One of the good things – amongst others – of the Easter break this year was that I enjoyed taking some time to read. The problem – my problem! – when you are passioned at what you do is that you never completely switch off: I was lucky to rediscover one of my favourite supply chain books: “The Goal” by Eliyahu Moshe Goldratt.
Eliyahu Moshe Goldratt (1947-2011) was considered as a business management guru at the origin of the Theory of Constraints (TOC), the Optimized Production Technique or the Critical Chain Project Management (CCPM). He was the author of several business novels, mainly on the application of the theory of constraints to various manufacturing, engineering and supply chain processes.
Why do you need to read “the Goal”?
Firstly, because it is not just another book of business concepts. It is a business novel easy to read and I enjoyed reading it again after all these years.
Secondly, because “The Goal” introduces the Theory of Constraints process for improving organisations and give a very different view that should nurture every Supply Chain Manager’s thought. According to EM Goldratt, processes are typically modelled as resource flows and the constraints usually represent limits on flows. You can read “The Goal” as a novel and not a business book, where the main character, Plant Manager, is in charge of a troubled manufacturing operation and tries to fix actual disruptions while making the plant more competitive and efficient.
The concept explained in the book is that one specific constraint (such as inadequate capacity at a machine tool) limits the total system throughput, and when the constraint is resolved, another constraint becomes the critical one.
I remember a discussion we had with the production and supply chain teams during a customer’s manufacturing supply chain improvement project Tokema Consulting recently handled. The production team was clearly focusing on increasing the shift production output and supply chain was concerned by reducing the logistics headcount to lower operating costs. Surprisingly, inventory level was mentioned to highlight shortages only. Luckily a discussion with the Finance Manager raised concerns about the inventory levels and the challenge to optimise working capital.
They were all right but the way we approached the discussion was: what is your goal? Not the production goal or the supply chain goal but the plant’s goal. The result was self-explanatory. Everyone agreed the goal was to make more money however the ways to achieve it were considered through each department’s angle: the “silo” effect.
By aligning all teams to a single goal, it helped to describe the current situation and get the teams focusing on the same agenda: how to increase the plant’s throughput while reducing inventories and operating costs SIMULTANEOUSLY.
Plant throughput, not production output.
Like in the book, the production team was proud of their Make to Stock production performance…that increased finished goods inventories because customers did not need products immediately. In the mean time there was still a backlog of client’s orders because some of the components – used to produce additional inventories – were missing to produce orders that could have been shipped and invoiced on time.
How did our customer increase the plant’s throughput? A “project in the project” we managed helped to improve demand and supply forecasting.
But the main initiative, like in Goldratt’s stories, was to identify the biggest current limiting constraint and raising it. Once solved, it was followed by finding out which was the next limiting constraint, etc… Another theme you can read in the book is that the system being analysed has “excess capacity at a number of non-critical points, which, contrary to conventional wisdom, is absolutely essential to ensure constant operation of the constrained resource”.
By taking this assumption into account and with the proper methods and methodology provided by our consultants, the customer was able to increase their throughput while being more efficient and cost-competitive (less inventories, reduced operating costs).
“The Goal” was originally published in 1984. Several generations of Supply Chain Managers and Consultants have been deeply influenced by the concepts developed by EM.Goldratt. Not only because of the Theory of Constraints but also because the book was designed to influence the manufacturing world – and by extension the supply chain community – to move toward continuous improvement.
Again, another very good reason to read “The Goal”!