In the article “1.4 Two More Pillars For Success” I wrote about how I came to read the book “The Goal” by Eli Goldratt. It is a business novel where Alex, the plant manager, struggles with the complexities of a manufacturing plant (late shipments, growing backlog, increasing inventories and costs). With the aid of his old Physics professor, Jonah, he understands that every action has to bring the company closer to its goal, which is to make money now and in the future.
Jonah reveals three operational measurements for a company:
- Throughput (T): “the rate at which the system generates money through sales“
- Inventory (I): “all the money that the system has invested in purchasing things which it intends to sell“
- Operational Expense (OE): “all the money the system spends in order to turn inventory into throughput“
„Throughput is money coming in. Inventory is the money currently inside the system. And operational expense is the money we have to pay out to make throughput happen.“
Without any education in accounting, all that sounded plausible to me.
The book is wonderful in how it explains seemingly complex terms like “statistical fluctuation” and “dependent events” with easy-to-understand metaphors (e.g. hitchhiking with Herbie).
It provides non-obvious approaches like NOT balancing capacity with demand, but instead to balance the flow through the plant.
It also provides “aha moments” when you realize that each minute of downtime at a bottleneck translates into lost throughput for the entire plant!
While I could go on and on, the bottom line is: read the book (rather than just a summary). We have spare copies to lend 😉
After reading the book, I liked several aspects about the Theory of Constraints:
- the “systems approach” – to understand the system’s goal and to improve overall performance rather than just to optimize local performance,
- focusing on the constraint (any resource whose capacity is equal to or less than the demand placed upon it),
- having three simple metrics with T, I, and OE to guide your behaviour, and
- having the five focusing steps for continuous improvement (mentioned in my earlier post as well)
However, I could not easily translate the ideas from the manufacturing world into my world of software development. Working as a consultant, I was not confident that I could help my clients to identify what to change, what to change to, and to help them understand how to cause the change. I lacked the skills and experience of Jonah, that old Physics professor from the book.
I wanted to “be Jonah” for my own business and for my clients. That became my next learning goal.