8

Aug

I want to share a story about a very powerful and influential gift that was given to me… a copy of ‘The Goal’ by Eli Goldratt. As I read ‘The Goal’ I began to visualize how I could apply the many lessons I had read about. I asked myself, “Could I actually utilize Goldratt’s teachings in the real world?” After all, this was only a fictional setting and there really wasn’t an Alex Rogo. It wasn’t apparent how I would use this information until the early 90’s when I had an epiphany or maybe some would say an out-of-body experience! Goldratt’s simple, yet elegant message of identifying, deciding how to exploit the system constraint and subordinating everything else to the constraint changed me forever.

In addition, to the concept of constraints, Goldratt introduced me to what he called Throughput Accounting. Specifically, Throughput (T), Inventory (I) and Operating Expense (OE) took on a whole new meaning for me. It became apparent to me that reductions in inventory typically have a one-time impact on cash flow and after that little can be gained. It was also evident that operating expense had a functional lower limit and once you hit it, you could actually do more harm than good to the organization by reducing it further. Throughput, on the other hand, theoretically has no functional upper limit! But more importantly, throughput was only throughput if money exchanged hands with the customer. That is, producing products for sale is just not the same as receiving cash for them because, in reality, it’s simply inventory.

Learning about constraints and throughput accounting transformed me back then. I came to the realization that everything I do in the name of improvement would give us a better return on investment if we focused our efforts on the operation that is limiting throughput. I decided then and there that constraints are the company’s leverage points and if I wanted to maximize our profits, then our primary improvement efforts should be focused on the constraints. So off I went and the results were immediate and significant. Our on-time delivery sky rocketed! Our profits rose at an unprecedented rate and everything was good in the world. Good until the constraint moved that is! All of a sudden my world came crashing in on me because I hadn’t anticipated this. I should have, but I didn’t. It wasn’t hard to find the new constraint since there was a pile of inventory sitting in front of it. So we just moved our improvement efforts to the new constraint. I learned what Goldratt meant about “breaking the constraint.”

– Bob Sproull

Bob Sproull has since authored Epiphanized: Integrating Theory of Constraints, Lean and Six Sigma. The book is a business novel and is an attention-grabbing and fast-paced story of the transformation of Barton Enterprises, a manufacturer of fuel tanks for the aviation and defense industry. To learn more about the book, click here >>