#The goal eliyahu goldratt summary how to#

What you have to do next is distinguish between two types of resources in your plant. The ones at the end of the line should have more than the ones at the beginning – sometimes a lot more. Some resources have to have more capacity than others. We should be trying to optimize the whole system.

We shouldn’t be looking at each local area and trying to trim it. The maximum of deviation of a preceding operation will become the starting point of a subsequent operation. … it’s an accumulation of slowness – because dependency limits the opportunities for higher fluctuations. And because inventory goes up, the carrying cost of inventory – which is operational expense – goes up. There is a mathematical proof which could clearly show that when capacity is trimmed exactly to marketing demands, no more and no less, throughput goes down, while inventory goes through the roof. The goal is to reduce operational expense and reduce inventory while simultaneously increasing throughput. The goal is not to improve one measurement in isolation. The goal is not to reduce operational expense by itself. The real reason is that the closer you come to a balanced plant, the closer you are to bankruptcy. It’s a plant where the capacity of each and every resource is balanced exactly with demand from the market. But if the the knowledge pertains to a product which UniCo itself will build, it’s like a machine – an investment to make money which will depreciate in value as time goes on.Ī plant in which everyone is working all the time is very inefficient.Ī balanced plant is essentially what every manufacturing manager in the whole western world has struggled to achieve. If we intend to sell the knowledge, as in the case of a patent or a technology license, then it’s inventory. It it’s knowledge which gives us a new manufacturing process, something that helps turn inventory into throughput, then the knowledge is operation expense. Money for knowledge depends on what the knowledge is used for. Investment is the same thing as inventory. Whatever portion of the investment still remains in the machine, which could be sold, is inventory. If you’ve got a machine, the depreciation on that machine is operational expense. We ‘buy’ time from our employees, in a sense, but we don’t sell that time to a customer – unless we’re talking about service.Īll employee time – whether it’s direct or indirect, idle time or operating time, or whatever – is operational expense. Operating expense is all the money the system spends in order to turn inventory into throughput.ĭirect labor shouldn’t be a part of inventory because the time of the employees isn’t what we’re really selling. Inventory is all the money that the system has invested in purchasing things which it intends to sell. If you produce something, but don’t sell it, it’s not throughput. Throughput is the rate at which the system generates money through sales. Their names are throughput, inventory, and operational expense. They’re measurements which express the goal of making money perfectly well, but which also permit you to develop operational rules for running your plant. To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow. (5) If in the previous steps a constraint has been broken go back to step 1, but do not allow inertia to cause a system constraint (3) SUBORDINATE everything else to the above decisions.

#The goal eliyahu goldratt summary how to#

(2) Decide how to EXPLOIT the system’s constraint. The Five Focusing Steps: (1) IDENTIFY the system’s constraint.To achieve better flow, limit the inventory or the space allowed for inventory.Put quality controls in front of bottlenecks to prevent processing defective parts.Make your bottleneck match the demand of the market.

Operating expense is all the money the system spends in order to turn inventory into throughput.

Inventory is all the money that the system has invested in purchasing things which it intends to sell.

Throughput is the rate at which the system generates money through sales (not production).Measurements which express the goal of making money: throughput, inventory, and operational expense.See Book Notes for other books I have read.