Book Analyses of the Goal

Jonah uses the Socratic method to help Alex think differently about the problems he is experiencing in the plant. Jonah is not always available when Alex would like to connect with him, and after providing a little bit of information -- pivotal though it may be -- Jonah often leaves Alex hanging, presumably because Jonah knows Alex will rise to the occasion and puzzle it out. At periodic intervals throughout the book, Jonah and Alex talk about key points. These discussions are represented in the paragraphs that follow.

One of the first challenges that Jonah addresses with Alex is getting him to begin to think about what productivity is and how it is measured. Because of their conversation, Alex is able to think about what the company is measuring -- what it considers efficiencies -- and how this information is or is not related to the company goal. In particular, Jonah conveys that Alex has not yet identified the real goal of the company.

During the interval between substantive conversations about the plant, Alex develops an answer to Jonah's question: What is the goal of the company? Alex now clearly understands that the goal of the company is to make money. Jonah and Alex agree that the conventions for measuring whether a company is making money (net profit, ROI, cash flow) don't represent the work that is done within Alex's department, making it difficult to know if his department is actually contributing to the company's goal of making money. Jonah offers three measures that Alex can use in his department to measure the contribution toward profit: throughput, inventory, and operational expense. Jonah then defines these terms for Alex: "Throughput is the rate at which the system generates money through sales." "Inventory is all the money that the system has invested in purchasing things it intends to sell." "Operational expense is all the money the system spends in order to turn inventory into throughput."

When Alex visits Johan in New York City -- a trip that devolves into a hike with a troop of Boy Scouts, Alex tends to argue in support of conventional wisdom about business. Jonah discusses the misconceptions business people have about the importance and value of running a balanced plant, where operations are fine-tuned to correspond to market conditions. Indeed, Jonah explains that when capacity is trimmed exactly to demands, throughput goes down and the cost of carrying excess inventory goes up. Jonah leaves Alex to contemplate these new terms: statistical fluctuations and dependent events.

After the Boy Scout hike, Alex understands that they need to look at the whole system that is the company, and that some of the system resources -- notably the resources at the end of the process -- need to have a lot more capacity than resources in other places in the system.. Jonah explains that there are two fundamental types of resources: bottleneck resources and non-bottleneck resources.

Jonah visits the plant to get a closer look at operations. It is revealing, and Jonah sees much to talk about with Alex. Jonah explains that the company can increase throughput by increasing the capacity of the bottlenecks, without actually getting rid of the bottleneck function. Jonah's questions and observations illustrate ways to add capacity: substitute other ways of completing the processing of parts that is being held up because of bottlenecks, and spend a little more per part if it means that the parts can become part of throughput instead of setting in inventory, change policies that result in machinery sitting idle, and changing the location of quality control in the processing.

When conditions don't improve markedly at the plant, Jonah visits the plant for a second time. Here Alex and the team learn that the level of utilization of a bottleneck is not determined by its own potential, but by some other constraint in the system. One of the things Alex learns is that he can't just set a procedure up and then let it go on -- he needs to observe and evaluate how the procedure is functioning within the whole system. And Alex needs to be sure that a good flow of communication is taking place across the levels of personnel, and between the different departments and functions.

Jonah calls Alex from Singapore -- the gist of the call is that Jonah makes suggestions to Alex to take the company even leaner. Jonah suggests they cut in half the batch sizes on their non-bottlenecks. This will result in less money being tied up in inventory, which will ease the pressure on cash flow. This step requires the cooperation of vendors who must reduce the amount of supplies they deliver each time and schedule deliveries more frequently.