the capacities of the equipment and to meet

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  customers' needs. By creating new standards we eliminated an incred- ible amount of waste. Before, we were constantly reworking jobs to meet what we thought were customer needs. In reality it was forever putting us farther and farther behind. Rethinking all our assumptions forced us to discipline ourselves and to maximize each component in the press room. That allowed us to flow the work more consistently.

  DW: How did you involve the employees?

  CM: Employees at Thomson-Shore have the ability to influence the standards and the way work moves within their area of expertise. When you're strictly localized in your thinking, every person wants the job designed to benefit themselves. And that creates chaos. Before we did our TOC implementation, we could never agree on anything without a long, involved discussion. If we wanted to make a change we had to get 12 people in a room and then try to reach a compromise on everything. We could never please everybody. Having everyone read The Goal helped everyone understand that the basis for everything we do wasn't localized thinking anymore. So, for example, if a job had to spend a little more time in the bindery, that's okay, as long as that's what's most effective for the press, which we had identified as the major constraint. In the end we got the throughput that we needed.

  DW: As a finance guy, what was your specific contribution?

  CM: The Theory of Constraints is built on the premise of breaking the barriers of the cost model of accounting, and we were a heavily cost-driven organization, as a lot of manufacturing companies are. Everything in the company was designed as the cost-system would dictate. That's where I began to add value-by helping to develop dif- ferent measurement tools that we could use instead of the traditional cost tools. And that's what I believe began to drive real change in the organization. We are still struggling on the sales side but we've made progress in breaking away from the cost method of sales and estimating.

  DW: How does that work?

  CM: The cost method of accounting creates departments and it al- locates indirect overhead expenses. TOC, however, says you're one

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  big happy family, you have fixed expenses and you have variable expenses. Your variables are your materials and your fixed is every- thing else. And sitting around spending all your time trying to figure out how much electricity and square footage of air conditioning and cooling goes to the press room, how much to the bindery and the prepress and how much to the office doesn't help you manage your business.

  DW: Because it distracts you from the goal.

  CM: Yes! Of meeting the needs of the customer. And flowing the work in a timely fashion. When we began to concentrate on making the work flow, that is, maximizing the capacity of the press room, and subordinating everything else to that, we began to improve our on- time delivery. The critical issue is how you measure the performance of the organization. We use two methods.

  DW: And they are?

  CM: Eli Goldratt talks about developing a constraint management tool. Ours is called TCP, for throughput contribution per press hour. When the market isn't a constraint, you choose which products and which customers to bring in based on that number. That's how you build profitability. Assuming, of course, that the constraint is not in the market.

  DW: And when the constraint is in the market?

  CM: For that we came up with another internal measure. We call it CRH, for contribution margin per resource hour. We try only to capture hours that represent value that customers pay for. We take the contribution-which is sales less materials-and we divide by the hours consumed and come up with a relative measure that has validitv across the whole organization. It has taught us an immense amount about what we do here.

  DW: By confirming what you already suspected or by

  revealing what you hadn't known before?

  CM: Both. It confirms that certain types of customers, certain types of

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  work, are difficult and cost us more to manufacture-it clearly pointed that out. And then it also began to show us how technology affects our margins. I mean, we get most of our books on PDF files now, and the cost difference between working with a PDF file and working with what I'll call the old conventional way is incredible. What was happening was that we were being forced by the market to reduce our prices across the board, but then any job done the old way was not very profitable. Hah! Not profitable at all! People were expecting PDF pricing for conventional work, and that just doesn't work. Bot- tom line: In a harsh business climate, in which the market is the new constraint, and sales are declining, we've actually built profitability. Significantly.

  DW: Does it help that you're an ESOP company? Does that make it easier for employees to align their interests with the goal?

  CM: It depends on the individual. Someone who is ten years from retirement is more interested in the value of the sto
ck. Someone who's been here three or four years, they're looking at the individual-based bonus. So we actually began to implement team bonuses instead of individual-based bonuses. Today we're working on disconnecting the link between compensation and performance feedback. Feedback is going to be all team-based.

  DW: You said you had 300 employees before and now you're at 280. Is that the fault of a bad business climate or a benefit of being more efficient?

  CM: It's both. The business climate has not been healthy. But at the same time, some of the changes we made freed up capacity, and as people quit we didn't replace them, which built profitability. No layoffs. We just didn't replace everyone who left. And we moved individuals around.

  DW: Is the constraint still in the presses?

  CM: Well, it shifted to the bindery. DW: What about market constraints?

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  CM: Yeah, we have more capacity than the market's willing to give. That's an issue. I think we're prepared to meet the market when and if it comes back. And in order to do that we have to do three things. We have to fulfill the requirements of speed and delivery. We have to stay profitable to maintain our equipment and provide the quality that customers expect from us. And then, three, we have to have em- ployees who are participating fully, who want to come to work every day, and who understand why they're here and why they're doing what they're doing. TOC has allowed us to do all three.

  Interview with Eli Goldratt continued. ...

  DW: I'm back to my previous question. How come most readers of The Goal do not rush to implement TOC?

  EG: TOC is built on the realization that every complex environment/ system is based on inherent simplicity and the best way to manage, control and improve the system is by capitalizing on this inherent sim- plicity. That's why the constraints are the leverage points. That's why the five focusing steps are so powerful. But, what we have to bear in mind is that such an approach is a major paradigm shift. And people will do almost anything before they will shift their paradigm.