The Goal

'And if you could finish the parts in that pile, you could assemble and ship the product?' he asks.

'Sure, no problem,' says Bob.

'And what is the selling price of each unit?'

'About a thousand dollars a unit on the average,' says Lou, 'although it varies, of course.'

'Then we are not dealing with ten or fifteen or even twenty thousand dollars here,' says Jonah. 'Because we are dealing with how many parts in that pile?'

'Perhaps, a thousand,' says Stacey.

'And each part means you can ship a product?'

'Generally, yes,' she says.

'And each product shipped means a thousand dollars,' says Jonah. 'A thousand units times a thousand dollars is how much money?'

In unison, our faces turn toward the mountain.

'One million dollars,' I say with awe.

'On one condition!' says Jonah. 'That you get these parts in and out of heat-treat and shipped as a finished product before your customers get tired of waiting and go elsewhere!'

He looks at us, his eyes shifting from face to face.

'Can you afford to rule out any possibility,' he asks, 'espe- cially one that is as easy to invoke as a change in policy?'

Everyone is quiet.

'By the way, I'll tell you more about how to look at the costs in a moment. But one more thing,' says Jonah. 'I want to know where you do quality inspection on bottleneck parts.'

I explain to him that most inspection is done prior to final assembly.

'Show me,' says Jonah.

So we go to an area where we do quality inspections. Jonah asks about bottleneck parts that we reject. Immediately, Bob points to a pallet stacked with shiny steel parts. On top of them is a pink sheet of paper, which indicates rejection by Quality Con- trol, or Q.C. as it's known. Bob picks up the job jacket and reads the forms inside.

'I'm not sure what's wrong with these, but they must be defective for some reason,' says Bob.

Jonah asks, 'Did these parts come through a bottleneck?'

'Yeah, they did,' says Bob.

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'Do you realize what the rejection by Q.C. has done to you?' asks Jonah.

'It means we have to scrap about a hundred parts,' says Bob.

'No, think again,' says Jonah. 'These are bottleneck parts.'

It dawns on me what he's getting at.

'We lost the time on the bottleneck,' I say.

Jonah whirls toward me.

'Exactly right!' he says. 'And what does lost time on a bot- tleneck mean? It means you have lost throughput.'

'But you're not saying we should ignore quality, are you?' asks Bob.

'Absolutely not. You can't make money for long without a quality product,' says Jonah. 'But I am suggesting you use qual- ity control in a different way.'

I ask, 'You mean we should put Q.C. in front of the bottle- necks?'

Jonah raises a finger and says, 'Very perceptive of you. 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 the part after it's passed the bottleneck, you have lost time that cannot be recovered.'

'Suppose we get sub-standard quality downstream from the bottleneck?' says Stacey.

'That's another aspect of the same idea,' says Jonah. 'Be sure the process controls on bottleneck parts are very good, so these parts don't become defective in later processing. Are you with me?'

Bob says, 'Just one question: where do we get the inspec- tors?'

'What's wrong with shifting the ones you already have to the bottlenecks?' asks Jonah.

'That's something we can think about,' I tell him.

'Good. Let's go back to the offices,' says Jonah.

We go back to the office building and meet in the conference room.

'I want to be absolutely sure you understand the importance of the bottlenecks,' says Jonah. 'Every time a bottleneck finishes a part, you are making it possible to ship a finished product. And how much does that mean to you in sales?'

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'It averages around a thousand dollars a unit,' says Lou.

'And you're worried about spending a dollar or two at the bottlenecks to make them more productive?' he asks. 'First of all, what do you think the cost of, let's say, the X machine is for one hour?'

Lou says, 'That's well established. It costs us $32.50 per hour.'

'And heat-treat?'

'That's $21 per hour,' says Lou.

'Both of those amounts are incorrect,' says Jonah.

'But our cost data-'

'The numbers are wrong, not because you have made a cal- culating error, but because the costs were determined as if these work centers existed in isolation,' says Jonah. 'Let me explain: when I was a physicist, people would come to me from time to time with problems in mathematics they couldn't solve. Thev wanted me to check their numbers for them. But after a while I learned not to waste my time checking the numbers-because the numbers were almost always right. However, if I checked the assumptions, they were almost always wrong.'

Jonah pulls a cigar out of his pocket and lights it with a match.

'That's what's going on here,' he says between puffs. 'You have calculated the cost of operating these two works centers ac- cording to standard accounting procedures... without consid- ering the fact that both are bottlenecks.'

'How does that change their costs?' asks Lou.

'What you have learned is that the capacity of the plant is equal to the capacity of its bottlenecks,' says Jonah. 'Whatever the bottlenecks produce in an hour is the equivalent of what the plant produces in an hour. So... an hour lost at a bottleneck is an hour lost for the entire system.'

'Right, we're with you,' says Lou.

'Then how much would it cost for this entire plant to be idle for one hour?' asks Jonah.

'I really can't say, but it would be very expensive,' admits Lou.

'Tell me something,' asks Jonah. 'How much does it cost you to operate your plant each month?'

Lou says, 'Our total operating expense is around $1.6 mil- lion per month.'