In this executive summary, The Goal by Goldratt will be analyzed in detail. First, 10 operations management decisions as found on page 7 of the Heizer and Render textbook will be listed in column 1. Next, for each OM decision, examples from The Goal textbook that exemplify the type of problem or solution relevant to the OM area will be summarized in column 2. Finally, a scenario from my work life will be exemplified in column
3. Three column and ten row table
First, 10 operations management decisions as found on page 7 of the Heizer and Render textbook will be listed in column 1. Next, for each OM decision, examples from The Goal textbook that exemplify the type of problem or solution relevant to the OM area will be summarized in column
2. Finally, a scenario from my work life will be exemplified in column
3. OM Decisions
Examples from The Goal
Work Life Scenario
Design of goods and services
The factory produces machined assemblies furnished to other factories in the UniWare Division as components of end-product applications, and also sold directly as spare parts assemblies to larger end-user customers. Mr. Peach (Mr. Rogo’s boss) will not budge for anything less than the order being shipped today (dispute of an overdue order #41427), and since plant is not productive or profitable, Alex has 3 months to show improvement else the plant factory will shut down. Goal of the plant is to make money by generating net profit (income minus expenses), return on investment, and cash flow. Danfoss designs, tests and manufactures frequency converters/drives, which are power conversion equipment. Danfoss is a power electronics manufacturer, and essentially provides energy-efficiency solutions in the HVAC, water/AQUA and Automation industries.
The order #41427 does get shipped, but not very efficiently. All employees in the factory are working on one order with forbidden overtime to boot. Quality is defined by the number of errors in the end-use field application, and field returns. The higher the number of field returns/errors/failures, the lower the quality. Field returns is inversely proportional to quality.
Process and capacity design
After Alex talks to Jonah, the president wants to have a photo taken with one of Alex’s robots. As a result, Alex begins thinking about the efficiency. With the help of the accountant, inventory control woman, and the production manager, Alex discovers the robots increased costs, operational expenses, and therefore were less productive. Implementing the robots increased costs by not reducing others, like direct labor. The labor was shifted to other parts of the plant.
The crew works out some of the details for keeping the bottlenecks constantly busy. In the process they find that they need another system to inform the workers what materials have priority at non-bottlenecks. Red and green tags are the answer. Red for bottleneck parts to be worked on first as to not hold up the bottleneck machine, and green for the non-bottleneck parts. Electrical Engineers, Mechanical Engineers, Control Engineers, Software Engineers and Test Engineers design and test drives produced by Danfoss. Accordingly, Production Engineers, Production Test Technicians and Assemblers assemble the product in production. Many tools, parts, printed wiring boards, assembly lines, test cranes and functional test equipment are required in order to generate high volume to keep up with customer demands.
Lou explains that tooling, machines, the building, the whole plant are all inventory. The whole plant is an investment that can be sold. Stacey says, “So investment is the same thing as inventory.” Thereafter, they decide that something drastic is needed to be done with the machines, without lowering efficiencies. Danfoss facilities are located worldwide: China, India, IL-USA, and Denmark. Research and Development (R&D) Design Centers are located in all four aforementioned countries.
Alex tells Jonah of the problems at the plant and the three months in which to fix them. Jonah says they can be fixed in that time and then they go over the problems the plant has. First, Jonah tells Alex to forget about the robots. He also tells Alex that “A plant in which everyone is working all the time is very inefficient.” Jonah suggest that Alex question how he is managing the capacity in the plant and consider the concept of a balanced plant. According to Jonah, this “is a plant where the capacity of each and every resource is balanced exactly with demand from the market.” Engineers, Accountants, Purchasing, Sales & Marketing sit in cubicles in the office area. Management typically sit in office area. Production workers have cubicles near production or in the supply chain cubicle area.
Human resources and job design
Jonah tells them that they have hidden capacity because some of their thinking is incorrect. Some ways to increase capacity at the bottlenecks are not to have any down time within the bottlenecks, make sure they are only working on quality products so not to waste time, and relieve the workload by farming some work out to vendors. Jonah wants to know how much it cost when the bottlenecks (X and heat treat) machines are down. Lou says $32 per hour for the X machine and $21 per hour for heat treat. How much when the whole plant is down? Around $1.6 million. How many hours are available per month? About 585. After a calculation, Jonah explains that when the bottlenecks are down for an hour, the true cost is around $2,735, the cost of the entire system. Every minute of downtime at a bottleneck translates into thousands of dollars of loss throughput, because without the parts from the bottleneck, you can’t sell the product. Hence, throughput cannot be generated Production workers work Monday thru Fridays, 6:30am to 3pm, with breaks in the morning, lunch and afternoon. Accordingly, each worker in production has goals to follow as defined by the production management.
Engineers in R&D also have goals based on the number of projects they are on.
Alex decides to dedicate a foreman at each location all the time. Then one of those dedicated foreman, the night foreman, discovers a way to process more parts by mixing and matching orders by priority, increasing efficiency by ten percent. Finally, one process being sent through a bottleneck could be accomplished through another older way and therefore free up time on the bottleneck. This is defined by the Purchasing group. The purchasing group decides which suppliers Danfoss shall maintain with the input coming from Engineers and other managers in the company that are involved. Inventory, material requirements planning, and JIT (just-in-time) Jonah explains that Alex should not try to balance capacity with demand, but instead balance the flow of product through the plant.
Later, Alex and his team recognize the bottlenecks, the areas where capacity doesn’t equal demand, like the slow kid Herbie on the hike. With this discovery goes the ideas related to reorganizing the plant like Alex did with the hike. Production is a process and it cannot be moved around so easily. Many processes rely on the previous one to be able to complete the next. Alex would need more machines, which takes more capital, and division is not going to go for that. Inventory of each item should be determined by the supply and demand, and also based on the forecast supplied by sales and marketing.
Intermediate and short-term scheduling
Ralf, the computer expert, says he can come up with a schedule for bottleneck parts and when they should be released. This will alleviate any excess inventory in front of the bottlenecks, but what about the non-bottlenecks? Jonah says with the same data out of the bottlenecks to final assembly, you should be able to predict non-bottleneck parts as well. This will make some time, but there are enough parts in front of the bottlenecks to stay busy for a month. Many production workers are on temporary status in order to save money for the company. For instance, avoid paying insurance that can cost hundreds of thousands of dollars for Danfoss, a huge liability.
Because Stacey was continuing to feed non-bottleneck material into the system in order to maintain the production efficiency quotas, non-bottlenecks began turning out maximum units of non-bottleneck parts clogging the work-in-process inventories at bottlenecks and at non-bottleneck stations. Activating a resources is simply turning it on. Utilizing it means making use of the resource in a way that moves the system towards the goal. Ralph and Stacey work together to develop a material release system which triggers release of bottleneck material only at the rate at which the bottlenecks need it, rather than being triggered by non-bottleneck idle time.
Jonah shows that they can use the same methodology to develop a release system for materials throughout the system. By knowing when the bottleneck parts will reach final assembly, the release of the non-bottleneck materials can be timed to coincide along the other routes. Reliability Test Engineers perform testing on the drives to ensure high quality and reliability of the drives in the field. Moreover, field testing is also conducted on drives to ensure customers receive a high quality product. Many other R&D design engineers are also involved to ensure quality is prioritized in the drives.
In conclusion, in this executive summary, The Goal by Goldratt was analyzed in detail. First, 10 operations management decisions as found on page 7 of the Heizer and Render textbook were listed in column 1. Next, for each OM decision, examples from The Goal textbook that exemplify the type of problem or solution relevant to the OM area were summarized in column 2. Finally, a scenario from my work life was exemplified in column 3.
Heizer, J. and Render, B. (2011). Operations Management: Sustainability and Supply Chain Management. (10th Ed.). Upper Saddle River, New Jersey: Prentice Hall.
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Topic: Executive Summary – The Goal
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