'The Goal' - Part 1 Summary!

I started reading the 'Goal' on Saturday. The novel centers around an operations manager who is given a deadline to bring his plant back to shape.

Well, so what does 'bring back to shape' actually mean? From the first 10 chapters, it seems like the book is headed towards figuring that out.

In the initial chapters, the scene is set. The Senior Mgt (read Bill Peach) gives the protagonist (I call him Fran!) an ultimatum of 3 months. Our protagonist like most other super-heroes has a strong affinity towards the place he grew up at and wants to do something to make the plant profitable. Clichéd Of course, he has a caring family too. The book indirectly delves into work life balance by hinting at Frans inability to spend time with his family.

Cut there! -- Fran walks out of a corporate meeting that is supposed to address issues pertaining to the plant and sits over some pizza and beer to take a deeper look at his problems. A flashback sequence takes him back to the time he met his Physics professor (Jonah) at an airport. Fran was raving to Jonah about how well his plant was doing back then.

Jonah, from his side had asked three simple questions --

Did inventories go down leading to lower costs?
Did employee expenses come down, as in - were layoffs feasible?
Was the plant shipping more number of products leading to more revenue?

Fran had claimed that the productivity shot up because of the robots that were able to process parts effectively. The management was able to get raw materials for cheap and the robots were able to process the parts quickly leading to higher inventory stacks. This in Frans opinion had increased productivity in terms of efficiency. Jonah had retorted – ‘Is that the real goal’?

Munching his pizza, Fran now decides that his first step was to establish a clear 'goal'. In simple terms – his goal is to make the plant earn revenue. He has to ensure a good Cash flow and a solid ROI. With these three constraints, Fran establishes that his goal for the plant would be to increase net profits while maintaining a high ROI and a good cash flow.

Then he starts to relate everyday activities at his plant to these three constraints. Here he encounters his next problem. He sees the plant supervisor (Eddie) walking down the aisle and asks himself how the supervisor was contributing towards the goal. The supervisor’s world inside the plant revolved around terms like ‘number of man hours’, ‘parts produced per hour’ .Fran is now confronted with the problem of connecting his measurements with measurements his employees understood.

After a lot of contrived plots, he manages to get in touch with Jonah again who gives him 3 more wise-sayings.

Throughput – is the money that comes in. It is the money generated by the system.
Inventory – is the money that is in the system that needs to be converted to revenue.
Operational Expenses – is the money that is needed to convert Inventory to throughput.

He asks Fran to measure productivity on the basis of the three terms above. Interesting!

Now Fran gets his team together and starts brainstorming on whether the robots actually helped the plant reach its actual goal.

The numbers show that profits have been on the downslide since the time the robots were allowed to operate. Further digging shows that inventories of parts that the robots produced went up. However the final product was never assembled either because there were no New Purchase Orders or due to unavailability of other significant parts. So, in spite of the robots producing parts at a higher efficiency , the operating costs went up because of the increase in the size of the inventory.

As Fran gains confidence in his analysis, he decides to put together Jonahs 3 point rule and present it to his management team. After an initial confrontation, the team seems to come together to agree on a common point – To talk to Jonah again :)

Some interesting thoughts come up during the analysis. One of them is to classify machines under operational expenses as well as inventory. The depreciation value of the machine went under operational expenses and the machine (which is saleable) would trail under inventory. Knowledge that would be put to use to make a new product would be operational expense while knowledge that was like a patent (hence saleable) would go under Inventory. Time spent by employees on the plant was again a form of operational expense.