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Rogos plant was facing a number of problems.

Deliveries were always behind schedule, assemblies and sub-assemblies werent synchronised with each other, loss of economies of scale as they focused on one order at a time in an ad hoc manner, competition by Japanese products, high inventory, low productivity. The plant was losing money which resulted in layoffs, cutbacks and a three month deadline to improve performance. Inventories were piling up as robots were tasked even when not necessary just to improve efficiency. Alex, after talking with Jonah, realised that productivity was the act of bringing the company closer to its goal. After deciding the goal was to make money, he decided the measurement criteria as net profit, ROI, cash flow. However, there is a need to establish a logical relationship between daily floor level operations and overall performance of the company in terms of these measurements. The above methods are financial tools and hold little meaning on the production floor. Therefore, operation indices are needed to address the primary goal of making money, but also to help develop operational rules for running the plant and accurately gauge the health of the business. These indicators are throughput, inventory and operational expense. Throughput is the rate at which the plant generates money through sales. The factor here is sales and not production. Producing something that doesnt sell does not contribute to making money. Instead, it adds to costs and thereby takes one away from the goal of making money. Throughput is the money that is coming into the plant and should be increased to make money. Inventory is all the money that the plant invests in purchasing things which it intends to sell. Any investment that can be sold can be considered as inventory. Inventory is the money that is stuck inside the plant and should be reduced to make money. E.g.: the value of a machine after subtracting depreciation is inventory Operational expense is all the money the plant spends in order to convert inventory into throughput. It is the plants outgoing money to make throughput happen and should be decreased to make money. E.g.: Labor invested in inventory is considered an operational expense and not inventory as it is not the time employees spend that is being sold to the customer, depreciation on a machine is considered an operational expense Therefore, the goal in terms of operating indices is to increase throughput while simultaneously reducing both inventory and operating expense. These three indices can account for any production aspect. E.g.: Knowledge that yields a new manufacturing process is an operational expense. If the knowledge can be sold in the form of a patent or license, it is inventory. If the value of the knowledge can depreciate with time, the depreciation is operational expense while the investment that can be sold is inventory. Robots at the plant increased inventories as they were tasked to produce more than necessary because of the managements emphasis on efficient production. Depreciation on account of

the robots increased significantly, thereby increasing operational expense. Also, operational expense increased on account of carrying costs of excess inventory. Though the cost per part decreased because of increased efficiency, there was no increase in throughput for any part they made. Evaluating on the basis of the operating indices, we can see the struggle for high efficiencies through robots is working in the opposite direction of the goal and should be checked in order to increase productivity and make money. At the Aditi Canteen of NM college, inventory is in the form of stoves, utensils, vegetables, fruits, flour etc. Operational expenses like those of caterers, cooks, gas supply, electricity etc. are invested to convert this inventory into throughput i.e. sales of food to hungry students. Aditi Canteen keeps inventories low by purchasing the right amount of stocks according to historical trends. Efficiency is increased by making cooks at different counters specialise in the kind of dish they prepare, thereby requiring lesser number of cooks and decreasing operational expenses. Throughput is high because of low competition and is increased by offering an attractive menu.

A dependent event is an event, or a series of events that must take place before another can begin i.e. the subsequent event depends upon the ones prior to it. In manufacturing, one operation has to be completed before a second operation can be performed e.g. All parts have to be finished before the product can be assembled and the product has to be assembled before it can be shipped. In an analogy to the scout trek, each boy has to walk the trail first in order for the boy behind him to continue. Statistical fluctuations are the kind of information that cant be predicted precisely. Although an estimate can be made based on experience, most factors critical to the plants success cannot be determined precisely ahead of time. Statistical fluctuations in a manufacturing plant cause the output of processes to be different at different times, similar to how scouts have varying speeds throughout the trek. The effect of statistical fluctuations of delays in one process passes on the other dependent process, thus delaying the whole system. Dependent events put a cap on above average fluctuations. So there is an accumulation of slowness when dependent events are subject to fluctuations. Rogo draws an analogy between the processes at the plant to the trail. He considers the walked trail by the entire line as a product, unwalked trail as raw material, walking over the trail as operation on raw material, distance between first and last person as inventory and energy spent as an operational expenditure. Each of the scouts has fluctuating speeds, faster and slower. But the ability to go faster than average is restricted as it depends upon all the others ahead of Alex (who is at the end) in the line. So even if Alex could walk at five miles per hour, he couldn't do it if the boy in front of him could only walk at two miles per hour. And even if the scout directly in front of Alex could walk that fast, neither of them could do it unless all the boys in the line were moving at five miles per hour at the same time. Rogo notices inventory going up, throughput going down and operational expense increasing as the trek progresses. In the balanced plant experiment, bowls represent work stations and matches represent product inventory and a dice is used to generate statistical fluctuations in operations. The bowls are set up as a production line representing dependent events where each operation has the same capacity, i.e., six products per day with a range of variation from one to six. Each player rolls the die to determine how many matches to place in his bowl, representing a days production. Each operation is dependent on the upstream operation for input. If a player rolls less than the number the previous player can transfer, he becomes a bottleneck. The scouts each roll the die several times in sequence to represent several days production and each time the bottleneck nearly always appears at a different operation or scout. From this game, one can observe that when each operation in a sequence of dependent events has the same amount of capacity, variations and dependency causes the bottleneck to move from operation to operation, i.e., floating bottlenecks. The system cannot be managed as one cannot know where the next bottleneck would appear.

Alex drew a parallel between the troop line and the production process at his plant and determined different ways of dealing with bottlenecks. He reached the following conclusions: The bottleneck determines the speed of the entire production process. A bottleneck is any resource whose capacity is equal to or less than the demand placed upon it whereas a non-bottleneck is any resource whose capacity is greater than the demand placed on it. During the trek, Herbie was the bottleneck. His speed determined the speed of the entire troop. In the plant, inventory piles up in front of NCX 10 in the book. Thus, inventory costs go up. By producing as per the fastest process requirements, throughput decreases because unit is not actually producing as many final products as are being processed through fastest process. Thus sales go down and hence throughput goes down. By producing as per the fastest process requirements, operating expenses also go up because more manpower and machine power is being used for building up inventories which are just stacking up and not converting in final products at the same rate. Conversion of a bottleneck into a non-bottleneck is not possible. In the trek, Herbie has the least capacity for walking and that cannot be changed The bottlenecks of the process should first be identified and then capacity of these bottlenecks should be augmented by decreasing the load on them. On pinpointing Herbie as the bottleneck, Alex reduced the load he was carrying and distributed it among others. The bottleneck should be positioned such that it does not reduce the rate of the process. Therefore, Herbie was placed at the head which helped in setting the pace of the line and increased the average speed of the trail. Bottlenecks should be optimized by eliminating time wasted through idle bottleneck time, processing defective parts, or producing parts which do not contribute to throughput.

On implementing the required changes, every bottleneck could be eased and productivity could be increased. At the plant, two bottlenecks- NCX-10 and Heat Treat were identified and steps were taken to increase the productivity of the bottlenecks: Workers responsible for these machines went on a break when the machine was running, thereby ensuring idle time of the bottlenecks was reduced. The quality control was placed in front of the bottlenecks, In order to avoid wasting time in manufacturing parts which were not of sound of quality, quality control was placed in front of bottelencks. Tags were placed on parts that had traveled through the bottleneck

Burden on the NCX-10 was reduced by running old equipment in parallel with it. Outsourcing was also considered.

*Answer* The Scout Trek Experience narrated in Goal has various lessons: Output of a unit depends on the slowest process, which can be termed as Bottleneck or Critical Process. By producing as per the fastest process requirements, Inventory increase because the slowest process cannot process as fast and hence inventory accumulates in front of slowest process as in the case with inventory piling up in front of NCX 10 in the book. Thus, inventory costs go up. By producing as per the fastest process requirements, Throughput decreases because unit is not actually producing as many final products as are being processed through fastest process. Thus sales go down and hence throughput goes down. By producing as per the fastest process requirements, Operating Expenses also go up because more manpower and machine power is being used for building up inventories which are just stacking up and not converting in final products at the same rate. Two phenomenons are very crucial in a manufacturing unit: *Dependent Events and Statistical Fluctuations. *These two together define the process. The effect of Statistical Fluctuations of delays in one

process passes on the other dependent process, thus delaying the whole system.

Pg 101

In any process flow, the slowest step becomes the rate determining step. Suppose you have a machine A to produce footballs at 100 balls per hour. Also you have a B and C to add the company logo and to pack the balls respectively. The capacity for B is 300 balls per hour and for C is 200 balls per hour. Even then the maximum output in this process will the dependent on A and it will be 100 balls per hour. We shall analyse the scout trek situation given and see how we can apply out principles on how to remove a bottleneck. Step 1 Step 2 Step 3 Step 4 Step 5 : Identify the slowest kid which leads the entire group to slow down. : See how to exploit the best speed from the kid. : Understand that how important is that kid to the performance of the group : Remove the heavy bag carried by him so that it allows him to move faster. : If it works , keep performing it till maximum speed is achieved.

This is an ongoing process of improvement. We continue to cycle through these five steps to continually improve the systems productivity, its ability to take us closer to The Goal.

Q1. Justify propriety and usefulness of the three operating indicators defined by Dr. E. Goldratt in assessing and monitoring the health of a business, giving examples. The reason why a firm manufactures goods is to sell them in the market and make money. Hence, it should align its processes in a manner that it should be able meet the market demand. If a firm is unable to do so, it will result in lost sales, which also would mean decreased cash flows. As a result, the firm may not be able to meet its financial obligations and it results in financial distress. e.g.- Consider a cement manufacturing firm. Its profitability depends on the volume of cement sold by it. Thus, in order to increase profits, the operations must handle the constraints in a manner to ensure that its output is able to meet market demand so that it can capture maximum market share. A firm must purchase raw materials. The value of these raw materials purchased represents the amount of money invested in the business. A business must manage its levels of inventory as it grows because if it does not, then the rate at which money is invested in a business may exceed the rate at which money is being generated by the business, i.e. it may result in losses. Also, a firm faces high obsolescence risk which results in decreased throughputs due to decrease in sales revenues.

e.g.- A computer manufacturer may face trouble if he has high level of inventory as, when the technology changes, the throughput decreases and the amount of money invested to buy new raw materials increases, which results in decreased profitability. A firm must spend a certain amount of money in order to add value to the inventory purchased before selling them. The profitability of a firm depends on its ability to create maximum value at minimum cost. The amount of money saved will result in increased profits by the same amount. Thus, the heath of a business is measured as the capability of its operations to make money. The operations of any business must be able increase its throughput while simultaneously decreasing its inventory and operating expenses in order to stay in business and be profitable. It can be observed that the operations of a firm in distress is not able to meet the above criteria and hence the firm runs into losses. In conclusion, the health of a business can be accurately measured using the operating parameters mentioned above.

The column of scouts has spread out to some degree from the close spacing we started with. is stretched out much farther. And a couple of big gaps have appeared. I can barely see the kid at the end of the line. it?" Herbie continues up the trail and the others follow. Some of them look as if they'd like to go faster, but they can't get around Herbie. I fall in behind the last boy. The line stretches out in front of me, and most of the time, unless

we're going over a hill or around a sharp bend in the trail, I can see everybody. The column seems to settle into a comfortable rhythm. Holy cow! Where's Ron? He must be half a mile ahead of us. I can see a couple of boys in front of Herbie, and everyone else is lost in the distance. I cup my hands over my mouth. "HEY! LET'S GO UP THERE! LET'S CLOSE RANKS!" I yell. "DOUBLE TIME! DOUBLE TIME!" Wear and tear when trying to catch up. More energy is spent Make guy ahead stop. Was walking at avg [ace Distance b/w first and last should expand n contract in a range n average out.ut gap is inc U have to slow down to the rate of the guy in front of u. ability to go faster is restricted: own limit and guy in front What's happening isn't an averaging out of the fluctuations in our various speeds, but an accumulation of the fluctuations. And mostly it's an accumulation of slownessbecause dependency limits the opportunities for higher fluctuations. distance each of us has to make up tends to be a matter of where we are in the line. at the end of the line. To make the total length of the line contract, I have to move faster than average for a distance equal to all the excess space between all the boys. I have to make up for the accumula- tion of all their slowness. Then I start to wonder

Tie ankles Clone I've set up is intended to "process" matches. It does this by moving a quantity of match sticks out of their box, and through each of the bowls in succession. The dice determine how many matches can be moved from one bowl to the next. The dice represent the capacity of each resource, each bowl; the set of bowls are my dependent events, my stages of production. Each has exactly the same capacity as the others, but its actual yield will fluctuate somewhat. Throughput in this system is the speed at which matches come out of the last bowl. Inventory consists of the total number of matches in all of the bowls at any time. And I'm going to assume that market demand is exactly equal to the average num- ber of matches that the system can process. Production

capacity of each resource and market demand are perfectly in balance. So that means I now have a model of a perfectly balanced manufac- turing plant. explain what they're supposed to do. "The idea is to move as many matches as you can from your bowl to the bowl on your right. When it's your turn, you roll the die, and the number that comes up is the number of matches you can move. Got it?" They all nod. "But you can only move as many matches as you've got in your bowl. So if you roll a five and you only have two matches in your bowl, then you can only move two matches. And if it comes to your turn and you don't have any matches, then naturally you can't move any." record the amount that each of them deviates from the average. "Hey, let's keep those matches coming." "I'm doing my job up here," says Andy. "Yeah, what's wrong with you guys down there?" low rolls just when he has inventory to move. yet throughput went down. Inventory went up. And operational expense? If there had been carrying costs on the matches, operational expense would have gone up too. was no reserve. When the kids downstream in the balanced model got behind, they had no extra capacity to make up for the loss. And as the negative deviations accumulated, they got deeper and deeper in the hole. Covariance: the impact of one variable upon others in the same group. A mathematical principle says that in a linear dependency of two or more variables, the fluctuations of the variables down the line will fluctuate around the maximum deviation established by any preceding variables. it: we run to catch up. (We always run, never stop; I just thought I'd stay back here with you. This way I won't hold any- body up. placed the fastest kid at the front of the line, and the slowest at the back of the line. In effect, each of them, like Herbie, has found an optimal pace. The gaps between the boys are widening. The closer to the front of the line, the wider the gaps become and the faster they expand. rate is throughput. Herbie's rate governs mine. So Herbie really is determining the maximum throughput. it depended upon who was moving the slowest at a particular time. But overall, Herbie has the least capacity for walking. His rate ultimately determines the troop's rate.

him. Herbie will lead." idea is to get there together. Few gaps. Easily covered up. ahead of me. if you guys want to go faster, then you have to figure out a way to let Herbie go faster divide stuff up Inventory is down. Throughput is up "It's okay to say that fluctuations in cycle time for a robot would be almost flat while it was working," I tell him. "But we're not dealing just with a robotic operation. Our other operations do have both phenomena. In a normal situation, the pieces finished by Pete's people probably would be moved to the robot only once a day, or maybe not until the entire batch was finished. We can't wait that long. The robot has to begin its work as soon as possible. "You see, the first hour Pete's people did nineteen pieces. The robot was capable of doing twenty-five, but Pete deliv- ered less than that, so nineteen became the robot's true capacity for that hour." "Same with the second hour," says Fred. "Pete delivered twenty-one, the robot could only do twenty-one." Output = 90 pcs. "Every time Pete's area got behind, it was passed on to the robot," I say. "But when Pete delivered 28 pieces, the robot could still only do twenty-five. That meant that when the final delivery of thirty-two pieces arrived at four o'clock, the robot still had three pieces to work on from the last batch. So it couldn't start on the final batch right away." say. "The maximum deviation of a preceding operation will become the starting point of a subse- quent operation." forget we only had two opera- tions here. You can imagine what happens when we've got de- pendency running through ten or fifteen operations, each with its own set of fluctuations, just to make one part. And some of our products involve hundreds of parts." there to make up for the delays." Longer lead times increase inventory, Bob. And that isn't the goal." We cannot measure the capacity of a resource in isolation. Its true productive capacity de- pends upon where it is in the plant. And trying to level capacity with demand to minimize expenses has really screwed us as a plant comes close to being balanced through the efforts of engineers and managers doing the wrong things, events head toward a crisis and

the plant is very quickly un balanced by shift- ing workers or by overtime or by calling back some people from layoff. shouldn't be looking at each local area and trying to trim it. We should be trying to optimize the whole system. Some resources have to have more capacity than others. The ones at the end of the line should have more than the ones at the beginningsometimes a lot more.