The Goal: A Process of Ongoing Improvement (10 page)

I tell Mom to call me as soon as her phone bill arrives in the mail, and I’ll come over and pay it. I give her a hug and a kiss good-bye, and I’m out of there. I walk out into the daylight and get into the
Mazda
. For a moment, I consider going straight to the office. But a glance at the wrinkles in my suit and a rub of the stubble on my chin convinces me to go home and clean up first.

Once I’m on my way, I keep hearing Jonah’s voice saying to me: "So your company is making thirty-six percent more money from your plant just by installing some robots? Incredible.’’ And I remember that I was the one who was smiling. I was the one who thought
he
didn’t understand the realities of manufacturing. Now I feel like an idiot.

Yes, the goal is to make money. I know that now. And, yes, Jonah, you’re right; productivity did not go up thirty-six percent just because we installed some robots. For that matter, did it go up at all? Are we making
any
more money because of the robots? And the truth is, I don’t know. I find myself shaking my head.

But I wonder how Jonah knew? He seemed to know right away that productivity hadn’t increased. There were those questions he asked.

One of them, I remember as I’m driving, was whether we had been able to sell any more products as a result of having the robots. Another one was whether we had reduced the number of people on the payroll. Then he had wanted to know if inventories had gone down. Three basic questions.

When I get home, Julie’s car is gone. She’s out some place, which is just as well. She’s probably furious at me. And I simply do not have time to explain right now.

After I’m inside, I open my briefcase to make a note of those questions, and I see the list of measurements Jonah gave me last night. From the second I glance at those definitions again, it’s obvious. The questions match the measurements.

That’s how Jonah knew. He was using the measurements in the crude form of simple questions to see if his hunch about the robots was correct: did we sell any more products (i.e., did our throughput go up?); did we lay off anybody (did our operational expense go down?); and the last, exactly what he said: did our inventories go down?

With that observation, it doesn’t take me long to see how to express the goal through Jonah’s measurements. I’m still a little puzzled by the way he worded the definitions. But aside from that, it’s clear that every company would want to have its throughput go up. Every company would also want the other two, inventory and operational expense, to go down, if at all possible. And certainly it’s best if they all occur simultaneously—just as with the trio that Lou and I found.
So the way to express the goal is this?

Increase throughput while simultaneously reducing both inventory and operating expense.
That means if the robots have made throughput go up and the other two go down, they’ve made money for the system. But what’s really happened since they started working?
I don’t know what effect, if any, they’ve had on throughput. But off the top of my head, I know inventories have generally increased over the past six or seven months, although I can’t say for sure if the robots are to blame. The robots
have
increased our depreciation, because they’re new equipment, but they haven’t directly taken away any jobs from the plant; we simply shifted people around. Which means the robots had to increase operational expense.
Okay, but efficiencies have gone up because of the robots. So maybe that’s been our salvation. When efficiencies go up, the cost-per-part has to come down.
But did the cost really come down? How could the cost-perpart go down if operational expense went up?

By the time I make it to the plant, it’s one o’clock, and I still haven’t thought of a satisfactory answer. I’m still thinking about it as I walk through the office doors. The first thing I do is stop by Lou’s office.
"Have you got a couple minutes?’’ I ask.

"Are you kidding?’’ he says. "I’ve been looking for you all morning.’’
He reaches for a pile of paper on the corner of his desk. I know it’s got to be the report he has to send up to division.
"No, I don’t want to talk about that right now,’’ I tell him. "I’ve got something more important on my mind.’’
I watch his eyebrows go up.
"More important than this report for Peach?’’
"Infinitely more important than that,’’ I tell him.
Lou shakes his head as he leans back in his swivel chair and gestures for me to have a seat.
"What can I do for you?’’
"After those robots out on the floor came on line, and we got most of the bugs out and all that,’’ I say, "what happened to our sales?’’
Lou’s eyebrows come back down again; he’s leaning forward and squinting at me over his bifocals.
"What kind of question is that?’’ he asks.
"A smart one, I hope,’’ I say. "I need to know if the robots had any impact on our sales. And specifically if there was any increase after they came on line.’’
"Increase? Just about all of our sales have been level or in a downhill slide since last year.’’
I’m a little irritated.
"Well, would you mind just checking?’’ I ask.
He holds up his hands in surrender.
"Not at all. Got all the time in the world.’’
Lou turns to his computer, and after looking through some
files, starts
printing
out handfuls of reports, charts, and graphs. We both start leafing through. But we find that in every case where a robot came on line, there was no increase in sales for any product for which they made parts, not even the slightest blip in the curve. For the heck of it, we also check the shipments made from the plant, but there was no increase there either. In fact, the only increase is in overdue shipments—they’ve grown rapidly over the last nine months.

Lou looks up at me from the graphs.
"Al, I don’t know what you’re trying to prove,’’ he says. "But if you want to broadcast some success story on how the robots are going to save the plant with increased sales, the evidence just doesn’t exist. The data practically say the opposite.’’
"That’s exactly what I was afraid of,’’ I say.
"What do you mean?’’
"I’ll explain it in a minute. Let’s look at inventories,’’ I tell him. "I want to find out what happened to our work-in-process on parts produced by the robots.’’
Lou gives up.
"I can’t help you there,’’ he says. "I don’t have anything on inventories by part number.’’
"Okay, let’s get Stacey in on this.’’

Stacey Potazenik manages inventory control for the plant. Lou makes a call and pulls her out of another meeting.
Stacey is a woman in her early 40’s. She’s tall, thin, and brisk in her manner. Her hair is black with strands of gray and she wears big, round glasses. She is always dressed in jackets and skirts; never have I seen her in a blouse with any kind of lace, ribbon or frill. I know almost nothing about her personal life. She wears a ring, but she’s never mentioned a husband. She rarely mentions anything about her life outside the plant. I do know she works hard.
When she comes in to see us, I ask her about work-in-process on those parts passing through the robot areas.
"Do you want exact numbers?’’ she asks.
"No, we just need to know the trends,’’ I say.
"Well, I can tell you without looking that inventories went up on those parts,’’ Stacey says.
"Recently?’’
"No, it’s been happening since late last summer, around the end of the third quarter,’’ she says. "And you can’t blame me for it—even though everyone always does—because I fought it every step of the way.’’
"What do you mean?’’
"You remember, don’t you? Or maybe you weren’t here then. But when the reports came in, we found the robots in welding were only running at something like thirty percent efficiency. And the other robots weren’t much better. Nobody would stand for that.’’
I look over at Lou.
"We had to do something,’’ he says. "Frost would have had my head if I hadn’t spoken up. Those things were brand new and very expensive. They’d never pay for themselves in the projected time if we kept them at thirty percent.’’
"Okay, hold on a minute,’’ I tell him. I turn back to Stacey. "What did you do then?’’
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 testing machines.
"Bob,’’ I tell him, "forget about that for now.’’
"Something else wrong?’’ he asks.

"Yes, there is. We’ve just been talking about our local celebrities, 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 robots 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 inventory? 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 mutter.
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.’’

An hour and a half later, I’ve gone over it all with them. We’re in the conference room, which I’ve commandeered because it has a
whiteboard
. On that
whiteboard
, I’ve drawn a diagram 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 nothing 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 manufacture 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 contains the word
money,’’
he says. "Throughput is the money coming in. Inventory is the money currently inside the system. And operational expense is the money we have to pay out to make 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 honest, 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 simplification. Jonah mentioned
confusion
between investment and expense; are we confused enough now to be doing something we shouldn’t? Then I hear Stacey talking.
"But how do we know the value of our finished goods?’’ she asks.
"First of all, the market determines the value of the product,’’ 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 everything 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 fingers. "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 machine 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.
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 depreciation 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 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 videotape. 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 everybody—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
counter
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 what 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 you 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 going 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 whatever I have to to make him give us more time.’’
"Do you really think we can do it?’’ asks Lou.
"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 briefcase 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 secretary.
"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 left 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 expecting only to be able to leave a message for him, I try it. The switchboard puts me through.
"Hello?’’ says a sleepy voice.
"Jonah? This is Alex Rogo. Did I wake you?’’
"As a matter of fact, you did.’’
"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 discussing 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 understand 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 anxiously. I tell Jonah to hold on for a second.
"He wants me to come to New York tomorrow,’’ I tell them. "Can anybody think of a reason why I shouldn’t go?’’
"Are you kidding?’’ says Stacey.
"Go for it,’’ says Bob.
"What have you got to lose?’’ says Lou.
I take my hand off the mouthpiece. "Okay, I’ll be there,’’ I say.
"Excellent!’’ Jonah says with relief. "Until then, good night.’’
When I get back to my office, Fran looks up with surprise from her work.
"So there you are!’’ she says and reaches for the message slips. "This man called you twice from London. He wouldn’t say whether it was important or not.’’
I say, "I’ve got a job for you: find a way to get me to New York tonight.’’