Goal, (Goldratt and Cox, 1986) Alex Rogo Book Review

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Goal, (Goldratt and Cox, 1986) Alex Rogo manages a troubled manufacturing plant. When his district manager informs Alex that profits must increase or the plant will be shut down, he turns to Jonah, a former professor. With Jonah's help, Alex turns the plant around while at the same time abandoning traditional management principles in favor of Jonah's Theory of Constraints and Throughput Accounting practices.

The Goal introduces the Theory of Constraints (TOC) as a new philosophy for improving production throughput. TOC views any company as a system with either non-bottle neck or bottleneck resources (pp. 137-138). These categories are simply defined as:

Bottleneck: Any resource whose capacity is equal to or less than the demand placed upon it.

Non-Bottleneck: Any resource whose capacity is greater than the demand placed on it.

Goldratt and Cox assert that in any process things can only have a throughput as fast as the weakest constraints will allow. Therefore, the only way to improve the strength of a process is to strengthen the weakest length. According to Goldratt and Cox, strengthening any other link before strengthening the weakest link would merely be a waste of time and resources because it is the weakest link that is determining the maximum performance of the entire production chain. The correct solution is to make the flow through the bottleneck on par with market demand in order to maximize profits (p. 138).

In defining the goal for an organization and how to measure achievement of the goal, Goldratt and Cox embrace the concept of throughput.

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accounting. Keeping with tradition, Goldratt and Cox conclude that the goal of a company must be take make money because if it doesn't it will cease to function (p. 41). However, Goldratt and Cox limit the company's goal to making money rather than allowing for a laundry list of operational agendas (p. 37). Goldratt and Cox also abandon conventional measures used to express the goal such as return on investment and cash flow because they believe that these measures do not lend themselves very well to the daily operations of the manufacturing organization. Instead, Goldratt and Cox turn to three different operational rules to optimize for running the plant efficiently (pp. 41-42). These include:

Throughput: The rate at which the system generates money through sales

Inventory: All the money that the system has invested in purchasing things which it intends to sell.

Operational expense: All the money the system spends in order to turn inventory into throughput.

It's important to note the differences between Goldratt's and Cox's definitions and traditional meanings. Throughput, for example, is now concerned with sales and not production because the authors believe that if you produce something, but don't sell it, it's not throughput. And, in their definition of inventory, they do not take the value added into account because they believe doing so leads to confusion over whether a dollar spent is in an investment….....

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