Monday, August 11, 2008

The Goal - Book Review

For Strategist prepared by: Monil Chheda []

The Goal is a well written book by Eliyahu M. Goldratt and Jeff Cox emphasizing on the concept of Strategic Cost Management in a manufacturing firm and the challenges in the life of a manager. It’s a fictional story about the life of a production plant manager struggling to turn around his plant to become profitable again and having problems in his personal life further raising questions on the work-life balance of a manager.

Alex, the plant manager had been appointed to make the plant profitable from its dire strait 6 months ago. He has now been given the ultimatum to show results in 3 months. Alex is worried on how he would perform the task and is not sure of what his exact requirements and goals are. The top management has done little to provide any direction and has only been communicating ‘Fear’ of loss of jobs if profitability is not achieved.
Alex is having problems understanding the problems in the plant and is not able to figure out why the plant is losing money. To his surprise he finds the introduction of new technology (robots) has done little to improve efficiency and productivity in the plant.

Luckily he comes across his old physics professor, Jonah who is now a consultant. He advises Alex to clearly define his goal and get 3 measurements that would help him achieve that goal. Alex identifies the 3 measurements as ROI, Net profits and Cash flow which would in turn help the plant to achieve its ultimate goal of making money. Jonah advices that to enable the plant to make money Alex should be able to balance 3 critical areas simultaneously: reducing inventory, reducing operating expense and increase throughput. Alex does extensive research on the functioning of the plant and takes concrete steps to identify bottlenecks and thereafter maximize the use of the bottlenecks to eventually eliminate them. He communicates his new vision to the plant employees and works in coordination with them to reduce inventory.

In the end, the plant dramatically improves efficiency, increases net profits and also attracts new clients. Alex convinces the managements that implementing the method of Theory Of Constraints is indeed better than the traditional cost accounting method.

This book is a great read for budding managers and it emphasizes the importance of inventory, bottlenecks, communication, etc. It gives a good account of manager’s personal and professional life and the emphasis given to performance and clarity of thought at all times.

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