Science and Education. I believe that these two words have been abused to the extent that their original meanings have been lost in a fog of too much respect and mystery.
The Law of Conservation of Energy of physics is not truth. It is just an assumption that is valid in explaining a tremendous amount of natural phenomena.
We can postulate a very small number of assumptions and utilize them to explain a very large spectrum of industrial phenomena.
The idea is that the reach of science into business and industry is much the same as into the natural world. Because both are the natural world and just like there are regularities to be found in chemistry and physics there are regularities to be found in business. That's what the book is about, applying the scientific enquiry on the process of production and manufacturing.
Introduction to the First Edition
Science is nothing more than an understanding of the way the world is and why it is that way.
Understanding our world is not something to be pursued for its own sake. Knowledge should be pursued, to make our world better - to make life more fulfilling.
Machines. The plant is just one vast room, acres of space, filled with machines. They are organized in blocks and blocks are separated by aisles.
Setup of the main parts of the story, manufacturing plant with a mad, raving boss, trying to get things in "order" because some shipment is extremely late, making things worse and presenting the people in the plant with an ultimatum. One short term problem of fixing the order in the same day and the other to make the plant itself profitable in the next 3 months or else they'll close it forever. An impossible task, for the main "hero" of the story, the plant manager, to be overcome, with everybody in the plant already struggling to make anything happen.
I take a slow look around. There is hardly anybody working in the departments that don't have something to do with 41427. Donovan has stolen every body he could grab and put them all to work on this order. This is not the way it's supposed to be done. But the order ships.
I can't manage to see what there was to celebrate. We managed to ship one very late order today. Whoopee.
Why can't we consistently get a quality product out the door on time at the cost that can beat the competition?
If we could just get our backlog out the door. Sometimes it's like little gremlins out there. Every time we start to get it right, they sneak around between shifts when nobody is looking and they change things just enough so everything gets screwed up.
I took all the crap [... my company] could give me and said, "I can't get enough! Give me more!" Boy, am I glad I did! Here I am, thirty-eight years old, and I'm a crummy plant manager! Isn't that wonderful? I'm having fun now. Time to get the hell out of here. I've had enough for for one day.
The plot adds the twist of the broken family relationships between the protagonist and his wife and the growing sense of despair thickens. Failure seems imminent and there is nothing he can do... He looks at the walls closing in around him and knows not what is going on, what he can conceivably do to improve the dire situation of his plant. And he feels that when he loses there will be something worse, all the people will be without jobs, and that fundamentally because of him, because he hasn't done enough to save the plant. And that wears him down mentally.
What makes me mad sometimes is that I'm always running so hard that - like most other people, I guess - I don't have time to pay attention to all the daily miracles going on around me.
The new owners will want to clean house and they're sure to start at the top.
The scale of disaster increases even more. His whole division, not only his plant is about to die, to be sold to some other company if they can't get their numbers fixed by the end of the year. There's a meeting where every manager is at to present the key metrics of the part they manage.
Running into someone you know in the middle of one of the busiest airports in the world carries a shock with it.
If your inventories haven't gone down... And your employee expense was not reduced... And if your company isn't selling more products - which obviously it can't, if you're not shipping more of them - then you can't tell me these robots increased your plant's productivity.
You think you're running an efficient plant... But your thinking is wrong.
If you're like nearly everybody else in the world, you've accepted so many things without question that you're not thinking at all.
Productivity is the act of bringing a company closer to its goal. Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive.
Productivity is meaningless unless you know what your goal is.
You don't know what the goal is. And by the way, there is only one goal, no matter what the company.
You cannot understand the meaning of productivity unless you know what the goal is. Until then, you're just playing a lot of games with numbers and words.
The main deus ex machina is introduced in the story, a physicist, building a theory of efficiency and productivity from scratch, somebody like a wise sage or a sphinx, posing riddles to the main stories hero, to get him up to speed and learn what it means to be effective in managing his plant. The solutions that the protagonist can come up with will be happening partly because of this already enlightened individual. And here the key distinction of Enlightenment becomes clear - it is knowledge that creates an edge in anything, be that business manufacting or whatever... But the main questions of the book are introduced:
What is the Goal? And what is Productivity? Since it's defined by doing actions towards that goal - the answer to both questions will be the same. Furthermore - the answer can be found - and is not unique to a company, the goals of all companies are all the very same Goal. So which is it?
"Quality and Efficiency". Those are two nice words. Kind of like "Mom and apple pie".
The plant wasn't built just so it can't break even. The company exists to make money.
A list of all the items people thinks of as being goals: cost-effective purchasing, employing good people, high technology, producing products, capturing market share, communications, customer satisfaction. [...] What do they all do? They enable the company to make money.
, that's not quite right even yet. Money is like the blood that exists, something that keeps the company alive and has to be made for it to exist. But that's not the goal itself. The goal is to keep the company running, to keep playing the company game, without dying out. And one of the necessary things that have to happen for this to be true is that the company is profitable or else it will soon die.
Taking a stroll to think about the lessons of the physicist, the protagonist discovers the goal of companies. To make money is why they exist and that can work as the starting point for everything he will do in the future. But for coming to this conclusion, he ran off from the all important meeting of the day, and he might well be fired for that on the same day.
How would I know if that work is helping us make money?
How do I know if I what happens here is making money for us, or whether we're just playing accounting games? There must be a connection, but how do I define it?
Suppose you're going to rewrite the textbooks. Suppose you don't have all those terms and you have to make them up as you go along. What would be the minimum number of measurements you would need in order to know if we are making money?
If you've got enough of it, then cash flow doesn't matter. But if you don't, nothing else matters.
This reminds me a lot about the "This is Water" metaphor somehow. In a way then money is to a company just like air is to us, or water is to fish. We don't realize that we are breathing, until the air is gone, and then that becomes and all pervading problem. Fundamental to survival.
There are 3 measures for if a company makes money - one is cash flow, the other is ROI, the last is net profit.
I wonder why it is that we're slipping minute by minute toward oblivion, if we're so smart.
So this is the goal: to make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.
The protagonist talks about his findings with his financial officer, his numbers guy and tries to tell him about what he has discovered about how the world of his plant might work. And together they refine their ideas of what the goal means, in terms of money, and how to measure that metric of "making money" more accurately. They come up with the ideas of ROI, cash flow and absolute net profit.
The only tools I have - limited as they may be - are my own eyes and ears, my own hands, my own voice, my own mind. That's about it. I am all I have.
This chapter was short. The protagonist spends time with his daughter and then gets back to thinking about his plant and how to pull it out of the misery it's facing, doubting that he will be able to do it in time.
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 which it intends to sell.
Operational expense is all the money the system spends in order to turn inventory into throughput.
The protagonist finds the number of the physicist and contacts him, to ask more questions. In return he gets another cryptic riddle, another set of questions that he can think about himself and arrive at conclusions. He also learns the three measurements of how - the goal of making money - is related to the reality of a plant floor. Those measures are throughput (amount of sales), inventory (money tied up in raw materials) and operational expenses (money necessary to turn inventory into throughput). The next question for him is to figure out how these relate to the details of the day to day at his plant.
So the way to express the goal is this? Increase throughput while simultaneously reducing both inventory and operating expense.
That's what it freaking means to make money!
To give the robots more to do, we released more materials. Which in turn, increased inventories, which has increased costs.
The hero of the story now gets the other people in his plant into the boat, sharing his learnings from the physicist and the ideas about productivity. Namely asking the right questions, about why the plant is failing at the moment. And he suspects, that the new shiny robots they had bought to make things more efficient are not the cure but further aggravate the problem, since they make unnecessary parts, to be "efficient" and running at full capacity. But the other parts can not keep up, so their inventory increases, but their throughput doesn't, and hence they lose money and are not productive. Their actions don't help them achieve the goal.
If you've got a machine, the depreciation on that machine is operational expense. Whatever portion of the Investment still remains in the machine, which could be sold, is inventory.
The whole plant is an investment which can be sold - for the right price and under the right circumstances.
Any money we have lost is operational expense; any investment that we can sell is inventory.
Knowledge which gives a new manufacturing process, something that helps turn inventory into throughput, is an operational expense.
If we intend to sell [the knowledge] then it's inventory.
But if the knowledge pertains to a product we will build, it's like a machine - an investment to make money which will depreciate in value as time goes on. And, again, the investment that can be sold is inventory; the depreciation is operational expense.
The team brainstorms about where all this new thinking about how things hang together and work might lead and further develop their ideas about what productivity means on the plant floor in light of the physicists thinking framework. And they start to see the bigger picture, namely that they have been running their plant in the wrong way all the time and that things that they thought of as "increasing" efficiency, in the big picture do nothing of that sort and lead to a decrease in productivity, since they actively stop them from making money, since they increase operational expenses and inventory, without increasing throughput. And finally the protagonist arranges another meeting with the physicist guru.
Forget about the robots for now. They're like some new industrial toy everybody's discovered. You've got much more fundamental things to concern yourself with.
Most of the time, your struggle for high efficiencies us taking you in the opposite direction of your goal.
A plant in which everybody is working all the time is very inefficient.
This reminds me of the Tao somehow. The idea is that not brute force is the way to go, but applying just a tiny bit of force at the right places, unraveling everything like a complicated knot, and creating big effects. The difference again - is knowledge. How to do things the right way and where to apply work makes things efficient or not.
A balanced plant is essentially what every manufacturing manager in the whole western world had struggled to achieve. It's a plant where the capacity of each and every resource is balanced exactly with demand from the market.
You assumed that if you trim capacity to balance with market demand you won't affect throughput or inventory. But, in fact, that assumption - which is practically universal in the western business world - is wrong.
There is a mathematical proof which could show that when capacity is trimmed exactly to marketing demands, no more and no less, throughput goes down, while inventory goes through the roof.
Most of the factors critical to running your plant successfully cannot be determined precisely ahead of time.
You have to gain the understanding for yourself in order to make the rules work.
The next meeting with his physicist guru, again full of insights, but more riddles are posed at the end. The main new ideas introduced are that the perfect plant is very close to bankruptcy at any given point and that deviations from the norm, i.e. statistical fluctuations in combination with dependent events have a huge net effect on the efficiency of a plant. In the sense that, when one tries to decrease something like operational expenses, it could very well lead to the opposite effect, because the inventory might go up because of chained effects, with statistical influences, leading to inventory holding costs, which are operational expenses, going up higher than the decrease brought by the increased "efficiency".
Another short chapter, relaxing the family atmosphere at home, but the protagonist makes a new promise to his wife about spending more time with her, that's probably going to be broken, yet again. He's absorbed by work and so his family starts unraveling. And either he loses his plant, and his job, or his relationships.
The idea of chained events, and statistical fluctuations comes together, just like a phantom traffic jam can arise from nothing but these two, can the total production in a factory grind to a halt because of them. Fluctuations, because of the nature of the dependency of events, don't average out nicely anymore but start to accumulate. Dependency limits the positive effects of fluctuations, since one can not move faster than the next part of the chain. Therefore statistical fluctuations in the slowest part of the chain, might be the bottleneck.
Playing a game with the kids from the hiking trail, about logistics in a plant, moving matchsticks from one bowl to the next, according to the throw of a dice, which is showing that events that are connected and underlie random fluctuations produce highly unpredictable results, namely underperformance and waves of matches moving through the bowls unevenly, seemingly out of nowhere. The analogy to the hero's manufacturing plant is uncanny.
The hike continues and the protagonist figures out another key thing - namely that the group as a whole has to arrive and is limited by its slowest member, but if one reverses the march order, so that the slowest lead and the fastest follow, the group stays together. Next it makes clear, that the only performance gains that can be had are at the slowest member of the group, as long as they don't improve - the whole group doesn't. So in the end they take weight from his shoulders so that the group as a whole can move faster. The main idea hinted at here is the idea behind a constraint... Effectiveness can only increase at a very few, select points in any company (or group working together to achieve a goal) and those points are the constraints. Any productivity increase at other points than the constraints is worth 0.
His wife left him while on the camping trip, not being able to bear the situation any longer. Further piling up the pressure and increasing the drama.
The maximum deviation of a preceding operation will become the starting point of a subsequent operation.
The ideas from the hike are put to the test at the factory. And lo and behold - they are indeed true, the lateness of the statistical fluctuations get carried over, but the improvements don't, because there is only so much that can be done in a certain amount of time. Hence another shipment is late and hence the protagonist gets into even deeper trouble with one of his bosses.
How lucky we are to have food to eat.
We cannot measure the capacity of a resource in isolation. Its true productive capacity depends upon where it is in the plant.
We should be trying to optimize the whole system.
A bottleneck us any resource whose capacity is equal to or less than the demand placed upon it. And a non-bottleneck is any resource whose capacity is greater than the demand placed on it.
You should not balance capacity with demand. [...] Instead balance the flow of product through the plant with demand from the market. [...] Balance flow, not capacity.
Bottlenecks are not necessarily bad - or good - they are simply a reality.
The idea of constraints (or bottlenecks) is further flashed out and the people go searching for them in their manufacturing plant. One thing quickly becomes clear though, even though they find the culprits, fixing them as the bottlenecks is going to be another problem. It's not like they don't want to, but that they can not because of constraints of time, money, personnel and other things like that. Reality is effectively making it hard on them to increase efficiency.
If you are like most manufacturers , you will have capacity that is hidden from you because your thinking is incorrect.
Make sure the bottleneck works only on good parts by weeding out the ones that are defective. If you scrap a part before it reaches the bottleneck, all you have lost is a scrapped part. But if you scrap that part after it's passed the bottleneck, you have lost time that cannot be recovered.
The physicist comes to the plant, and shows how to save time from bottlenecks and how to shift the frame of mind into a more accurate position to think about them and their effectiveness. Namely the problem is that when they stop, the whole plant looses time and that's a very important difference. While the running cost of the single machine is kind of marginal, the running cost of the whole plant is enormous and so it starts to make sense to offload work to other companies to reduce load on the bottleneck. Other ideas are the repositioning of quality assurance before the bottleneck and the structuring of breaks around the working times of the bottleneck machines. The chapter rings a litt bit more hopeful, a little light shimmering at the end of the tunnel.
They start implementing some of the things they learned from the physicist and the family situation got even worse. The protagonist drove to his runaway wife, trying to communicate with her, but comes back without her in the end, their marriage is on the brink of divorce.
They come up with a system to tag and organize the work in their plant according to its priority and lateness, and glimpse more of the light at the end of the tunnel, also the protagonist tries to fix his relationship to his wife, going on a date with her, the first time in a long time.
They got one of the old machines back and are now able to increase the capacity of one of their bottlenecks. And they came up with another system to tag inventory after it has been processed by the bottlenecks, so that they don't run things through the bottleneck twice on accident.
I sit there marveling that we're going to reduce the efficiency of some operations and make the entire plant more productive.
Things start coming together know, and change is happening, upwards progress, the tone of the book, changing. Solutions, to improve the bottlenecks turn up left and right and people feel that, they become motivated and have ideas of their!
The fruits of work pay off and the plant is starting to be more productive than ever... But now it starts to create new bottlenecks, and they decide to call the physicist again for help. Also the family story got worse and then better again because of a misunderstanding when the protagonist came home with another woman because he was too drunk to drive on his own, and was "caught" by his wife
If we use these like building blocks, we can represent any manufacturing situation. We don't have to look at trillions of combinations.
Making an employee work and profiting from that work are two different things.
"Utilizing" a resource means making use of it in a way that moves the system towards the goal
A system of local optimums is not an optimum system at all; it is a very inefficient system.
The physicist is there to save the day again. It turns out that what they have created are not bottlenecks at all, but an inefficient system. Because they want to optimize the "productivity" locally, without looking at the bigger picture they produce a lot of inventory that than can't be used because the bottleneck is not ready yet. The moral of the story, a system is not efficient when all parts of it are, but only if the system as a whole is.
Every problem is easy once you have figured it out.
The kids of the protagonist figure out the way the physicist told them to get rid of the problem and it's essentially setting up a system of communication for releasing new work onto the plant floor that is determined in speed by the main bottlenecks. This way there will be more idle time but productivity will be maximized, since inventory will be reduced by a lot and stop building up continuously, since parts will only arrive at the correct machines when needed with a little left over to prepare for statistical fluctuations and errors in predictions.
His wife is still living at her parents and doesn't want to go back to "normal", afraid that she will be neglected again, meanwhile the protagonist promised another crazy improvement to his boss because he thinks he could handle it, but in reality he might run into problems of not finding enough people to sell to, his plant already runs at almost market capacity!
An hour saved at a non-bottleneck is a mirage.
The next idea introduced to them by the physicist is to cut batch sizes in half and thereby massively reduce their turnaround time and be able to fulfill contracts much quicker and adapt to the market on rather short notice. It feels like they have turned the plant around and the protagonist bets against marketing that they can go from contract to fulfiment in 4 weeks of time instead of the 6 months it used to take them.
Things start to look bright now. The chapter started with his wife and him being home again, alone, the kids still at the grandparents, enjoying time, together. And at the plant things are even better, because their new strategies allow them to get a million dollar contract, because they are the only ones to fulfill it in time. And they plan to halve their batch sizes yet again. The only problem they face is that their accounting is not on par with their new efficiency model, because from the old model, which doesn't account for idle time, it looks like costs per part went up, even though they didn't, simply because they are utilizing idle time now instead of hiring new people to do the job.
One of the happy customers comes to the plant to congratulate everybody there for the awesome job they have been doing. Some people in the plant are confused, since everything is "like normal" for them... What a difference good management can make. But they are also found out on their change in accounting rules and frown about that because their performance reviews are up and they still fear that the plant will be closed.
Another tense moment arises during the performance review, because one of the opponents of the hero doesn't think that what has happened at the plant is possible. It's against his common sense and therefore can't be true, people ignoring the evidence just to not learn something new. That's one of the dangers everybody should look out for in themselves. Opposing good change for no reason other than pride in one's own opinions. In the end all of this resolves however, since upper management is amazed by the productivity increase and therefore promote the protagonist in the end, so now he has three plants instead of only one and even more responsibility. The physicist cuts his ties to him, because he will need to grow from there on. "Think for yourself, don't rely on authority!" is the underlying message.
We refer to something as common sense only if it is in line with our intuition.
The protagonist eats with his wife to celebrate, but their discussion is highly interesting, about how to change people to see things more and to challenge common practice and replace it with well thought out ones. And one question remains - how did the physicist know all that stuff?
The protagonist goes around in his team and hands out promotions and discovers that he didn't know all the people as well as he thought he did... Everybody has their pet projects in the plant, and it's like an avalanche of creativity has come lose. What is described is the thing that Steven Covey would call synergy. It's effects are crazy and show that what they have done is only the beginning. There will always be problems and they'll always be soluble is the motto here. And the people from the book are solving them.
Almost every big company is oscillating, every five to ten years from centralization to decentralization, and then back again.
The protagonist prepares with his teammates for his new role, asking basic, almost too naive questions about how he should approach managing the whole division. He's trying to learn, together with the best people he works with, his team.
How does one go about revealing the intrinsic order? [...] Scientists do reveal the intrinsic order of things.
The protagonist and his team keep preparing for his new role, they try to find an approach to order things, by their intrinsic properties, instead of playing number and word games with them. They are trying to understand what they are doing, from first principles for the first time and the protagonist has nailed it quite nicely, they need a scientific approach to handle the chaos and reveal its intrinsic order.
Step 1: Identify the system's bottlenecks. Step 2: Decide how to exploit the bottlenecks Step 3: Subordinate everything else to the above decision. Step 4: Elevate the system's bottlenecks. Step 5: If, in a previous step, a bottleneck has been broken go back to step 1.
They have found the formula of achieving ongoing improvement - and it's the above. It is also the theory of constraints heart, namely replace bottleneck by constraint and it's why this book was written in the first place. This is the main takeaway the author wanted to bring home I think.
They iterate even more on the ideas from the previous chapter and improve and refine it further to this:
- IDENTIFY the system's constraints
- Decide how to EXPLOIT the system's constraints.
- SUBORDINATE everything else to the above decision.
- ELEVATE the system's constraints.
- 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.
Essentially it boils down to - requestion things you already did, once your constraints have changed. Don't take things for granted. Ever.
Somewhere in the scientific method lies the answer for the needed management techniques.
All those calls and meetings were fire fighting. I remind myself. No fires, no fighting. Now, everything is running smoothly - almost too smoothly.
In the unlikely even that anyone needs me, I'll be at the public library.
It's like order is built out if chaos. What can be more beautiful than that?
The protagonist takes his time free from emergencies at work and starts reading and thinking more deeply, uncovering that ideas from philosophy and science have a very broad appeal and use in management and are - because of that - extremely important. The idea to spend time in a library as the most effective thing one can do to get better at his job and plan ahead is a powerful one and I think it is very very true of founders and high level management beyond a certain point. It's like spending the time to sharpened the axe or find a longer lever. To use knowledge instead of brute force. And knowledge can multiply force. By leaps and bounds. To infinity, eventually.
Just when everything looked perfect and they thought they had it all figured out, they find out that that's not the case . Somewhere along the way they did a mistake that now makes them drop their promised lead times on the products. It's still not like they are planning but more of an reaction game. Changing the throughput means changing the dynamics of their complex system, and that means they have to change the way they do things, buffering up more or less inventory, depending on the throughput they have.
Every organization was built for a purpose. [... And] any organization is comprised of more than one person. [... So] the purpose of the organisation requires the synchronized efforts of more than one person. [... Organizations] should be regarded as chains.
We are asking for the most fundamental things and at the same time we are asking for the world.
What are we asking for? The Ability to answer three simple questions: What to change? What to change to? And how to cause the change?
We should learn to be able to do it without any external help. I must learn these thinking processes, only then will I know that I'm doing my job.
The last chapter ends openly, the problems in the division are still unsolved, but the protagonist has discovered the solution to them - he has to learn how to think well. And if he can do that, he can manage to find solutions to problems, solutions which are so good, that they don't make new problems. And when he has this skill - he can create knowledge, and has finally found his lever, to change the world, towards a better place.
I smile and count on my fingers: One, people are good. Two, every conflict can be removed. Three, every situation, no matter how complex it initially looks, is exceedingly simple. Four, every situation can be substantially improved; even the sky is not the limit. Five, every person can reach a full life. Six, there is always a win-win solution. Shall I continue to count?