Sajal Kumar Singh

THE GOAL SUMMARY

PGP03.110

The Goal revolves around Alex Rogo, a plant manager for Unico Mfg. The plant is bleeding money and he has been given ultimatum of 3 months to turn around the affairs. Alex took help of his ex-professor Jonah. What followed was a series of advises and analysis on the various operations of the plant. Johan made Alex realise the primary goal of the company is to make money. He comes up with three yardsticks to measure the same i) Net Profit, ii) ROI and iii) Cash Flow. He further refined the goal - "to make money by increasing net profit, while simultaneously increasing ROI, and simultaneously increasing cash flow". Jonah told three terms that will help Alex run his plant1. Throughput- rate at which system generates money through sales (incoming money) 2. Inventory- Money that the system has invested in purchasing things which it intends to sell (money inside the system) 3. Operational expense - Money the system spends in order to turn inventory into throughput (outgoing money) The aim is to reduce operational expense and inventory while simultaneously increasing throughput. Alex and team deliberated on the terms and concluded among other points that any money lost is operational expense; any investment that can be sold is inventory. Alex found that the robots were making excess parts and piling up the inventories. The market runs against the forecast and the parts are rendered useless. Either the orders are not completed due to unavailability or components or the excess parts increase the operational expense. So instead of helping, the robots were incurring losses to the plant. Jonah tells Alex the importance of a Balanced Plant-where capacity of each and every resource is balanced exactly with demand from the market. A camping trip helped Alex further to appreciate the importance of Dependent Variables and Statistical fluctuations thus drawing analogies from the constraints and bottlenecks in the plant. Alex then explains his team that the capacity of a system is limited by the bottleneck in the system. Johan further tells Alex that the actual cost of a bottleneck is the total expense of the system divided by the number of hours the bottleneck produces. Jonah defines bottleneck as any resource whose capacity is equal to or less than the demand placed upon it. Jonah explains that it is imperative to maintain a flow to meet demand rather than try to balance capacity with demand. Jonah advises Alex that in order to increase capacity of the plant, capacity at bottlenecks needs to be increased. Alex and team found out that NCX-10 is the bottle necks for the plant. One tactic employed was to put quality control just before bottleneck machines. Backlogged orders were tagged so that they could be prioritized. Old machines were put in use to take some load off the bottleneck machines to increase the capacity. Jonah further goes on explaining the team that the level of utilization of a non-bottleneck and throughput of the system is not determined by its own potential, but by some other constraint in the system, in this case- NCX-10. The mismatch between the demand, and the work hours of the bottleneck and non-bottleneck machines results in the accumulation of inventories at various junctions. A local optimum is inefficient and one should not seek to optimize every resource in the system. A schedule for bottleneck and non bottleneck parts was put into operation to streamline the flow and reduce inventories. Further to decrease inventories and increase throughput, Jonah advised to reduce the batch size by half. This resulted in quick response time and less lead time for orders. With the new processes in place and new practices put in operation, the plants throughput and productivity increased thus placing the plant in a green zone. The team comes up with a 5 step formula to resolve the weakest link dilemma - i) identify the systems constraints; ii) decide how to exploit the systems constraints; iii) subordinate everything else to step two decisions; iv)evaluate the systems constraints; v) warning. If in the previous steps a constraint has been broken, go back to step one, but dont allow inertia to cause a system constraint.