THE GOAL CHAPTER 1 TO 3

• The plant is having problems and is failing to produce profit.

• They are constantly late on orders and are working a lot of overtime
to make certain deadlines happen.
• They are not selling existing inventory.
• They have 3 months to turn the plant around.
THE GOAL CH 4 & 5

• • The "GOAL" of any company is to make money.

• • Being productive is defined as completing any task that
works towards accomplishing the ''GOAL".
• • Productivity is meaningless unless you know what your goal
is.
THE GOAL CH. 6

• Employees should always be working, but being productive towards

the goal.
• Working for the sake of looking productive is a waste of time and
resources and is actually counter productive. It is cheaper and far
more productive to just wait at idle for work that relates towards the
goal.
• To make money, 3 areas must be managed. These areas are Return on
Investment (ROI), Net Profit, and Cash Flow all MUST BE
MANAGED SIMULTANEOUSLY to be successful towards the
"GOAL
CH. 8

• lf you produce something and don't sell it, it is not through put, it is
Inventory and it is considered waste
• The sets of measurements, which express the goal of making money,
are: Throughput, Inventory, and operational expense.
• Throughput is the rate at which the system generates money through
sales.
• Inventory is all the money that the system has invested in producing
• Operational Expense is all the money the system spends in order to
turn inventory into through put
CHAPTER 9

• Increasing efficiency DOES NOT necessarily increase Productivity or

Throughput.
• Another goal of a company is to increase Throughput while
simultaneously reducing Inventory and Operating Costs.
• Producing parts you don 't need is waste and over production.
• When efficiencies drop everyone relies on future forecasts to build up
Inventory. if the forecast is not reliable they will end up stuck sitting on
that unsold Inventory.
• Increasing machine efficiencies releases more material to the machine
which in turn increases Inventory and Costs.
CH. 10

• Throughput: Is the money coming in.

• Inventory: Is the money currently inside the system.
• Operational Expense: Is the money we have to pay out to make
throughput.
CH. 11

• Excessive Inventory: Is created by having excessive manpower.

• Question how you manage the capacity of your plant, not
necessarily by laying people off, to fix this problem
• A Balanced Plant: Is a plant where the capacity and each and every
resource is balanced exactly with demand from the market.
CH. 11 CONT

• The GOAL: is to reduce operational expense and reduce inventory,

while simultaneously increasing throughput. Don't improve one
measurement in isolation
• When capacity is trimmed exactly to market demand, no more no
less, throughput does down. while inventory goes through the roof
and because inventory goes up the carrying costs of inventory go up
CH.11 CONT

• Dependent Events: An event, or series of events, must take place

before another can begin. The subsequent events depend upon the
ones prior to it
• Statistical Fluctuations: Unpredictable information. l.E.: Wait time to
get meal.
• The effect of these two phenomenon is "The Big Deal.“
• Dependency: No matter what the capacity of the machine it can only
put out as much as it receives.
CH. 13 & 14

• The hike is like a set of dependent events in combination with statistical

fluctuations
• What is happening with the line is not an averaging out of
the fluctuations but an accumulation of the fluctuations.
• Mostly slowness because dependency limits the opportunities for
higher fluctuations.
• So as the slower than average fluctuations accumulate they work their
way back the line. Which means that, relative to growth of inventory,
throughput for the entire system goes down.
• Note experiment with dice and sticks.
CH. 15 & 16

• When events downstream in a perfectly balanced line get behind it

has no extra capacity to make up for losses.
• A mathematical principle says that in a linear dependency of two or
more variables, the fluctuations of the variable down the line will
fluctuate around the maximum deviation established by any
proceeding variables
CH.15N &16 CONT

• In fact whoever is moving the slowest in the line is the one who will
govern throughput.
• Throughput is depended upon who is moving the slowest at any
particular time.
• Place the slowest operation at the end of the line to set the plant rate.
• All other stations in front of that have extra capacity thus will have
the ability to help balance fluctuations.
.
CH 15 & 16 CONT

• All other stations in front of that have extra capacity thus will have
the ability to help balance fluctuations.
• Then work on helping the slowest operation by taking any
unnecessary load off.
• Changes the order of the line: Fastest now in the rear and slowest in
the front(Herbie). Herbie was still going slow, so to maximize his
“Production“, they lightened his load (Line Balancing).
CH. 17

• The end product of one station is the maximum capacity for the next
station to begin processing
CH. 18

• Longer lead times increase inventory - NOT THE GOAL!

• Productive capacity depends upon where it is in the plant.
• Don't try and trim each local area. try to optimize the whole system
• Some resources have more capacity then others; the ones at the end of
the line should have more than the ones at the beginning.
CH.18 CONT

• Two types of resources in the plant:

• Bottleneck
• Non-Bottleneck
• Bottleneck: Any resource whose capacity is equal to or less than the
demand. They determine the effective capacity of the plant.
• Don't balance capacity with demand, instead balance The Flow of
product through the plant with demand.
CH. 18 CONT

• The process with least capacity determines how fast the whole system
moves. The idea is to make the flow through the bottleneck equal to
demand (or a bit less).
• Work Centers: Any group of the same resources.
• Dividing the total of work center hours needed by the number of
resources in it, gives us the relative effort per resource. A comparison
standard.
CHAPTER 19

• To increase the capacity of the plant is to increase the capacity of

only the bottlenecks.
• What we must do is find enough capacity for the bottlenecks
to become more equal to demand on a bottleneck.
• If you lose one of those hours or even half of it, you have lost it
forever. It cannot be recovered anywhere else in the plant.
CH. 19 CONT.

• QC checks in front of the bottlenecks so bad products don't go through

the bottleneck.
• Plant capacity= capacity of the bottlenecks.
• The cost of a bottleneck is the total expense of the system divided by
the# of hours the bottleneck produces.
• Bottleneck capacity can be increased by taking some of the load off
and redirecting it to other non-bottlenecks.
CH. 20 & 21

• Find out which inventory in route to the bottlenecks is needed for

late orders and which is simply going to end up in a warehouse.
• Usage of colour tags to identify priorities.
CH. 22

• "Express lane" for bottleneck parts by using the tag system "colour
coding“.
• Put QC in front of the bottlenecks to eliminate parts that do not
conform to quality requirements.
• Cover the bottlenecks on all breaks, lunch etc. eliminate idle time.
• Add yellow tape to red tags for priority.
• Bring in old machine to unload capacity on the bottleneck
CH. 23

• CUTTING/ REDUCING SET-UPTIME

• The heat treat would sit for long periods of time waiting to be
unloaded. Only heat treat parts that need heat treatment, have two
tables to go into the heat treat, that way one can be unloaded while
the other is being heat treated, and do heat treats in groups.
• The productivity increased while the efficiency increased on
some machines.
CH. 24

• Putting less demand on bottlenecks we put more demand on non­

bottlenecks rising over 100% thus creating NEW BOTTLENECKS.
CH. 25

• A plant where everyone is working all the time is a very Inefficient

• Non bottleneck machines feed bottlenecks Y --- X
• Parts join the two together, the arrow indicates the flow of parts
• Y has extra capacity as it is a non bottleneck, it will also be faster than
X in filling demand.
CH. 25 CONT.

• Keep the non bottlenecks (Y) flow equal to demand even if you only
need 450 hrs opposed to 600 hrs by a bottleneck. If you run non
bottleneck parts at 100% capacity you will create inventory.
• If you PUSH more material than the system can convert into through
put you are creating excess inventory.
• What happens when X ---- Y?
CH.25 CONT

• Non bottlenecks do not determine through put, even if it works 24 hrs

per day
• The level of utilization of a non bottleneck is not determined by its
own potential, but by some other constraint in the system.
• Making a non bottleneck to do more work than a bottleneck you are
not increasing productivity, you are creating excess inventory, which
is against the goal.
CH. 25 CONT.

• Making an employee work and profiting from that work are two
different things.
• Activating a resource and UTAUZING a resource are not
synonymous
• Utilizing a resource means making use of a resource in a way that
moves the system towards 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.
CH. 25 CONT.

• Activating a non bottleneck to its max is an act of MAX STUPIDITY

• A system of local optimums is not an optimum system at all; it is a
very inefficient system.
• It is possible to create new bottlenecks by increasing throughput.
CH 26

• The Herbie's (the bottlenecks) are going to tell us when to let more
inventories into the system, except we're going to use the aid of
computers instead of drums and ropes. (Beginning of pull system)
• What you have to do is find a way to release the material for red parts
(high priority) accordingly to the rate at which bottlenecks need
material and strictly at that rate.
CH. 26 CONT.

• Some kind of signal to link the bottlenecks with the release of materials.
( Kanban)
• 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 material along each of their
routes. In this way, the bottlenecks will be determining the release of all the
materials in the plant.
• Once somebody is already on the payroll, it doesn't cost us any more to
have him 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.
CH. 28

• Cut batch sizes in half on non-bottlenecks, will result in half of the

WIP (work in progress) (Investment) to keep plant working, we
reduce the amount of cash tied up at any one time, which takes the
pressure off cash flow!!
• Increase frequency of deliveries and reduce the quantity of each
delivery. (Supply Chain Management)
CH. 28 CONT

• Time is from when the material comes in to the plant to the minute it
goes out the door as a finished product. It can be divided into four
elements.
– 1. Set-up: time the part spends waiting for a resource
– 2. Process time: amount of time the part spends being modified to a new
valuable form
– 3. Queue time: time part spends in line for a resource
– 4. Wait time: time that part waits for another part.
• 1 hr lost on bottleneck= 1hr lost on the whole system.
• 1hr lost on a non-bottleneck is a mirage.
CH. 29

• Efficiency came back up when the excess inventories were exhausted.

• Batch size can be cut in half and the efficiencies stayed solid
• Cut batch sizes made the work flow smoother than ever before
• Only work in progress remaining is the current demand
• Expenses never increased, no employees for additional set-ups with
the smaller batch size, the cost of parts actually went down
CH. 29 CONT.

• The same direct labour is now spread over more products. By selling
at same prices the operating expense has gone down not up.
• Ship product when scheduled instead of early, gives more time
available on the bottlenecks and wouldn't hurt anybody
• Can't deliver full order at once but offer to ship as they are
• produced, example 250 per week instead of 1000 at once. Companies
tend to like the smaller shipments better than all units at once.
CH. 30

• More business and more parts over which to spread the cost,
operating expense is down.
CH. 31

• Balance flow with demand not capacity

• A workers activity is not determined by his own potential. It is
determined by other constraints in the system. Only if the resource is
not a bottleneck
• Activating a resource and utilizing a resource is not the same thing.
• Bottlenecks govern through put and inventory.
• Performance should be evaluated by the bottom line.
CH. 32

• Common sense is NOT COMMON AT All

CH. 33

• Inventory is a liability
• Costs to produce goods are not only the costs of the raw materials but
also the value added in production.
• Financial measurements are needed for two reasons:
• 1. Control knowing to what extent a company is achieving the goal
• 2. More Important: Measurements should induce the parts to do
what's good for the organization as a whole.
CH. 33 CONT.

• Quoted lead times should be done case by case according to the load
on bottlenecks.
• We shouldn't regard quantities required as one shot.
• Capacity constrain resources (CCR) is a sequence of importance to
perform their job
• You must improve your bottlenecks while simultaneously improving
your CCR'S otherwise you will run into inter-active bottleneck
situations.
CH. 34

• The first step in determining the problems in a plant is general fact

finding; first meet with the employees to get their point of view.
CH. 35 &36

• Start on a process of ongoing improvement (KAIZEN

Continuous Improvement)
• Through put, Inventory and operating expense are all part of ongoing
improvement.
• The most important measure in a plant is throughput.
CH. 35 & 36 CONT.

• Process of the plant:

• 1. Identify the systems constraints (Value stream mapping)
• 2. Decide how to exploit the constraints
• 3. Subordinate everything else for the above decisions
• 4. Elevate the system constraints
• 5. If a constraint breaks in the first 4 steps, go back to step 1
CH. 37

• New bottlenecks do not appear. The constraints shift and it's the way
work is released into the plant {PULL SYSTEM)
• Purpose of using tags is to establish clear priorities so that each
worker knows what to work on immediately and what is less
important (KANBAN)
• Decisions will have to be made on which jobs are priority in front of
the capacity constraint resources (BOTTLENECKS)
CH. 37 CONT.

• Process of plant revised:

• 1. Identify the systems constraints
• 2. Decide how to exploit the systems constraints
• 3. Subordinate everything else to the above decision
• 4. Elevate the systems constraints
• 5. WARNING!!!!!! If in the previous steps a constraint has been broken,go
back to step 1,but do not let INERTIA to become a system's constraint.
• Green and red tags are put on all products to reveal
importance (KANSAN'S)
CH. 38

• You cant rely on marketing people to solve marketing problems-Lou

• Begin by taking note of the phenomenon then raise a hypothesis. This
is known as the if …. then relationship. If the hypothesis is right, then
logically, another fact must exist
CH.39

• If a resource upstream goes down, then the bottleneck starts eating at

its own stock. This relates to capacity as this must have the capacity to
rebuild the inventory in front of the bottleneck. If the upstream
resources don't have spare capacity, you can't utilize a single resource
to its maximum and starvation will preclude.
CH. 40

• Bottlenecks don't wonder, they are inefficiently protected

• Personal organization requires synchronized efforts from more than
one person and the organizations purpose is dependant on everyone.
• Long term strategy, measurement, product design, lead times,
production and attitude are all connected
CH. 40 CONT.

• Usually constraints are not the machines but the policies.

• It's not just dealing with techniques but also with thinking processes.
• If we think systematically before implementing something we can
prevent many problems
• The first thinking process should lead us to answer the question what
to change?
• The second thinking process should lead us to answer what to change
to? The third thinking process should lead us to answer how to change
the process?