Read literally, this book is a business novel teaching principles of business and manufacturing through the Socratic method. The main character (and the reader along with him) arrives at these principles over conversations with a sort of guru-type advisor and with his management team.
Read as allegory, however, this book becomes a personal development book that can be adapted to nearly any life domain--running any type of business, managing your day-to-day life, handling your finances and investments, even managing a marriage. We as readers get to ride along with the main character, learning as he learns, and (ideally) applying these ideas to our specific situation.
Effectiveness in all of these domains is really about improving the throughput and efficacy of a system (think of "system" in the broadest possible sense), and how you deal with bottlenecks interfering with that throughput.
To borrow a foundational concept from the wonderful book The Seven Habits of Highly Effective People, it was striking see the how main character was, initially, totally stuck in Quadrant I, with no idea even of the existence of Quadrant II. As he gets on top of his problems, however, he really starts to get traction: not just in running his plant, but in all of his life domains. Further, it's interesting to see how much in business (and in life) we are driven by and burdened with invisible assumptions, most of which we never even know about, much less think to question. The characters in this novel are larded up with various examples of standard business propaganda: about the automatically presumed "value" of automation and technology, about ideas about what efficiency really means, on the need to run a plant (and your workers) close to capacity, and so on. Once they start to question these dogmas, not only do they run their plant far better, they perceive their entire reality better. It's fascinating to think about the invisible dogmatic assumptions handicapping our lives, when we can remove those handicaps just by thinking a little bit more and differently.
This is quite a book. I can't say I've read anything quite like it before. It's very readable, accessible to nearly any kind of reader, and it will teach you as much as you're open to being taught.
Notes:
* From the Introduction: "The Western world does not have to become a second or third rate manufacturing power." [How sad and painful it is to read sentences like this--from 1990 when the second edition came out, or even back in 1984 when the first edition came--out when our country's foolish macroeconomic policies made the outsourcing of our manufacturing base largely a fait accompli.]
* Alex Rogo, main character: he's juggling a finicky, unprofitable plant while trying to keep a marriage going with an equally finicky wife. Bill Peach, the district manager, storms in and orders everyone around in Rogo's plant to expedite an order, then gives an ultimatum to Rogo on the plant's performance.
* Interesting indirect questioning of assumptions/consensus wisdom about robotics about the alleged promises of automation when in reality the plant is having far more prosaic problems like managing inventory and meeting orders on time.
*A battle against WYSIATI ("what you see is all there is") thinking, and on the value of thinking about what isn't visible that might be impacting a system you're trying to run. This also goes for assumptions we make, unconscious perceptual filters we use, etc., which also affect what we "see." "If you're like nearly everybody else in this world, you've accepted so many things without question that you're not really thinking at all." Also on thinking you're thinking when you're not really thinking: "I'm thinking all the time."
* What is productivity? "Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive."
* On moving towards a known and tangible goal rather than playing games with numbers and words.
* The Alex Rogo character has a satori-like moment of clarity thinking about what his advisor and former instructor Jonah told him about defining the goal. Jonah becomes a type of guru for Rogo.
* "The goal of a manufacturing organization is to make money." [On one level: duh. But on another level, people often lose sight of the fundamental underlying goal and start playing games with efficiency metrics, etc.]
* Measures: net income, ROI, cash flow. Key insight here is that plant level measurements don't match up with corporate-level measurements.
* "There is more than one way to express the goal." Expressing the goal in a way that permits you to develop operational rules for running your plant: throughput, inventory, operational expense.
* Throughput: the rate at which the system generates money through sales, not production (if you produce something but don't sell it it's not throughput!).
* Inventory: all the money that the system is invested in purchasing things which it intends to sell.
* Operational expense: all the money the system spends in order to turn inventory into throughput.
* [I can't help but impose my own meta-insights while reading this book and seeing the occasionally foolish comportment of the main character:
1) When you're in the presence of a guru be silent! Listen and be a sponge.
2) Think of the term guru in the broadest possible sense: anyone who could teach you something.
3) Stop asking your guru for a tremendously long list of if-then statements ("if this happens then what do I do?") and "how do I do X?" questions when in the presence of your guru.]
* "Local optimums": this is a useful concept: optimizing one workstation or one life domain may de-optimize the system, may lead to bottlenecks, unforeseen problems, etc. You might need margin or space/excess capacity there instead.
* On the idea that just by adding some technology, or some robots, or whatever, your company becomes more productive by 36%; the central fallacy of this assumption: it's an invisible assumption, people make it without realizing they're making it: of course our technology makes us more efficient and more productive! It doesn't always, and you should always sanity check assumptions like these.
* They find themselves spiraling towards better and more refined articulations of their "goal"; rewording the goal as "increase throughput [read: profitable sales] while simultaneously reducing both inventory and operating expense"
* All the measures have to do with money: throughput is the money coming in from sales, inventory is money currently inside the system, operational expense is money we have to pay out to make throughput happen; thus we need one measurement for the "incoming money," one for the "money stuck inside the system," and one for the "money going out."
* The guru character is kind of ephemeral: he's in different countries, different places all the time, he's hard to reach, he speaks in koans, and in a very indirect style, all of this seems to both get the plant manager to think for himself but also it forces him be not codependent with his guru. The guru makes himself hard to reach, he makes himself understood but he doesn't spell everything all out, and then he cuts off the conversation without answering every single one of his students' questions. Quite an interesting aspect of this parable.
* The guru also doesn't tolerate any pushback from the plan manager at all: when Alex interrupts, when he asks inane questions, or doesn't do the work to comprehend.
* "Most of the time, your struggle for high efficiencies is taking you in the opposite direction of your goal... A plant in which everyone is working all the time is very inefficient." [Again another standard assumption slaughtered.]
* On having a "balanced plant" where each resource is balanced with demand for the market; on the idea of a balanced plant as a type of fragility, a lack of necessary capacity.
* On "dependent events" one event depends on the event or events prior to it; on statistical fluctuations.
* An allegory within an allegory! The overnight hike with his son's scout troop becomes an exact metaphor and an exact mapping for the statistical fluctuations and the dependent events in his plant. The kids spread out along the trail, the fat kid slows down the whole group, etc.
* Note that there are different kinds of statistical fluctuations, some of them average out and cancel out; some of them have features that make them cumulative or even multiplicative. See groups of boy scouts that fan out because they walk at different rates at times while maintaining an average rate of speed. Any fluctuation drives a greater length of the line of boys. There's an accumulation of these fluctuations!
* Worse, the fluctuations also drag down the positive randomness later in the assembly process as the throughput continues, so no matter what your average is you'll always perform below that average because the negative fluctuations hamper the overall system; bottlenecks are like the slow kid holding up the rest of the troop. The slowest kid, the bottleneck, defines the throughput. Also the slowest member of a group or the factory may not be the same all the time: that limiting factor can float throughout the troop or throughout the factory; it depends who's moving slowest at a particular time, thus the bottleneck can move around to other machines or other people.
* Also on persuading people to think about things in a different way when they haven't thought about things in that way before. Usually you get pushback (or worse noncomprehension); it's egoically threatening; it bugs people ("but we've always done it this way!"), etc.
*"The maximum deviation of a preceding operation will become the starting point of a subsequent operation." [Holy cow, you can see this in all domains, I see it for example in investing: where any capital impairments or losses that occur in one period then become the starting point of your capital stack for the next period, and you have to make up the ground. It's the same problem.]
* "We have to change the way we think about production capacity. We cannot measure the capacity of a resource in isolation. Its true productive capacity depends upon where it is in the plant. And trying to level capacity with demand to minimize expenses has really screwed us up. We shouldn't be trying to do that at all." "But that's what everybody else does." [Again, pushback and homeostasis is often the response.]
* Resources at the end of the line should have more capacity than ones at the beginning, sometimes much more.
* Bottleneck resources versus non-bottleneck resources: respectively any resource whose capacity is equal to or less than the demand placed upon it, versus a resource whose capacity is greater than the demand placed on it. "Once you have recognized these two types of resources, you will begin to see vast implications."
* You need to balance the flow of product through the plant with demand from the market. This is the first of nine rules expressing the relationship between bottlenecks and non-bottlenecks and how you should manage your plant. The flow through the bottleneck should be a bit less than demand for the market. The point here is to be able to adjust to any decline in market demand.
* Bottlenecks are not necessarily bad or good, they are simply a reality. Where they exist you want to control the flow through a system around them.
* "Does your plan have any bottlenecks? We don't know." (!!!) They don't even know if they have any bottlenecks, much less do they know where they are!
* Put the bottleneck at the front of the production line. Another interesting way to think about bottlenecks: that they can be "moved" in one way or another.
* WIP (work in process) inventory as an indicator of a bottleneck, it will pile up in front of it.
* On the idea that plants *should* have bottlenecks;
* Manufacturers typically have capacity that is hidden because your thinking is incorrect: like lost hours because of a break right before a new set-up, when the machine could be running while the workers are on break; also note: time lost on that bottleneck is lost for the entire plant, forever. Also consider doing QC before a bottleneck so you don't have as many soon-to-be scrapped parts taking up bottleneck space.
* Capacity in the plant is equal to the capacity of the bottlenecks, whatever the bottlenecks produce in an hour is the equivalent of what the plant produces in an hour... so an hour lost to a bottleneck is an hour lost to the entire system. Thus the cost of downtime of the bottleneck is the same as lost time to the entire plant.
* Time is wasted on bottlenecks when 1) it's idle during lunch break, 2) when it's processing parts which are already defective or which will become defective through careless work, and 3) to make the bottleneck work on parts you don't need.
* Make the bottleneck work only on what will contribute to throughput today. The other way to increase bottleneck capacity is to take load off the bottlenecks and give it to non-bottlenecks: either to other machines or other work processes--or even to outside vendors (and even if it costs more to do this). The cost of the outside vendor is going to be very small compared to what is effectively lost time of the entire plant.
* It's interesting to see how the main character is also working on a sort of constipated, bottlenecked relationship with his own wife.
* Note that certain paradoxes happen with a system with bottlenecks; in some instances you can reduce the efficiency of other non-bottleneck machines that result in less required throughput through the bottleneck itself: this effectively creates capacity at the bottleneck; in the specific case of our main character's plant, it was a heat-treating process that didn't actually need to be done if you used a slower and less efficient cutting process with tools that then didn't require heat-treating; this actually increased capacity at the bottleneck while slightly reducing efficiency in a non-bottlenecked station. Thus this was how they created capacity at the bottleneck by sort of notionally moving some of the work elsewhere.
* "The bottlenecks have spread": when you ease pressure on one bottleneck often more will occur as you increase plant throughput, or more accurately more will become visible! Also the team celebrated a little too early and a little too much. [The takeaway here is don't get arrogant, you're not done yet.]
* On thinking about bottlenecks and system constraints in the broadest possible sense: while the literal implications in this book are for factories or assembly lines; but I can see tons of other ways to think about these problems, tons of other analogies: see for example bottlenecks across a person's lifespan; cognition constraints; household administrative constraints; financial constraints; constrains put on you due to all the things that you own ("the things you own end up owning you"), thinking about stuff you have to do because of the constraint of your life only handling so much complexity: you can only have so many friends, only so much social activity, etc.
* "Work" versus "work towards the goal": managers often are so repulsed by visible idle time that they put people to work doing the wrong things; building inventory for products that have nothing to do with throughput, etc.
* Also on the concept of the difference between utilizing a resource and activating a resource: "activating" a resources like pressing the on switch and letting it run regardless of the work it's doing: this is an act of maximum stupidity if you're activating a non-bottleneck to its maximum; "utilizing" a resource means making use of the resource in a way that moves the system toward the goal. The fundamental idea is we should not optimize every resource in the system. "A system of local optimums is not an optimum system at all; it is a very inefficient system."
* The main character presents the idea to his kids in a discussion of the "Herbie problem" (the slow fat kid in the scout troop). The daughter comes up with a drummer to keep time; the son suggests tying ropes to everyone like mountain climbers; in the literal plant management application you'd just keep the person in front of the line tied to the slowest walker, Herbie. Or you could have Herbie and the boy in front send signals to each other, this analogizes in a factory to having the bottleneck and the fastest machines communicate with each other. Basically you let the Herbies, the bottlenecks, tell us when to let more inventory into the system. This is effectively the same as moving the bottlenecks to the head of production.
* Note that many of these changes that radically turn around the plant are not visible at all to the layer of management above the plant level.
* The main character tries to get the idea of "the goal" through to his wife in the context of a marriage; she's sort of an analogy for an intransigent middle manager--it just doesn't compute for her, in a marriage "there's no goal!" in her opinion; he replies, cogently, "we've been living together for fifteen years and we have no clear understanding of what our marriage is supposed to do."
* Note also that management continues to use the threat of a shutdown of the facility even though this is the only plant making money for the company.
* The next step is to cut our batch sizes in half on non-bottlenecks to make more money; this would cut WIP inventory in half, thus cutting way back on working capital, even potentially cutting all inventory in half. [Obviously the tradeoff here can be lead times (but not always, see below), but once they fixed their initial bottlenecks they were able to operate under lead/delivery times well below customer expectations anyway.]
* On thinking about the time a piece of material spends inside a plant:
1) set up time, time the part spends waiting for a resource,
2) process time
3) queue time
4) wait time, waiting for another part so it can be assembled together
Typically, queue time and wait time are the majority of the elapsed total time a part spends inside a plant. Queue time dominates parts going through bottlenecks, wait time dominates non-bottlenecks. Thus bottlenecks dictate inventory as well as throughput!!
* Flawed assumptions on economical batch quantity, the EBQ formula.
* Cutting the batch size increases throughput, shortens lead times, increases the flow of parts through the plant, and thus allows the plant to respond to market demand faster.
* Note also that an hour "saved" at a non-bottleneck is a mirage. There's an implication here! Increased setup time due to smaller batch sizes isn't really "wasted" because you have more setups. This is because now the non-bottlenecks have much more idle time, thus they can spend that time on more setup time.
* Dispute on the cost impact of smaller batch sizes: the increased setup time appears to make it look like costs went up.
* [On rhetoric and persuasion] On how teaching or leading a group to non-common sense based conclusions can be done much more effectively using the Socratic method; the Socratic method helps people peel back their unstated assumptions, it helps them share ownership of the conclusions and of the intellectual direction they're traveling in, and so on. Giving (or declaring) the answers up front is never the way to convince or persuade anyone of anything.
* Note the strategic thinking and the long-range plans that all the employees naturally start to ruminate on and put into place once they get out of Quadrant I. [This is yet another way to think about excess capacity.]
* Another irony: plant management techniques are fungible: they will be quickly copied and replicated across the industry, they are not a lasting competitive advantage!
* The book's next metaquestion is "What are the techniques needed for management?" Conventional thinking like "starting with fact finding"; note the metaphor of the periodic table of elements: finding the underlying order that governed the elements was the key challenge. Note that when Mendeleev constructed his periodic table he did it by atomic weights and detected some patterns that gave the table some structure which allowed him to deduce elements that had not been discovered yet; note also that Mendeleev was a total laughingstock until much later when his ideas were vindicated.
* The metaphor here is to seek an intrinsic order, arrange things so that it reveals that intrinsic order, rather than choosing some arbitrary order and forcing facts to fit it. How does one go about revealing the intrinsic order? If a technique existed to reveal this order would that not be a powerful management tool?
* Throughput, inventory, operating expense, prior "improvements" were about reducing costs, even costs that didn't matter; true improvements come from increasing throughput; on moving from the cost world into the throughput world [if you think about it, costs are much more visible than hypothetical throughput, it's another example of "the light is better here" problem.]
* What is the nature of the process? What is the "process" in a "process of ongoing improvement?" Thus the goal is to find that process; the process starts with finding the bottlenecks, the weakest links in the chain:
- Identify the system's bottlenecks
- Decide how to exploit the bottlenecks
- Subordinate everything to the above decision
- Elevate the system's bottlenecks
- Repeat the process for the next bottleneck
* Note that as you work through this process repeatedly a bottleneck can go from a machine to something like "insufficient market demand" for example; thus you should probably use the word "constraint" instead of bottleneck.
* They understand certain nuances of the problem and so they iterate their five-step method once again:
- Identify the system's constraints
- Decide how to exploit the systems constraints
- Subordinate everything else to the above decision
- Elevate the systems constraints (Warning! If in the previous steps a constraint has been broken, go back to step one, but do not allow inertia to cause the system's constraint]
* The idea here is that it doesn't take very long to require an iteration or a movement away from the methods you've used to solve the prior bottleneck; the example here of them using green and red tags to expedite certain materials started to break down very quickly once they had adjusted to the existence of the bottlenecks they had discovered. Thus when a constraint is broken it changes conditions and you can no longer extrapolate from your past results.
* The guys discover their plant has some 20% of previously undiscovered excess capacity, and this gives them all kinds of options: to chase extra business, to shorten lead times, to offer price concessions yet continue to obtain profitable growth, etc.
* On seeking the intrinsic order to things, this is an important metaskill throughout the book.
* Ironically also now that Alex (the main character and plant manager) got the plant running smoothly he feels weird because he has idle time on his hands!
* On the hypothesis approach using if/then thinking to understand a subject or a system. Working out the logic of the derivations and then working out if the underlying hypothesis is correct as predictions are verified or falsified.
* As they start running the plant closer to intrinsic capacity they start to see "traveling bottlenecks" appearing all over the place and the primary bottlenecks they had previously identified start to see waves of work overwhelming them. Excess unexplained idle time on those bottlenecks, the throughput is somehow being interrupted.
* They still find themselves reacting rather than looking downfield.
* [Also: on thinking of changing how a system operates, when you impose changes in how a factory handles its bottlenecks or how a division handles multiple factories, there also is a secondary notion here: a type of "infomational metafactory" with the function of conveying and imposing the new ideas throughout the system via the people who are operating those factories. This informational system also takes time to build, it has bottlenecks, obstacles, unseen problems, unseen consequences, etc.]
* Notice also the constraints that show up when managing people who run a factory (or any management task), employees may procrastinate, they may not finish things on time, they blame each other etc; also things are mis-measured; there are dumb policies and procedures in place; there's resistance to change; there are behavioral patterns that need to be undone, etc. These are types of constraints too: we can maybe think of them as meta-constraints that exist one conceptual level up from the factory's constraints. These meta-constraints are really behaviors or policies.
* "How does one go about identifying the system's constraint?" How does one identify the core problem?
* Note also the five-step rule set that they used above works for physical constraints but not for non-physical constraints like policies and organizations. This helps them arrive at three core questions:
- What do we change?
- What do we change to?
- How do we cause that change?
These are the most fundamental abilities that we are asking for from a manager: the manager must know how to answer these three questions.
* There's a postscript here from the author, talking about the genesis of his company and of this book:
Interesting to note that this book was ghostwritten by the author Jeff Cox who went on to co-write (with William C. Byham) a successful book called Zapp! [See the reading list below]
* No publisher wanted anything to do with this book either: some two dozen or so rejected him.
* He notes that everyone agrees with the ideas and the goal, but only a handful of companies actually implemented it; something important was missing, basically three problems:
1) the lack of ability to propagate the message throughout the company [a tremendous insight here is the typical executive only reads "executive summaries" and reports of things, never actual full length works, I saw this in my Wall Street career for sure]
2) the lack of ability to translate what they learn from the book into workable procedures for their real world plant [here the issue is the book exposes fallacies of the existing paradigm of manufacturing and reveals the essence of a new, needed paradigm, but the book didn't explain the process of operating in that new paradigm: he gave examples but not a procedure, and thus that's not enough for people to extrapolate procedures for their specific plant with its unique challenges and problems]
3) the lack of ability to persuade decision makers to allow the change of some of the measurements [this is typically a problem with large companies: the exceptions were when there is a charismatic and very analytical plant manager with an enthused group behind him]
* What happens when you're constraint moves outside of production and moves into an area where the constraint is not physical but based on an erroneous policy? [This is the meta-constraint idea I was talking about a few bullets points above.] How do you see and identify that constraint and elevate it and cause the needed changes in behavior? Downturns inevitably follow upturns, and so cost cuts will happen to the plant that has the most throughput but yet appears to have excess manpower (which is something "visible" and tangible that can be cut), and thus you punish people for their improvements and then their performance deteriorates once again.
To Read:
Eliyahu M. Goldratt: The Haystack Syndrome
Eliyahu M. Goldratt: The Theory of Constraints
William C. Byham and Jeff Cox: Zapp! The Lightning of Empowerment