hLLp//wwwslldeshareneL/veerabadramr/cfakepaLhLhegoalbymrellyahugoldraLLmadebymr

bala[l
hLLp//wwwangelflrecom/ca2/[lul/LhegoalhLml

Mr. Rogo, Plant Manager Iaced a heated situation created by Bill Peach, Vice President who
surprisingly demanded the status oI Customer Order 41427
O Order No. 41427 - Order Irom Bucky Burnside, President oI one oI UniCo Biggest
Customer
O Bill Peach`s Demand Dispatch the Order No.41427 within 24hrs
O %he Bad Luck Machine NCX-10 was down, Assemblies were missing.
O Peach`s Warning 3 Months to clear all the backlogs oI the plant


Alex learns Irom Jonah several concepts which are polar opposites Irom what he has
been told beIore about business operations. Jonah reveals that:
1. Money is most important to management over eIIiciency.
2. Cost accounting is the number one enemy oI productivity.
3. A plant in which everyone is working all the time is ineIIicient.

%he Goal is a very compelling novel. Novel, HUH!! Who ever heard oI a novel about
a production plant? Well, Eli has made the production managers have quite an
epiphany. In one book he might have changed the whole world oI cost accounting. Eli
approached the production world with a common sense view. Using just one goal,
making money, he reIerenced every activity to it. Eli said, "I view science as nothing
more than an understanding oI the way the world is and why it is that way." You see,
Eli is a physicist, and in being one, has to understand why things work the way they
do. His common sense approach is illustrated beautiIully in this novel. He has looked
at cost accounting Irom the outside and has developed a whole new system because oI
it.
Everyone Irom accountants to production managers to CEO`s should read this book.
Because oI its Iundamentals, it should be part oI the curriculum oI every accounting
program. %his novel has and continues to help the industry to make strides toward
continuous improvement.
Chapter One
%he Iirst chapter gets the reader acquainted with Mr. Alex Rogo and his apparent
problems with his production plant. %his is shown through a conIrontation between
Mr. Rogo and his boss Mr. Peach, the Division Vice President. %he dispute is over an
overdue order #41427. %hrough their conversation it`s learned that Mr. Peach will not
settle Ior anything less than the order being shipped today, and since the plant is
neither productive nor proIitable, Alex has three months to show an improvement or
the plant will be shut down!
Chapter %wo
%his chapter gives insight to Alex`s home liIe. Since moving back to his hometown
six months ago, it seems adjustment isn`t going well Ior his Iamily. It`s great Ior Alex,
but it`s a big change Irom the city liIe that his wiIe is used to. You also experience
Mr. Rogo`s background through his reIlections back on his travels to eventually Iind
himselI back where he started. "He`s now 38 years old and a crummy plant manager".
By the way, the order #41427 does get shipped, but not very eIIiciently. All hands in
the plant are working on one order with Iorbidden overtime to boot.
Chapter %hree
Mr. Peach calls a meeting at headquarters Ior all plant managers and his staII. At the
meeting everybody Iinds out how bad things are and are given goals to achieve Ior the
next quarter. %hrough the grapevine Mr. Rogo Iinds out perhaps why Mr. Peach has
been acting so erratic lately, the Division has one year to improve or it`s going to be
sold, along with Mr. Peach.
Chapter Four
While at this meeting, Alex thinks back on a recent business trip where he ran into an
old physics proIessor, Jonah, at the airport. Jonah puzzles Alex with how well he
knows how Alex`s plant is doing. Jonah has no knowledge oI where Alex is
employed. Johan predicts the problems oI high inventories and not meeting shipping
dates. He also states that there is only one goal Ior all companies, and anything that
brings you closer to achieving it is productive and all other things are not productive.
(See What is this thing called %heory oI Constraints Ior more on Alex's encounter
with Jonah.)
Chapter Five
Alex decides to leave the meeting at the break. He has no particular place he would
like to go; he just knows this meeting isn`t Ior him, not today. He needs to understand
what the "goal" is. AIter a pizza and a six pack oI beer it hits him, money. %he "goal"
is to make money and anything that brings us closer to it is productive and anything
that doesn`t isn`t.
Chapter Six
Mr. Rogo sits down with one oI his accountants and together they deIine what is
needed in terms oI achieving the goal. Net proIit needs to increase along with
simultaneously increasing return on investment and cash Ilow. Now all that is needed
is to put his speciIic operations in those terms.
Chapter Seven
Alex makes the decision to stay with the company Ior the last three months and try to
make a change. %hen he decides he needs to Iind Jonah.
Chapter Eight
Alex Iinally speaks to Jonah. He is given three terms that will help him run his plant,
throughput, inventory, and operational expense. Jonah states that everything in the
plant can be classiIied under these three terms. "%hroughput is the rate at which the
system generates money through sales." "Inventory is all the money that the system
has invested in purchasing things which it intends to sell." "Operational expense is all
the money the system spends in order to turn inventory into throughput." Alex needs
more explanation.
Chapter Nine
Alex Iresh oII his talk with Jonah gets word that the head oI the company wants to
come down Ior a photo opportunity with one oI Alex`s robots. %his gets Alex thinking
oI the eIIiciency oI these robots. With the help oI the accountant, inventory control
woman, and the production manager, Alex discovers the robots increased costs,
operational expenses, and thereIore were less productive. Implementing the robots
increased costs by not reducing others, like direct labor. %he labor was shiIted to other
parts oI the plant.
Chapter %en
AIter explaining everything, Alex and his staII (Bob Irom production, Lou Irom
accounting and Stacey Irom inventory control) hammered out the meaning oI
throughput, inventory and operational expense until satisIied. Lou, states the
relationships as Iollows. "%hroughput is money coming in. Inventory is the money
currently inside the system. And operational expense is the money we have to pay out
to make throughput happen." Bob is skeptical that everything can be accounted Ior
with three measurements. Lou explains that tooling, machines, the building, the whole
plant are all inventory. %he whole plant is an investment that can be sold. Stacey says,
"So investment is the same thing as inventory."
%hen they decide that something drastic is needed to be done with the machines. But
how can they do that without lowering eIIiciencies? Another call to Jonah is placed
and Alex is oII to New York that night.
Chapter Eleven
%he meeting with Jonah is brieI. Alex tells Jonah oI the problems at the plant and the
three months in which to Iix them. Jonah says they can be Iixed in that time and then
they go over the problems the plant has. First, Jonah tells Alex to Iorget about the
robots. He also tells Alex that "A plant in which everyone is working all the time is
very ineIIicient." Jonah suggest that Alex question how he is managing the capacity in
the plant and consider the concept oI a balanced plant. According to Jonah, this "is a
plant where the capacity oI each and every resource is balanced exactly with demand
Irom the market." Alex thinks a balanced plant is a good idea. Jonah says no, "the
closer you come to a balanced plant, the closer you are to bankruptcy." %hen Jonah
leaves Alex with another riddle, what does the combination oI "dependent events" and
"statistical Iluctuations" have to do with your plant? Both oI those seem harmless and
should work themselves out down the production line.
Chapter %welve
%his short chapter tries to capture the essence oI the problems the job is causing at
home with the extra workload. %he marriage is very strained because oI the devotion
Alex needs to give to the plant.
Chapter %hirteen
Stuck Ior the weekend as troop master, Alex discovers the importance oI "dependent
events" in relation to "statistical Iluctuations". %hrough the analogy between a single
Iile hike through the wilderness and a manuIacturing plant, Alex sees that there are
normally limits to making up the downside oI the Iluctuations with the Iollowing
"dependent events". Even iI there were no limits, the last event must make up Ior all
the others Ior all oI them to average out.
Chapter Fourteen
Finally, through the dice game or match bowl experiment, it becomes clear that with a
balanced plant and because oI "statistical Iluctuations" and "dependent events"
throughput goes down and inventory along with operating expenses goes up. A
balanced plant is not the answer. (See the Dice Game or Match Bowl experiment
note).
Chapter FiIteen
Fully understanding the "dependent events", Alex puts the slowest kid in the Iront oI
the hike and he relieves him oI extra weight he has been carrying in his backpack.
%his balances the Iluctuations and increases the kid`s productivity, which increased
the throughput oI the team.
Chapter Sixteen
Well, aIter the camping trip the boys arrive home to Iind the mother has disappeared.
All the stress oI his job was too much Ior her so she leIt. Now the kids and the job are
all Alex`s responsibility. %his was supposed to be a weekend Ior Alex and his wiIe,
but when the hike came up it seemed to be the last straw Ior her.
Chapter Seventeen
Alex tries to portray his new revelation to his team at the plant. Nobody seems
interested. But the walk in the woods becomes apparent when it is put to the test Ior
an overdue order in the plant. Now even the production supervisor agrees. Now what?
Chapter Eighteen
In this chapter Jonah introduces Alex to the concept oI bottlenecks and non-
bottlenecks. Jonah deIines these terms as Iollows. "A bottleneck is any resource
whose capacity is equal to or less than the demand placed upon it. "A non-bottleneck
is any resource whose capacity is greater than the demand placed on it." Jonah
explains that Alex should not try to balance capacity with demand, but instead balance
the Ilow oI product through the plant.
Later, Alex and his team recognize the bottlenecks, the areas where capacity doesn`t
equal demand, like the slow kid Herbie on the hike. With this discovery goes the ideas
related to reorganizing the plant like Alex did with the hike. Production is a process
and it cannot be moved around so easily. Many processes rely on the previous one to
be able to complete the next. Alex would need more machines, which takes more
capital, and division is not going to go Ior that.
Chapter Nineteen
Well, Jonah makes a visit to the plant. Jonah tells Alex that a plant without
bottlenecks would have enormous excess capacity. Every plant should have
bottlenecks. Alex is conIused. What is needed is to increase the capacity oI the plant?
%he answer is more capacity at the bottlenecks. More machines to do the bottleneck
operations might help, but how about making them run more eIIectively. Jonah tells
them that they have hidden capacity because some oI their thinking is incorrect. Some
ways to increase capacity at the bottlenecks are not to have any down time within the
bottlenecks, make sure they are only working on quality products so not to waste time,
and relieve the workload by Iarming some work out to vendors. Jonah wants to know
how much it cost when the bottlenecks (X and heat treat) machines are down. Lou
says $32 per hour Ior the X machine and $21 per hour Ior heat treat. How much when
the whole plant is down? Around $1.6 million. How many hours are available per
month? About 585. AIter a calculation, Jonah explains that when the bottlenecks are
down Ior an hour, the true cost is around $2,735, the cost oI the entire system. Every
minute oI downtime at a bottleneck translates into thousands oI dollars oI loss
throughput, because without the parts Irom the bottleneck, you can`t sell the product.
%hereIore, you cannot generate throughput.
Chapter %wenty
Alex organizes the bottlenecks to work on only overdue orders Irom the most overdue
to the least. He then Iinds his wiIe. She is at her parent`s house. %hrough their
conversation it is learned that she still needs to be away Irom everybody, even the
kids.
Chapter %wenty-One
%he crew works out some oI the details Ior keeping the bottlenecks constantly busy.
In the process they Iind that they need another system to inIorm the workers what
materials have priority at non-bottlenecks. Red and green tags are the answer. Red Ior
bottleneck parts to be worked on Iirst as to not hold up the bottleneck machine, and
green Ior the non-bottleneck parts. %hat concludes another week. %he true test will be
next week.
Chapter %wenty-%wo
Great, twelve orders were shipped. Alex is pleased, but he deIinitely needs more. He
puts his production manager on it. His production manager rounds up some old
machines to complement what one oI the bottlenecks does. %hings are looking up.
Chapter %wenty-%hree
%hey are becoming more and more eIIicient, but lag time arouse with the two
bottlenecks because oI workers being loaned out to other areas and not being at the
bottlenecks when needed to process another order. It seems there was nothing to do
while waiting Ior the bottleneck machine to Iinish the batch. %hereIore, in keeping
with the notion that everybody needs to stay busy, workers were at other areas
between batches. Alex decides to dedicate a Ioreman at each location all the time.
%hen one oI those dedicated Ioreman, the night Ioreman, discovers a way to process
more parts by mixing and matching orders by priority, increasing eIIiciency by ten
percent. Finally, one process being sent through a bottleneck could be accomplished
through another older way and thereIore Iree up time on the bottleneck.
Chapter %wenty-Four
Now that the new priority system is in place Ior all parts going through the
bottlenecks, inventory is decreasing. %hat`s a good thing right? But lower inventory
revealed more bottlenecks. %his intrigues Jonah so he`s coming to take a look.
Chapter %wenty-Five
"%here aren`t any new bottlenecks", says Jonah. What actually has happened is a
result oI some old thinking. Working non-bottlenecks to maximum capacity on
bottleneck parts has caused the problem. All parts are stacked up in Iront oI the
bottlenecks and others are awaiting non-bottleneck parts Ior Iinal assembly. %here
needs to be balance. %he red and green tags need to be modiIied. It seems as iI the
bottlenecks will again control the Ilow, by only sending them exactly what they need
and when they need it.
Chapter %wenty-Six
RalI, the computer wiz, says he can come up with a schedule Ior bottleneck parts and
when they should be released. %his will alleviate any excess inventory in Iront oI the
bottlenecks, but what about the non-bottlenecks? Jonah says with the same data out oI
the bottlenecks to Iinal assembly, you should be able to predict non-bottleneck parts
as well. %his will make some time, but there are enough parts in Iront oI the
bottlenecks to stay busy Ior a month.
Chapter %wenty-Seven
%here is another corporate meeting. Mr. Peach doesn`t praise Alex like Alex thinks he
should. Alex decides to talk with him in private. Mr. Peach agrees to keep the plant
open iI Alex gives him a IiIteen percent improvement next month. %hat will be hard
because that relies heavily on demand Irom the marketplace.
Chapter %wenty-Eight
FiIteen Percent!! FiIteen Percent!! Just then Jonah called to let Alex know that he will
not be available to speak with in the next Iew weeks. Alex inIorms him oI the new
problem oI more inventories and less throughput. Jonah suggests reducing batch sizes
by halI. OI course, this will take some doing with vendors, but iI it can be done,
nearly all costs are cut in halI. Also, they get quicker response times and less lead
times Ior orders. Sounds good.
Chapter %wenty-Nine
Alex is propositioned with a test. %hey can greatly increase sales, current and Iuture,
iI they can ship a thousand products in two weeks. Impossible without committing the
plant to nothing but the new order? Wrong! How about smaller batch sizes. Cut them
in halI again. %hen promise to ship 250 each week Ior Iour weeks starting in two
weeks. %he customer loved it.
Chapter %hirty
Seventeen percent!! %hat`s great, but it`s not derived Irom the old cost accounting
model. %he auditors sent down to the plant Irom Division Iind just 12.8
improvement. Most oI it accounts Irom the new order. Which by the way, the owner
oI the company that placed the order came down personally to shake everybody`s
hand in the plant and to give a contract to them Ior not a thousand parts but ten
thousand. Anyway, tomorrow is the day oI reckoning at division.
Chapter %hirty-One
Well the meeting at Division started out rough. Alex thought he would be meeting
with Mr. Peach and other top executives. Instead, he met with their underlings. He
decides to try and convince them it doesn`t work. Just beIore leaving he decides to see
Mr. Peach. It`s a good thing he did, because he just got promoted to Mr. Peach`s
position. Now Alex has to manage three plants as the whole division. He calls Jonah
desperately and asks Ior help. Jonah declines until he has speciIic questions.
Chapter %hirty-%wo
Alex has a nice dinner with his wiIe. %hrough the veal parmesan and cheese cake it is
decided that Alex should ask Jonah how he can get other people to understand these
techniques that his team has discovered without being condescending.
Chapter %hirty-%hree
Now is the time to assemble Alex`s team Ior Division. Surprisingly the accountant
with two years to retirement is on board, but the production manager isn`t. He wants
to be plant manager to continue their eIIorts. Everything is totally into place at the
plant but more is needed Ior division.
Chapter %hirty-Four
Alex is Iirmly engrossed with the problems oI taking over the division. With advice
Irom his wiIe he decides to enlist the help oI his team at the plant. Every aIternoon
they will meet to solve the problem. AIter the Iirst day it is obvious , they will need
them all.
Chapter %hirty-Five
%he second day they are led in a discussion about the periodic table oI elements, and
how the scientists actually got a table oI any sort. Maybe that is how they will solve
the massive problems oI division, by understanding how the scientists started with
nothing and achieved order. A way to deIine them by their intensive order is needed.
Chapter %hirty-Six
%he team Iinally comes up with the process: Step one identiIy the system`s
bottlenecks; Step two- decide how to exploit those bottlenecks; Step three-
subordinate everything else to step two decisions; Step Iour- evaluate the systems
bottlenecks; Step Iive- iI, in a previous step, a bottleneck has been broken, go to step
one. It seems so simple, just diIIerent.
Chapter %hirty-Seven
%he team decides to revise the steps: Step one identiIy the systems constraints; Step
two decide how to exploit the systems constraints; Step three subordinate
everything else to step two decisions; Step Iour evaluate the systems constraints;
Step Iive- warning!!! II in the previous steps a constraint has been broken, go back to
step one, but don`t allow inertia to cause a system constraint.
It also has been discovered that they have been using the bottlenecks to produce
Iictitious orders in an eIIort to keep the bottlenecks busy. %hat will Iree up twenty
percent capacity, which translates in to market share.
Chapter %hirty-Eight
%alking with the head oI sales. Alex Iinds out that there is a market order to Iill the
capacity. It`s in Europe, so selling Ior less there will not aIIect domestic clients. II it
can be done, will open a whole new market. %hen Alex ponders Jonah`s question, to
determine what management techniques should be utilized. Alex determines how a
physicist approaches a problem. Maybe this will lead to an answer.
Chapter %hirty-Nine
Alex experiences a problem at the plant. It seems all the new orders have created new
bottlenecks. AIter analyzing the problem, they agreed to increase inventory in Iront oI
the bottlenecks an tell sales to not promise new order deliveries Ior Iour weeks, twice
as much as beIore. %his will hurt the new relationship between sales and production,
but it is needed. Production is an ongoing process oI improvement, and when new
problems arise they need to be dealt with accordingly.
Chapter Forty
Finally, struggling with the answer to Jonah`s question, Alex comes up with some
questions on his own: What to change? What to change to? How to cause the change?
Answering these questions are the keys to management, and the skills needed to
answer them are the keys to a good manager and ultimately the answer to Jonah`s
question.