One of the book, which has influenced my thinking Essays - Economy

One of the book, which has influenced my thinking Essays - Economy one of the book, which has influenced my thinking a lot. This book introduced the Theory of Constraints to the world of business and has made its way to B-Schools as a textbook. Eliyahu Goldratt has done an excellent job in explaining his theory using a novel-style writing. It is a story of a struggling plant manager to improve his plant's performance and save it from closure. The expert in this story provoked the main character to "derive his solutions by supplying the question marks instead of exclamation marks" . If your organization/plant faces the classic problem of Quality, Cost Delivery: " why can't we consistently get a quality product out the door on time at the cost that can beat the competition? " or if you have a plant manager who is " always promoting some new thing he's doing, and most of the time what he's doing isn't any different from the things everyone else is doing ", then you better read this book and make others to read it as well. The important lessons one will learn from this text are summarized below. This will be beneficial to you only if you have read this book once and would like a recap. If you have not read the book yourself, then do not expect to gain the understanding of these concepts from this post. The goal of an organization is to make money by increasing net profit , while simultaneously increasing ROI and cash flow. Three critical measurement to achieve this goal and develop operational rules to successfully run a business are: throughput, inventory, and operational expenses. Inventory is turned into throughput by incurring operational expenses. So, the real goal is to: Increase throughput while simultaneously reducing both inventory and operating expense. Every process is a set of dependent events...in combination with statistical fluctuations. What's happening isn't an averaging out of the fluctuations in our various speeds, but an accumulation of the fluctuations. And mostly it's an accumulation of slowness - because dependency limits the opportunities for higher fluctuations. Balance flow, not capacity. A system of local optimums is not an optimum system at all; it is a very inefficient system. The numbers are meaningless unless they are based upon the constraints of the system. Bottlenecks dictate inventory as well as throughput. So, the Theory of Constraints is postulated as: Identify the system's constraint(s). Decide how to exploit the system's constraints. Subordinate everything else to the above decision. Elevate the system's constraint(s). If in the previous steps, a constraint has been broken, go back to Step 1, but do not cause inertia to cause a system's constraint. The Goal is a very compelling novel. Novel, HUH!! Who ever heard of a novel about a production plant? Well, Eli has made the production managers have quite an epiphany. In one book he might have changed the whole world of cost accounting. Eli approached the production world with a common sense view. Using just one goal, making money, he referenced every activity to it. Eli said, "I view science as nothing more than an understanding of the way the world is and why it is that way." You see, Eli is a physicist, and in being one, has to understand why things work the way they do. His common sense approach is illustrated beautifully in this novel. He has looked at cost accounting from the outside and has developed a whole new system because of it. Everyone from accountants to production managers to CEO's should read this book. Because of its fundamentals, it should be part of the curriculum of every accounting program. This novel has and continues to help the industry to make strides toward continuous improvement. Chapter One The first chapter gets the reader acquainted with Mr. Alex Rogo and his apparent problems with his production plant. This is shown through a confrontation between Mr. Rogo and his boss Mr. Peach, the Division Vice President. The dispute is over an overdue order #41427. Through their conversation it's learned that Mr. Peach will not settle for anything less than the order being shipped today, and since the plant is neither productive nor profitable, Alex has three months to