BY ELIYAHU M. GOLDRATT & JEFF COX
“So this is the goal: To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.”
That's a goal anyone in business would love to achieve, and this book will teach readers how to get there. The Goal uses simple reasoning as a tool to teach the Theory of Constraints (TOC) by presenting the theories in the form of a novel. The TOC, a methodology created by the author, is the underlying foundation of the story. TOC can be described simply: finding constraints and managing them. Readers will learn how bottlenecks like slow deliveries, long cycle times, and loosely controlled operations can be systematically identified and corrected by using the right tools.
Readers will learn that managing constraints, or bottlenecks, is crucial to an overall operation because these constraints affect every part of the business. The TOC method will teach readers how to find these bottlenecks and how to correct them by using key questions within the five-step process..
- Identify the constraints
- Determine how to exploit that constraints
- Subordinate everything else to exploit the constraints
- Elevate the system's constraints
- If a constraint is broken during any of the previous steps, start back at the first step again
A constraint is any limiting factor that prevents an organization from reaching their goals, even when everything else is working right. Readers will learn that if the five steps are followed in order, finding and correcting these constraints is achievable. In simpler terms, this book teaches readers how to find out what needs to be changed, what to change it to, and how to get it done.
The lessons here are woven into a story about a production-based company and the new manager. The main character, Alex, approaches his new position armed with all the conventional management techniques and gets to work. Readers will probably be familiar with this scenario. Alex's first goal is to improve efficiency. He works on cost-effective purchasing, quality control, customer satisfaction, and all those other things that traditional business management dictates. But all those theories and all that work didn't create any additional profit.
In a style similar to other business books using narrative to present their ideas, such as The One-Minute Manager, Alex is fortunate enough to run across Jonah, an amiable management guru. Jonah teaches Alex all about TOC and how it can help create more profit by learning how to find the bottlenecks in different departments and fixing them. Jonah teaches Alex how to align the overall organization for achieving the goal of more profit.
“What you have learned is that the capacity of the plant is equal to the capacity of its bottlenecks,” says Jonah.”
Readers will learn how to work with three key operational measurements to achieve this alignment and increase the bottom line.
- Throughput: This term describes the rate at which an organization generates money through sales after expenses.
- Inventory: This measurement includes not only products or stock, it includes all investments spent for equipment, property, and anything else necessary to the business.
- Operating Expense: This is described in the book as “all the money the system spends in order to turn inventory into throughput.” Readers will learn that fixed costs like leases and payroll happen whether throughput increases or decreases.
The key takeaways for readers are that by learning these principles and using them in their own organization, they can focus on eliminating the practices that slow things down. The results readers can expect from this approach include improved productivity, lower inventory costs, a better overall work environment, and smoother transitions from manufacturing to delivery.