Making a worker work Vs Profiting from him

Plants want to utilize each workers capacity to its fullest. They demand everyone work continously for as many hours as possible. However, when workers work on a non-bottleneck machine and produce more than the bottle neck, or more than the market demand, their production is out of sync with the flow of the system. They are not adding value but tying up money in inventory.
Source utilization is using a resource to move towards the goal.

Balance flow with demand. Not capacity with demand

It might seem luring to isolate each process and look at it separately and analylize if it satisfies the market demand. However, the system should be looked at as a whole.
Therefore demand should not be balanced with capacity but with flow. The flow is determined by the capacity of bottleneck. Therefore the capacity of the process is determined by the bottleneck. The bottle necks should be placed at the beginning of a process to regulate the flow of the process.

The simplest way to recognize a bottle neck is to locate the machine with largest amount of inventory in front of it.

Statistical Fluctuations and Dependant Events

The author explains the concept of statistical fluctuations and dependant events very nicely using the Marching Scouts example.

Imagine a single queue of marching kids in a straight line with the leader at the beginning with other kids behind him. The goal is to transport all kids from point A to point B. Since no one can over take any one else, the speed of any kid cannot be faster than the kid in front of him. Therefore if the slowest kid - Charlie is walking much slower than the kid in front of him, the gap between them will increase. The kids behind Charles - even if faster than Charles will be limited to his speed.
This makes transporting all kids from point A to point B dependant on Charles speed.
However, intermittently, Charles (and other slow kids) will run up a little to catch up with the kid in front of them. Therefore the speed is never constant.

Applying this analogy to a production line, Charles is the bottle neck and the throughput of the entire line depends on the throughput of the bottleneck. As the speed of each kid is dependant on speed of kids ahead of him, this is the dependant events.
Just like the speed of the kids is not always same, production process is not always at the same speed. This is the statistical fluctuation.
Each kid, who is slower than the kid in front of him, is adding to the distance between the first scout and last scout. Therefore the statistical fluctuations add up. They do not average out.
There will always be someone who is the slowest; similarly there will always be a bottle neck in the system.

Balanced plant and why "fat" is required in a system

1. About idle man power: Is it good to have excess unused capacity in the plant. Conventional wisdom is that the people should be utilized as much as possible for the plant's capacity to increase. But this results in excess inventory because people may be producing inventory which is not used immidiately. Thus tying money in WIP.

Balanced plant: Managers should aim at running balanced plant (which is easier said than done).
To balance a plant: Operational expense has to be reduced, while decreasing inventory and increasing throughput.

Managers of different divisions tend to focus on the performance of their units - for example operational personel might be most concerned about reducing the costs of operations - thus laying off people when there is excess capacity. This niehther brings in more sales or decreases inventory. There is no balance achieved. Only one factor is taken care of.

It can be proved mathematically that if capacity is balanced with marketing demand, then the inventory will go through the roof and throughput will decrease. This happens because of two mathematical phonomena:
Dependant events in combination with Statistical fluctuation.
The mathematical model can be understood from one of the simpler queuing models where

W = A / (2P(P-A))
where
W is the wait time in Queue
A is the rate of arrival of jobs to be processed
P is the rate of service of those jobs.

There fore, if rate of arrival of orders and rate of servicing them is same, the wait time will become infinity.

The Goal - Eliyahu Goldratt

This book brings out some very important aspects of running a plant, or at a more abstract level, running any organization. It interwinds these concepts in a novel like fashion - making it an interesting read.

Goal focuses on alligning the manufacturing and accounting to reach one goal - "For the company to make money". All the energy of the company has to to be focused on making money - in short and long term. If a process does not ultimately result in saving or creating money then it might not be the right thing to do.

The main character Alex Rogo is led (by his mentor Jonah) to analyze everything by questioning in Socrates like way to reach to the underlying causes of processes. He (in turn you) learns that it is important to learn three things about the most fundamental things, inorder to improve processes:
1. What are the most fundamental things?
2. What to do to optimize these fundamentals?
3. How to bring about this change?