Eli Goldratt

Earlier this week Eli Goldratt died. Although his books were not primarily concerned with logistics and supply chain management they are very relevant to these disciplines and I frequently recommend The Goal to people working in operational roles and to accountants (interesting accountants either do not read it or miss the point completely). Goldratt was a management consultant and management thinker who developed a philosophy about business in a series of books beginning with The Goal. The theory of constraints has been criticised as “just been common sense”, for unaccredited borrow of the ideas of others (systems dynamics) but that does not diminish its value to businesses today.  TOC is incredibly flexible and its ideas have been applied to diverse areas such as production, supply chain, finance and marketing with great success.

The argument  of TOC as expressed in the Goal is that the goal of the organisation is to make money and that it does this by controlling three elements throughput (the rate that the system generates money after reduction of distribution and material costs), inventory and operational expense. It takes a holistic  approach to these elements and recognises that they are interlinked. It argues that for a business to improve it must identify constraints in the system and seek to improve them as improving processes before the constraint will only lead to increased inventory at the constraint. Goldratt argued that firms should institute a policy of continuous improvement based upon the following process:-

1. Identify the constraint (the resource or policy that prevents the organization from obtaining more of the throughput – these can be internal such as policy, equipment, people or external market conditions, legislation etc)
2. Decide how to exploit the constraint (this means getting more out of the bottleneck resource e.g. by making the constraint operational for longing periods, by putting more staff on the process, by adding more capacity)
3. Subordinate all other processes to above decision
4. Elevate the constraint (make other major changes needed to break the constraint)
5. If, as a result of these steps, the constraint has moved, return to Step 1.

So how do these ideas fit within a supply chain and logistics context? Well it provides a way of identifying where improvements are needed and avoids the potential of having hundreds of conflicting improvement projects running at one time, it focusses on putting resources where they have the biggest impact and it introduces some valuable concepts such as the evaperating cloud, drum-buffer-rope and throughput accounting.

I am sure his work will have even greater influence in the future especially when combined with techniques such as Six Sigma.