Some notes from The Goal, Eli Goldratt's novel about his Theory of Constraints
1. The Goal is making money, making sales to real customers
2. Three things matter most:
- Throughput - production into sales vs. production into inventory
- Inventory - the amount invested in future sales, WIP plus anything else that eventually get sold (like equipment)
- Operating Expense - anything spent to move inventory through to sales (direct labor but also depreciation)
3. Five Step Focusing Process
- Focusing Step #1: IDENTIFY the system's constraint - need to find and address weakest link(s). Nothing else can increase throughput.
- Focusing Step #2: EXPLOIT the constraint - do everything possible to squeeze more out of whatever resource(s) are constraining the overall flow. Attack the causes that limit flow through this point.
- Focusing Step #3: SUBORDINATE everything else to the constraint - Organize around the constraint, allow the constraint resource to set the pace for everything else in the flow, especially release of new materials into the flow. Make sure the constrained resource never waits and never stops.
- Focusing Step #4: ELEVATE the constraint - only after maximizing and organizing around what we have, look at ways to invest in more of the constraining resource. Donít skip the first steps!
- Focusing Step #5: PREVENT INERTIA from becoming the constraint! Improvement may move the constraint. Go back to step one and keep chasing it. Or add capacity elsewhere to keep it anchored wherever in the flow you want it to be long-term.
4. Other important points
- Some things will be split between measures: adding equipment increases inventory, but using it (depreciation) is operating expense.
- think about inventory as a liability, not an asset, despite what the accountants say.
- smaller batches to reduce inventory, shrinking buffers. more set-ups on non-constraining resources donít cost anything.
- cost accounting assumes everyone is working all the time, but thatís not realistic and not necessary in non-constraining resources.
- activation is not the same as utilization: activation produces for sake of producing (builds inventory), utilization produces for sales (throughput)
- four kinds of time spent: preparing, producing, queueing (before processing at any step) and waiting (for dependent pieces to be finished before assembly).
- a loss of an hour or day of production on non-constraining resource loses that hour/day of that machineís production, but same day/hour of lost constraint resource loses an hour of the entire line/plantís production (upstream production goes into inventory rather than sales - queueing and all downstream production waits for that hour, so the loss is system-wide = EXPENSIVE!)