THEORY OF CONSTRAINTS

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est way is by comparing the objective in question to the globalobjective. This comparison is achieved by simply trying to restatethe problem using the terminology of the global objectiverather than the local terminology.Are we really trying to achieve a minimum cost per unit?Maybe, but what we are really trying to achieve is, of course, themaking of more money. Since most readers have not yet developedtheir intuition regarding Throughput, Inventory and OperatingExpense, we'll use, instead, the slightly more cumbersomeglobal terminology of the relationships of making money; NetProfit and Return on Investment. Rather than using cost perunit, we should use profit per unit. Since, the problem assumes afixed selling price; more cost less profit, less cost more profit, wecan just replace cost by profit. This results in a mirror image ofthe previous graph (Figure 5).How do we bring investment into the picture? We should justremind ourselves of the reason for the linear relationship(straight line) between carrying cost and the batch size. Doublingthe batch size means doubling the carrying cost. But thisimplies doubling the investment in the work in process and finishedgoods material that we hold. In other words, there is also alinear relationship between the batch size and investment. Thus,we can simply replace the horizontal axis (batch size) with investment(in WIP and FG's) and we get a graph which is profitper unit versus investment, as shown in Figure 6.46
All the batches within the two circles provide about the sameprofit or, as before, about the same cost. But what about returnon investment? The same profit means the same return, but theinvestment in that interval has more than doubled. If we want tomake more money, then we shouldn't aim for the top of thecurve but at some point substantially to the left of it. And whatabout that brutal, necessary condition called cash?Suppose that the plant has an amount of cash which residessomewhere between the two points (as indicated by the bar onthe investment axis). Do you still regard the two circles as equiv-47
Page 1 and 2: What is this thing calledTHEORYOFCO
Page 3 and 4: PART ONEWhat is this thing calledTH
Page 5 and 6: How do we listen to what we intuiti
Page 7 and 8: 4. Elevate the System's Constraints
Page 9 and 10: 2. The Process of Change9
Page 11: Where change is ongoing, we must be
Page 14 and 15: Intensity1970 1975 1980 1985 1990FI
Page 16 and 17: ment. He/she doesn't see any threat
Page 18 and 19: 1. Does the emotion of the inventor
Page 20 and 21: don't expect that people will volun
Page 22 and 23: "puddings." The pilot method. Look
Page 24 and 25: often managing in spite of the exis
Page 26 and 27: squared, then we can logically expl
Page 28 and 29: law—can never be proven. Even whe
Page 30 and 31: obsoletes for a while our intuition
Page 32 and 33: these factors has not changed signi
Page 34 and 35: We believe that real life examples
Page 36 and 37: sion. It is quite easy now for Jona
Page 38 and 39: though not necessarily well verbali
Page 40 and 41: given to it and the prerequisite to
Page 42 and 43: per unit. The major avenues through
Page 44 and 45: Now we should outline how to move s
Page 48 and 49: alent points? Yes, they are equival
Page 50 and 51: time and with relative small invest
Page 52 and 53: stop and reset the line to assemble
Page 54 and 55: Almost every plant has a forecast o
Page 56 and 57: three levels deep in the logical tr
Page 58 and 59: "Bert, I don't have to tell you tha
Page 60 and 61: ter of fact, we have a very good re
Page 62 and 63: completed. Why doesn't Chris take t
Page 64 and 65: argument. "Everybody knows that the
Page 66 and 67: Everyone looks at me as if I have a
Page 68 and 69: "Jonah, you don'tlook very happy.Wh
Page 70 and 71: "Oh," says Bert. "But if we take a
Page 72 and 73: capacity, which in other words mean
Page 74 and 75: "Yes," says Bert. "And there is mor
Page 76 and 77: "What do you mean?""Why did you nee
Page 78 and 79: PART TWOHOW SHOULD IT BEIMPLEMENTED
Page 80 and 81: experiences gained in his particula
Page 82 and 83: their usage in a very broad spectru
Page 84 and 85: 1. How to Become a JonahThe formal
Page 86 and 87: But team efforts elevate each stude
Page 88 and 89: "T" configuration analysis, to mark
Page 90 and 91: 2. The Devastating Impact of theOrg
Page 92 and 93: educe Operating Expense will inevit
Page 94 and 95: This phenomena has been witnessed o
Page 96 and 97:
3. Reaching the Initial Consensus a
Page 98 and 99:
a much larger myriad of policy cons
Page 100 and 101:
the head of the division. Besides,
Page 102 and 103:
Jonah to invent. This is not the ca
Page 104 and 105:
4. How to Reach the TopUnless you a
Page 106 and 107:
The more physically remote the othe
Page 108 and 109:
5. What About Existing New Projects
Page 110 and 111:
as presentations, entitled "this or
Page 112 and 113:
products, it's not just a procedura
Page 114 and 115:
Most of the factorsimpacting our ab
Page 116 and 117:
methods have claimed that this long
Page 118 and 119:
ial Inventory. What are the KANBAN
Page 120 and 121:
it will be instantly available. It
Page 122 and 123:
we are no longer satisfied with the
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(products) and thus must consider t
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tioned before, their input is essen
Page 128 and 129:
APPENDIXTwo Selected Readings from
Page 130 and 131:
Solution for the Eighties to Americ
Page 132 and 133:
"I see," says Jonah. Then he smiles
Page 134 and 135:
"Alex, if you're like nearly everyb
Page 136 and 137:
"Really? Then, tell me, what is the
Page 138 and 139:
Before I have time to say, "Where's
Page 140 and 141:
I look up and notice that the boy i
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should also expand and contract wit
Page 144 and 145:
Then I start to wonder what this co
Page 146 and 147:
I could, I'd simply keep everyone m
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mum of one when it's your turn, wha
Page 150 and 151:
Dave, he still has three left in hi
Page 152 and 153:
"You've got five rounds left," I te
Page 154 and 155:
# Dave's inventory for turns 8, 9,
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except me. In fact, all the boys ha
Page 158 and 159:
So we start off again. And it works
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THEORY OF CONSTRAINTS

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