Critical Chain - Eliyahu M. Goldratt [34]
He stops, faces the audience, and using his hands extensively, he elaborates. "Suppose that one of your managers tells you that he has done an excellent job of controlling cost, that he cut expenses by twenty percent. By the way, he also enraged half your clients. Would you call him a good manager? Or, another one protected throughput, shipped everything on time, but for that he hired more people and put everybody on endless overtime.
Good manager?"
"I didn't know Johnny was such a good speaker," Rick comments to Jim, who gives him a look that says, I told you so. "Controlling cost and protecting throughput. Two absolutely necessary conditions. We cannot be satisfied with one without the other.
"What I would like to show you now is that each implies a different mode of management. So different that there is no acceptable compromise between the two. To demonstrate it let me use an analogy. Let's view your company as a chain. A physical chain. It's not difficult to see why such an analogy makes sense."
He goes to the overhead and puts up a blank transparency. "One link, the purchasing department, is in charge of bringing the materials. Another department, another link, is in charge of starting production. Another department, another link, is in charge of finishing production." As he speaks he draws ovals representing the links. A chain starts to form on the screen. "Yet other links are in charge of shipping, getting the clients, invoicing and collecting." The chain becomes longer. He puts the marker down and asks, "What is analogous to ‘cost' in our physical chain?" Without waiting, he asks another question. "What typifies cost? Cost is drained by each and every department. We pay money to and through our purchasing department, our production departments, and so forth. No department is free. And if we want to know the total cost of the organization, one way to find it is to sum up the cost drained by each department."
He pauses to check if the audience is with him. Satisfied, he continues, "In our chain, the closest thing to cost will be weight, each link has its weight. And if we want to know what the total weight of the organization is, one way to find out is to sum up the weight of all the links. What are we going to do with this analogy?"
"That's what I want to know," Rick whispers impatiently.
"We are going to use it," Johnny answers, "to demonstrate that controlling cost implies a certain way of managing." And without delay he continues. "Suppose that you are the president in charge of the entire chain. I'm working for you. I'm in charge of a specific department, a specific link. Now you instruct me to ‘improve!' And I am obedient. After some time I come back to you and tell you that with ingenuity, of course with ingenuity, and also time and money, I improved my link. I made it one hundred grams lighter. You are not interested in my link, you are interested in the whole chain. But when I tell you that I reduced the weight of my link by one hundred grams you know that the entire chain becomes lighter by that amount. Do you know what that implies?"
Rick doesn't.
"It implies a management philosophy. It implies that any local improvement automatically translates into an improvement of the organization. Which means that to achieve the global improvement, the improvement of the organization, we know that we have to induce many local improvements. I call it the ‘cost world."' He pauses.
"What is he talking about?" Rick is irritated. "Why so much fuss about something first-year students know?"
"Wait," Jim whispers back. "Johnny must have some point here, even though I don't see it yet."
"You're probably wondering," Johnny is smiling, "why I am hammering on the obvious. But it is so trivial to all of us not because it's the only management philosophy, but because it's the management philosophy