In desperation, Alex recalls a physicist friend of his named Jonah who had once told him that the main and only goal of a manufacturing organization is to make money. Thinking along those lines, Alex and a few of his efficient and trusted colleagues, discuss the matter. They conclude that net profit, ROI and cash flow are the three things he has to ensure for the plant to make money. Alex contacts Jonah again who agrees with them but renames the three parameters as follows with precise definitions. Jonah calls them throughput which is the rate at which money is generated by the system through sales, inventory which is the amount of money spent by the system to purchase items which it wants or intends to resell to generate money and operational expense which is all the money invested by the system to convert inventory into throughput.
Further, Jonah also conveys the importance of throughput into Alex’s team. The team realizes that the throughput is very important for money to be generated. Its stop means no money, which means loss. Since Alex’s plant is in the red, the throughput has to be stuck somewhere. They divide the plant assembly line into bottlenecks and non-bottle necks and start looking for the bottlenecks where the throughput is being reduced. (Alex gets the idea from a daylong scout-hiking trip, which he finds himself compelled to lead one day, when the cub-master does not turn up).
As per Jonah’s advice, they search for the bottlenecks in the production line, which have the most inventories besides them. Briefly, Alex’s team identifies the bottlenecks to be:
1. their most modern automated machine NCX-10 the heat treatment division
2. The Heat Treatment Chamber.
Once the bottle necks are identified Alex’s team evolves various ways of counter-attack by tagging the parts with priority stickers and even to the extent of setting up an alternate assembly line, containing the machines which the NCX-10 had replaced. They bypass the bottlenecks (in case of the Quality Control) system. They make the batch sizes smaller which reduces the machine utilization efficiencies but which increases throughput by cutting out waiting time. Some absurd and shocking facts emerge like heat treatment is not required for all components but is being done just to increase machine efficiency.
The book ends with Alex giving profit margins to the tune of 15%-20% every month, during the three months. Not only is Alex’s plant not closed because of poor performance, but he is promoted to overlook the production of all three of Unico’s UniWare Plants, which is his boss’ position while Bill peach, Alex’s boss goes further up the corporate ladder.
This is the main content of the book in a nutshell, but this brief summary hardly does justice to the wealth of creativity and fresh ideas presented in the book by Dr. Goldratt. It is worth noting that TOC not only works on manufacturing plants but also has the potential to improve efficiencies of different types of organizations.
We will now cover three scenarios where our hero Peter will use the Theory of Constraints in other organizations ( Peter is a skilled application consultant of the Theory of Constraints or TOC and he is aided by his assistant and sidekick Binky Watrous.
Situation 01:- At the Bank
Peter and Binky have gone to the bank to get a draft made which they need to send to Binky’s bankers against an overdraft he has taken. Peter reaches the bank, collects the form and fills it up. Peter is depositing cash and taking a draft out. He therefore, enters the relevant particulars and queues up, his position the queue being 5th. After 15 minutes, he reaches the teller’s window and hands in his money and the filled up form. The teller tells him that he needs to go and get the form initialed at counter 2, where the cash details will be written down. Peter goes to counter #2 and comes back and after waiting some more time, deposits the money. The teller gives him a duly stamped counterfoil. Peter is then asked to wait.
Peter waits for some more time. After 15 minutes, he asks Binky to enquire. Binky comes back and says that the delay is due to the bank manager’s absence from the seat. For large sums of money (Peter & Binky are making a draft for $30,000), the draft requires signatures from both a senior manager and the branch manager. Although the Sr. Manager has signed the draft, the Bank Manager is in a meeting with potential investors. Therefore, everyone has to wait. After 20 minutes, the bank manager comes to his room, signs some documents, and then leaves again for another meeting. From his watch, Peter sees that the time taken by the entire process is more than an hour.
Peter knows the manager well and he knows that the bank is in a tough competition with another bank. The next morning finds Peter and
Binky in the office of Mr R.Timid, the bank manager.
Peter hands over the chart and proposes the following changes in the process.
The counter two approval form is just to tally the bank’s cash with the draft cash. A new teller window where the teller not only receives the cash but does the noting down too, can be done. It is impossible for the BM to be always present as he has other important responsibilities. Peter suggests making a list of 4 to5 senior managers including the Bank Manager (who is the chief bottle neck). The bank tries out Peter’s activity suggestions and actually makes a saving of 55 minutes in lieu of peter’s estimate of 50 mints. Everyone is happy and Peter and Binky depart.
Situation 02 : At the Pizzeria
Peter and Binkie go to the Pizzaria near Peter’s house . Peter wants a Mushroom and Cheese Pizza but Binkie’s tastes are exotic. He orders a peanut butter & crab pizza. The time is the peak hour. As the no of customers rise, the deliveries of Pizzas slow down. The people cannot leave as they have paid their money and an ugly situation develops. Peter however manages to pacify everyone. After the peak hour goes , Peter approaches the owner and the employees. He says that they should not accept orders at the peak hour over telephone. The employees say that they have stopped booking any order over the phone. Peter and Binky are intrigued.
They examine the process. They see that the pizza is fist battered and filling placed. They are then baked in six ovens. Peter now sees the problem. Each tray can contain two Pizzas of a particular type. If two different type Pizzas are baked together, they develop a combination odor. Due to electricity consumption, the owner has asked the employees to wait until a particular type of pizza is two. This means that if pizzas are in odd numbers, then the customer may have to wait. Peter listens to all this and then asks the employer to put the tray in the oven, one or two required at a time. He points out the irony of electricity savings without customers. The owner thanks them and says that their pizzas are on the house. Later, the owner buys some single pizza oven plates. They can use these plates than to save electricity. Peter is thanked again and they set off.
Scenario 3:- Peter at the Tender Office.
Peter help is requested by Archie who is employed by a infrastructure company as the head of proposals and tendering. When Peter arrives, Archie tells him that he is badly traumatized and there is a conspiracy against him. Whenever there is an important tender, the head office does not give him prices when he requires them. So all tenders are prepared at the last minute leading to quality problems. Peter is told that the management has told Archie that unless he does the next two tenders properly, he will lose his job.
Peter starts work. On calling up some other officers and offices, Peter gets to know that prices come at the last minute for all the three offices. The conspiracy theory is ruled out therefore. Peter asks to see a typical tender . He finds each tender to be a huge document . The initial portion is full of project technical details. There then follows a list of all the equipment that Archie’s firm is considering to supply and a list of all the makes. Further turning of pages reveal experience lists and credentials. Then comes the Commercial Terms and Conditions page. Here except for three to four clauses, the others are totally identical. Peter then gets to know from Archie that he usually gets a time of twelve days \before a tender is due. The first five days are used by Archie to design the system i.e. the technical proposal . He then sends the proposal to the Head Office on the 7th day but they do not come back to him before the tenth day generally.
But Archie and his team does do not anything after the first 7 days. They spend their time in writing memos, studying old cases and henceforth. Peter asks Archie to prepare a tender without the price. He explains that all the pages should be there but wherever prices have not come should be left blank. He also then asks Archie to keep a record of all the blank places and their number.
Archie agrees and starts. But he and his team take 5 days produce the tender document . This document is 120 pages thick out of which only four pagers are either half full or three quarters full or totally blank. Archie is embarrassed as Peter points out that he can easily keep the other portions ready. If the prices come too late, then Archie should fill up by a pen ,stamp and sign. Archie should also put a clause where he will mention that due to less time allowed, some data is available only at the last minute for which they may insert writing by the hand, sign the same and seal. Archie thanks Peter. Peter just grins and whistling, makes his way out of the office.
Goldratt .E.M., Cox J.(2004); The Goal (3rd Revised Edition); The North River Press Publishing Corporation, Barrington, MA, USA