The Goal: A Process of Ongoing Improvement (27 page)

I get home just as the sun is starting to set. The sky is rosy pink. As I’m unlocking the kitchen door, I hear the phone ringing inside. I rush in to grab it.

"Good morning,’’ says Jonah.
"Morning?’’ Outside the window, the sun is almost below the horizon. I laugh. "I’m watching the sun set. Where are
you
calling from?’’
"Singapore,’’ he says.
"Oh.’’
"By the way, from my hotel I’m watching the sun
rise,’’
Jonah says. "Alex, I wouldn’t have called you at home, but I’m not going to be able to talk to you again for a few weeks.’’
"Why not?’’
"Well, it’s a long story and I can’t go into it now,’’ he says. "But I’m sure we’ll have a chance to discuss it some time.’’
"I see....’’ I wonder what’s going on, but say, "That’s too bad. It puts me in a kind of a bind, because I was just about to ask for your help again.’’
"Has something gone wrong?’’ he asks.
"No,’’ I tell him. "Everything is generally going very well from an operations standpoint. But I just had a meeting with my division vice president, and I was told the plant has to show an even bigger improvement.’’
"You’re still not making money?’’ he asks.
I say, "Yes, we are making money again, but we need to accelerate the improvement to save the plant from being shut down.’’
I hear the trace of a chuckle on the other end of the line, and Jonah says, "If I were you, I wouldn’t worry too much about being shut down.’’
"Well, from what the head of the division has told me, the possibility of a shut-down is real,’’ I tell him. "And until he says otherwise, I can’t afford to take this lightly.’’
"Alex, if you want to improve the plant even more, I’m with you all the way,’’ Jonah says. "And since I won’t have the opportunity to speak to you for awhile, let’s talk about it now. Bring me up to date on what’s happening.’’
So I do. Then, wondering if we’ve reached some theoretical limit by now, I ask him if there is anything else we can try.
"Anything else?’’ he says. "Believe me, we have only begun. Now, here’s what I suggest. . . .’’
Early the next morning, I’m in my office at the plant considering what Jonah told me. Outside is the dawn of the day he’s already seen in Singapore. Stepping out to get a cup of coffee, I find Stacey at the coffee machine.
"Hello there,’’ she says. "I hear everything went fairly well for us at headquarters yesterday.’’
"Well, not bad,’’ I say. "I’m afraid we still have a way to go before we convince Peach we’re good for the long term. But I talked to Jonah last night.’’
"Did you tell him about our progress?’’ she asks.
"Yes,’’ I say. "And he suggested we try what he called ‘the next logical step.’’’
I see her face take on a nervous grin. "What’s that?’’
"Cut our batch sizes in half on non-bottlenecks,’’ I say.
Stacy takes a step back as she thinks about this. "But why?’’ she asks.
I say with a smile, "Because in the end we’ll make more money.’’
"I don’t understand,’’ she says. "How is that going to help us?’’
"Hey, Stacey, you’re in charge of inventory control,’’ I tell her. "You tell me what would happen if we cut our batch sizes in half.’’
Thinking, she sips her coffee for a moment. Her brow compresses in concentration. Then she says, "If we cut our batch sizes in half, then I guess that at any one time we’d have half the workin-process on the floor. I guess that means we’d only need half the investment in work-in-process to keep the plant working. If we could work it out with our vendors, we could conceivably cut all our inventories in half, and by cutting our inventories in half, we reduce the amount of cash tied up at any one time, which eases the pressure on cash flow.’’
I’m nodding each time she says a sentence, and finally I say, "That’s right. That’s
one
set of benefits.’’
She says, "But to reap those benefits fully, we’d have to have our suppliers increase the frequency of deliveries to us and reduce the quantity of each delivery. That’s going to take some negotiating through purchasing, and I’m not sure all the vendors will go for it.’’
I tell her, "That’s something we can work on. Eventually they’ll go for it because it’s to their advantage as well as ours.’’
"But if we go to smaller batch sizes,’’ she says, squinting at me in cynicism, "doesn’t that mean we’ll have to have more setups on equipment?’’
"Sure,’’ I say, "don’t worry about it.’’
"Don’t—?’’
"Yeah, don’t worry about it.’’
"But Donovan—’’
"Donovan will do just fine, even with more setups,’’ I say. "And, meanwhile, there is
another
set of benefits, aside from what you said, that we can have almost immediately.’’
"What’s that?’’ she asks.
"You really want to know?’’
"Sure, I do.’’
"Good. You set up a meeting with the other functions and I’ll tell everyone at the same time.’’

For dumping that little chore of the meeting arrangements on her, Stacey pays me back in kind by setting the meeting for noon at the most expensive restaurant in town—with lunch billable to
my
expense number, of course.

"What could I do?’’ she asks as we sit down at the table. "It was the only time everybody was available, right, Bob?’’
"Right,’’ says Bob.
I’m not mad. Given the quality and quantity of work these people have done recently, I can’t complain about picking up the tab for lunch. I get right down to telling everybody what Stacey and I had talked about this morning, and lead up to the other set of benefits.
Part of what Jonah told me last night over the phone had to do with the time a piece of material spends inside a plant. If you consider the total time from the moment the material comes into the plant to the minute it goes out the door as part of a finished product, you can divide that time into four elements.
One of them is setup, the time the part spends waiting for a resource, while the resource is preparing itself to work on the part.
Another is process time, which is the amount of time the part spends being modified into a new, more valuable form.
A third element is queue time, which is the time the part spends in line for a resource while the resource is busy working on something else ahead of it.
The fourth element is wait time, which is the time the part waits, not for a resource, but for another part so they can be assembled together.
As Jonah pointed out last night, setup and process are a small portion of the total elapsed time for any part. But queue and wait often consume large amounts of time—in fact, the majority of the elapsed total that the part spends inside the plant.
For parts that are going through
bottlenecks,
queue is the dominant portion. The part is stuck in front of the bottleneck for a long time. For parts that are only going through
non-bottlenecks,
wait is dominant, because they are waiting in front of assembly for parts that are coming from the bottlenecks. Which means that in each case, the bottlenecks are what dictate this elapsed time. Which, in turn, means the bottlenecks dictate inventory as well as throughput.
We have been setting batch sizes according to an economical batch quantity (or EBQ) formula. Last night, Jonah told me that although he didn’t have time over the phone to go into all the reasons, EBQ has a number of flawed assumptions underlying it. Instead, he asked me to consider what would happen if we cut batch sizes by half from their present quantities.
If we reduce batch sizes by half, we also reduce by half the time it will take to process a batch. That means we reduce queue and wait by half as well. Reduce those by half, and we reduce by about half the total time parts spend in the plant. Reduce the time parts spend in the plant, and. . . .
"Our total lead time condenses,’’ I explain. "And with less time spent sitting in a pile, the speed of the flow of parts increases.’’
"And with faster turn-around on orders, customers get their orders faster,’’ says Lou.
"Not only that,’’ says Stacey, "but with shorter lead times we can respond faster.’’
"That’s right!’’ I say. "If we can respond to the market faster, we get an advantage in the marketplace.’’
"That means more customers come to us because we can deliver faster,’’ says Lou.
"Our sales increase!’’ I say.
"And so do our bonuses!’’ says Stacey.
"Whoa! Whoa now! Hold up here a minute!’’ says Bob.
"What’s the matter?’’ I ask him.
"What about setup time?’’ he says. "You can batch sizes in half, you double the number of setups. What about direct labor? We got to save on setups to keep down costs.’’
"Okay, I knew this would come up,’’ I tell them. "Now look, it’s time we think about this carefully. Jonah told me last night that there was a corresponding rule to the one about an hour lost at a bottleneck. You remember that? An hour lost at a bottleneck is an hour lost for the entire system.’’
"Yeah, I remember,’’ Bob says.
I say, "The rule he gave me last night is that an hour saved at a non-bottleneck is a mirage.’’
"A
mirage!’’
he says. "What do you mean, an hour saved at a non-bottleneck is a mirage? An hour saved is an hour saved!’’
"No, it isn’t,’’ I tell him. "Since we began withholding materials from the floor until the bottlenecks are ready for them, the non-bottlenecks now have idle time. It’s perfectly okay to have more setups on non-bottlenecks, because all we’re doing is cutting into time the machines would spend being idle. Saving setups at a non-bottleneck doesn’t make the system one bit more productive. The time and money saved is an illusion. Even if we double the number of setups, it won’t consume all the idle time.’’
"Okay, okay,’’ says Bob. "I guess I can see what you mean.’’
"Now Jonah said, first of all, to cut the batch sizes in half. Then he suggested I go immediately to marketing and convince them to conduct a new campaign which will promise customers earlier deliveries.’’
"Can we do it?’’ asks Lou.
I tell them, "Already, our lead times have condensed considerably over what they were before thanks to the priority system and making the bottlenecks more productive. We have reduced lead time of about three to four months down to two months or even less. If we cut our batch sizes in half, how fast do you think we can respond?’’
There is an eternity of hemming and hawing while this is debated.
Finally, Bob admits, "Okay, if we cut batch sizes in half, then that means it ought to take half the time it does now. So instead of six to eight weeks, it should take about four weeks . . . maybe even three weeks in a lot of cases.’’
"Suppose I go to marketing and tell them to promise customers deliveries in three weeks?’’ I say.
"Whoa! Hold on!’’ says Bob.
"Yeah, give us a break!’’ says Stacey.
"All right, four weeks then,’’ I say. "That’s reasonable, isn’t it?’’
"Sounds reasonable to me,’’ says Ralph.
"Well... okay,’’ says Stacey.
"I think we should risk it,’’ says Lou.
"So are you willing to commit to this with us?’’ I ask Bob.
Bob sits back and says, "Well...I’m all for bigger bonuses. What the hell. Let’s try it.’’

Friday morning finds the
Mazda
and me again hustling up the Interstate toward headquarters. I hit town just as the sun hits the glass of the UniCo building and reflects a blinding glare. Kind of pretty actually. For a moment, it takes my mind off my nerves. I’ve got a meeting scheduled with Johnny Jons in his office. When I called, he was quite willing to see me, but sounded less than enthusiastic about what I said I’d like to talk about. I feel there’s a lot riding on my ability to convince him to go along with what we want to do. So I’ve found myself biting a fingernail or two during the trip.

Jons doesn’t really have a desk in his office. He has a sheet of glass on chrome legs. I guess that’s so that everyone can get a good look at his Gucci loafers and silk socks—which he exposes as he leans back in this chair, interweaves his fingers and puts them behind his head.
He says, "So... how is everything going?’’

"Everything is going very well right now,’’ I say. "In fact, that’s why I wanted to talk to you.’’
Jons immediately dons an impassive face.
"All right, listen,’’ I tell him, "I’m going to lay my cards out for you. I’m not exaggerating when I say everything is going well. It is. We’ve worked off our backlog of overdue orders, as you know. At the beginning of last week, the plant began producing strictly to meet projected due dates.’’
Jons nods and says, "Yes, I’ve noticed my phone hasn’t been ringing lately with complaints from customers missing their orders.’’
"My point,’’ I tell him, "is that we’ve really turned the plant around. Here, look at this.’’
From my breifcase, I take the latest list of customer orders. Among other things, it shows the due dates promised, along with the dates when Ralph expected shipment, and the dates the products were actually shipped.
"You see,’’ I tell Jons as he studies the list on the glass top of his table, "we can predict to within twenty-four hours one way or the other when an order will leave the plant.’’
"Yes, I’ve seen something like this floating around,’’ says Jons. "These are the dates?’’
"Of course.’’
"This is impressive,’’ says Jons.
"As you can see by comparing a few recently shipped orders with ones of a month or so before, our production lead times have condensed dramatically. Four months’ lead time is no longer a holy number with us. From the day you sign the contract with the customer to the day we ship, the current average is about two months. Now, tell me, do you think that could help us in the marketplace?’’
"Sure it could,’’ says Jons.
"Then how about
four weeks?’’
"What?
Al, don’t be ridiculous,’’ says Jons. "Four weeks!’’
"We can do it.’’
"Come on!’’ he says. "Last winter, when demand for every damn thing we make was way down, we were promising delivery in four months, and it was taking six! Now you’re telling me you can go from contract to finished product in four weeks?’’
"I wouldn’t be here talking to you if we couldn’t,’’ I tell him, hoping desperately that we’re right.
Jons snorts, unconvinced.
"Johnny, the truth is I need more business,’’ I tell him. "With our overdues gone, and our current backlog declining, I’ve got to get more work into my plant. Now we both know the business is out there; it’s just that the competition is getting more of it than we are.’’
Jons looks at me through narrowed eyes. "You can really turn around an order of 200 Model 12’s or 300 DBD-50’s in four weeks?’’
"Try me,’’ I tell him. "Get me five orders—hell, get me
ten
orders—and I’ll prove it to you.’’
"And what happens to our credibility if you can’t come through?’’ he asks.
Flustered, I look down through the glass table.
"Johnny,’’ I say, "I’ll make a bet with you. If I don’t deliver in four weeks, I’ll buy you a brand new pair of Guccis.’’
He laughs, shakes his head and finally says, "Okay, you’re on. I’ll pass the word to the salespeople that on all your products, we’re offering terms of factory shipment in six weeks.’’
I start to protest. Jons holds up a hand.
"I know you’re confident,’’ he says. "And if you ship any new orders in less than five weeks, I’ll buy
you
a new pair of shoes.’’