The Goal: a process of Ongoing Improvement

Part of what Jonah told me last night over the phone had to do with the time a

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piece of material spends inside a plant. If you consider the total time from the
moment the material comes into the plant to the minute it goes out the door as
part of a finished product, you can divide that time into four elements.
One of them is setup, the time the part spends waiting for a resource, while
the resource is preparing itself to work on the part.
Another is process time, which is the amount of time the part spends being
modified into a new, more valuable form.
A third element is queue time, which is the time the part spends in line for a
resource while the resource is busy working on something else ahead of it.
The fourth element is wait time, which is the time the part waits, not for a
resource, but for another part so they can be assembled together.
As Jonah pointed out last night, setup and process are a small portion of the
total elapsed time for any part. But queue and wait often consume large
amounts of time—in fact, the majority of the elapsed total that the part
spends inside the plant.
For parts that are going through 
bottlenecks, 
queue is the dominant portion.
The part is stuck in front of the bottleneck for a long time. For parts that are
only going through 
non-bottlenecks,
wait is dominant, because they are
waiting in front of assembly for parts that are coming from the bottlenecks.
Which means that in each case, the bottlenecks are what dictate this elapsed
time. Which, in turn, means the bottlenecks dictate inventory as well as
throughput.
We have been setting batch sizes according to an economical batch quantity
(or EBQ) formula. Last night, Jonah told me that although he didn’t have
time over the phone to go into all the reasons, EBQ has a number of flawed
assumptions underlying it. Instead, he asked me to consider what would
happen if we cut batch sizes by half from their present quantities.
If we reduce batch sizes by half, we also reduce by half the time it will take to
process a batch. That means we reduce queue and wait by half as well.

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Reduce those by half, and we reduce by about half the total time parts spend
in the plant. Reduce the time parts spend in the plant, and. . . .
"Our total lead time condenses,’’ I explain. "And with less time spent sitting
in a pile, the speed of the flow of parts increases.’’
"And with faster turn-around on orders, customers get their orders faster,’’
says Lou.
"Not only that,’’ says Stacey, "but with shorter lead times we can respond
faster.’’
"That’s right!’’ I say. "If we can respond to the market faster, we get an
advantage in the marketplace.’’
"That means more customers come to us because we can deliver faster,’’ says
Lou.
"Our sales increase!’’ I say.
"And so do our bonuses!’’ says Stacey.
"Whoa! Whoa now! Hold up here a minute!’’ says Bob.
"What’s the matter?’’ I ask him.
"What about setup time?’’ he says. "You can batch sizes in half, you double
the number of setups. What about direct labor? We got to save on setups to
keep down costs.’’
"Okay, I knew this would come up,’’ I tell them. "Now look, it’s time we
think about this carefully. Jonah told me last night that there was a
corresponding rule to the one about an hour lost at a bottleneck. You
remember that? An hour lost at a bottleneck is an hour lost for the entire
system.’’
"Yeah, I remember,’’ Bob says.

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I say, "The rule he gave me last night is that an hour saved at a non-
bottleneck is a mirage.’’
"A