The Goal: A Process of Ongoing Improvement, Third Revised Edition
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Among other things, it shows the due dates promised, along with
the dates when Ralph expected shipment, and the dates the prod-
ucts were actually shipped.
"You see," I tell Jons as he studies the list on the glass top of his table, "we can predict to within twenty-four hours one way or
the other when an order will leave the plant."
"Yes, I've seen something like this floating around," says
Jons. "These are the dates?"
"Of course."
"This is impressive," says Jons.
"As you can see by comparing a few recently shipped orders
with ones of a month or so before, our production lead times
have condensed dramatically. Four months' lead time is no
longer a holy number with us. From the day you sign the contract
with the customer to the day we ship, the current average is
about two months. Now, tell me, do you think that could help us
in the marketplace?"
"Sure it could," says Jons.
"Then how about four weeks'?"
"What? Al, don't be ridiculous," says Jons. "Four weeks!"
"We can do it."
"Come on!" he says. "Last winter, when demand for every
damn thing we make was way down, we were promising delivery
in four months, and it was taking six! Now you're telling me you
can go from contract to finished product in four weeks?"
"I wouldn't be here talking to you if we couldn't," I tell him,
hoping desperately that we're right.
Jons snorts, unconvinced.
"Johnny, the truth is I need more business," I tell him.
"With our overdues gone, and our current backlog declining,
I've got to get more work into my plant. Now we both know the
business is out there; it's just that the competition is getting more
of it than we are."
Jons looks at me through narrowed eyes. "You can really
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turn around an order of 200 Model 12's or 300 DBD-50's in four
weeks?"
"Try me," I tell him. "Get me five orders—hell, get me ten orders—and I'll prove it to you."
"And what happens to our credibility if you can't come
through?" he asks.
Flustered, I look down through the glass table.
"Johnny," I say, "I'll make a bet with you. If I don't deliver in four weeks, I'll buy you a brand new pair of Guccis."
He laughs, shakes his head and finally says, "Okay, you're
on. I'll pass the word to the salespeople that on all your products,
we're offering terms of factory shipment in six weeks."
I start to protest. Jons holds up a hand.
"I know you're confident," he says. "And if you ship any new orders in less than five weeks, I'll buy y o u a new pair of shoes."
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29
A full moon is shining through the bedroom window and
into my eyes. The night is still. I look at the clock beside me,
which says it's 4:20 A.M. Next to me in bed, Julie is sleeping.
Resting on my elbow, I look down at Julie. With her dark
hair spilled out on the white pillow, she looks nice sleeping in the
moonlight. I watch her for a while. I wonder what her dreams are
like.
When I woke up, I was having a nightmare. It was about the
plant. I was running up and down the aisles and Bill Peach was
chasing me in his crimson Mercedes. Every time he was about to
run me over, I'd duck between a couple of machines or hop on a
passing forklift. He was yelling at me from the window about my
bottom line not being good enough. Finally he trapped me in the
shipping department. I had my back against stacks of cardboard
cartons, and the Mercedes was racing toward me at a hundred
miles an hour. I tried to shield my eyes from the blinding head-
lights. Just as Peach was about to get me, I woke up and discov-
ered that the headlights were moonbeams on my face.
Now I'm too much awake, and too aware of the problem I
was trying to forget this past evening with Julie for me to fall back
to sleep. Not wanting to awaken Julie with my restlessness, I slip
out of bed.
The house is all ours tonight. We started out this evening
with nothing particular to do, when we remembered we had a
whole house in Bearington with nobody in it to bother us. So we
bought a bottle of wine, some cheese and a loaf of bread, came
here and got comfortable.
From the living room window where I stand in the dark
looking out, it seems as though the whole world is asleep except
me. I'm angry with myself at not being able to sleep. But I can't
let go of what's on my mind.
Yesterday we had a staff meeting. There was some good news
—and some bad news. Actually, there was a lot of good news.
High among the headlines were the new contracts marketing has
been winning for us. We've picked up about half-a-dozen new
orders since I talked to Johnny. More good news was the fact that
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efficiencies have gone up, not down, as a result of what we've
been doing in the plant. After we began withholding the release
of materials and timing the releases according to the completed
processing of heat-treat and the NCX-10, efficiencies dipped
somewhat. But that was because we were consuming excess in-
ventories. When the excess inventories were exhausted—which
happened quickly as a result of the increase in throughput—effi-
ciencies came back up again.
Then, two weeks ago, we implemented the new smaller batch
sizes. When we cut batch sizes in half for non-bottlenecks, effi-
ciencies stayed solid, and now it seems as though we're keeping
the work force even more occupied than before.
That's because a really terrific thing has happened. Before
we reduced batch sizes, it wasn't uncommon for a work center to
be forced idle because it didn't have anything to process—even
though we were wading through excess inventory. It was usually
because the idle work center had to wait for the one preceding it
to finish a large batch of some item. Unless told otherwise by an
expediter, the materials handlers would wait until an entire batch
was completed before moving it. In fact, that's still the case. But
now that the batches are smaller, the parts are ready to be moved
to the next work station sooner than they were before.
What we had been doing many times was turning a non-
bottleneck into a temporary bottleneck. This was forcing other
work centers downstream from it to be idle, which reflected
poorly on efficiencies. Now, even though we've recognized that
non-bottlenecks have to be idle periodically, there is actually less
idle time than before. Since we cut batch sizes, work is flowing
through the plant more smoothly than ever. And it's weird, but
the idle time we do have is less noticeable. It's spread out in
shorter segments. Inst
ead of people hanging around with noth-
ing to do for a couple of hours, now they'll have maybe a few ten-
to twenty-minute waits through the day for the same volume of
work. From everybody's standpoint, that's much better.
Still more good news is that inventories are at their lowest
ever in the plant. It's almost shocking to walk out into the plant
now. Those stacks and piles of parts and sub-assemblies have
shrunk to half their former size. It's as if a fleet of trucks had
come and hauled everything away. Which is, in fact, about what
happened. We've shipped the excess inventory as finished prod-
uct. Of course, the notable part of the story is that we haven't
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filled the plant back up again by dumping new work-in-process
on the floor. The only work-in-process out there now is for cur-
rent demand.
But then there's the bad news. Which is what I'm thinking
about when I hear footsteps on the carpet behind me in the dark
"Al?"
"Yeah."
"How come you're out here in the dark?"
"Can't sleep."
"What's wrong?"
"Nothing."
"Then why don't you come back to bed?"
"I'm just thinking about some things."
It's quiet for a second. For a moment, I think she's gone
away. Then I feel her beside me.
"Is it the plant?" she asks.
"Yeah."
"But I thought everything was getting better," she says.
"What's wrong?"
"It has to do with our cost measurement," I tell her.
She sits down beside me.
"Why don't you tell me about it," she says.
"Sure you want to hear about it?" I ask.
"Yes, I do."
So I tell her: the cost of parts looks as though it's gone up
because of the additional setups necessitated by the smaller batch
sizes.
"Oh," she says. "I guess that's bad, right?"
"Politically speaking, yes," I tell her. "Financially speaking, it doesn't make a damn bit of difference."
"How come?" she asks.
"Well ... do you know why it looks like the cost has gone
up?" I ask her.
"No, not at all," she says.
I get up to switch on a lamp and find a piece of paper and
pencil.
I tell her, "Okay, I'll give you an example. Suppose we have
a batch of 100 parts. The time to set up the machine is 2 hours, or
120 minutes. And the process time per part is 5 minutes. So we've
invested per part 5 minutes plus 2 hours of set-up divided by 100.
It comes to 1.2 minutes of set-up per part. According to the ac-
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countants, the cost of the part is based upon direct labor of 6.2
minutes.
"Now if we cut the batch in half, we still have the same
amount of set-up time. But it's spread over 50 parts instead of
100. So now we've got 5 minutes of process time, plus 2.4 minutes
of set-up for a grand total of 7.4 minutes of direct labor. And the
calculations are all based on the cost of direct labor."
Then I explain the way costs are calculated. First, there is the
raw material cost. Then there is the cost of direct labor. And
finally there is "burden," which essentially works out to be cost of the direct labor multiplied by a factor, in our case, of about three.
So on paper, if the direct labor goes up, the burden also goes up.
"So with more set-ups, the cost of making parts goes up,"
says Julie.
"It looks that way," I tell her, "but in fact it hasn't really done anything to our actual expenses. We haven't added more people
to the payroll. We haven't added any additional cost by doing
more set-ups. In fact, the cost of parts has gone down since we
began the smaller batch sizes."
"Down? How come?"
"Because we've reduced inventory and increased the amount
of money we're bringing in through sales," I explain. "So the
same burden, the same direct labor cost is now spread over more
product. By making and selling more product for the same cost,
our operating expense has gone down, not up."
"How could the measurement be wrong?" she asks.
I say, "The measurement assumes that all of the workers in
the plant are always going to be fully occupied, and therefore, in
order to do more set-ups, you have to hire more people. That
isn't true."
"What are you going to do?" she asks me.
I look up at the window. The sun is now over the roof of my
neighbor's house. I reach over for her hand.
"What am I going to do? I'm going to take you out to break-
fast."
When I get to the office, Lou walks in.
"More bad news for me?" I joke.
He says, "Look ... I think I can help you out on this cost
of products thing."
"Yeah? Like how?"
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"I can change the base we're using for determining the cost
of parts. Instead of using the cost factor of the past twelve
months, which is what I'm supposed to be doing, we can use the
past two months. That will help us, because for the past two
months, we've had big increases in throughput."
"Yeah," I say, sensing the possibilities. "Yeah, that might work. And actually the past two months are a lot more representative of what's really going on here than what happened last
year."
Lou leans from side to side. He says, "We-l-l-l, yes, that's
true. But according to accounting policy, it's not valid."
"Okay, but we have a good excuse," I say. "The plant is different now. We're really a hell of a lot better than we were."
"Al, the problem is Ethan Frost will never buy it," says Lou.
"Then why did you suggest it?"
"Frost won't buy it if he knows about it," says Lou.
I nod slowly. "I see."
"I can give you something that will slide through on the first
glance," says Lou. "But if Frost and his assistants at division do any checking, they'll see through it in no time."
"You're saying we could end up in very hot water," I say.
"Yeah, but if you want to take a chance. . . ." says Lou.
"It could give us a couple more months to really show what
we can do," I say, finishing the thought for him.
I get up and walk around for a minute turning this over in
my mind.
Finally I look at Lou and say, "There is no way I can show
Peach an increase in the cost of parts and convince him the plant
is better off this month than last. If he sees these numbers and
gets the idea our costs are going up, we'll be in hot water any-
way."
"So you want to try it?" Lou asks.
"Sure."
"All right," he says. "Remember, if we get caught—
"Don't worry. I'll practice my tap dancing."
As Lou is on his way out, Fran buzzes me to say Johnny Jons
is on my line. I pick up the phone.
"Hello there," I tell him,
We're practically old pals by now;
I've been on the phone with him just about every day—and
sometimes three or four times a day—for the past few weeks.
"What can I do for you today?"
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"Remember our dear friend Bucky Burnside?" says Jons.
"How could I forget good ole Bucky," I say. "Is he still complaining about us?"
"No, not anymore," says Jons. "At the moment, in fact, we
don't even have a single active contract with Burnside's people.
That's the reason I'm calling. For the first time in months, they've
expressed interest in buying something from us again."
"What are they interested in?"
"Model 12's," he says. "They need a thousand units."
"Terrific!"
"Maybe not," says Jons. "They need the whole order by the
end of the month."
"That's only about two weeks away," I say.
"I know," says Jons. "The sales rep on this already checked with the warehouse. Turns out we've only got about fifty of the
Model 12's in stock."
He's telling me, of course, we'll have to manufacture the
other 950 by the end of the month if we want the business.
"Well . . . Johnny, look, I know I told you I wanted busi-
ness, and you've pulled in some nice contracts since I talked to
you," I say. "But a thousand Model 12's in two weeks is asking a lot."
He says, "Al, to tell you the truth, I didn't really think we
could do anything with this one when I called. But I thought I'd
let you know about it, just in case you knew something I didn't.
After all, a thousand units means a little over a million dollars in
sales to us."
"Yes, I realize that," I say. "Look, what's going on that they need these things so fast?"
He tells me he did some digging and found out that the
order had originally gone to our number-one competitor, who
makes a product similar to the Model 12. The competitor had
had the order on its books for about five months. But they hadn't
filled it yet, and this week it became clear they would not be able
to meet the due date.
"My guess is that Burnside turned to us, because they've
heard about us offering such fast turn-around to everyone else,"
he says. "Frankly, I think they're desperate. And, hell, if there is
any way we can pull this off, it'd sure be a good way for us to save
face with them."
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The Goal: A Process of Ongoing Improvement