Physics

The Goal: A Process of Ongoing Improvement is a work of fiction describing a very real thing -- the

process of manufacturing a product. This includes the engineering and production process,

marketing, sales, and interaction with corporate and regional headquarters. As an employee in a

corporate contract manufacturing environment, reading this story does not sound like a work of

fiction at all. In fact, in many instances this book seems to describe "my plant." The following is a

brief summary of the fictional story.

The main character in the story is Alex Rogo. He is the plant manger of a UniWare Division plant in

Bearington. Readers are never fully introduced to what kind of products they make, but soon learn

According to the Goal 3

that UniWare requires heavy machinery and elaborate engineering processes to manufacture their

products.

Alex's plant has not been profitable for some time, and the division president informs Alex that the

Bearington plant will be closed within three months, unless there are visible improvements. Alex

decides that he will not give up on the plant, because it is in his home town and he has an increased

sense of responsibility for the plant's future.

In order to overhaul the plant, Alex contacts his former professor, Jonah. Curiously, Jonah is a

physicist, yet Alex remembers a meeting with Jonah a few months ago during which Jonah

questioned Alex's business decisions. Alex was scheduled to give a presentation at a UniWare

Division meeting, but Jonah particularly raised questions about the way Alex defines productivity

and efficiency in his presentation. Alex was upset about this, because he has an MBA, yet he feels

that Jonah is "just" a scientist.

It turns out that Jonah has been an independent consultant to businesses to help them be more

productive. He is very busy and travels frequently. During several phone conversations and face-toface

meetings, Jonah explains his business model to Alex. He does this by giving Alex definitions to

examine plant structures. He also explains correlations that determine the success of the business.

At the heart of Jonah's business model are three definitions: throughput, or "the rate at which the

system generates money through sales," inventory, or "all the money that system has invested in

purchasing things which it intends to sells," and operational expense, or "all the money the system

spends in order to turn inventory into throughput" [1, pp. 60, 61]. Using these definitions, Alex

always has a basis to determine if his decisions are helping the plant move towards the goal. The

goal of the plant is to make money, which is characterized by increasing throughput and decreasing

inventory and operational expense.

The story progresses through Alex's struggles at home and in the plant. Just as in everyday life, there

are several victories followed by set-backs. However, through hard work and with the use of a

skilled team and Jonah's help, Alex is able to make the plant the most productive one within the

UniWare Division. Alex is promoted to lead the UniWare division as president and is entrusted with

implementing his (Jonah's) business model throughout the entire division. Alex's marital life also

ends happily, because he and his spouse resolve their conflicts.

This summary is brief and leaves out many of the fictional elements that make the story such an

interesting and fast-paced read. I encourage anyone that is interested in learning about

manufacturing a product to read Goldratt's book. It is the most efficient way to understand the

challenges involved in manufacturing processes. In this paper, I will focus on the business model

Goldratt describes.

Eliyahu Goldratt's The Goal: The Process of Ongoing Improvement was first printed in 1984. Ever since,

the book has sold more than one million copies. In 2004, it was released in its third edition. When

Goldratt introduced the book it created a minor earthquake. Goldratt attacked some of the most

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basic procedures in manufacturing plants all over the US and other parts of the world. Suddenly, a

guy from Israel (of all places) comes along and tells manufacturing industries that cost accounting is

profoundly flawed. He claimed that managers should refrain from using performance incentives,

economic order quantities (EOQ) should be thrown out, and productivity and product cost are

really not what they seem. [2] It seems as if those two years in Business School and that MBA on the

wall are worth nothing according to Goldratt's common sense approach. The following will examine

and contrast Goldratt's business model with the way we traditionally look at manufacturing

businesses.

Goldratt's business model is based on two principles. The first principle defines three ways to

measure

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