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Authors: Eliyahu Goldratt
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what it’s all about. We have to stay on the leading edge of technology. It’s essential to the company. If we don’t keep pace with technology, we’re finished. So that’s the goal.
Well, on second thought . . . that isn’t right. If technology is the real goal of a manufacturing organization, then how come the most responsible positions aren’t in research and development? How come R&D is always off to the side in every organization chart I’ve ever seen? And suppose we did have the latest of every kind of machine we could use—would it save us? No, it wouldn’t. So technology is important, but it isn’t the goal.
Maybe the goal is some combination of efficiency, quality and technology. But then I’m back to saying we have a lot of important goals. And that really isn’t saying anything, aside from the fact that it doesn’t square with what Jonah told me.
I’m stumped.
I gaze down the hillside. In front of the big steel box of the plant there is a smaller box of glass and concrete which houses the offices. Mine is the office on the front left corner. Squinting at it, I can almost see the stack of phone messages my secretary is bringing in my wheelbarrow.
Oh well. I lift my beer for a good long slug. And as I tilt my head back, I see them.
Out beyond the plant are two other long, narrow buildings. They’re our warehouses. They’re filled to the roof with spare parts and unsold merchandise we haven’t been able to unload yet. Twenty million dollars in finished-goods inventory: quality products of the most current technology, all produced efficiently, all sitting in their boxes, all sealed in plastic with the warranty cards and a whiff of the original factory air—and all waiting for someone to buy them.
So that’s it. UniCo obviously doesn’t run this plant just to fill a warehouse. The goal is sales.
But if the goal is sales, why didn’t Jonah accept market share as the goal? Market share is even more important as a goal than sales. If you have the highest market share, you’ve got the best sales in your industry. Capture the market and you’ve got it made. Don’t you?
Maybe not. I remember the old line, "We’re losing money, but we’re going to make it up with volume.’’ A company will sometimes sell at a loss or at a small amount over cost—as UniCo has been known to do—just to unload inventories. You can have a big share of the market, but if you’re not making money, who cares?
Money. Well, of course... money is the big thing. Peach is going to shut us down because the plant is costing the company too much money. So I have to find ways to reduce the money that the company is losing....
Wait a minute. Suppose I did some incredibly brilliant thing and stemmed the losses so we broke even. Would that save us? Not in the long run, it wouldn’t. The plant wasn’t built just so it could break even. UniCo is not in business just so it can break even. The company exists to make money.
I see it now.
The goal of a manufacturing organization is to make money.
Why else did J. Bartholomew Granby start his company back in 1881 and go to market with his improved coal stove? Was it for the love of appliances? Was it a magnanimous public gesture to bring warmth and comfort to millions? Hell, no. Old J. Bart did it to make a bundle. And he succeeded—because the stove was a gem of a product in its day. And then investors gave him more money so they could make a bundle and J. Bart could make an even bigger one.
But is making money the only goal? What are all these other things I’ve been worrying about?
I reach for my briefcase, take out a yellow legal pad and take a pen from my coat pocket. Then I make a list of all the items people think of as being goals: cost-effective purchasing, employing good people, high technology, producing products, producing quality products, selling quality products, capturing market share. I even add some others like communications and customer
Well, on second thought . . . that isn’t right. If technology is the real goal of a manufacturing organization, then how come the most responsible positions aren’t in research and development? How come R&D is always off to the side in every organization chart I’ve ever seen? And suppose we did have the latest of every kind of machine we could use—would it save us? No, it wouldn’t. So technology is important, but it isn’t the goal.
Maybe the goal is some combination of efficiency, quality and technology. But then I’m back to saying we have a lot of important goals. And that really isn’t saying anything, aside from the fact that it doesn’t square with what Jonah told me.
I’m stumped.
I gaze down the hillside. In front of the big steel box of the plant there is a smaller box of glass and concrete which houses the offices. Mine is the office on the front left corner. Squinting at it, I can almost see the stack of phone messages my secretary is bringing in my wheelbarrow.
Oh well. I lift my beer for a good long slug. And as I tilt my head back, I see them.
Out beyond the plant are two other long, narrow buildings. They’re our warehouses. They’re filled to the roof with spare parts and unsold merchandise we haven’t been able to unload yet. Twenty million dollars in finished-goods inventory: quality products of the most current technology, all produced efficiently, all sitting in their boxes, all sealed in plastic with the warranty cards and a whiff of the original factory air—and all waiting for someone to buy them.
So that’s it. UniCo obviously doesn’t run this plant just to fill a warehouse. The goal is sales.
But if the goal is sales, why didn’t Jonah accept market share as the goal? Market share is even more important as a goal than sales. If you have the highest market share, you’ve got the best sales in your industry. Capture the market and you’ve got it made. Don’t you?
Maybe not. I remember the old line, "We’re losing money, but we’re going to make it up with volume.’’ A company will sometimes sell at a loss or at a small amount over cost—as UniCo has been known to do—just to unload inventories. You can have a big share of the market, but if you’re not making money, who cares?
Money. Well, of course... money is the big thing. Peach is going to shut us down because the plant is costing the company too much money. So I have to find ways to reduce the money that the company is losing....
Wait a minute. Suppose I did some incredibly brilliant thing and stemmed the losses so we broke even. Would that save us? Not in the long run, it wouldn’t. The plant wasn’t built just so it could break even. UniCo is not in business just so it can break even. The company exists to make money.
I see it now.
The goal of a manufacturing organization is to make money.
Why else did J. Bartholomew Granby start his company back in 1881 and go to market with his improved coal stove? Was it for the love of appliances? Was it a magnanimous public gesture to bring warmth and comfort to millions? Hell, no. Old J. Bart did it to make a bundle. And he succeeded—because the stove was a gem of a product in its day. And then investors gave him more money so they could make a bundle and J. Bart could make an even bigger one.
But is making money the only goal? What are all these other things I’ve been worrying about?
I reach for my briefcase, take out a yellow legal pad and take a pen from my coat pocket. Then I make a list of all the items people think of as being goals: cost-effective purchasing, employing good people, high technology, producing products, producing quality products, selling quality products, capturing market share. I even add some others like communications and customer
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