The Goal: A Process of Ongoing Improvement, Third Revised Edition
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straint, that is, if we consider the computer as a non-constraint."
Ralph laughs nervously.
"Then," Stacey continues, "I made my people obey those
computer lists. That was a major change in the way they operate
—especially when you consider how much pressure the foremen
put on them to supply them with work."
"But you must admit the biggest change was on the shop
floor," Bob contributes. "It was very difficult for most people to swallow that we really meant they shouldn't work all the time.
Don't forget that the fear of layoffs was hanging heavily above
us."
"I guess it's all right," Ralph gives up.
"What did we do with the method we were using?" Lou asks.
"You know, the green and red tags."
"Nothing," Stacey replies. "Why should we do anything
about it?"
"Thank you, Lou," Ralph says. "That is exactly what was
bothering me." Turning to Stacey he adds, "Do you remember
the reason for using those tags in the first place? We wanted to
establish clear priorities. We wanted each worker to know what is
important and must be worked on immediately, and what is less
important."
"That's right," she says. "That's exactly why we did it. Oh, I see what you mean. Now—not like in the past when we released
stuff just to provide work—now whatever we release to the floor
is basically of the same importance. Let me think for a minute."
We all do.
"Oh shit," she moans.
"What's the matter?" Bob asks.
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"I just realized the impact that those darn tags have on our
operation."
"Well?" Bob presses her.
"I'm embarrassed," she says. "I've been complaining about
our problems with the six or seven capacity constraint resources,
I raised all the red flags, I've gone as far as to demand that incoming orders be restricted. And now I see that I've created the
problem with my own hands."
"Fill us in, Stacey," I request. "You're way ahead of us."
"Of course. You see, when do the green and red tags have an
impact? Only when a work center has a queue, when the worker
has to choose between two different jobs that are waiting; then he
always works on the red tag first."
"So?"
"The largest queues," Stacey goes on, "are in front of the
bottlenecks, but there the tags are irrelevant. The other place
where we have relatively high queues is in front of the capacity
constraint resources. These resources supply some parts to the
bottlenecks, red-tag parts, but they work on many more green-
tag parts, parts that go to assembly not through the bottlenecks.
Today they do the red-tag parts first. This naturally delays the
arrival of the green parts to assembly. We catch it when it is pretty
late, when holes are already evident in the assembly buffer. Then,
and only then, we go and change the priorities at those work
centers. Basically, we restore the importance of the green parts."
"So what you're telling us," Bob cannot contain his surprise,
"is that if you just eliminate the tags, it will be much better?"
"Yes, that's what I'm saying. If we eliminate the tags and we
instruct the workers to work according to the sequence in which
the parts arrive—first come, first done—the parts will be done in
the right sequence, fewer holes will be created in the buffers, my
people will not have to track where the material is stuck,
and . . ."
"And the foreman will not have to constantly reshuffle pri-
orities." Bob completes her sentence.
I try to confirm what I heard. "Stacey, are you positive that
your warning about those constraint resources was just a false
alarm? Can we safely take more orders?"
"I think so," she says. "It explains one of my biggest myster-ies, why there are so few holes in the bottlenecks' buffers, while
there are more and more in the assembly buffer. By the way
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fellows, the fact that there are more and more holes indicates that
eventually we will run into the problem of insufficient capacity,
but not right now. I'll take care of those tags immediately. You
won't see them tomorrow."
"Well, this discussion was very beneficial," I conclude. "Let's carry on. When was the second constraint broken?"
"When we started shipping everything much ahead of time,"
Bob answers. "Shipping three weeks earlier is a clear indication
that the constraint is no longer in production but in the market.
Lack of sufficient orders limited the plant from making more
money."
"Correct," Lou confirms. "What do you think: did we do
anything different on the non-constraints?"
"Not me," says Bob.
"Me neither," echoes Ralph. "Hey, wait a minute. How come
we continue to release material according to the oven and the
NCX10 if they are no longer the constraints?"
We look at each other. Really, how come?
"Something even funnier is going on. How come my com-
puter shows that these two work centers are still a constraint, that
they are constantly loaded to one hundred percent?"
I turn my eyes to Stacey, "Do you know what's going on?"
"I'm afraid I do," she admits. "It's definitely not my day."
"And all this time I wondered why our finished goods were
not depleting at a faster rate," I say.
"Will one of you tell us what's going on?" Bob says impa-
tiently.
"Go ahead, Stacey."
"Come on fellas, don't look at me like that. After operating
for so long with mountains of finished goods, wouldn't anybody
do the same?"
"Do what?" Bob is lost. "Will you please stop talking in riddles?"
"We all knew how important it was to make the bottlenecks
work all the time." Stacey starts at last to explain. "Remember,
'An hour lost on the bottleneck is an hour lost for the entire
plant.' So, when I realized that the load on the bottlenecks was
dropping, I issued orders for products to be on the shelf, in stock.
Stupid, I know now, but at least at the moment our finished
goods are balanced to roughly six weeks. No more of that awful
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situation where we hold mountains of some products and not
even one single unit of others."
"That's good," Lou says. "It means we can easily deplete it.
Alex be careful not to do it too fast, remember the bottom-line
ramifications."
It's Stacey's turn to be puzzled. "Why shouldn't we get rid of
the finished products as fast as possible?" she asks.
"Never mind," I impatiently say. "Lou can, and should, ex-
plain it to all of you later. Right now we should correct our five-
step process. Now we all know to what extent Ralph was right,
something is definitely missing."
; "Can I correct it?" Stacey says sheepishly, and goes to the
board.
When she returns to her seat the board has the following:
1. IDENTIFY the system's constraint(s).
2. Decide how to EXPLOIT the system's constraint(s).
3. SUBORDINATE everything else to the above decision.
4. ELEVATE the system's constraint(s).
5. WARNING!!!! If in the previous steps a constraint has been
broken, go back to step 1, but do not allow INERTIA to cause
a system's constraint.
Examining the board, Lou moans, "It's much worse than I
thought."
"On the contrary," I'm surprised. "It's much better than I
thought."
We look at each other. "You first," I say. "Why do you claim that it's much worse?"
"Because I've lost my only guideline."
When he realizes that we don't get it, he elaborates; "All the
changes that we made so far, all the sacred cows that we had to
slaughter, had one thing in common, they all stem from cost
accounting. Local efficiencies, optimum batch sizes, product cost,
inventory evaluations, all came from the same source. I didn't
have much problem with it. As a controller I questioned cost
accounting validity for a long time. Remember, it's the invention
of the beginning of the century when conditions were much dif-
ferent from today. As a matter of fact, I started to have a very
good guideline; if it comes from cost accounting it must be
wrong."
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"Very good guideline," I smile. "But what is your problem?"
"Don't you see, the problem is much bigger; it's not only cost
accounting. We put on the green and red tags not because of cost
accounting, but because we realized the importance of the bottle-
necks. Stacey created orders for finished goods because of our
new understanding, because she wanted to make sure that the
bottlenecks' capacity will not be wasted. I thought that it takes a
lot of time to develop inertia. What I now see is that it takes less
than one month."
"Yes, you are right," I say gloomily. "Whenever the con-
straint is broken it changes conditions to the extent that it is very
dangerous to extrapolate from the past."
"As a matter of fact," Stacey adds, "even the things that we put in place in order to elevate the constraint must be reexamined."
"How can we do it?" Bob asks. "It's impossible to question
everything every time."
"Something is still missing," Ralph summarizes.
Something definitely is still missing.
"Alex, it's your turn to explain," Lou says.
"Explain what?"
"Why did you claim that it's much better?"
I smile. It's about time for some good news.
"Fellows, what stopped us from once again taking another
jump on the bottom line? Nothing, except for the conviction that
we don't have enough capacity. Well, now we know differently.
Now we know that we have a lot of spare capacity."
How much spare capacity do we actually have?
"Stacey, how much of the current load on the oven and the
NCX10 is due to the fictitious orders?"
"Roughly twenty percent," she says quietly.
"Marvelous," I rub my hands together. "We have enough
capacity to really take the market. I'd better drive to headquar-
ters tomorrow morning and have a heart-to-heart talk with
Johnny Jons. Lou, I'll definitely need you. On second thought,
Ralph, will you join us? And bring your computer with you, we're
going to show them something."
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38
It is six o'clock in the morning when I pick up Lou and
Ralph at the plant. We (I) decided that it will be best, since pick-
ing them up at their houses would mean I would have had to
leave home close to five. In any event, we're probably not going
to spend more than a few hours at headquarters so it's reasonable
to assume that we'll be back to work in the afternoon.
We hardly talk. Ralph, in the back seat, is busy with his lap-
top computer. Lou probably thinks that he's still in bed. I drive
on automatic pilot. That is, my mind is busy constructing imagi-
nary conversations with Johnny Jons. I somehow have to con-
vince him to get many more orders for our plant.
Yesterday, in the heat of discovering the amount of free ca-
pacity that we have, I looked only on the bright side. Now I
wonder if I'm not just asking for miracles.
I recheck the numbers in my head. In order to fill our capac-
ity Johnny will have to come up with over ten million dollars of
additional sales. It is totally unrealistic that he holds so much up
his sleeve.
So, squeezing, begging, and pleading techniques will not
help. We'll have to come up with some innovative ideas. Well, the
truth is that so far I haven't been able to come up with any. Let's
hope Johnny has some clever ideas; he's the one who is supposed
to be the expert in sales.
"I want you to meet Dick Pashky," Johnny Jons says as we
enter the small conference room. "He's one of my best people.
Dedicated, professional, and above all he's full of innovative ap-
proaches. I thought it would be a good idea for you to get to
know him. Do you mind if he joins us?"
"On the contrary," I smile. "We need some innovative ideas.
You see, what I want is for you to get my plant additional business
—ten million dollars' worth."
Johnny bursts out laughing. "Jokers, all of you in production
are wonderful jokers. Dick, what did I tell you? It's not easy to
deal with plant managers. One is asking me to persuade his client
to pay a ten percent increase in price, another wants me to get rid
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of a pile of old junk for full price, but Alex, you're the best—ten
million dollars!"
He continues to laugh, but I don't join in.
"Johnny, put on your thinking cap. You must find more or-
ders for my plant, ten million dollars more."
He stops laughing and looks at me, "You are serious. Alex,
what's happened to you? You know how tough it is to get more
business these days; it's dog eat dog out there. Everybody is cut-
ting each other's throats for the smallest order and you're talking
about ten million dollars more?"
I don't hurry to respond. I lean back in my seat and look at
him. Finally I say, "Listen Johnny, you know that my plant has
improved. What you don't know is to what extent it's improved.
We're now capable of delivering everything within two weeks.
We've demonstrated that we never miss an order, not even by
one day. Our quality has improved to the extent that I'm sure
we're the best in the market. We are very responsive, very quick,
and above all, very reliable. This is not a sales pitch, it's the
"Alex, I know all this. I hear it from the best source, from my
clients. But that doesn't mean that I can immediately turn it into
cash. Sales take time, credibility is not built overnight, it's a grad-
ual process. And by the way, you shouldn't complain; I'm bring-
ing you more and more sales. Be patient and don't press for
miracles."
"I have twenty percent spare capacity." I say, letting this
sentence hang in the air.
From the lack of response I understand that Johnny doesn't
see the relevance.
"I need twenty percent more sales," I translate for him.
"Alex, orders are not apples hanging from trees. I can't just
go out and pick some for you."
"There must be orders that you decline, because the quality
requirement is too high or because the client is asking for unrea-
sonably short delivery times or something. Get me those orders."
"You probably don't know how bad the economy is," he
sighs. "Today I accept any order, anything that moves. I know
that a lot of dancing will be required later, but the current pres-
sure is simply too high."
"If the competition is so fierce and the economy is so bad,"
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Lou says in his quiet voice, "then it must be that clients are press-
ing for lower prices."
"Pressing is not the word. Squeezing is much more appropri-
ate. Can you imagine, and this is just between us, in some cases
I'm forced to accept business for practically zero margin."
I start to see the light at the end of the tunnel.
"Johnny, do they sometimes demand prices that are lower
than our cost?"
"Sometimes? All the time."
"And what do you do?" I continue.
"What can I do?" he laughs. "I try to explain the best I can.
Sometimes it even works."
I swallow hard and say, "I'm ready to accept orders for ten
percent below cost."
Johnny doesn't hurry to answer. His peoples' bonuses are
based on total sales dollars. Finally he says, "Forget it."
"Why?"
He doesn't answer. I persist, "Why should I forget it?"
"Because it's stupid, because it doesn't make any business
sense," he says in a hard voice, and then softer, "Alex, I don't know what tricks you have in mind but let me tell you, all those
tricks have a very short life span before they explode in your face.