The Goal: A Process of Ongoing Improvement, Third Revised Edition
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"Yeah, net profit," he says. "But you'd need more than just that. Because an absolute measurement isn't going to tell you
much."
"Oh yeah?" I say. "If I know how much money I've made,
why do I need to know anything else? You follow me? If I add up
what I've made, and I subtract my expenses, and I get my net
profit—what else do I need to know? I've made, say, $10 million,
or $20 million, or whatever."
For a fraction of a second, Lou gets a glint in his eye like I'm
real dumb.
"All right," he says. "Let's say you figure it out and you come up with $10 million net profit ... an absolute measurement.
Offhand, that sounds like a lot of money, like you really raked it
in. But how much did you start with?"
He pauses for effect.
"You see? How much did it take to make that $10 million?
Was it just a million dollars? Then you made ten times more
money than you invested. Ten to one. That's pretty goddamned
good. But let's say you invested a billion dollars. And you only
made a lousy ten million bucks? That's pretty bad."
"Okay, okay," I say. "I was just asking to be sure."
"So you need a relative measurement, too," Lou continues.
"You need something like return on investment . . . ROI, some
comparison of the money made relative to the money invested."
"All right, but with those two, we ought to be able to tell how
well the company is doing overall, shouldn't we?" I ask.
Lou nearly nods, then he gets a faraway look.
"Well. . . ." he says.
I think about it too.
"You know," he says, "it is possible for a company to show
net profit and a good ROI and still go bankrupt."
"You mean if it runs out of cash," I say.
"Exactly," he says. "Bad cash flow is what kills most of the businesses that go under."
"So you have to count cash flow as a third measurement?"
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He nods.
"Yeah, but suppose you've got enough cash coming in every
month to meet expenses for a year," I tell him. "If you've got
enough of it, then cash flow doesn't matter."
"But if you don't, nothing else matters," says Lou. "It's a measure of survival: stay above the line and you're okay; go below
and you're dead."
We look each other in the eye.
"It's happening to us, isn't it?" Lou asks.
I nod.
Lou looks away. He's quiet.
Then he says, "I knew it was coming. Just a matter of time."
He pauses. He looks back to me.
"What about us?" he asks. "Did Peach say anything?"
"They're thinking about closing us down."
"Will there be a consolidation?" he asks.
What he's really asking is whether he'll have a job.
"I honestly don't know, Lou," I tell him. "I imagine some
people might be transferred to other plants or other divisions,
but we didn't get into those kinds of specifics."
Lou takes a cigarette out of the pack in his shirt pocket. I
watch him stamp the end of it repeatedly on the arm of his chair.
"Two lousy years to go before retirement," he mutters.
"Hey, Lou," I say, trying to lift him out of despair, "the worst it would probably mean for you would be an early retirement."
"Dammit!" he says. "I don't want an early retirement!"
We're both quiet for some time. Lou lights his cigarette. We
sit there.
Finally I say, "Look, I haven't given up yet."
"Al, if Peach says we're finished—"
"He didn't say that. We've still got time."
"How much?" he asks.
"Three months," I say.
He all but laughs. "Forget it, Al. We'll never make it."
"I said I'm not giving up. Okay?"
For a minute, he doesn't say anything. I sit there knowing
I'm not sure if I'm telling him the truth. All I've been able to do
so far is figure out that we have to make the plant make money.
Fine, Rogo, now how do we do it? I hear Lou blow a heavy breath
of smoke.
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With resignation in his voice, he says, "Okay, Al. I'll give you
all the help I can. But. ..."
He leaves the sentence unfinished, waves his hand in the air.
"I'm going to need that help, Lou," I tell him. "And the first thing I need from you is to keep all this to yourself for the time
being. If the word gets out, we won't be able to get anyone to lift a
finger around here."
"Okay, but you know this won't stay a secret for long," he
says.
I know he's right.
"So how do you plan on saving this place?" Lou asks.
"The first thing I'm trying to do is get a clear picture of what
we have to do to stay in business," I say.
"Oh, so that's what all this stuff with the measurements is
about," he says. "Listen, Al, don't waste your time with all that.
The system is the system. You want to know what's wrong? I'll tell
you what the problem is."
And he does. For about an hour. Most of it I've heard before,
it's the kind of thing everybody's heard: It's all the union's fault;
if everybody would just work harder; nobody gives a damn about
quality; look at foreign labor—we can't compete on costs alone;
and so on, and so on. He even tells me what sorts of self-
flagellation we should administer in order to chasten our-
selves. Mostly Lou is blowing off steam. That's why I let him
talk.
But I sit there wondering. Lou actually is a bright guy. We're
all fairly bright; UniCo has lots of bright, well-educated people on
the payroll. And I sit here listening to Lou pronounce his opin-
ions, which all sound good as they roll off his tongue, and I won-
der why it is that we're slipping minute by minute toward obliv-
ion, if we're really so smart.
Sometime after the sun has set, Lou decides to go home. I
stay. After Lou has gone, I sit there at my desk with a pad of
paper in front of me. On the paper, I write down the three mea-
surements which Lou and I agreed are central to knowing if the
company is making money: net profit, ROI and cash flow.
I try to figure out if there is one of those three measurements
which can be favored at the expense of the other two and allow
me to pursue the goal. From experience, I happen to know there
are a lot of games the people at the top can play. They can make
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the organization deliver a bigger net profit this year at the ex-
pense of net profit in years to come (don't fund any R&D, for
instance; that kind of thing). They can make a bunch of no-risk
decisions and have any one of those measurements look great
while the others stink. Aside from that, the ratios between the
three might have to vary according to the needs of the business.
But then I sit back.
If I were J. Bart Granby III sitting high atop my company's
> corporate tower, and if my control over the company were se-
cure, I wouldn't want to play any of those games. I wouldn't want
to see one measurement increase while the other two were ig-
nored. I would want to see increases in net profit and return on investment and cash flow—all three of them. And I would want to see all three of them increase all the time.
Man, think of it. We'd really be making money if we could
have all of the measurements go up simultaneously and forever.
So this is the goal:
To make money by increasing net profit, while simultane-
ously increasing return on investment, and simultaneously in-
creasing cash flow.
I write that down in front of me.
I feel like I'm on a roll now. The pieces seem to be fitting
together. I have found one clear-cut goal. I've worked out three
related measurements to evaluate progress toward the goal. And
I have come to the conclusion that simultaneous increases in all
three measurements are what we ought to be trying to achieve.
Not bad for a day's work. I think Jonah would be proud of me.
Now then, I ask myself, how do I build a direct connection
between the three measurements and what goes on in my plant?
If I can find some logical relationship between our daily opera-
tions and the overall performance of the company then I'll have a
basis for knowing if something is productive or non-productive
. . . moving toward the goal or away from it.
I go to the window and stare into the blackness.
Half an hour later, it is as dark in my mind as it is outside the
window.
Running through my head are ideas about profit margins
and capital investments and direct labor content, and it's all very
conventional. It's the same basic line of thinking everyone has
been following for a hundred years. If I follow it, I'll come to the
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same conclusions as everyone else and that means I'll have no
truer understanding of what's going on than I do now.
I'm stuck.
I turn away from the window. Behind my desk is a bookcase;
I pull out a textbook, flip through it, put it back, pull out an-
other, flip through it, put it back.
Finally, I've had it. It's late.
I check my watch—and I'm shocked. It's past ten o'clock. All
of a sudden, I realize I never called Julie to let her know I wasn't
going to be home for dinner. She's really going to be pissed off at
me; she always is when I don't call.
I pick up the phone and dial. Julie answers.
"Hi," I say. "Guess who had a rotten day."
"Oh? So what else is new?" she says. "It so happens my day
wasn't too hot either."
"Okay, then we both had rotten days," I tell her. "Sorry I
didn't call before. I got wrapped up in something."
Long pause.
"Well, I couldn't get a babysitter anyway," she says.
Then it dawns on me; our postponed night out was sup-
posed to be tonight.
"I'm sorry, Julie. I really am. It just completely slipped my
mind," I tell her.
"I made dinner," she says. "When you hadn't shown up after
two hours, we ate without you. Yours is in the microwave if you
want it."
"Thanks."
"Remember your daughter? The little girl who's in love with
you?" Julie asks.
"You don't have to be sarcastic."
"She waited by the front window for you all evening until I
made her go to bed."
I shut my eyes.
"Why?" I ask.
"She's got a surprise to show you," says Julie.
I say, "Listen, I'll be home in about an hour."
"No rush," says Julie.
She hangs up before I can say good-bye.
Indeed, there is no point in rushing home at this stage of the
game. I get my hard hat and glasses and take a walk out into the
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The Goal: A Process of Ongoing Improvement
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57
plant to pay a visit to Eddie, my second shift supervisor, and see
how everything is going.
When I get there, Eddie is not in his office; he's out dealing
with something on the floor. I have him paged. Finally, I see him
coming from way down at the other end of the plant. I watch him
as he walks down. It's a five-minute wait.
Something about Eddie has always irritated me. He's a com-
petent supervisor. Not outstanding, but he's okay. His work is not
what bothers me. It's something else.
I watch Eddie's steady gait. Each step is very regular.
Then it hits me. That's what irritates me about Eddie: it's the
way he walks. Well, it's more than that; Eddie's walk is symbolic of
the kind of person he is. He walks a little bit pigeon-toed. It's as if
he's literally walking a straight and narrow line. His hands cross
stiffly in front of him, seeming to point at each foot. And he does
all this like he read in a manual someplace that this is how walk-
ing is supposed to be done.
As he approaches, I'm thinking that Eddie has probably
never done anything improper in his entire life—unless it was
expected of him. Call him Mr. Regularity.
We talk about some of the orders going through. As usual,
everything is out of control. Eddie, of course, doesn't realize this.
To him, everything is normal. And if it's normal, it must be right.
He's telling me—in elaborate detail—about what is running
tonight. Just for the hell of it, I feel like asking Eddie to define
what he's doing tonight in terms of something like net profit.
I want to ask him, "Say, Eddie, how's our impact on ROI
been in the last hour? By the way, what's your shift done to im-
prove cash flow? Are we making money?"
It's not that Eddie hasn't heard of those terms. It's just that
those concerns are not part of his world. His world is one mea-
sured in terms of parts per hour, man-hours worked, numbers of
orders filled. He knows labor standards, he knows scrap factors,
he knows run times, he knows shipping dates. Net profit, ROI,
cash flow-—that's just headquarters talk to Eddie. It's absurd to
think I could measure Eddie's world by those three. For Eddie,
there is only a vague association between what happens on his
shift and how much money the company makes. Even if I could
open Eddie's mind to the greater universe, it would still be very
difficult to draw a clear connection between the values here on
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the plant floor and the values on the many floors of UniCo head-
quarters. They're too different.
In the middle of a sentence, Eddie notices I'm looking at him
funny.
"Something wrong?" asks Eddie.
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The Goal: A Process of Ongoing Improvement
Captured by Plamen T.
59
7
When I get home, the house is dark except for on
e light. I
try to keep it quiet as I come in. True to her word, Julie has left
me some dinner in the microwave. As I open the door to see what
delectable treat awaits me (it seems to be some variety of mystery
meat) I hear a rustling behind me. I turn around, and there
stands my little girl, Sharon, at the edge of the kitchen.
"Well! If it isn't Miz Muffet!" I exclaim. "How is the tuffet these days?"
She smiles. "Oh . . . not bad."
"How come you're up so late?" I ask.
She comes forward holding a manila envelope. I sit down at
the kitchen table and put her on my knee. She hands the enve-
lope to me to open.
"It's my report card," she says.
"No kidding?"
"You have to look at it," she tells me.
And I do.
"You got all A's!" I say.
I give her a squeeze and big kiss.
"That's terrific!" I tell her. "That's very good, Sharon. I'm really proud of you. And Til bet you were the only kid in your
class to do this well."
She nods. Then she has to tell me everything. I let her go on,
and half an hour later, she's barely able to keep her eyes open. I carry her up to her bed.
But tired as I am, I can't sleep. It's past midnight now. I sit in
the kitchen, brooding and picking at dinner. My kid is getting A's
in the second grade while Tin flunking out in business.
Maybe I should just give up, use what time I've got to try to
land another job. According to what Selwin said, that's what ev-
eryone at headquarters is doing. Why should I be different?
For a while, I try to convince myself that a call to a head-
hunter is the smart thing to do. But, in the end, I can't. A job with
another company would get Julie and me out of town, and maybe
fortune would bring me an even better position than I've got now
although I doubt it; my track record as a plant manager hasn't
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exactly been stellar.) What turns me against the idea of looking
for another job is I'd feel I were running away. And I just can't do
that.
It's not that I feel I owe my life to the plant or the town or
the company, but I do feel some responsibility. And aside from
that, I've invested a big chunk of my life in UniCo. I want that
investment to pay off. Three months is better than nothing for a
last chance.
My decision is, I'm going to do everything I can for the three