According to the “Goal” report

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Under the “Goal” report, the rate or rate at which money is generated by the production system is the result of the throughput. The money generation process is generated usually through the sales of the company. The report “Goal” also defines the inventory as the sum of money invested by the company by purchasing goods with the intention of selling them back. The report also defines operating costs as the sum of money that the system generates during the process of replenishing stock. The three terms have cash flow together. Money enters the system, then the money stays in the system, and finally, money moves out of the system. These terms are important since they determine whether an organization attains its goals or not. The business goal is to make money, and these terms can be used to measure if the firm is making money or not. Measuring can be through giving information on the net profit or a comparison of income and expenses, the returns of investment and then the cash flow. They are therefore important for production firms.

Bottleneck Resource

According to the “Goal,” bottleneck is a resource within the company whose capacity is less than or just equal to the demand that the company has placed on it. Its size is just equal to its utilization, or the resource is over-utilized. On the other hand, non-bottleneck is a resource in the company whose capacity is bigger than the demand that has been imposed on it. The resources are mostly underutilized. Bottlenecks and non-bottlenecks resources are differentiated basing on the comparison of their capacity and demand imposed on them.

To understand more about the bottleneck, consider this example: AT&T Stadium. This is a stadium in Dallas that hosts football among many other games. During the 10-20 minutes time after a football match, people are observed to be crowding at the stadium gates looking for the exit. In this scenario, the gates are the examples of bottlenecks, because the demand for gates at that time become more than what the gates can offer due to the high number of spectators. This example therefore clearly brings out what a bottleneck is in our real life.

Increasing throughput

The bottleneck resources significantly determine the flow of the products in a given plant. An increase in performance is realized from a balance of demand and the plant’s capacity of operation. In order to manage bottleneck resources effectively and improve capacity, firstly, the company should ensure that the bottleneck resource is never idle at any point during the production process. As a result, the business will reduce and balance the demand and the supply. Secondly, a duplicate bottleneck resource should be provided. Provisions of duplicate bottleneck resource will improve greatly throughput since the demand will be distributed equally to the bottleneck resources. Thirdly, the production company can change the process. This should be done carefully to ensure that it is an improvement but not to bring consequences to the enterprise. Process change can significantly reduce the demand imposed on the bottleneck resources.

In addition to the above principles, throughput can also be increased through ensuring that the bottleneck only works on parts that are necessary. At times the production process imposes unnecessary workload on the bottleneck resources, yet they can be handled through some other optional ways. This reduces throughput, and therefore it should be controlled. Other principles that can be applied to improve throughput include cycle time increase on the machine. All these principles work with a target of balancing the demand the capacity.

Pitfalls

Application of the principles in the “Goal” improves sales of a given organization. However, initially, it seems like costs are up yet they are going down. The accounting rules can help reveal the truth hidden in this. The first rule calculates the cost per part to be equal to the sum of raw material, burden cost, and direct labor. The second rule takes burden cost to be equivalent to the indirect labor costs. Lastly, the third one evaluates burden cost to be equivalent to direct labor multiplied by the burden factor. Some other pitfalls include a rise in the cost per part due to smaller batch sizes that demands more setups to be done. In addition to this, the inventory or company assets seem to reduce due to the reduction of the inventory of the farm to increase throughput. In conclusion, right application of principles in the “Goal” can greatly improve the profit of an organization and further enhance its competitive advantage.

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