The Goal

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I freeze for a moment. Then I realize he's referring to his question, what is the goal?

'Right,' I say.

'Well?'

I hesitate. My answer seems so ludicrously simple I am sud- denly afraid that it must be wrong, that he will laugh at me. But I blurt it out.

'The goal of a manufacturing organization is to make money,' I say to him. 'And everything else we do is a means to achieve the goal.'

But Jonah doesn't laugh at me.

'Very good, Alex. Very good,' he says quietly.

'Thanks,' I tell him. 'But, see, the reason I called was to ask you a question that's kind of related to the discussion we had at O'Hare.'

'What's the problem?' he asks.

'Well, in order to know if my plant is helping the company make money, I have to have some kind of measurements,' I say. 'Right?'

'That's correct,' he says.

'And I know that up in the executive suite at company head- quarters, they've got measurements like net profit and return on investment and cash flow, which they apply to the overall organi- zation to check on progress toward the goal.'

'Yes, go on,' says Jonah.

'But where I am, down at the plant level, those measure- ments don't mean very much. And the measurements I use inside the plant... well, I'm not absolutely sure, but I don't think they're really telling the whole story,' I say.

'Yes, I know exactly what you mean,' says Jonah.

'So how can I know whether what's happening in my plant is truly productive or non-productive?' I ask.

For a second, it gets quiet on the other end of the line. Then I hear him say to somebody with him, 'Tell him I'll be in as soon as I'm through with this call.'

Then he speaks to me.

'Alex, you have hit upon something very important,' he says. 'I only have time to talk to you for a few minutes, but perhaps I can suggest a few things which might help you. You see, there is more than one way to express the goal. Do you understand? The goal stays the same, but we can state it in differ-

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ent ways, ways which mean the same thing as those two words, 'making money.' '

'Okay,' I answer, 'so I can say the goal is to increase net profit, while simultaneously increasing both ROI and cash flow, and that's the equivalent of saying the goal is to make money.'

'Exactly,' he says. 'One expression is the equivalent of the other. But as you have discovered, those conventional measure- ments you use to express the goal do not lend themselves very well to the daily operations of the manufacturing organization. In fact, that's why I developed a different set of measurements.'

'What kind of measurements are those?' I ask.

'They're measurements which express the goal of making money perfectly well, but which also permit you to develop oper- ational rules for running your plant,' he says. 'There are three of them. Their names are throughput, inventory and operational expense.'

'Those all sound familiar,' I say.

'Yes, but their definitions are not,' says Jonah. 'In fact, you will probably want to write them down,'

Pen in hand, I flip ahead to a clean sheet of paper on my tablet and tell him to go ahead.

'Throughput,' he says, 'is the rate at which the system gen- erates money through sal e s .'

I write it down word for word.

Then I ask, 'But what about production? Wouldn't it be more correct to say-'

'No,' he says. 'Through sal e s -not production. If you pro- duce something, but don't sell it, it's not throughput. Got it?'

'Right. I thought maybe because I'm plant manager I could substitute-'

Jonah cuts me off.

'Alex, let me tell you something,' he says. 'These defini- tions, even though they may sound simple, are worded very pre- cisely. And they should be; a measurement not clearly defined is worse than useless. So I suggest you consider them carefully as a group. And remember that if you want to change one of them, you will have to change at least one of the others as well.'

'Okay,' I say warily.

'The next measurement is inventory,' he says. 'Inventory is all the money that the system has invested in purchasing things which it intends to sell.'

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I write it down, but I'm wondering about it, because it's very different from the traditional definition of inventory.

'And the last measurement?' I ask.

'Operational expense,' he says. 'Operational expense is all the money the system spends in order to turn inventory into throughput.'

'Okay,' I say as I write. 'But what about the labor invested in inventory? You make it sound as though labor is operational expense?'

'Judge it according to the definitions,' he says.

'But the value added to the product by direct labor has to be a part of inventory, doesn't it?'

'It might be, but it doesn't have to be,' he says.

'Why do you say that?'

'Very simply, I decided to define it this way because I believe it's better not to take the value added into account,' he says. 'It eliminates the confusion over whether a dollar spent is an invest- ment or an expense. That's why I defined inventory and opera- tional expense the way I just gave you.'

'Oh,' I say. 'Okay. But how do I relate these measurements to my plant?'

'Everything you manage in your plant is covered by those measurements,' he says.

'Everything?' I say. I don't quite believe him. 'But going back to our original conversation, how do I use these measure- ments to evaluate productivity?'

'Well, obviously you have to express the goal in terms of the measurements,' he says, adding, 'Hold on a second, Alex.' Then I hear him tell someone, 'I'll be there in a minute.'

'So how do I express the goal?' I ask, anxious to keep the conversation going.

'Alex, I really have to run. And I know you are smart enough to figure it out on your own; all you have to do is think about it,' he says. 'Just remember we are always talking about the organization as a whole-not about the manufacturing de- partment, or about one plant, or about one department within the plant. We are not concerned