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The Goal (Goldratt E M)

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The next morning on the fifteenth floor of the UniCo build- ing, I walk into the conference room at a few minutes before ten o'clock. Sitting at the far end of the long table is Hilton Smyth and sitting next to him is Neil Cravitz. Flanking them are various staff people.

I say, "Good morning."

Hilton looks up at me without a smile and says, "If you close the door, we can begin."

"Wait a minute. Bill Peach isn't here yet," I say. "We're going to wait for him, aren't we?"

"Bill's not coming. He's involved in some negotiations," says Smyth.

"Then I would like this review to be postponed until he's available," I tell him.

Smyth's eyes get steely.

"Bill specifically told me to conduct this and to pass along my recommendation to him," says Smyth. "So if you want to make a case for your plant, I suggest you get started. Otherwise, we'll have to draw our own conclusions from your report. And with that increase in cost of products Neil has told me about, it sounds to me as if you have a little explaining to do. I, for one, would particularly like to know why you are not observing proper pro- cedures for determining economical batch quantities."

I pace in front of them a moment before answering. The fuse to my anger has started a slow burn. I try to put it out and think about what this means. I don't like the situation one bit. Peach damn well ought to be here. And I was expecting to be making my presentation to Frost, not his assistant. But from the sound of it, Hilton may have set himself up with Peach to be my judge, jury, and possibly, executioner. I decide the safest bet is to talk.

"Fine," I say finally. "But before I go into my presentation of what has been happening at my plant, let me ask you a question. Is it the goal of the UniWare Division to reduce costs?"

"Of course it is," says Hilton impatiently.

"No, actually, that is not the goal," I tell them. "The goal of UniWare is to make money. Agreed?"

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Cravitz sits up in his chair and says, "That's true."

Hilton gives me a tentative nod.

I say, "I'm going to demonstrate to you that regardless of what our costs look like according to standard measurements, my plant has never been in a better position to make money."

And so it begins.

An hour and a half later, I'm midway through an explana- tion of the effects of the bottlenecks upon inventory and throughput when Hilton stops me.

"Okay, you've taken a lot of time to tell us all this, and I personally can't see the significance," says Hilton. "Maybe at your plant you did have a couple of bottlenecks and you discovered what they were. Well, I mean bravo and all that, but when I was a plant manager we dealt with bottlenecks wandering everywhere."

"Hilton, we're dealing with fundamental assumptions that are wrong," I tell him.

"I can't see that you're dealing with anything fundamental," says Hilton. "It's at best simple common sense, and I'm being charitable at that."

"No, it's more than just common sense. Because we're doing things every day that are in direct contradiction to the established rules most people use in manufacturing," I tell him.

"Such as?" asks Cravitz.

"According to the cost-accounting rules that everybody has used in the past, we're supposed to balance capacity with demand first, then try to maintain the flow," I say. "But instead we shouldn't be trying to balance capacity at all; we need excess ca- pacity. The rule we should be following is to balance the/ low with demand, not the capacity.

"Two, the incentives we usually offer are based on the as- sumption that the level of utilization of any worker is determined by his own potential," I tell them. "That's totally false because of dependency. For any resource that is not a bottleneck, the level of activity from which the system is able to profit is not determined by its individual potential but by some other constraint within the system."

Hilton says impatiently, "What's the difference? When some- body is working, we're getting use out of him."

"No, and that's a third assumption that's wrong," I say.

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"We've assumed that utilization and activation are the same. Acti- vating a resource and utilizing a resource are not synonymous."

And the argument goes on.

/ say an hour lost at a bottleneck is an hour out of the entire system. Hilton says an hour lost at a bottleneck is just an hour lost of that resource.

I say an hour saved at a non-bottleneck is worthless. Hilton says an hour saved at a non-bottleneck is an hour saved at that resource.

"All this talk about bottlenecks," says Hilton. "Bottlenecks temporarily limit throughput. Maybe your plant is proof of that. But they have little impact upon inventory."

"It's completely the opposite, Hilton," I say. "Bottlenecks govern both throughput and inventory. And I'll tell you what my plant really has shown: it's proved our performance measure- ments are wrong."

Cravitz drops the pen he's holding and it rolls noisily on the table.

"Then how are we to evaluate the performance of our opera- tions?" asks Cravitz.

"By the bottom line," I tell him. "And based upon that evalu- ation, my plant has now become the best in the UniWare Divi- sion, and possibly the best in its industry. We're making money when none of the others are."

"Temporarily you may be making money. But if you're really running your plant this way, I can't possibly see how your plant can be profitable for very long," says Hilton.

I start to speak, but Hilton raises his voice and talks over me.

"The fact of the matter is that your cost-of-products mea- surement increased," says Hilton. "And when costs go up, profits have to go down. It's that simple. And that's the basis of what I'll be putting into my report to Bill Peach."

Afterwards, I find myself alone in the room. Messrs. Smyth and Cravitz have gone. I'm staring into my open briefcase-then with a fist, I slam it shut.

I'm muttering to myself something about their pigheaded- ness as I exit the conference room and go to the elevators. I press the "down" button. But when the elevator arrives, I'm not there. I'm walking back up the corridor again, and I'm heading for the corner office.

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Bill's secretary, Meg, watches me approach. I stride up to her desk, where she's sorting paper clips.

"I need to see Bill," I tell her.

"Go right in. He's waiting for you," she says.

"Hello, Al," he greets me as I enter his office. "I knew you wouldn't leave without seeing me. Take a seat."

As I approach his desk I start to talk, "Hilton Smyth is going to submit a negative report about my plant, and I feel that as my manager you should hear me out before you come to any conclu- sions."

"Go ahead, tell me all about it. Sit down, we're not in a rush."

I continue to talk. Bill puts his elbows on the desktop and his fingers together in front of his face. When I finally stop he says, "And you explained all of this to Hilton?"

"In great detail."

"And what was his response?" he asks.

"He basically refused to listen. He continues to claim that as long as cost of products increase, profits eventually have to go down."

Bill looks straight into my eyes and asks, "Don't you think he has a point?"

"No, I don't. As long as I keep my operating expenses under control and Johnny Jons is happy, I don't see how profits can help but continue to go up."

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