The Goal Read online

  She says, "What could I do? I had to release more materials to the floor in all the areas feeding the robots. Giving the robots more to produce increased their efficiencies. But ever since then, we've been ending each month with a surplus of those parts."

  "But the important thing was that efficiencies did go up," says Lou, trying to add a bright note. "Nobody can find fault with us on that."

  "I'm not sure of that at all any more," I say. "Stacey, why are we getting that surplus? How come we aren't consuming those parts?"

  "Well, in a lot of cases, we don't have any orders to fill at present which would call for those parts," she says. "And in the cases where we do have orders, we just can't seem to get enough of the other parts we need."

  "How come?"

  "You'd have to ask Bob Donovan about that," Stacey says.

  "Lou, let's have Bob paged," I say.

  Bob comes into the office with a smear of grease on his white shirt over the bulge of his beer gut, and he's talking nonstop about what's going on with the breakdown of the automatic test- ing machines.

  "Bob," I tell him, "forget about that for now."

  "Something else wrong?" he asks.

  76

  "Yes, there is. We've just been talking about our local celebri- ties, the robots," I say.

  Bob glances from side to side, wondering, I suppose, what we've been saying.

  "What are you worried about them for?" he asks. "The ro- bots work pretty good now."

  "We're not so sure about that," I say. "Stacey tells me we've got an excess of parts built by the robots. But in some instances we can't get enough of certain other parts to assemble and ship our orders."

  Bob says, "It isn't that we can't get enough parts-it's more that we can't seem to get them when we need them. That's true even with a lot of the robot parts. We'll have a pile of something like, say, a CD-50 sit around for months waiting for control boxes. Then we'll get the control boxes, but we won't have something else. Finally we get the something else, and we build the order and ship it. Next thing you know, you're looking around for a CD-50 and you can't find any. We'll have tons of CD-45's and 80's, but no 50's. So we wait. And by the time we get the 50's again, all the control boxes are gone."

  "And so on, and so on, and so on," says Stacey.

  "But, Stacey, you said the robots were producing a lot of parts for which we don't have product orders," I say. "That means we're producing parts we don't need."

  "Everybody tells me we'll use them eventually," she says. Then she adds, "Look, it's the same game everybody plays. Whenever efficiencies take a drop, everybody draws against the future forecast to keep busy. We build inventory. If the forecast doesn't hold up, there's hell to pay. Well, that's what's happening now. We've been building inventory for the better part of a year, and the market hasn't helped us one damn bit."

  "I know, Stacey, I know," I tell her. "And I'm not blaming you or anybody. I'm just trying to figure this out."

  Restless, I get up and pace.

  I say, "So the bottom line is this: to give the robots more to do, we released more materials."

  "Which, in turn, increased inventories," says Stacey.

  "Which has increased our costs," I add.

  "But the cost of those parts went down," says Lou.

  "Did it?" I ask. "What about the added carrying cost of in-

  77

  ventory? That's operational expense. And if that went up, how could the cost of parts go down?"

  "Look, it depends on volume," says Lou.

  "Exactly," I say. "Sales volume... that's what matters. And when we've got parts that can't be assembled into a product and sold because we don't have the other components, or because we don't have the orders, then we're increasing our costs."

  "Al," says Bob, "are you trying to tell us we got screwed by the robots?"

  I sit down again.

  "We haven't been managing according to the goal," I mut- ter.

  Lou squints. "The goal? You mean our objectives for the month?"

  I look around at them.

  "I think I need to explain a few things."

  78

  10

  An hour and a half later, I've gone over it all with them. We're in the conference room, which I've commandeered be- cause it has a whiteboard. On that whiteboard, I've drawn a dia- gram of the goal. Just now I've written out the definitions of the three measurements.

  All of them are quiet. Finally, Lou speaks up and says, "Where the heck did you get these definitions anyway?"

  "My old physics teacher gave them to me."

  "Who?" asks Bob.

  "Your old physics teacher?" asks Lou.

  "Yeah," I say defensively. "What about it?"

  "So what's his name?" asks Bob.

  "Or what's 'her' name," says Stacey.

  "His name is Jonah. He's from Israel."

  Bob says, "Well, what I want to know is, how come in throughput he says 'sales'? We're manufacturing. We've got noth- ing to do with sales; that's marketing."

  I shrug. After all, I asked the same question over the phone. Jonah said the definitions were precise, but I don't know how to answer Bob. I turn toward the window. Then I see what I should have remembered.

  "Come here," I say to Bob.

  He lumbers over. I put a hand on his shoulder and point out the window. "What are those?" I ask him.

  "Warehouses," he says.

  "For what?"

  "Finished goods."

  "Would the company stay in business if all it did was manu- facture products to fill those warehouses?"

  "Okay, okay," Bob says sheepishly, seeing the meaning now. "So we got to sell the stuff to make money."

  Lou is still staring at the board.

  "Interesting, isn't it, that each one of those definitions con- tains the word money," he says. "Throughput is the money coming in. Inventory is the money currently inside the system. And oper- ational expense is the money we have to pay out to make

  79

  throughput happen. One measurement for the incoming money, one for the money still stuck inside, and one for the money going out."

  "Well, if you think about all the investment represented by what we've got sitting out there on the floor, you know for sure that inventory is money," says Stacey. "But what bothers me is that I don't see how he's treating value added to materials by direct labor."

  "I wondered the same thing, and I can only tell you what he told me," I say.

  "Which is?"

  "He said he thinks that it's just better if value added isn't taken into account. He said that it gets rid of the 'confusion' about what's an investment and what's an expense, I say.

  Stacey and the rest of us think about this for a minute. The room gets quiet again.

  Then Stacey says, "Maybe Jonah feels direct labor shouldn't be a part of inventory because the time of the employees isn't what we're really selling. We 'buy' time from our employees, in a sense, but we don't sell that time to a customer-unless we're talking about service."

  "Hey, hold it," says Bob. "Now look here: if we're selling the product, aren't we also selling the time invested in that product?" "Okay, but what about idle time?" I ask. Lou butts in to settle it, saying, "All this is, if I understand it correctly, is a different way of doing the accounting. All employee time-whether it's direct or indirect, idle time or operating time, or whatever-is operational expense, according to Jonah. You're still accounting for it. It's just that his way is simpler, and you don't have to play as many games."

  Bob puffs out his chest. "Games? We, in operations, are hon- est, hard-working folk who do not have time for games."

  "Yeah, you're too busy turning idle time into process time with the stroke of a pen," says Lou.

  "Or turning process time into more piles of inventory," says Stacey.

  They go on bantering about this for a minute. Meanwhile, I'm thinking there might be something more to this besides sim- plification. Jonah mentioned confusion between in
vestment and expense; are we confused enough now to be doing something we shouldn't? Then I hear Stacey talking.

  80

  "But how do we know the value of our finished goods?" she asks.

  "First of all, the market determines the value of the prod- uct," says Lou. "And in order for the corporation to make money, the value of the product-and the price we're charging-has to be greater than the combination of the investment in inventory and the total operational expense per unit of what we sell."

  I see by the look on Bob's face that he's very skeptical. I ask him what's bothering him.

  "Hey, man, this is crazy," Bob grumbles.

  "Why?" asks Lou.

  "It won't work!" says Bob. "How can you account for every- thing in the whole damn system with three lousy measurements?"

  "Well," says Lou as he ponders the board. "Name something that won't fit in one of those three."

  "Tooling, machines..." Bob counts them on with his fin- gers. "This building, the whole plant!"

  "Those are in there," says Lou.

  "Where?" asks Bob.

  Lou turns to him. "Look, those things are part one and part the other. If you've got a machine, the depreciation on that ma- chine is operational expense. Whatever portion of the investment still remains in the machine, which could be sold, is inventory."

  "Inventory? I thought inventory was products, and parts and so on," says Bob. "You know, the stuff we're going to sell."

  Lou smiles. "Bob, the whole plant is an investment which can be sold-for the right price and under the right circumstances."

  And maybe sooner than we'd like, I think.

  Stacey says, "So investment is the same thing as inventory."

  "What about lubricating oil for the machines?" asks Bob.

  "It's operational expense," I tell him. "We're not going to sell that oil to a customer."

  "How about scrap?" he asks.

  "That's operational expense, too."

  "Yeah? What about what we sell to the scrap dealer?"

  "Okay, then it's the same as a machine," says Lou. "Any money we've lost is operational expense; any investment that we can sell is inventory."

  "The carrying costs have to be operational expense, don't they?" asks Stacey.

  Lou and I both nod.

  81

  Then I think about the "soft" things in business, things like knowledge-knowledge from consultants, knowledge gained from our own research and development. I throw it out to them to see how they think those things should be classified.

  Money for knowledge has us stumped for a while. Then we decide it depends, quite simply, upon what the knowledge is used for. If it's knowledge, say, which gives us a new manufacturing process, something that helps turn inventory into throughput, then the knowledge is operational expense. If we intend to sell the knowledge, as in the case of a patent or a technology license, then it's inventory. But if the knowledge pertains to a product which UniCo itself will build, it's like a machine-an investment to make money which will depreciate in value as time goes on. And, again, the investment that can be sold is inventory; the de- preciation is operational expense.

  "I got one for you," says Bob. "Here's one that doesn't fit: Granby's chauffeur."

  "What?"

  "You know, the old boy in the black suit who drives J. Bart Granby's limo for him," says Bob.

  "He's operational expense," says Lou.

  "Like hell he is! You tell me how Granby's chauffeur turns inventory into throughput," says Bob, and looks around as if he's really got us on this one. "I bet his chauffeur doesn't even know that inventory and throughput exist."

  "Unfortunately, neither do some of our secretaries," says Stacey.

  I say, "You don't have to have your hands on the product in order to turn inventory into throughput. Every day, Bob, you're out there helping to turn inventory into throughput. But to the people on the floor, it probably looks like all you do is walk around and make life complicated for everyone."

  "Yeah, no appreciation from nobody," Bob pouts, "but you still haven't told me how the chauffeur fits in."

  "Well, maybe the chauffeur helps Granby have more time to think and deal with customers, etc., while he's commuting here and there," I suggest.

  "Bob, why don't you ask Mr. Granby next time you two have lunch," says Stacey.

  "That's not as funny as you think," I say. "I just heard this

  82

  morning that Granby may be coming here to make a video tape on robots."

  "Granby's coming here?" asks Bob.

  "And if Granby's coming, you can bet Bill Peach and all the others will be tagging along," says Stacey.

  "Just what we need," grumbles Lou.

  Stacey turns to Bob. "You see now why Al's asking questions about the robots. We've got to look good for Granby."

  "We do look good," says Lou. "The efficiencies there are quite acceptable; Granby will not be embarrassed by appearing with the robots on tape."

  But I say, "Dammit, I don't care about Granby and his video- tape. In fact, I will lay odds that the tape will never be shot here anyway, but that's beside the point. The problem is that every- body-including me until now-has thought these robots have been a big productivity improvement. And we just learned that they're not productive in terms of the goal. The way we've been using them, they're actually co u n te r-productive."

  Everyone is silent.

  Finally, Stacey has the courage to say, "Okay, so somehow we've got to make the robots productive in terms of the goal."

  "We've got to do more than that," I say. I turn to Bob and Stacey. "Listen, I've already told Lou, and I guess this is as good a time as any to tell the both of you. I know you'll hear it eventually anyhow."

  "Hear what?" asks Bob.

  "We've been given an ultimatum by Peach-three months to turn the plant around or he closes us down for good," I say.

  Both of them are stunned for a few moments. Then they're both firing questions at me. I take a few minutes and tell them A hat I know-avoiding the news about the division; I don't want to send them into panic.

  Finally, I say, "I know it doesn't seem like a lot of time. It isn't. But until they kick me out of here, I'm not giving up. What vou decide to do is your own business, but if you want out, I suggest you leave now. Because for the next three months, I'm joing to need everything you can give me. If we can make this place show any progress, I'm going to go to Peach and do what- ever I have to to make him give us more time."

  "Do you really think we can do it?" asks Lou.

  83

  "I honestly don't know," I say . "But at least now we can see some of what we're doing wrong,"

  "So what can we do that's different?" asks Bob.

  "Why don't we stop pushing materials through the robots and try to reduce inventories?" suggests Stacey.

  "Hey, I'm all for lower inventory," says Bob. "But if we don't produce, our efficiencies go down. Then we're right back where we started."

  "Peach isn't going to give us a second chance if all we give him is lower efficiencies," says Lou. "He wants higher efficiencies, not lower."

  I run my fingers through my hair.

  Then Stacey says, "Maybe you should try calling this guy, Jonah, again. He seems like he's got a good handle on what's what."

  "Yeah, at least we could find out what he has to say," says Lou.

  "Well, I talked to him last night. That's when he gave me all this stuff," I say, waving to the definitions on the board. "He was supposed to call me..."

  I look at their faces.

  "Well, okay, I'll try him again," I say and reach for my brief- case to get the London number.

  I put through a call from the phone in the conference room with the three of them listening expectantly around the table. But he isn't there anymore. Instead I end up talking to some secre- tary.

  "Ah, yes, Mr. Rogo," she says. "Jonah tried to call you, but your secretary said you were in a meeting. He wanted to talk to you before he lef
t London today, but I'm afraid you've missed him."

  "Where is he going to be next?" I ask.

  "He was flying to New York. Perhaps you can catch him at his hotel," she says.

  I take down the name of the hotel and thank her. Then I get the number in New York from directory assistance, and expect- ing only to be able to leave a message for him, I try it. The switch- board puts me through.

  "Hello?" says a sleepy voice.

  "Jonah? This is Alex Rogo. Did I wake you?"

  "As a matter of fact, you did."

  84

  "Oh, I'm sorry-I'll try not to keep you long. But I really need to talk to you at greater length about what we were discuss- ing last night," I tell him.

  "Last night?" he asks. "Yes, I suppose it was 'last night' your time."

  "Maybe we could make arrangements for you to come to my plant and meet with me and my staff," I suggest.

  "Well, the problem is I have commitments lined up for the next three weeks, and then I'm going back to Israel," he says.

  "But, you see, I can't wait that long," I say. "I've got some major problems I have to solve and not a lot of time. I under- stand now what you meant about the robots and productivity. But my staff and I don't know what the next step should be and... uh, well, maybe if I explained a few things to you-"

  "Alex, I would like to help you, but I also need to get some sleep. I'm exhausted," he says. "But I have a suggestion: if your schedule permits, why don't I meet with you here tomorrow morning at seven for breakfast at my hotel."

  "Tomorrow?"

  "That's right," he says. "We'll have about an hour and we can talk. Otherwise..."

  I look around at the others, all of them watching me anx- iously. I tell Jonah to hold on for a second.