'The Goal' - Part 2 Summary!

Jonah and Fran meet up at New York. Fran explains his situation to Jonah, desperately seeking help to save his plant and his job.

Jonah appears pleased with the analysis that has gone into understanding productivity on the basis of his variables.

He kicks off the conversation by asking if Fran’s plant has employees who have a lot of idle time. He also asks if the inventory stacks are hitting the roof. Contrary to what may be expected, he believes that a plant where all employees are 100% engaged, was not doing well. He further expands on the statement saying that inventories can hit the roof only if the employee capacity is much more than what is required. Fran retorts that he has a skeleton work force and there was no way he could trim it further. Jonah says that he was only questioning Fran’s ability to efficiently use his work force.

To make it a little easier for Fran to comprehend, he expands on a few other terms. A balanced plant is one where the capacity of every employee is balanced with the market demand. If capacity is lower than what is required, then the firm is depriving itself of throughput. If capacity is higher than what is required, then operational expenses are higher than optimal.
The closer the plant is towards achieving a balanced status, the faster it is heading towards bankruptcy. It is nearly impossible to maintain a balanced plant.

And here comes the twist – decreasing the operational expense and maintaining the same throughput/ inventory was not going to help either. This was because of the presence of two other variables.

Dependent Events - One event determines the outcome of the other.
Statistical Fluctuations - You cannot accurately predict about an outcome unless all other variables are fixed.

The impact of these two variables would not increase profits if lowering operational expenses was the sole driver. Jonah talks about a mathematical proof that shows that when capacity is trimmed to market demands, throughput goes down and inventory hits the roof. And because the inventory costs go up, it is nearly impossible to bring down the operational expenses either.

OK, I was almost thinking that this is heading towards another History lesson where the only end result was ‘Yawn’.

But here’s what makes it amazingly clear.

Fran, compelled by his son decides to accompany his son to a trail camp. Here he takes up the leader’s role. He has to lead the group of 10 boys to their destination.

Here are some interesting episodes to help us understand some concepts better.

1) Initially Fran decides to lead the trail. All the boys follow. But he realizes, after a few minutes that he cannot see the last guy in the line. So he decides to join the end of the line to get a better hold of the situation.

2) The slowest guy in the trail (Herbie) is obviously last in the line. As time progresses, the gap widens between the boys in the trail. Even though the first guy in the line steadily maintains an average speed of 2 miles/hr, the pace of the entire chain is way lower because of slower folks like Herbie in the middle.

3) If Herbie was the 5th guy in the line and he was the slowest, the gap between him and the 4th guy would widen. This also means that all guys behind Herbie have to be slower than him in order to maintain the chain.

4) So Herbie decides to let the others go ahead of him so that he and Fran can complete the trail. However, this doesn’t help either. The pace of the individual doesn’t matter as the trail is successful only if all the members of the scout hit the destination.

5) The energy that the boys need to walk the trail is operational expense. For people like Herbie (poor fat guy!), the operational expense increases as he takes more time and needs more energy to catch up. Throughput is of course the pace that the boys maintain. Inventory increases as the distance between the boys increase (This is an amazing analogy!!).

6) The goal is to reach the destination in time. This can be done if the distances between the boys reduced; the boys pumped their threshold energy in walking and they walked at a steady pace of more than 2 miles/ hour.

7) Solution – Eureka - Make Herbie walk first! Make the other guys follow. OK, so operational expenses reduce (Other guys pump in lesser energy!), inventory decreases (distance obviously reduces!). In order to increase throughput, the boys share the big physical load behind Herbie`s back (cartloads of food here!).

8) Mission Accomplished – The Goal is Reached

And this analogy helps understand dependent events. Now, the entire trail was dependent on the last person in the trail. The throughput directly corresponds to the last person in the trail. And it makes sense if the boy following Herbie decides to stop for a while before walking again (Yep, it is not imperative for all the workers to be working all the time). And if everyone except Herbie was doing well, inventories would indeed hit the roof. And making just one boy(robots!) effective in the trail, is not going to result in success! Makes sense? Hell, Yes!

Fran comes back from the camp with his son to realize that his wife has left him. Some drama follows, though I am pretty sure that everything is going to end well. The book has a cinematic touch, somehow!

Fran comes back to his plant pumped up deciding to apply the same analogy to the plant. Initially his crew doesn’t understand whatever Fran has to offer. But luckily, there is a real world scenario in the plant that Fran utilizes to make his team understand.

A Shipment needs to go out. There are two divisions it has to pass. Step A is manual and Step B is robotic. The crew in Div A can process parts averaging at 25 pieces/ hr. The robots in Division 2 can process parts precisely – 25 parts/ hr. For B to occur, A has to finish. The shipment is headed out from Division B.

Step B is dependent on Step A. Step A has some statistical fluctuations.

Catch – There are only 5 hours to do the job.

So, what happens?

The workers in Division A can process only 19 parts in the first hour. This means that the robots get only 19 parts in the second hour.

The workers in Division A process 21 parts in the second hour. This means that the robots get only 21 parts in the third hour.

And here starts the backlog! Shipment cannot go out now.

The team in Division A however is excited because they make up for their low speeds in the first 2 hours by processing more in the last 3. However, the robots cannot process more than 25 and the Shipment is already in backlog. OK, we get the point!!

Now comes the next problem. How to determine and modify the infinite variables in the plant floor? Going through cartloads of data to find out specific variables that may be causing the issues was an impossible task. Jonah comes to the rescue again.

He asks Fran to identify bottlenecks and non bottleneck resources. Bottle neck resources are resources whose capacity is equal to or lower than the demand placed upon it. Non bottle neck resources are resources whose capacity is equal to or greater than the demand placed upon it.

An ideally balanced plant is one where FLOW OF INVENTORY balances with the market demand. This is really an amazing perspective!

How to identify bottlenecks based on market demand? Get the total number of hours needed to meet market demand (calculated from backlogs and current orders). Calculate the hours needed by every department in the plant to meet the demand. Find out what specific resource doesn’t meet its demand. Well, that’s a geek’s way of looking at it.

But there is not much time. So the crew decides to point to bottlenecks based on experience. They successfully identify two bottlenecks.

However, one of them is a furnace and the other is a machine and there is no way they could be re-positioned in the chain – and that too right in front. Fran doesn’t understand what to do now. The machines produced lesser parts than what was required of them. However, the parts they produced were imperative for Shipments to go out. There was no way they could get capital to get a new machine/ new furnace.

Jonah, now reschedules his trip to LA, and decides to actually make it to the plant.

Here are his suggestions –

1) Jonah sees both the bottlenecks sitting idle during lunch breaks. He says that bottleneck machines cannot take any breaks. They have to produce parts all the time.

2) When asked the value of the item produced by Bottleneck A, Lou retorts 21$. However Jonah disagrees. Bottlenecks directly influence the throughout. If the bottleneck did not exist in the first place, the part would have been made available and the order would have shipped out, thereby increasing throughput. So, the time wasted on a bottleneck operation, directly translates to reducing throughput.

3) Jonah suggests that the engineers work and see if the furnace is actually required for all parts. Maybe some parts don’t require the furnace pre-heat.

4) How about doing the QA process before the parts go through the bottlenecks. 100s of parts get rejected after going through the bottlenecks. However, if the QA process is done before they reach the bottlenecks, only good parts would reach the bottlenecks.

Fran initially decides to kick start with pointers 1 and 4. He also asks the Inventory team to prioritize the orders. Orders that would be processed by bottlenecks would be according to the highest priority (the shipment that was the most delayed!).

After kick starting his new ideas at work, Fran decides to go meet his wife, who he knows is at her moms place. He tries to convince her to come back home.