The Goal: a process of Ongoing Improvement

parts that can’t be assembled into a product and sold because we don’t have
the other components, or because we don’t have the orders, then we’re

---

increasing our costs.’’ "Al,’’ says Bob, "are you trying to tell us we got
screwed by the robots?’’
I sit down again.
"We haven’t been managing according to the goal,’’ I mutter.
Lou squints. "The goal? You mean our objectives for the month?’’
I look around at them.
"I think I need to explain a few things.’’

---

10
An hour and a half later, I’ve gone over it all with them. We’re in the
conference room, which I’ve commandeered because it has a 
whiteboard
. On
that 
whiteboard
, I’ve drawn a diagram of the goal. Just now I’ve written out
the definitions of the three measurements.
All of them are quiet. Finally, Lou speaks up and says, "Where the heck
did you get these definitions anyway?’’
"My old physics teacher gave them to me.’’
"Who?’’ asks Bob.
"Your old physics teacher?’’ asks Lou.
"Yeah,’’ I say defensively. "What about it?’’
"So what’s his name?’’ asks Bob.
"Or what’s ‘her’ name,’’ says Stacey.
"His name is Jonah. He’s from Israel.’’
Bob says, "Well, what I want to know is, how come in throughput he says
‘sales’? We’re manufacturing. We’ve got nothing to do with sales; that’s
marketing.’’
I shrug. After all, I asked the same question over the phone. Jonah said the
definitions were precise, but I don’t know how to answer Bob. I turn toward
the window. Then I see what I should have remembered.
"Come here,’’ I say to Bob.

---

He lumbers over. I put a hand on his shoulder and point out the window.
"What are those?’’ I ask him.
"Warehouses,’’ he says.
"For what?’’
"Finished goods.’’
"Would the company stay in business if all it did was manufacture products
to fill those warehouses?’’
"Okay, okay,’’ Bob says sheepishly, seeing the meaning now. "So we got to
sell the stuff to make money.’’
Lou is still staring at the board.
"Interesting, isn’t it, that each one of those definitions contains the word
money,’’
he says. "Throughput is the 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. One measurement for the
incoming money, one for the money still stuck inside, and one for the money
going out.’’
"Well, if you think about all the investment represented by what we’ve got
sitting out there on the floor, you know for sure that inventory is money,’’
says Stacey. "But what bothers me is that I don’t see how he’s treating value
added to materials by direct labor.’’
"I wondered the same thing, and I can only tell you what he told me,’’ I say.
"Which is?’’
"He said he thinks that it’s just better if value added isn’t taken into account.
He said that it gets rid of the ‘confusion’ about what’s an investment and
what’s an expense, I say.

---

Stacey and the rest of us think about this for a minute. The room gets quiet
again.
Then Stacey says, "Maybe Jonah feels direct labor shouldn’t be a part of
inventory because the time of the employees isn’t what we’re really selling.
We ‘buy’ time from our employees, in a sense, but we don’t sell that time to
a customer—unless we’re talking about service.’’
"Hey, hold it,’’ says Bob. "Now look here: if we’re selling the product, aren’t
we also selling the time invested in that product?’’
"Okay, but what about idle time?’’ I ask.
Lou butts in to settle it, saying, "All this is, if I understand it correctly, is a
different way of doing the accounting. All employee time—whether it’s
direct or indirect, idle time or operating time, or whatever—is