The Goal

Everybody agrees. As usual, when the answer finally emerges it's plain common sense.

"Okay Bob," I say. "What do you think you should do now?"

He takes his time. We wait.

Finally he turns to Ralph and says, "We have outstanding promises for very short delivery times on only a small percent of our order intake. Can you identify those orders on an on-going basis?"

"No problem," answers Ralph.

"Okay," Bob continues. "For those orders, continue to re- lease material one week in advance. For all others, increase it to

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two weeks. Let's hope that that will be enough. Now, we have to rebuild the inventory in front of the bottlenecks and in front of assembly. Stacey, take all the necessary steps to put the plant, and I mean all the non-bottlenecks, to work throughout the weekend. Don't accept any excuses, it's an emergency. I'll notify sales that until further notice they should not promise any delivery in less than four weeks from receipt of the order. It will jeopardize their new campaign, but that's life."

Right in front of our eyes the baton has been passed. It's obvious who is the boss now. I feel proud and jealous at the same time.

"Bob has taken over very nicely," Lou says as we enter my office. At least this front is covered."

"Yes," I agree. "But I hate to put him in a position where his first independent actions are so negative."

"Negative?" Lou asks. "What do you mean by negative?"

"All the actions he is forced to take are leading in the wrong direction." I answer. "Of course, he doesn't have any choice, the alternative is much worse, but still..."

"Alex, I'm probably thicker than usual today, but I really don't understand. What do you mean by 'leading in the wrong direction?' '

"Don't you see?" I'm irritated by the whole situation. "What is the unavoidable result of telling sales that they should quote four weeks' delivery? Remember, just two weeks ago we went out of our way to persuade them to quote two weeks. They didn't have much confidence then. Now, it will cause them to drop the entire sales campaign."

"What else can we do?"

"Probably nothing. But this doesn't change the end result; future throughput is down."

"I see," says Lou. "On top of it, overtime is up significantly; putting the plant to work on the weekend will consume the entire overtime budget for the quarter."

"Forget the budget," I say. "When Bob has to report it, I'll be the divisional president. The increased overtime is increasing op- erating expense. The point is that throughput will be down, op- erating expense will be up and increasing the buffers means that inventory will be up. Everything is moving in the opposite direc- tion of what it should."

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"Yup," he agrees.

"Somewhere, I've made a mistake," I say. "A mistake that now is causing us to pull back. You know Lou, we still don't know what we're doing. Our ability to see what's in front of us resem- bles that of moles. We're reacting rather than pla

"But you've got to agree that we are reacting much better than before."

"That's not a real comfort Lou, we're also moving much faster than before. I feel as if I'm driving looking only in the rear view mirror, and then, when it's almost too late, we make last minute course corrections. It's not good enough. It is definitely not good enough."

I'm driving back from headquarters with Lou. We've been doing this every day for the last two weeks. We are not in what one might call a cheerful mood. Now we know every little detail of what's going on in the division, and the picture doesn't look good at all. The only bright spot is my plant. No, I should get used to the fact that it's Donovan's plant. And it's not a bright spot, that's a gross understatement. It's the real savior.

Donovan succeeded getting everything under control before the clients had any reason to complain. It will take him some time to regain the confidence of our sales people, but with me pressing from the other side it will not take long before it will be okay.

This plant is so good that Lou and I were led astray for some time. The reports on the division gave us the impression that the situation is quite good. Only when we went through the elaborate work of separating out Donovan's plant was the real picture ex- posed. And it's not pretty. It's actually quite disastrous.

"Lou, I think we did the exact thing that we knew we shouldn't do."

"What are you talking about?" he says. "We haven't done anything yet."

"We have gathered data, tons of data."

"Yes, and there's a problem with the data," he says. "Frankly, I've never seen such a sloppy place. Every report is missing at least back-up details. You know what I found today? They don't even have a report on late receivables. The information is there but-can you believe-it's scattered in at least three different places. How can they operate this way?"

"Lou, you're missing the point."

"Am I? Do you know that with proper attention we can re- duce the open receivables by at least four days?"

"And that will save the division," I say sarcastically.

"No," he grins. "But it will help."

"Will it?"

When Lou doesn't answer I continue, "Do you really believe it will help? Look Lou, what have we learned? What did you yourself say when you asked for the job? Do you still remember?"

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Irritated he says, "I don't know what you're talking about. Don't you want me to correct things which are obviously wrong?"

How am I going to explain it to him? I try again.

"Lou, suppose that you do succeed in collecting four days out of the open receivables. By how much will throughput, inven- tory, and operating expense be improved?"

"They'll all be slightly improved," he says. "But the major impact will be on cash. You shouldn't sneeze at four days' cash. Besides, improving the division requires many small steps. If ev- eryone does his share, together we can lift it."

I drive silently. What Lou said makes sense, but somehow I know that he is wrong. Deadly wrong.

"Lou, help me here. I know that improving the division will require many small improvements, but..."

"But what?" he says. "Alex, you are too impatient. You know what they say, Rome was not built in a day."

"We don't have hundreds of years."

Lou is right, I am impatient. But shouldn't I be? Did we save our plant by being patient? And then I see it. Yes, many small actions are needed, but that doesn't mean that we can afford to be satisfied with actions that improve the situation. We must care- fully choose which ones to concentrate on, otherwise...

"Lou, let me ask you. How much time will it take you to change, for internal purposes only, the way that we evaluate in- ventory?"

"The mechanical work is not a real problem, that won't take more than a few days. But if you're referring to the work it'll take to explain the ramifications, to explain to managers how this af- fects their day-to-day decisions, that's a different story. With con- centrated effort, I'd say it'll take weeks."

Now I'm on solid ground.

"What, do you think, is the impact of the way we currently evaluate inventory on the levels of finished stocks that the divi- sion currently holds."

"Significant," he says.

"How significant," I press. "Can you give me a number?"

"I'm afraid not. Not even a meaningful evaluation."

"Let's try to do it together," I say. "Have you noticed the increase in finished goods that the division is holding?"