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It’s the 1980s in Barington, USA, Bucky Burnside runs a company – Unico, one of his vendors, is behind on a part.
Bucky calls his contact at Unico, the division head, Bill Peach, at 10 at night.
Bill calls the plant manager, Alex Rogo, who doesn’t answer multiple calls because he’s fighting with his wife, Julie.
Rogo goes to the plant the next morning and can’t park his Subaru, because Peach’s Mercedes is in his spot, as the boss is trying to locate Part 41427 for Burnside.
The plant is a mess, it isn’t performing well.
Peach, who was previously a mentor to Rogo, tells him that he has 3 months to turn his plant around or face the consequences.
Peach leaves and Rogo then learns that one of the machinists who supports his fancy new robot, the NCX-10, has quit, after getting yelled at by Peach.
The UniWare division of UniCo is based in Bearington, a small town with a lone 14 story building that defines the skyline. Alex Rogo, our protagonist, is from here, he’s worked since he was 12 years old, he’s watched competitors to UniCo move out of town and takes Bill Peach’s threat to close his plant from Chapter 1 seriously.
It’s the same Day as Chapter 1, and Julie Rogo is not from Bearington, does not have friends, and does not feel like she has the attention or support of her husband – she’s pissed.
Rogo ignores his wife, and goes back to the plant, where he works with his plant manager, Bob Donovan, to fix the NCX-10, the robot which had been holding up the order.
Donovan and Rogo close out the chapter at a diner, where they discuss their troubles.
The alarm goes off at 6 AM, Rogo’s wife Julie is next to him – before the end of the book she will leave him and then return.
Rogo drives his Mazda in to a meeting at corporate Unico, in the parking lot he learns from a co-worker that the threat made in Chapter 1 is very real, the company is not doing well.
The meeting sucks.
We meet some of Rogo’s peers in the meeting –
- Hilton Smyth runs a peer plant, and is the closest thing the book has to a bad guy
- Ethan Frost is the division controller, Goldratt describes him as the Grim Reaper
As Rogo is listening to all the corporate speak and useless metrics, he reaches into his pocket and finds a cigar, triggering a flashback that is covered in Chapter 4.
Years earlier, Alex Rogo had studied under a physicist, Jonah.
2 weeks prior to Chapter 3, Alex ran into Jonah while connecting through O’Hare airport in Chicago.
- Rogo is going to a conference to talk about robots.
- Jonah now researches organizational effectiveness
Jonah immediately picks up that the robots aren’t doing what Rogo wants, and that the plant is not performing well.
“…productivity is the act of bringing a company closer to its goal. Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive.”
Jonah to Rogo, The Goal – Chapter 4
Rogo closes the chapter befuddled, trying to respond to Jonah’s question of “What is the Goal, Alex?”
Rogo gives pithy answers including, power, productivity, market share, etc. – knowing that nothing is really hitting the mark.
Chapter 4 was a flashback brought on where Alex Rogo reconnected his mentor, Jonah 2 weeks ago. Rogo starts Chapter 5 back in the meeting that began in Chapter 3.
Reflecting the comments from Jonah Rogo gets up and leaves the meeting – he makes an excuse to Hilton Smyth that there’s an emergency at his plant.
Rogo buys pizza and beer and drives to a stop off – a scenic view point – that looks down on his plant.
- Our author, Goldratt, is literally giving Rogo a bird’s eye view of the plant.
- Rogo is looking at the big picture.
Rogo debates all the questions brought up by Jonah from the airport and tries to identify the goal.
- This book is a choose your-own-adventure with a single path.
- Goldratt, the author, is teaching the reader via the socratic method the Theory of Constraints.
Rogo drives into his plant at 4.30 PM, this day began at 6 AM with the alarm clock back in Chapter 3.
Bill Peach has left a lot of messages trying to track Rogo down.
Rogo sits with his plant controller, Lou and tells him they might get shut down. They talk about what the real goals are, as Rogo enlists his team members to answer the questions posted by Jonah. They identify three key metrics:
Rogo states the goal for his plant as, “to grow net profit, while simultaneously increasing ROI and cash flow.”
It’s now 10 PM.
Rogo calls his wife – he missed a date night, and his daughter had stayed up to see him.
As he leaves the plant, he sees one of his team members rattling off how well he’s doing on metrics that Rogo now knows don’t really matter. He starts to get mad, then realizes that he’s only doing what the company has asked of him.
Rogo gets home late, waking his daughter, Sharon, who shows him her report card.
With Sharon asleep, Rogo debates if he should look for a new job.
No.
Rogo commits, he sets a goal. From a writing and story standpoint, Goldratt removes Quitting the Job at UniCo as an option – most readers would see this as the obvious solution.
Rogo’s next goal is to find Jonah to get his advice on fixing the plant.
From a writing standpoint:
- Goldratt puts the reader in Rogo’s shoes to teach through the socratic method.
- Goldratt teaches through the spiral, increasing the depth with each loop through a set amount of subject matter.
So far the reader has learned 3 things about the Theory of Constraints:
- There must be a goal.
- Activity that doesn’t help us get to the goal is wasted effort. That is a constraint of prioritization.
- Constraints stop us from achieving a goal – the next 33 chapters cover them in detail.
Rogo wakes up, remembering he has a clear goal – finding Jonah. This is a new day, Chapters 3 – 7 were all the same day, except for the airport flashback.
Rogo goes to the office, Bill Peach is mad he left the meeting from Chapter 5 – and Rogo forgets all day that his only goal from Chapter 7 was to find Jonah until his drive home, when he pulls over – to use a pay phone at a gas station – remember this was published in 1984 – to tell his wife Julie he has to go find Jonah.
Rogo goes to his childhood home, desperately searching for an old address book, which he finds after hours. He makes international calls to locate Jonah in Israel and London, who calls him back early in the morning.
Jonah immediately asks Rogo, “what is the goal?” picking up the questions from Chapter 4; without hesitation Rogo answers, ‘the goal is to make money’ – Rogo then transitions that into asking for help to develop the right metrics.
“Everything in your plant is covered under these 3 metrics”
- Throughput – Sales
- Inventory
- Operating Expense
Rogo falls asleep exhausted in his childhood home.
Rogo wakes up at home at 11 AM, calls to tell his assistant Fran he’ll be late.
Fran tells him that the owner, Granby, is coming to visit the robots – which draws a sigh from Rogo.
Rogo explains Granby, the robots and Jonah to his mother – in so doing he starts to see that the robots don’t really drive productivity, and that they don’t help with the plant’s goal of making money.
Rogo walks into his plant after 1 PM.
The goal is to;
- Make money – shown by Increasing net income
- While Increasing ROI
- And Increasing cash flowAnd all corporate measures are captured in
Alex sits with Lou, his controller, Stacey – inventory manager, and Bob Donovan to talk about the robots. They make the wrong inventory to keep the robots busy, they don’t have the resources to finish customer orders because the robots are a distraction.
Rogo is realizing that the robots are a distraction – they are not a true constraint.
90 minutes after the close of Chapter 9, the same four characters – Alex Rogo, Bob Donovan, Lou – who is never given a last name, and Stacey Potazenik continue to discuss the implications of what Jonah has helped them learn;
- The goal of the plant is to make money – shown by growing net income
- While increasing ROI
- And also increasing operating cash flow
- Everything in their plant fits in those 3 definitions
- Activity that doesn’t help is a waste of time
They’ve learned the robots are a waste of time – the robots are not the true constraint.
They’ve got a clear goal – 3 months to turn the plant around, and a conflicting goal – make the robots look pretty. Because of the clarity of the first goal, that’s where they choose to focus.
The team realizes they should ask for help, Rogo tracks down Jonah and is invited to meet with him the next day in New York City.
Alex goes home to pack to make a meeting with Jonah the next morning in NY, he and his wife Julie fight.
Jonah meets Alex for breakfast;
- “3 months is plenty of time to show improvement.”
- “Forget the robots.”
- He introduces a new concept – dependent events and statistical fluctuations
- How do we finish with breakfast?
- Waiter brings the bill – but how long does that take?
- All the events leading up to them paying have variability – statistical fluctuations.
- Every restaurant meal finishes with the bill being paid, but there is variability in how long it takes to get that bill.
“Goodbye you bastard” story from someone else at UniCo
Alex gets home, talks with Julie, she went out to a singles bar with one of her friends.
They seem like they are patching things up, they talk about life goals.
Goldratt did something different than other business books, really injects the personal life into the story, and in later chapters we see more of that.
Alex and Julie Rogo don’t have a common goal.
Theory of constraints is useful everywhere – it isn’t just for production scheduling in manufacturing plants or writing software.
Rogo wakes up, it’s time for the scout trip. “Dad we’re packed, just get in the car.”
- Son Davey
- Ron – at the front
- Herbie is the slowest
Statistical fluctuations and dependent events – how to keep the Troop together?
- The troop is only done when they are all done => Troop completion is dependent on each scout’s completion
- The statistical fluctuation is found in the expected individual completion times of the hike – each will have different times
“An accumulation of slowness”
Dave’s Scout Troop is scheduled to have their Lunch Stop at Rampage River, but the scouts are hungry, so they stop.
Alex, wanting to be a good father and still explore Jonah’s concept of ‘Dependent events and statistical fluctuations’, and with his mind reeling from what he just learned with Herbie, has the scouts play a dice game with match sticks.
Statistical Fluctuation comes with the roll of the dice
Dependent event is the entire outcome
- If I’m making a car, I measure the entire process, not just wheel or engine manufacturing.
- If I’m taking a scout troop out for a hike, I’m done when the entire Troop is done, not just the fastest scouts.
Back to the hike!
Alex Rogo finds all kinds of ways to try and get the troop to pick up their pace. He sees a sign that warns him that they are 5 miles from their camping site.
While sitting with Herbie, he opens up his pack to find that Herbie has all kinds of heavy gear.
- Herbie is the slowest, and he’s carrying the most!
- Herbie knows he’s the constraint – he wants to go faster.
Rogo takes the heavy items and shares them out to the rest of the troop – they are unburdening the constraint. This is classic Goldratt, classic Theory of Constraints type work.
Herbie’s pace picks up a lot once he gets a little help.
They get to their camp site in Devil’s Gulch late, but not too late. Davey is proud of his father.
Back to the house at 4.30 PM on Sunday – Davey hands his father a note from Julie, who is ‘taking a break’ from their relationship.
Davey goes to get his daughter, Sharon, from his mother.
He tries to track down Julie. The chapter is all the machinations of a man trying to keep his family in order while finding his spouse. Julie’s parents, Alex Rogo’s in-laws, aren’t helpful – and go so far as to ask, “what did you do to her?” At their suggestion, Rogo even calls the cops.
Alex takes the kids out for pizza. They are starting to feel guilty. Alex falls asleep late at night.
Rogo’s kids are a mess, later in the chapter he brings his Mom in to help with the household.
Rogo gets to the office at 9 AM.
Hilton Smyth calls – he’s been promoted and he needs 100 sub-assemblies! He makes a big point of saying, not 98, not 99 – I need all 100.
10 AM Meeting
Alex wants to talk with his team about all the things he learned from the scout hike, but the story and the lesson fall flat with his team.
Let’s go back to Hilton Smyth’s 100 parts – they need to leave by 5 PM.
There are two production steps
- The robot converts 25 parts an hour
- The upstream process doesn’t always deliver 25 parts, sometimes they are less
We see via multiple dimensions – parts completed, time to completion, production steps – the impact of dependent events and statistical fluctuations. The team doesn’t hit their goal with Hilton Smyth.
Rogo gets home, with his mother’s help his family is in better order. The next day, the team reflects on their failure to meet Smyth’s sub-assembly order.
Rogo calls Jonah for help, who tells him to look at the plant and categorize production steps:
- Constraints – aka bottlenecks
- Not constraints
The team heads out to find the constraints, the “Herbie’s.” Fast forward to ‘a few days later’ – the team is looking at tons of technical data from Ralph Nakamura – so they go out to the plant floor to see where does inventory pile up in the plant? They find themselves at the robot, at the NCX-10.
That’s constraint #1, constraint #2 is the heat treat department.
The chapter closes with Rogo wanting to move the plant around to put the constraint up front, just like he did with Herbie. That’s not going to work, but it shows an important aspect of dealing with constraints – be flexible.
Rogo has dinner at home, and then to the airport to pick up Jonah, who agreed to come visit after a phone call from Alex, “There are two scenarios where my advice won’t work – 1/ there isn’t demand for your products, and 2/ you don’t want to change.”
Jonah walks the plant with Rogo’s team and helps them learn how to work the constraint, which they believe to be the robot, the NCX-10:
- Never let the constraint be idle – always have back up staffing!
- Find ways to lighten the load on the constraint by bringing old equipment out of retirement.
Next, they look at ‘Heat Treat’ – that ‘other’ constraint:
- Do all these products really need heat treatment? It turns out they didn’t.
- Can you contract out some work? Too expensive – but not really once you understand that this step constrains everything in the Bearington plant.
The last ‘work the constraint’ technique:
- Check out the quality department – every part that went through a constraint that is rejected reflects wasted use of that constraint’s time.
Julie Rogo is hiding out at her parents house. The chapter closes with Rogo going to his in-laws, the Barnett’s and waiting in his car in the street until she agrees to come out and talk with him, “we get back together, or we get a divorce”. He leaves alone, but with a kiss from her.
In the middle of the chapter, Rogo meets with his team about what to do based on what they had learned from Jonah the day before.
They identified five ideas to unburden constraints – all of which would improve revenue and cash flow by chewing through their backlog of orders.
The team has gone through a very effective way of improving performance:
- Map the process
- Identify constraints
- Work the constraints
It’s 10 PM, Alex Rogo is nervous that Julie has left him for good, so he calls her up at her parents house and asks her on a date – she says yes.
The next Day, Rogo is back at the office continuing to work the constraint:
- Stacey and Bob Donovan come up with a list of priority parts to keep the two constraints working on products that create profit.
- Later in the chapter Rogo walks by the team – they didn’t have Part 3 so they are waiting – they didn’t automatically go to run #4 on the list.
- Running non bottleneck parts got in the way and didn’t help.
- The team isn’t trained on what is most important, they don’t know The Goal or how their role helps achieve it.
- To make it easy to know the priorities, parts get a color code.
- Rogo goes to talk with the union leader – Mike O’Donnel – about making sure that people take smarter breaks around the constraints. He gets some pushback, but his plant’s going to close, so O’Donnell eventually agrees.
Rogo leaves the plant and picks Julie up for a date at 7.30 PM.
New Characters:
- Elroy Langston – QC Manager
- Barbara Penn – Corporate Communications
1 week later, team is reviewing performance:
- 12 orders shipped in a week
- Moved QC in front of the two constraints – 5% of that time had been wasted
- Working the constraints creates results
Rogo meets with two new characters, the QC manager – Elroy Langston – and the communications team member – Barbara Penn:
- Goldratt is showing us through Rogo’s actions how important communication is to implementing the Theory of Constraints
- They talk about how to identify parts as they leave the constraint with additional color coding
- They have launched a newsletter to update the team on the changes being made
Bob had missed the meeting, he now returns and takes Rogo to the back of the plant where he unveils – a Zmegma. This is an old tool that was replaced by the robot, the NCX-10.
Because the NCX-10 is a constraint, every unit made possible here will create positive results for the Bearington plant. Donovan went and got the unit by cutting through corporate red tape.
At the UniCo Bearington plant that Alex Rogo runs there are two constraints in his production process:
- The heat treat process
- The robot, the NCX-10
The heat treatment is like a big oven. The crew loads the oven and then – they wait.
- What do they do while they are waiting?
- They are good employees and look to help out elsewhere.
When they help out elsewhere, what happens when the oven is done?
- No one is there to offload the parts. The parts can sit there for hours.
- Alex’s data guy, Ralph Nakamura finds this out, and Bob Donovan observes the same issues on the robots.
The team solves these problems with dedicated staffing. They put a foreman and a team on the constraints and say ‘focus here.’
One morning, Rogo sees the power of focus – a team leader, Mike Haley, is running his heat treatment team like a Nascar pit crew. The chapter ends with Mike Haley sharing his methods to other shifts, by working the constraint they have opened up capacity.
Pop the champagne – the team has had record shipments. Johnny Johns, the top sales guy is with Bill Peach – even they call to say congratulations.
Rogo goes out and gets drunk to celebrate, and his team mate Stacey gives him a ride home. She helps him walk in, where estranged wife Julie stumbles into them and storms out assuming the worst. Later Stacey calls her to explain and Julie apologizes to Rogo.
On Monday, when they get to the office, Stacey tells Alex Rogo that the ‘constraints are spreading’ throughout the plant.’
Unsure of what to do, Rogo calls Jonah for help. He agrees to come visit – leading us to the next Chapter.
Jonah arrives to the airport and goes directly to the plant where Rogo’s team gives him the update. Rogo quickly says, “let’s go to the plant floor and see for ourselves.”
At one station they find that the part prioritization method – putting green and red stickers – is causing a hold up.
They go to the two constraints – the heat treatment and the robot, and ahead of them is a lot of inventory.
The team is releasing material to the constraints too fast. That big pile of inventory represents wasted money.
The team has been doing the right thing by focusing on the constraints, working them and keeping them busy – however, they don’t have the other operations in the plant coordinated and working in concert with the constraint.
There’s no point in having other parts of the plant ‘outwork’ the constraint, because that only creates inventory – it doesn’t convert into revenue, into ROI, into cash flow. “How do we fix it?” they ask Jonah. “You guys think up some ideas.”
Scene 1 – Talking with the kids over dinner, they talk about how to keep the Troop in line with Herbie.
- Drum – to keep cadence
- Rope – to keep the group together
Scene 2 – Earlier in the day, Ralph talked about how he could model out the 2 weeks of production that stood between product release and encountering the constraint.
Scene 3 – the next morning, “We’re going to have a lot of idle people.”
- Rogo shows leadership – “that’s okay, what we won’t have is a ton of money tied up in inventory that we can’t convert into sales and cash flow.”
- This is the right thing to do, if the efficiencies drop – let them. Don’t be trapped by vanity metrics.
Alex Rogo is back at another corporate meeting – imagine the same location as Chapter 3 that we saw Rogo leave from in Chapter 5. Ethan Frost is reporting that the division had a small increase in profit based on Rogo’s Bearington Plant.
Rogo goes first on updates because with Nakamura’s continued work on predicting product flow using data, his plant has performed well.
After the meeting, Rogo meets with Bill Peach 1-on-1 and is asked if he can deliver 15% improvement – he agrees.
Rogo drives to his in-laws to see his estranged wife, rather than going back to the plant. He asks, “what is the Goal of marriage?” and talks about avoiding and challenging the preconceptions of society in relationships, just as they have done learning the theory of constraints at the plant.
Rogo walks into the house after his conversation with Julie to find the phone ringing and Jonah on the other end calling him from Singapore.
The next day he meets with Stacey, and then the team, to discuss Jonah’s guidance – the Bearington Plant is going to cut the batch sizes of their production runs. The math shows that if they cut the batch size in half, then their inventory is also cut in half. Flow through the constraint is what creates value – and two rocks will have better flow than a boulder. Grains of sand will flow better than the rocks – cutting the batch size works.
The chapter closes with Rogo meeting with Johnny Johns at corporate, explaining how he has shortened the plant’s lead times from 4 months, to two months and now 1 month. Johnny is confident that this will enable him to sell more from the plant.
Rogo wakes up to a nightmare, then explains what is happening at the plant to Julie.
With smaller batch sizes and more set-ups, individual cost accounting at the plant looks bad.
At the plant the next day, Lou is going to address the cost accounting issues by changing his cost basis to the past two months, rather than the full year.
The phone rings, and it is Johnny Johns. Bucky Burnside wants to buy from the plant again, but he has a very tight deadline – only 2 weeks. Rogo negotiates back what they are capable of doing and then spends the next day analyzing what is possible. It turns out they can hit the target if they cut the batch size again.
“We can’t ship all 1,000 parts at once in two weeks, but we can start shipping 250 per week within 2 weeks of getting the purchase order.”
Johns likes the deal, Bucky Burnside accepts.
Starts with a Staff meeting, then we go to Rogo’s office where he reads 2 Letters from Peach, “Congrats”, “Review”.
Goes to a meeting with their labor team at corporate, returns to find that Hilton Smyth was at the plant hoping to do a video on the robots, and in doing so started poking around.
That leads to an audit the next day, where Lou’s hand gets slapped.
A week goes by, with Rogo worrying about the audit – him and Bob Donovan hear the sound of a helicopter. Bucky Burnside has flown in with Johnny Johns to say ‘Thank you’ for all hte greate work shipping those 1,000 parts.
Rogo tries to explain it was simply good process, and then closes out the chapter by going to see Julie and she agrees to move back in.
Alex Rogo gets the promotion – and we’re 9 still chapters from the end. Many people who have been assigned the book stop now, many people focused on the personal application of Theory of Constraints also stop now. The remaining chapters are higher level, more organizational focused, and more change management focused.
Goldratt makes Rogo – and you the reader – earn it:
First, he goes in for a review at corporate with Smyth and Cravitz. They still don’t get it, they are still focused on the wrong metrics.
Rather than leave, he goes to Bill Peach’s office – who tells him he is getting promoted to Bill’s role. The chapter closes with Rogo sharing the good news at the plant and by phone to Jonah.
Alex reflects on all that he has learned, they celebrate with him ordering the veal parmesan, and Rogo realizes how valuable Jonah’s socratic style has been to learning these lessons. The name Socrates is mentioned for the first time on Page 268.
Rogo starts the day recruiting his new team at the corporate level from within his current team – his first target is his controller, Lou. Lou starts with some good news – focusing only on work where they had orders, the Bearington plant was originally penalized with lower profits, however, now that they’ve bled off that less used inventory, their profitability is improving.
“Why didn’t you tell me?” says Rogo.
“I told Ethan Frost” – Rogo lets his team persuade, rather than carrying that burden just on his own.
Lou then says, “Take me with you.” By following the socratic method, Rogo doesn’t have to recruit – Lou wants to join him.
Now to recruit Bob Donovan, who says “No” to running ops at the division level, because he wants to do more work on the Bucky Burnside-style sales and operations integration that was covered in Chapters 28 and 29. Bob instead takes the role as plant manager.
Stacey agrees to take Bob’s job. Ralph describes how he wants to redefine the use of data.
At the end of the day Rogo recaps all the promotion and recruiting conversations with Julie.
The next day is a meeting where Rogo recaps with his new team his goals, and ties it to their goals.
- “If you personally want to work on what matters to you – we have to do well as a team.”
- “How do I do well in the new job? What is the priority when taking a new job?”
And with this we get back to a circular conversation that recaps the challenges from the beginning of the book. How should a leader apply ToC in a new situation?
- They lay out a bunch of strawmen – don’t do a reorg, don’t just do fact finding.
It all starts by having a Goal – and this concept of applying ToC at the leadership level is the focus of chapters 35 – 40.
In Chapter 35, we start at the plant and close at the Rogo house – the opposite of the order in the previous chapter.
The team listens as data expert Ralph tells them about Dmitri Mendeleev, the Russian discoverer of the periodic table who died in 1907. The periodic table was valuable because;
- The Periodic Table created order of the existing elements – but really any method could do that.
- The Periodic Table predicted where new elements would be found.
- The Periodic Table predicted where elements would not be – people didn’t have to look where things would not be.
- This recalls Jonah’s comment of activity not towards the goal is a waste of time.
Goldratt is telling us that these are the reasons that the Theory of Constraints is so valuable, and he repeats that in the final scene of the chapter where Rogo talks with Julie who had spent the day at the library reading up on Socrates.
There are 3 scenes – 2 in the plant conference room, and one at the end of the day at home between Alex and Julie Rogo.
All of them focus on developing Steps for Theory of Constraints:
- Identify the system’s constraints
- To have a system, we must have a goal
- To identify constraints, we must have the right metrics
- Work the constraints
- Subordinate everything to working the constraints in #2
- Elevate and open up the constraints – Just like was done with the Zmegma way back in Chapter 22.
- If new constraints are uncovered – repeat again starting at Step 1.
This chapter is again entirely at the plant, and we repeat the five steps discussed from Chapter 36;
Steps for Theory of Constraints:
- Identify the system’s constraints
- To have a system, we must have a goal
- To identify constraints, we must have the right metrics
2. Work the constraints
3. Subordinate everything to working the constraints in #2
4. Elevate and open up the constraints – Just like was done with the Zmegma way back in Chapter 22.
5. If new constraints are uncovered – repeat again starting at Step 1.
However, at the end the conversation helps Rogo realize that he has 20% additional capacity, and he schedules time with Johnny Johns in marketing to go after additional sales.
It’s a 6 am road trip to corporate with Alex Rogo, Lou and Ralph Nakamura.
- The team tells Johnny Johns and Dick Pashky that they have 20% excess capacity
- The short lead times are really valuable – and Pashky has a buyer in Europe – that won’t share different pricing levels, that would buy if they can go a little bit lower on pricing.
- The Bearington plant can go lower on pricing, because that price is still higher than their marginal cost.
Why does the deal work?
- They explain it to the sales team, so that they believe it and trust the numbers.
- Because it is far away, and because the product is differentiated because of lead times – there is no risk of a price war.
The chapter closes with Alex and Julie at the public library discussing how physicists – particularly Newton – used “If – Then” statements to prove their findings.
There are three scenes in this chapter, the first is a call between Rogo and Bill Peach
- Smyth’s plant is performing poorly – the metrics are good, the results are bad.
- Johnny John’s has been talking about selling below cost – again selling to marginal cost as we discussed in Chapter 38 – and Bill Peach disagrees
- Rogo starts to correct Bill Peach, instead they end the call to discuss it in person.
Scene 2 is a conversation about plant with Bob, Stacey, and Ralph.
- Constraints are wandering, appearing anew.
The last scene is a talk with Lou and Rogo, reflect on Bob’s actions.
- It is now truly Bob’s plant.
It’s 2 weeks later, Rogo and Lou are returning from a day at corporate. They are finding all kinds of issues at corporate – the Bearington plant, now run by Bob Donovan, is the one good performer. The other plants are playing cost accounting games, receivables and inventories are too high.
Quotes:
- Engineering – ‘no project is done on time’
- Marketing – doesn’t even have viable plans
- The lack of a sensible long term strategy
- General attitude of passing the ball, of apathy
Bigger questions than the five steps covered in 36 and 37:
- How to change?
- What to change to?
The book ends with Rogo saying to Lou, “We can and should be our own Jonahs!”
