The Goal by Eliyahu M. Goldratt and Jeff Cox - Analysis

[Emily M.]

The Goal by Eliyahu M. Goldratt and Jeff Cox

Alex’s coincidental encounter with Jonah at the airport lounge marks the beginning of his growing understanding of the goal. During this conversation, Jonah encourages Alex to further explore what it truly means to be “productive.” Alex initially assumes that lower costs make his plant more efficient and productive. After a quick and hectic conversation while running through the airport, Alex realizes that productivity, in the simplest terms, “is the act of bringing a company closer to its goal” (32). Anything that brings the company closer to its goal is therefore productive, while those factors that do not bring it closer to its goal are unproductive. Given the rush of the whole conversation, Jonah and Alex never reach a conclusion regarding what the company’s specific goal really is. The aircraft doors shut before Jonah can reveal what that exact goal is. Eventually, Alex realizes that the goal is to make money, so productivity simply refers to any processes that allow him and his company to make more money.

After finding his old address book, Alex calls Jonah to share his insights on discovering what the goal really is for his organization. Jonah agrees that money is the end goal, and the two then discuss the ways in which Alex can measure productivity at the plant. Alex learns that there are three main measures applicable to his plant: throughput, inventory and operational expenses. Alex learned that production is irrelevant to productivity, since money cannot be made until products are sold. Throughput is therefore a better measure of productivity, because it is the actual rate at which the organization generates money through sales. Simply put, throughput is money coming in. Inventory is money, or investments, currently being held in the system. Operational expense is money leaving the system in order to fund the throughput.

Alex’s meeting with Jonah in New York introduces many technical terms and theories that help Alex understand how to better manage the plant’s operations. Initially Alex learns that robots, regardless of their cost, are irrelevant to productivity since they don’t directly influence the amount of money made. Jonah explains that the plant is inefficient if all of its employees are working 100% of the time. In other words, reducing the capacity of every resource to meet the exact demand negatively influences each of the three measures previously mentioned. Although at first it seems like trimming capacity cuts down on operational expenses, it actually increases inventory and reduces throughput, which in turn lead to higher operational expenses. This occurrence is the result of two phenomena Alex learns from Jonah. The first, known as a dependent event, is any event that occurs as a result of a former event. The second concept is called statistical fluctuation and refers to organizational factors that vary and cannot be predicted. If the capacity of a series of dependent events is balanced – as is the case in this plant – then statistical fluctuations in performance lead to a floating bottleneck. The plant operations will therefore be limited by the one resource with the greatest statistical fluctuation.