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The Goal Assignment
Throughput is defined as the rate at which the system generates money through sales. When referring to a process, throughput is also a means to measure and assess the effectiveness of changes within a system. If the Throughput rate increases, the company is said to be performing well. For example, when a company lowers their variable costs by altering their production process, while conversely increasing their sales, throughput will increase, while also earning the company higher revenues and in turn, higher profits.
Inventory is defined as the money tied up in goods and materials for use within a process. The theory of constraints is known as a minimum amount of inventory that is ideal for a company to help achieve maximum efficiency. Inventory is critical for many companies; however, there is little discrepancy between too much inventory and too little inventory. The goal of a manager is to find a number of inventories that helps minimize holding costs while also maintaining sufficient levels of inventory on hand. When a company is asked if inventories declined, typically this would be a positive outcome if the answer were yes. Companies typically attempt to avoid carrying excess inventory because it ties up storage space and extra capital, which could be used to fund other projects.
Process Cost is defined as all of the money the system spends to convert inventory into throughput; this includes utilities, scrap, depreciation etc. Companies are constantly searching for new ways to minimize their process costs, so if your costs decline, then that would contribute to a positive for the company. By decreasing the amount a process costs, a company will be able to increase their throughput, while also generating higher revenues. Some common ways that companies can reduce process costs are by finding cheaper alternatives for their inputs of their products, eliminating the amount of workers required for a job, or developing new technology that produces the same product more efficiently.
The Goal mentions several times how a process is only as efficient as its weakest link, meaning that the process can only improve in capacity and efficiency if the weakest operation is improved. By improving the weakest operation in a series, a company is also able to increase the overall efficiency, which will also help increase the total output of the company. By looking at numerous ways a process can be improved, it will give a better understanding of efficiency within a company. The suggestions will be listed from the cheapest to most expensive.
For example, a manufacturer typically implies a technique that uses a delegation of tasks. This is a very simple solution to help manufacturers produce products more efficiently. When a product is being produced, it is typically not efficient to use the same machine, person, or team in the production of the product. By delegating duties, different people or machines can specialize in one specific task and repeat that task in a perfected manner. It would not be efficient to dedicate one person, team or machine to the entire production of a product, because the amount of knowledge required would be much higher, thus leaving room for error. The idea of delegating duties or separating tasks was initially developed and perfected in the auto industry. Henry Ford invented the theory of the assembly line and car manufacturers still use modified versions of his idea (Britannica).
After researching ideas in regards to job segregation, we wanted to look at ways to improve each job. Employee training is the basis of any good company and sufficient education can contribute to the overall success of the company. By using extensive training, the company can improve its output and reduce costs attributed to employees whom make mistakes due to reduced education. One of America's largest defense contractors, Raytheon, uses an employee training retreat that helps educate each employee on his or her specific task, as well as their colleagues' tasks. In addition to the training retreat, they also provide their employees with online software that is used for recurring education. The CEO of Raytheon states, “our Six Sigma process has attributed to reduced production times, increased quality and employee morale, while giving us the flexibility to adjust our training techniques as we deem necessary (Raytheon).”
Lastly, we would like to explore another idea in which manufacturers can improve their production process. Technology has given us the opportunity to create products in a much more efficient manner. Even though machines cannot completely replace human labor, companies must use the technology provided to their advantage. Most machines are still operated by humans; however, machines are sometimes able to perform tasks that humans cannot physically perform. For example, many electronic companies are now using machines or robots to help aid in the production of their high-end electronics. In a quote from a Panasonic executive “the use of Robot Worx branded machines, we have been able to increase our total output by 30% in 3 years, while eliminating costs by as much as 20% worldwide (Panasonic).” In addition to increasing total output and reducing costs, machines can also provide additional benefits such as: increasing quality, reducing time, and improving employee morale.
The theory of constraints is an overall goal of management. In this book, it describes that constraints are points within a process or system of company that “holds back” the efficiency of the organization. Within his book, Goldratt states, “In our reality any system has very few constraints, but at the same time any system in reality must have at least one constraint.” I believe that he is trying to say that any system can be improved. Another main point suggested is the concept of the “bottleneck” theory. The bottleneck theory states that within a sequence of operations, there is one operation whose capacity is lower than the capacities of the other operations in the sequence. This lower amount of capacity causes the system to “clog” and slowing the overall efficiency of the production. The book, The Goal emphasizes on this bottleneck theory and states that the bottleneck operation is a “constraint” to the overall system. For a real world company, the idea behind the theory of constraints can be very important for companies that involve the production of tangible products. For example, many appliance manufacturers have found that a major constraint involves the high costs and efficiency of labor within their home country, thus leading to the outsourcing of many manufacturing plants. Specifically, GE has allocated much of their car production to Mexico and many of their models are created at a lower cost and shipped to the U.S. Management at GE realized that this was a great opportunity for them and they chose to capitalize on this endeavor.
With the economy in its current state, operating costs for universities such as the University of Arizona are suddenly a major problem. Most sectors of the economy are feeling the pressure of the current instability of jobs, which have forced many companies to search for alternatives to help reduce their spending. The University of Arizona receives revenues in the form of tuition, while also facing high variable and fixed costs to operate. While it may seem obvious that raising tuition will help increase their revenues, universities require alternative solutions to this problem. Rising tuitions can have negative effects on the university, and its image, so it is important to find alternative cost saving ideas. Within the past few years, there have been many instances where schools have implemented new programs to help this problem.
One Solution in which schools can help minimize costs is by collaborating with other schools for large purchases of anything from healthcare to computers. In Wisconsin, many schools have teamed up to purchase items in bulk. One of the ways that they were able to reduce costs was by purchasing a healthcare package that covered students across all of the schools. The schools realized that the more students that were part of the plan, the cheaper the average cost was, thus decreasing the amount of money that each individual school spent on healthcare. They were also able to apply this same philosophy to purchasing products such as computers, projectors, and televisions. Over the years of 2004-2007, the collaboration among several schools helped save $16 million. Within those years, the schools that are part of the coalition, collectively only had a 5.4% increase in tuition, which is below the national average.
Another possible solution is to offer of more classes online. This would limit the amount of professors that need to be staffed, while also freeing up space within classrooms. By limiting the amount of classrooms needed, the university would be able to rent or sell space on the campus to increase revenues. Online courses have proven to be just as effective as in-class courses, but the cost of implementing an online course can cost anywhere from 15-40% less than in-class courses (Business Week).
Britannica. (2009). Retrieved February 24, 2009 from http://www.britannica.com/EBchecked/topic/45050/automotive-industry/65768/Ford-and-the-assembly-line
Damast, A. (2008, August 10). Business Week. Retrieved February 24, 2009 from http://www.businessweek.com/bschools/content/aug2008/bs20080810_784138.htm
Panasonic Co. (2009). Retrieved February 24, 2009 from www.Panasonic.com
Raytheon. (2009, February). Retrieved February 24, 2009 from www.Raytheon.com