The Goal: A Process of Ongoing Improvement, by Eliyahu M. Goldratt, is a book pretty much every business school student is required to read.  Below are the key takeaways from this book:

Accounting vs. Operational Measures

  • Accounting cost figures misleading for operations purposes
  • Productivity per machine is meaningless; bottleneck should drive metrics

Linking Financial – Marketing – Operations Measures

  • Often mismatch top-level and lower-level metrics across departments (ROI vs. Sales vs. Productivity on non-bottleneck)

Managing by Bottlenecks

  • “An hour lost on the bottleneck is an hour lost for the entire plant”
    • Bottleneck has no “slack capacity”
    • Solution
      • Increase capacity
        • longer hours
        • more machines
        • more workers
        • outsource
      • Larger batches at the bottleneck
  • “An hour lost on a non-bottleneck is a mirage”
    • Do not overrun to be efficient: excess WIP chocks up the bottleneck
    • Do not optimize a non bottleneck at the expense of a bottleneck
    • Shorter and smaller batches at non bottleneck
  • “Manage the plant by the bottlenecks”
    • “Manage flows not capacity”
    • Quality control before and during the bottleneck
    • Make sure it is always running (have buffers)
    • Make sure most profitable product goes through
    • Throughput is profitable, efficiency is not

Additional Notes on Bottlenecks

  • Keep bottleneck running, subject the rest to the bottleneck
  • Batch sizes: Long on bottleneck, short elsewhere
  • Five steps of bottleneck management
    • Identify the system’s bottlenecks
    • Decide how to exploit the bottlenecks
    • Subordinate everything else to the bottlenecks
    • Remove the system’s bottlenecks
    • Identify the system’s new bottlenecks
  • Note: Bottleneck may be external (such as demand)
  • Gains from bottleneck management in The Goal
    • Increased revenue from $2 million and 31 orders to $3 million and 57 orders
    • Reduction of WIP by 12%
    • Bucky Burnside was delighted – 5 month order in 5 weeks
    • Order for 10,000 model T’s ensures survival of the plant for one year

Additional Takeaways

  • Always challenge the status quo and use a pragmatic approach
  • There’s always room for improvement
  • Look at overall system, not just the individual parts
  • When Operations is effective, you work better, not harder
  • Make sure to have the right metrics in place
  • Work as a team, foster the sharing of ideas
  • Importance of coordinating between Operations and Marketing

Source: http://www.mbaexcel.com/mba/key-takeaways-from-the-goal-a-process-of-ongoing-improvement/