Goldratt, Eli

The Goal

p.ii – “What I have attempted to show with this book is that no exceptional brain power is needed to construct a new science or to expand on an existing one.”

p.ii – “Presenting us with final conclusions is not a way that we learn. At best it is a way that we are trained.”

p.ii – “Jonah, in spite of his knowledge of the solutions, provoked Alex to derive them by supplying the question marks instead of the exclamation marks.”

p.ii – “Our textbooks should not present us with a series of end results but rather a plot that enables the reader to go through the deduction process himself.”

p.iii – “It’s about people trying to understand what makes their world tick so that they can make it better.”

p.iii – “I view science as nothing more than an understanding of the way the world is and why it is that way.”

p.iii – “I do not believe in absolute truths. I feat such beliefs because they block the search for better understanding.”

p.iii – “Knowledge should be pursued, I believe, to make our world better– to make life more fulfilling.”

p.iii – “First, I want to make these principles more understandable and show how they can bring order to the chaos that so often exists in our plants.”

p.iii – “…they have been, and are being, achieved in real plants…”

p. iv – “We simply need to look at reality and think logically and precisely about what we see.”

p. iv – “This challenging of basic assumptions is essential to breakthroughs.”

p.1 – “So, okay, he’s the division vice-president, and I’m just a mere plant manager.”

p.1 – “He wants his shot at CEO. But so do I. Too bad that I my never get the chance now.”

p.1 – “I’ve lost any hope of getting any work done this morning.”

p.2 – “Everything in this plant is late. Based on observation, I’d say this plant has four ranks of priority for orders: Hot… Very Hot… Red Hot… adn Do It NOW! We just can’t keep ahead of anything.”

p.2 – “Whereupon the master machinist looks from Ray to Dempsey to Peach, throws down his wrench, and tells them they’re all crazy. It just took him and his helper an hour and a half to set up for the other part that everyone needed so desperately.”

p.3 – “I tell them that as far as I’m concerned there aren’t going to be any firings or suspensions– that the whole thing is just a misunderstanding.”

p.3 – " ‘Okay, Bill, what’s going on?’ I ask."

p.4 – “Seems that Bucky was having a fit over the fact that this order of his (41427) is seven weeks late.”

p.4 – “I can’t tell him that the first two times the phone rang, I let it ring because I was in the middle of a fight with my wife, which, oddly enough, was about how little attention I’ve been giving her.”

p.5 – " ‘You’ve got enough people! Look at your efficiencies, for god’s sake! You’ve got room for improvement, Al’ he says. ‘Don’t come crying to me about not enough people until you show me you can effectively use what you’ve got.’ "

p.5 – " ‘Dammit, I don’t have a minute!’ he roars. ‘I don’t have time for excuses anymore. And I don’t need explanations. I need performance. I need shipments. I need income!’ "

p.6 – " ‘And suppose it can’t be done in that time?’ I ask. ‘Then I’m going to go to the management committee with a recommendation to close the plant,’ he says."

p.6 – “Three months. That’s all I can think about.”

p.7 – “Going into the plant is like entering a place where satans and angels have married to make kind of a gray magic. That’s what it always feels like to me. All around are things that are mundane and miraculous. I’ve always found manufacturing plants to be fascinating places– even on just a visual level. But most people don’t see them the way I do.”

p.7 – “Machines. The plant is realy just one vast room, acres of space, filled with machines.”

p.8 – “If you need something to happen, all you do is talk to Bob and if it can be done, it will be by the next time you mention it.”

p.11 – “Her face changes. Did it brighten? ‘Closing the plant… really?’ she asks.”

p.12 – “There is a sense of ownership I have for the town, and more affection for it than for some other down the highway.”

p.13 – “It was the silence that really got to me. Everything was so quiet. Your footsteps echoed. It was weird. All the machines had been removed. It was just a huge empty place.”

p.14 – “I’m staring to feel like a traitor to everybody.”

p.15 – “And as soon as that happens, the foreman over there is having each subassembly carted down to final assembly. You want to talk about efficiency? People hand-carrying things one at a time, back and forth… our output of parts per employee ridiculous. It’s crazy. In fact, I’m wondering, where did Bob get all the people?”

p.16 – " ‘Yes, it did. But it was the way that it happened that we can’t allow.’ "

p.16 – " ‘Bob, do you know what our efficiencies would look like if we ran the plant like that every day?’ I ask. ‘We can’t just dedicate the entire plant to one order at a time. The economies of scale would disappear. Our costs would go– well, they’d be even worse than they are now. We can’t run the plant just by the seat-of-the-pants.’ "

p.17 – “And now that Donovan is gone and the effects of the alcohol are wearing off, I can’t see what there was to celebrate.”

pp.17-18 – “And so the UniWare Division will drop out of yet another market in which it can’t compete. Which means the world will no longer be able to buy any more of the fine products we can’t make cheap enough or fast enough or good enough or something enough to beat the Japanese. Or most anybody else out there for that matter. That’s what makes us another fine division in the UniCo ‘family’ of businesses (which has a record of earnings growth that looks like Kansas), and that’s why we’ll be just another fine company in the Who-Knows-What Corporation after the big boys at headquarters put together some merger with some other loser. That seems to be the essence of the company’s strategic plan these days.”

p.18 – “Why can’t we consistently get a quality product out the door on time at the cost that can beat the competition?”

p.18 – “Something is wrong. I don’t know what it is, but something basic is very wrong. I must be missing something.”

p.18 – “I’ve got the machines. I’ve got the people. I’ve got all teh materials I need. I know there’s a market out there, because the competitors’ stuff is selling. So what the hell is it?”

p.19 – “Maybe I could push efficiencies some more, but… I don’t know. It’s like whipping a horse that’s already running as fast as it can.”

p.19 – “Nothing in this plant ships until it’s expedited. We’ve got stacks and stacks of inventory out there. We release the materials on schedule, but nothing comes oout the far end when it’s supposed to.”

p.19 – “I don’t know what it is. On the one hand, this plant is no worse than most of the ones I’ve seen– and, in fact, it’s better than many. But we’re losing money.”

p.19 – “Or maybe I just don’t know enough. But, hell, I’ve got an engineering degree. I’ve got an MBA. Peach wouldn’t have named me to the job if he hadn’t thought I was qualified. So it can’t be me. Can it?”

p.21 – “What makes me mad sometimes is that I’m always running so hard that– like most other people, I guess– I don’t have time to pay attention to all the daily miracles going on around me.”

p.22 – “It’s just everything seems to be an over-reaction on his part these days.”

p.22 – “Everybody thought I was brown-nosing the guy. But I think he liked me precisely because I wasn’t.”

p.23 – “It was Peach who set it up so I could go back get my MBA.”

pp.23-24 – " ‘The whole division is going to go on the block,’ he says. ‘Everybody on Fifteen is crapping in their pants. Peach got the wrodl from Granby a week ago. He’s got till the end of the year to improve performance, or the whole division goes up for sale. And I don’t know if it’s true, but I heard Granby specifically say that if the division goes, Peach goes with it."

p.25 – “The first quarter has just ended, and it’s been a terrible one everywhere. The division is now in real danger of a shortfall in cash. All belts must be tightened.”

p.25 – “I make an effort, but I just can’t concentrate.”

p.27 – " ‘Have they really increased productivitity at your plant?’ "

p.27 – " ‘Sure they have,’ I say. ‘We had–what?’ I scan the ceiling for the figure. ‘I think it was a thirty-six percent improvement in one area.’ "

p.27 – " ‘Really… thirty-six percent?’ asks Jonah. ‘So your company is making thirty-six percent more money from your plant just from installing some robots? Incredible.’ "

p.27 – “I can’t hold back a smile. ‘Well… no,’ I say. ‘We all wish it were that easy! But it’s a lot more complicated than that. See, it was just in one department that we had a thirty-six percent improvement.’ "

p.28 – " ‘Then you didn’t really increase productivity,…’ "

p.28 – " ‘Check you numbers if you’d like,’ says Jonah. ‘But if your inventories haven’t gone down… and your employee expense was not reduced… and your employee expense wass 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.’ "

p.29 – " ‘With such high efficiencies, you must be running your robots constantly,’ says Jonah.”

p.29 – " ‘I see,’ says Jonah. Then he smiles. ‘Come on! Be honest. Your inventories are going through the roof, are they not?’ "

p.29 – " ‘And everything is always late?’ asks Jonah. ‘You can’t ship anything on time?’ "

p.29 – " ‘I’m a scientist,’ he says. ‘And right now you could say I’m doing work in the science of organizations– manufacturing organizations in particular.’ "

p.30 – " ‘It is very unlikely your people are lying to you. But your measurements definitely are.’ "

p.30 – " ‘You’re missing the point,’ he says. ‘You think you’re running an efficient plant… but your thinking is wrong.’ "

p.31 – " ‘What’s wrong with my thinking? It’s no different from the thinking of most other managers.’ "

p.32 – “And he’s saying, ‘Alex, I have 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?’ "

p.32 – " ‘What I’m telling you is, productivity is meaningless unless you know what your goal is,’ he says.”

p.32 – " ‘The goal is to produce products as efficiently as we can,’ I tell him."

p.32 – " ‘Wrong,’ says Jonah. ‘That’s not it. What is the real goal?’ "

p.33 – “Jonah ignores her. ‘Alex you cannot understand the meaning of productivity unless you know what the goal is. Until then you’re just playing a lot of games with numbers and words.’

‘Okay, then it’s market share,’ I tell him. ‘That’s the goal.’

‘Is it?’ he asks.

He steps into the plane.

‘Hey! Can’t you tell me?’ I call to him.

‘Think about it, Alex. You can find the answer with your own mind,’ he says.”

p.34 – “You’re just playing a lot of games with numbers and words…I had to shrug it off…What is the real goal?…Does anyone genuinely understand what we’re doing?”

p.35 – “What the hell am I doing here? I’m wondering what good it is for me– or any of us– to be sitting here in this room. Is this meeting (which is scheduled to last for most of the day) going to make my plant competitive, save my job, or help anybody do anything of benefit to anyone?”

p.35 – “It crosses my mind that there is a risk of Peach firing me for walking out of his meeting. But that, to my current frame of mind as I walk through the garage to my car, would only shorten three months of anxiety leading up to what I suspect might be inevitable.”

p.35 – “I don’t care where I am; I just want to be out. The freedom is kind of exhilirating until it gets boring.”

p.36 – “But I guess the real reason is I just don’t want to be found yet. I need to think and I’ll never be able to do it if I go back to the office now.”

p.37 – “So what is the goal? What are we supposed to be doing here? What keeps this place working?… Jonah said there was only one goal. Well, I don’t see how that can be. We do a lot of things in the course of daily operations, and they’re all important. Most of them anyway… or we wouldn’t do them. What the hell, they all could be goals.”

p.37 – “I mean, for instance, one of the things a manufacturing organization must do is buy raw materials. We need these materials in order to manufacture, and we have to obtain them at the best cost, and so purchasing in a cost-effective manner is very important to us… I’m chowing down on my second piece when some tiny voice inside my head asks me, But is this the goal? Is cost-effective purchasing the reason for the plant’s existence?”

p.37 – “Some of the brilliant idiots in Purchasing sure do act as if that’s the goal. They’re out there renting warehouses to store all the crap they’re buying so cost-effectively. What is it we have now? A thirty-two-month supply of copper wire? A seven-month inventory of stainless steel sheet? All kinds of stuff. They’ve got millions and millions tied up in what they’ve bought– and at terrific prices.”

pp.37-38 – “But supplying jobs to people surely isn’t why the plant exists.”

p.38 – “And if quality were truly the goal, then how come a company like Rolls Royce very nearly went bankrupt?”

pp.38-39 – “To efficiently produce quality products sounds like a good goal. But can that goal keep the plant working?”

p.39 – “And suppose we did have the latest of every kind of machine we could use– would it save us? No, it wouldn’t. So technology is important, but it isn’t the goal.”

p.40 – “Twenty million dollars in finished-goods inventory: quality products of the most current technology, all produced efficiently, all sitting in their boxes, all sealed in plastic with the warranty cards and a whiff of the original factory air– and all waiting for someone to buy them.”

p.40 – “So that’s it… the goal is sales.”

p.40 – “You can have a big share of the market, but if you’re not making money, who cares?”

p.40 – “The goal of a manufacturing organization is to make money. Why else did J. Bartholomew Granby start his company back in 1881 and go to market with his improved coal stove? Was it for the love of appliances? Was it a magnanimous public gesture to bring warmth and comfort to millions? Hell, no. Old J. Bart did it to make a bundle.”

p.41 – “I reach for my briefcase, take out a yellow legal pad and take a pen from my coat pocket. Then I make a list of all the items people think of as being goals: cost-effective purchasing, employing good people, high technology, producing products, producing quality products, selling quality products, capturing market share. I even add some others like communications and customer satisfaction.”

p.41 – “They enable the company to make money.”

p.41 – “Because, for one thing, there isn’t one item on that list that’s worth a damn if the company isn’t making money.”

p.41 – “Money must be the goal.”

p.41 – “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. For the past year or more, the plant has been moving away from the goal more than toward it. So to save the plant, I have to make it productive; I have to make the plant make money for UniCo.”

p.43 – “Then it occurs to me: those three guys are doing something now, but is that going to help us make money? They might be working, but are they productive?”

p.43 – “And even though I could perhaps have those guys shifted to someplace where they could produce, how would I know if that work is helping us make money?”

“That’s a weird thought.”

“Can I assume that making people work and making money are the same thing? We’ve tended to do that in the past. Teh basic rule has been to just keep everybody and everything out here working all the time; keep pushing that product out the door. And when there isn’t any work to do, make some. And when we can’t make work, shift people around. And when you still can’t make them work, lay them off.”

“I look around and most people are working. Idle people in here are the exception. Just about everybody is working nearly all the time. And we’re not making money.”

“Situations on the floor are always changing. How can I possibly control what goes on? How the hell am I supposed to know if any action in the plant is productive or non-productive toward making money?”

pp.43-44 – “But how do I really know if what happens here is making money for us, or whether we’re just playing accounting games? There must be a connection, but how do I define it?”

p.44 – “Maybe I should just dash off a blistering memo on the evil of reading newspapers on the job. Think that’ll put us back in the black?”

“Is there a simplified way to know if we’re making money?”

p.45 – “Would you say the goal of this company is to make money?”

“He bursts out laughing… ‘Of course it’s to make money!’ he says… ‘We have to produce products, too.’ "

" ‘Producing products is just a means to achieve the goal.’ "

" ‘How do we know if we’re making money?’… ‘Well, there are a lot of ways,…’ "

“What would be the minimum number of measurements you would need in order to know if we are making money?”

p.46 – " ‘You know,’ he says, ‘it is possible for a company to show net profit and a good ROI and still go bankrupt.’

‘You mean if it runs out of cash,’ I say.

‘Exactly,’ he says. ‘Bad cash flow is what kills most of the businesses that go under.’ "

p.47 – " ‘Yeah, but suppose you’ve got enough cash coming in every month to meet expenses for a year,’ I tell him. ‘If you’ve got enough of it, then cash flow doesn’t matter.’

‘But if you don’t, nothing else matters,’ says Lou. ‘It’s a measure of survival: stay above the line and you’re okay; go below and you’re dead.’ "

p.47 – " ‘I said I’m not giving up. Okay?’

For a minute, he doesn’t say anything. I sit there knowing I’m not sure if I’m telling him the truth. All I’ve been able to do so far is figure out that we have to make the plant make money. Fine, Rogo, now how do we do it?”

p.48 – “But I sit there wondering. Lou is actually a bright guy. We’re all fairly bright; UniCo has lots of bright, well-educated people on the payroll. And I sit here listening to Lou pronounce his opinions, which all sound good as they roll off his tongue, and I wonder why it is that we’re slipping minute by minute toward oblivion, if we’re really so smart.”

p.48 – “From experience, I happen to know there are a lot of games the people at the top can play.”

p.49 – “If I were J. Bart Granby III sitting high atop my company’s corporate tower, and if my control over the company were secure, I wouldn’t want to play any of those games. I wouldn’t want to see one measurement increase while the other two were ignored. I would want to see increases in net profit and return on investment and cash flow– all three of them. And I would want to see all three of them increase all the time.”

p.49 – “So this is the goal.

To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.

I write that down in front of me.”

p.49 – “If I can find some logical relationship between our daily operations and the overall performance of the company then I’ll have a basis for knowing if something is productive or non-productive… moving toward the goal or away from it.”

p.51 – “As usual, everything is out of control…

Just for the hell of it, I feel like asking Eddie to define what he’s doing tonight in terms of something like net profit.

I want to ask him, ‘Say, Eddie, how’s our impact on ROI been in the last hour? By the way, waht’s your shift done to improve cash flow? Are we making money?’

It’s not that Eddie hasn’t heard of those terms. It’s just that those concerns are not part of his world. His world is one measured in terms of parts per hour, man-hours worked, numbers of orders filled. He knows labor standards, he knows scrap factors, he knows run times, he knows shipping dates. Net profit, ROI, cash flow– that’s just headquarters talk to Eddie. It’s absurd to think I could measure Eddie’s world by those three. For Eddie, there is only a vague association between what happens on his shift and how much money the company makes.”

p.53 – “My kid is getting A’s in the second grade while I’m flunking out in business… Maybe I should just give up, use what time I’ve got to try to land another job. According to what Selwin said, that’s what everyone at headquarters is doing. Why should I be different?”

p.54 – “What turns me against the idea of looking for another job is I’d feel I were running away. And I just can’t do that… My decision is, I’m going to do everything I can for the three months.”

“But that decided, the big question arises: what the hell can I really do? I’ve already done the best I can with what I know. More of the same is not going to do any good.”

“Unfortunately, I don’t have a year to go back to school and re-study a lot of theory. I don’t even have the time to read the magazines, papers, and reports piling up in my office. I don’t have the time or the budget to screw around with consultants, making studies and all that crap. Adn anyway, even if I did have the time and money, I’m not sure any of those would give me a much better insight than what I’ve got now.”

“I have the feeling ther are some things I’m not taking into account. If I’m ever going to get us out of this hole, I can’t take anything for granted; I’m going to have to watch closely and think carefully about what is basically going on… tak it one step at a time.”

“I am all I have.”

p.55 – “When you’ve only got three months to work with, you don’t have much time to waste feeling tired.”

pp.59-61 – “…what is the goal?”

" ‘The goal of a manufacturing organization is to make money,’ I say to him. ‘And everything else we do is a means to achieve the goal.’ "

" ‘And I know that up in the executive suite at company headquarters, they’ve got measurements like net profit and return on investment and cash flow, which they apply to the overall organization to check on progress toward the goal.’ "

" ‘But where I am, down at the plant level, those measurements don’t mean very much. and the measurements I use inside the plant… well, I’m not absolutely sure, but I don’t think they’re really telling the whole story,…’ "

" ‘Alex, you have hit upon something very important… You see, there is more than one way to express the goal. Do you understand? The goal stays the same, but we can state it in different ways, ways which mean the same thing as those two words ‘making money.’ "

" ‘Okay,’ I answer, ‘so I can say the goal is to increase net profit, while simultaneously increasing both ROI and cash flow, and that’s the equivalent of saying the goal is to make money.’ "

" ‘Exactly,’ he says. ‘One expression is the equivalent of the other. But as you have discovered, those conventional measurements you use to express the goal do not lend themselves very well to the daily operations of the manufacturing organization. In fact, that’s why I developed a different set of measurements.’ "

" ‘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.’ "

"‘Throughput,’ he says, ‘is the rate at which the system generates money through sales.’"

" ‘If you produce something, but don’t sell it, it’s not throughput.’ "

" ‘Alex, let me tell you something,’ he says. ‘These definitions, even though they may sound simple, are worded very precisely. And they should be: a measurement not clearly defined is worse than useless. So I suggest you consider them carefully as a group. Adn remember that if you want to change one of them, you will have to change at least one of the others as well.’ "

"‘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.’"

" ‘Everything you manage in your plant is covered by those measurements,’ he says."

" ‘Just remember we are always talking abot the organization as a whole– not about the manufacturing department, or about one plant, or about one department within the plant. We are not concerned with local optimums.’ "

p.65 – “And Jonah says, have they really increased productivity at your plant? Sure they have, I say. We had– what?– a thirty-six percent improvement in one area. Jonah puffs his cigar.”

" ‘See, Mom, the plant isn’t doing so well… and, ah… well, we’re not making any money.’ "

pp.66-68 – " ‘So if he hadn’t been so busy worrying he would have looked before he crossed the street.’ "

“Once I’m on my way, I keep hearing Jonah’s voice saying to me: ‘So your company is making thirty-six percent more money from your plant just by installing some robots? Incredible.’ And I remember that I was the one smiling. I was the one who thought he didn’t understand the realities of manufacturing. Now I feel like an idiot.”

“Yes, the goal is to make money. I know that now. And, yes, Jonah, you’re right; productivity did not go up thirty-six percent just because we installed some robots. For that matter, did it go up at all? Are we making any more money because of the robots? And the truth is, I don’t know.”

“But I wonder how Jonah knew? He seemed to know right away that productivity hadn’t increased. There were those questions he asked.”

“One of them, I remember as I’m driving, was whether we had been able to sell any more products as a result of having the robots. Another one was whether we had reduced the number of of people on the payroll. then he had wanted to know if inventories had gone down. Three basic questions.”

“The questions match the measurements.”

“So the way to express the goal is this?”

“Increase throughput while simultaneously reducing both inventory and operating expense.”

“That means that if the robots have made throughput go up and the other two go down, they’ve made money for the system.”

“The robots have increased our depreciation, because they’re new equipment, but they haven’t directly taken away any jobs from the plant; we simply shifted people around. Which means the robots had to increase operational expense.”

“But did the cost really come down? How could the cost-per-part go down if operational expense went up?”

pp.68-69 –

pp.69-70 –