The Goal: a process of Ongoing Improvement

parts to assembly. We catch it when it is pretty late, when holes are already
evident in the assembly buffer. Then, and only then, we go and change the
priorities at those work centers. Basically, we restore the importance of the
green parts.’’
"So what you’re telling us,’’ Bob cannot contain his surprise, "is that if you
just eliminate the tags, it will be much better?’’
"Yes, that’s what I’m saying. If we eliminate the tags and we instruct the
workers to work according to the sequence in which the parts arrive—first
come, first done—the parts will be done in the right sequence, fewer holes
will be created in the buffers, my people will not have to track where the
material is stuck, and...’’
"And the foreman will not have to constantly reshuffle priorities.’’ Bob
completes her sentence.
I try to confirm what I heard. "Stacey, are you positive that your warning

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about those constraint resources was just a false alarm? Can we safely take
more orders?’’
"I think so,’’ she says. "It explains one of my biggest mysteries, why there
are so few holes in the bottlenecks’ buffers, while there are more and more in
the assembly buffer. By the way fellows, the fact that there are more and
more holes indicates that eventually we will run into the problem of
insufficient capacity, but not right now. I’ll take care of those tags
immediately. You won’t see them tomorrow.’’
"Well, this discussion was very beneficial,’’ I conclude. "Let’s carry on.
When was the second constraint broken?’’
"When we started shipping everything much ahead of time,’’ Bob answers.
"Shipping three weeks earlier is a clear indication that the constraint is no
longer in production but in the market. Lack of sufficient orders limited the
plant from making more money.’’
"Correct,’’ Lou confirms. "What do you think: did we do anything different
on the non-constraints?’’
"Not me,’’ says Bob.
"Me neither,’’ echoes Ralph. "Hey, wait a minute. How come we continue to
release material according to the oven and the NCX10 if they are no longer
the constraints?’’
We look at each other. Really, how come?
"Something even funnier is going on. How come my computer shows that
these two work centers are still a constraint, that they are constantly loaded to
one hundred percent?’’
I turn my eyes to Stacey, "Do you know what’s going on?’’
"I’m afraid I do,’’ she admits. "It’s definitely not my day.’’

---

"And all this time I wondered why our finished goods were not depleting at a
faster rate,’’ I say.
"Will one of you tell us what’s going on?’’ Bob says impatiently.
"Go ahead, Stacey.’’
"Come on fellas, don’t look at me like that. After operating for so long with
mountains of finished goods, wouldn’t anybody do the same?’’
"Do what?’’ Bob is lost. "Will you please stop talking in riddles?’’
"We all knew how important it was to make the bottlenecks work all the
time.’’ Stacey starts at last to explain. "Remember, ‘An hour lost on the
bottleneck is an hour lost for the entire plant.’ So, when I realized that the
load on the bottlenecks was dropping, I issued orders for products to be on
the shelf, in stock. Stupid, I know now, but at least at the moment our
finished goods are balanced to roughly six weeks. No more of that awful
situation where we hold mountains of some products and not even one single
unit of others.’’
"That’s good,’’ Lou says. "It means we can easily deplete it. Alex be careful
not to do it too fast, remember the bottom-line ramifications.’’
It’s Stacey’s turn to be puzzled. "Why shouldn’t we get rid of the finished
products as fast as possible?’’ she asks.
"Never mind,’’ I impatiently say. "Lou can, and should, explain it to all of
you later. Right now we should correct our fivestep process. Now we all
know to what extent Ralph was right, something is definitely missing.’’
"Can I correct it?’’ Stacey says sheepishly, and goes to the board.
When she returns to her seat the board has the following:
1. IDENTIFY the system’s constraint(s).

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2. Decide how to EXPLOIT the system’s constraint(s).
3. SUBORDINATE everything else to the above decision.
4. ELEVATE the system’s constraint(s).
5. WARNING!!!! If in the previous steps a constraint has been broken, go
back to step 1, but do not allow INERTIA to cause a system’s constraint.
Examining the board, Lou moans, "It’s much worse than I thought.’’
"On the contrary,’’ I’m surprised. "It’s much better than I thought.’’
We look at each other. "You first,’’ I say. "Why do you claim that it’s much
worse?’’
"Because I’ve lost my only guideline.’’
When he realizes that we don’t get it, he elaborates; "All the changes that we
made so far, all the sacred cows that we had to slaughter, had one thing in
common, they all stem from cost accounting. Local efficiencies, optimum
batch sizes, product cost, inventory evaluations, all came from the same
source. I didn’t have much problem with it. As a controller I questioned cost
accounting validity for a long time. Remember, it’s the invention of the
beginning of the century when conditions were much different from today.
As a matter of fact, I started to have a very good guideline; if it comes from
cost accounting it must be wrong.’’
"Very good guideline,’’ I smile. "But what is your problem?’’
"Don’t you see, the problem is much bigger; it’s not only cost accounting.
We put on the green and red tags not because of cost accounting, but because
we realized the importance of the bottlenecks. Stacey created orders for
finished goods because of our new understanding, because she wanted to
make sure that the bottlenecks’ capacity will not be wasted. I thought that it
takes a lot of time to develop inertia. What I now see is that it takes less than
one month.’’

---

"Yes, you are right,’’ I say gloomily. "Whenever the constraint is broken it
changes conditions to the extent that it is very dangerous to extrapolate from
the past.’’
"As a matter of fact,’’ Stacey adds, "even the things that we put in place in
order to elevate the constraint must be reexamined.’’
"How can we do it?’’ Bob asks. "It’s impossible to question everything every
time.’’
"Something is still missing,’’ Ralph summarizes.
Something definitely is still missing.
"Alex, it’s your turn to explain,’’ Lou says.
"Explain what?’’
"Why did you claim that it’s much better?’’
I smile. It’s about time for some good news.
"Fellows, what stopped us from once again taking another jump on the
bottom line? Nothing, except for the conviction that we don’t have enough
capacity. Well, now we know differently. Now we know that we have a lot of
spare capacity.’’
How much spare capacity do we actually have?
"Stacey, how much of the current load on the oven and the NCX10 is due to
the fictitious orders?’’
"Roughly twenty percent,’’ she says quietly.
"Marvelous,’’ I rub my hands together. "We have enough capacity to really
take the market. I’d better drive to headquarters tomorrow morning and have

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a heart-to-heart talk with Johnny Jons. Lou, I’ll definitely need you. On
second thought, Ralph, will you join us? And bring your computer with you,
we’re going to show them something.’’

---

38
It is six o’clock in the morning when I pick up Lou and Ralph at the plant.
We (I) decided that it will be best, since picking them up at their houses
would mean I would have had to leave home close to five. In any event,
we’re probably not going to spend more than a few hours at headquarters so
it’s reasonable to assume that we’ll be back to work in the afternoon.
We hardly talk. Ralph, in the back seat, is busy with his laptop computer.
Lou probably thinks that he’s still in bed. I drive on automatic pilot. That is,
my mind is busy constructing imaginary conversations with Johnny Jons. I
somehow have to convince him to get many more orders for our plant.
Yesterday, in the heat of discovering the amount of free capacity that we
have, I looked only on the bright side. Now I wonder if I’m not just asking
for miracles.
I recheck the numbers in my head. In order to fill our capacity Johnny
will have to come up with over ten million dollars of additional sales. It is
totally unrealistic that he holds so much up his sleeve.
So, squeezing, begging, and pleading techniques will not help. We’ll have
to come up with some innovative ideas. Well, the truth is that so far I haven’t
been able to come up with any. Let’s hope Johnny has some clever ideas;
he’s the one who is supposed to be the expert in sales.
"I want you to meet Dick Pashky,’’ Johnny Jons says as we enter the
small conference room. "He’s one of my best people. Dedicated,
professional, and above all he’s full of innovative approaches. I thought it
would be a good idea for you to get to know him. Do you mind if he joins
us?’’
"On the contrary,’’ I smile. "We need some innovative ideas. You see,

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what I want is for you to get my plant additional business —ten million
dollars’ worth.’’
Johnny bursts out laughing. "Jokers, all of you in production are
wonderful jokers. Dick, what did I tell you? It’s not easy to deal with plant
managers. One is asking me to persuade his client to pay a ten percent
increase in price, another wants me to get rid of a pile of old junk for full
price, but Alex, you’re the best—ten million dollars!’’
He continues to laugh, but I don’t join in.
"Johnny, put on your thinking cap. You must find more orders for my
plant, ten million dollars more.’’
He stops laughing and looks at me, "You are serious. Alex, what’s happened
to you? You know how tough it is to get more business these days; it’s dog
eat dog out there. Everybody is cutting each other’s throats for the smallest
order and you’re talking about ten million dollars more?’’
I don’t hurry to respond. I lean back in my seat and look at him. Finally I say,
"Listen Johnny, you know that my plant has improved. What you don’t know
is to what extent it’s improved. We’re now capable of delivering everything
within two weeks. We’ve demonstrated that we never miss an order, not even
by one day. Our quality has improved to the extent that I’m sure we’re the
best in the market. We are very responsive, very quick, and above all, very
reliable. This is not a sales pitch, it’s the truth.’’
"Alex, I know all this. I hear it from the best source, from my clients. But that
doesn’t mean that I can immediately turn it into cash. Sales take time,
credibility is not built overnight, it’s a gradual process. And by the way, you
shouldn’t complain; I’m bringing you more and more sales. Be patient and
don’t press for miracles.’’
"I have twenty percent spare capacity.’’ I say, letting this sentence hang in the
air.
From the lack of response I understand that Johnny doesn’t see the relevance.

---

"I need twenty percent more sales,’’ I translate for him.
"Alex, orders are not apples hanging from trees. I can’t just go out and pick
some for you.’’
"There must be orders that you decline, because the quality requirement is too
high or because the client is asking for unreasonably short delivery times or
something. Get me those orders.’’
"You probably don’t know how 
bad the economy
is,’’ he sighs. "Today I
accept any order, anything that moves. I know that a lot of dancing will be
required later, but the current pressure is simply too high.’’
"If the competition is so fierce and the 
economy is so bad
,’’ Lou says in his
quiet voice, "then it must be that clients are pressing for lower prices.’’
"Pressing is not the word. Squeezing is much more appropriate. Can you
imagine, and this is just between us, in some cases I’m forced to accept
business for practically zero margin.’’
I start to see the light at the end of the tunnel.
"Johnny, do they sometimes demand prices that are lower than our cost?’’
"Sometimes? All the time.’’
"And what do you do?’’ I continue.
"What can I do?’’ he laughs. "I try to explain the best I can. Sometimes it
even works.’’
I swallow hard and say, "I’m ready to accept orders for ten percent below
cost.’’
Johnny doesn’t hurry to answer. His peoples’ bonuses are based on total sales
dollars. Finally he says, "Forget it.’’

---

"Why?’’
He doesn’t answer. I persist, "Why should I forget it?’’
"Because it’s stupid, because it doesn’t make any business sense,’’ he says in
a hard voice, and then softer, "Alex, I don’t know what tricks you have in
mind but let me tell you, all those tricks have a very short life span before
they explode in your face. Why do you want to ruin a promising career?
You’ve done an outstanding job, why go and mess it up? Besides, if we lower
prices for one client, it’s just a matter of time until the others find out and
demand the same. What then?’’
He has a point. The last argument shows that the light at the end of the tunnel
was just a train.
Help comes from an unexpected side.
"Djangler is not connected to our regular customers,’’ Dick says hesitantly.
"Besides, with the quantities he’s asking for, we can always claim we gave
him a volume discount.’’
"Forget it,’’ Johnny is practically shouting. "That bastard is asking us to give
him the goods for basically nothing, not to mention that he wants us to ship to
France at our expense.’’
Turning to me he says, "This French guy has chutzpah, it’s unbelievable. We
negotiated for three months. We established each other’s credibility, we
agreed on terms and conditions. It all takes time. He asked for every technical
detail that you can imagine, and we’re not talking about one or two products,
it’s for almost the entire range. All this time not even a peep about prices. At
the end, just two days ago, when everything is agreed, he faxes me that our
prices are not acceptable and sends his counter offer. I was expecting the
usual thing, asking for price reductions of ten percent, maybe fifteen percent
considering the large quantities that he is willing to buy, but no, these
Europeans probably have a different perception. For example, Model Twelve,
the one that you pulled such a miracle on. Our price is nine hundred and

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ninety-two dollars. We sell it to Burnside for eight hundred and twenty-seven
dollars; they’re a big client and they consume very large quantities of this