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496 pages, Paperback
Published January 1, 2009
Then it occurs to me: those three guys are doing something now, but is that going to help us make money? They might be working, but are they productive?
For a moment, I consider going back and telling the supervisor to make those guys actually produce. But, well there really isn't anything for them to work on right now. And ... maybe even though I could perhaps have those guys shifted to someplace where they could produce, how would I know if that work is helping us make money?
That's a weird thought.
Can I assume that making people work and making money are the same thing? We've tended to do that in the past. The basic rule has been just keep everybody and everything out here working all the time; keep pushing that product out the door. And when there isn't any work to do, make some. And when we can't make work, shift people around. And when you still can't make them work, lay them off.
I look around and most people are working. Idle people in here are the exception. Just about everybody is working nearly all the time. And we're not making money.
Some stairs zig-zag up one of the walls, access to one of the overhead cranes. I climb them until I am halfway to the roof and can look out over the plant from one of the landings.
Every moment, lots and lots of things are happening down there. Practically everything I'm seeing is a variable. The complexity in this plant-in any manufacturing plant-is mind-boggling if you contemplate it. Situations on the floor are always changing. How can I possibly control what goes on? How the hell am I supposed to know if any action in the plant is productive or non-productive toward making money?
The answer is supposed to be in my briefcase, which is heavy in my hand. It's filled with all those reports and printouts and stuff that Lou gave me for the meeting.
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 generates money through sales."
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 sales-not production. If you produce 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.
The actual cost of a bottleneck is the total expense of the system divided by the number of hours the bottleneck produces," says Jonah. "What does this make it?"
Lou takes out his calculator from his coat pocket and punches in the numbers.
"That's $2,735," says Lou. "Now wait a minute. Is that right?"
"Yes, it's right," says Jonah. "If your bottlenecks are not working, you haven't just lost $32 or $21. The true cost is the cost of an hour of the entire system. And that's twenty seven hundred dollars."
Lou is flabbergasted.
"That puts a different perspective on it," says Stacey. "Of course it does," says Jonah. "And with that in mind, how do we optimize the use of the bottlenecks? There are two principal themes on which you need to concentrate
"First, make sure the bottlenecks' time is not wasted," he says. "How is the time of a bottleneck wasted? One way is for it to be sitting idle during a lunch break. Another is for it to be processing parts which are already defective-or which will become defective through a careless worker or poor process control. A third way to waste a bottleneck's time is to make it work on parts you don't need."
"You mean spare parts?" asks Bob.
"I mean anything that isn't within the current demand," he says. "Because what happens when you build inventory now that you won't sell for months in the future? You are sacrificing present money for future money; the question is, can your cash flow sustain it? In your case, absolutely not."