How to Optimize Throughput, Bottleneck Resources and the Goal

Question One 

Throughput is defined as the rate at which the system makes money. The company has to sell the products. If it produces something and fails to sell it, it is not throughput. Inventory is the money that the company uses to purchase the products it wants to sell while operational expenses include the money that the firm uses to transform inventory into throughput. All the definitions involve money which is easy to track and calculate. It is more convenient to use these definitions to track the firm’s goals since they cover everything that the firm does to make sales. To meet its goal the firm ahs to simultaneously control the concepts since they are all related to each other. The firm should boost throughput by reducing operational expenses and inventory. 

Question two 

A bottleneck resource is a resource that has an equal capacity or whose capability is less as compared to the demand placed upon it. For example, a community needs a solar project to save on the power expenses. The community collects the money and organizations contribute and offer manpower. According to the project manager, the solar projects will only take two months to fully build but it has to wait for five months for government approval. The government approval represents the shape of a narrow bottle that is narrow at the neck. As the bottleneck, the government approval slows down the project. 

Question Three 

Prioritize bottleneck resources in the production process: The bottleneck’s limited capacity affects the performance of the non-bottlenecks. When the bottleneck comes first in the production process, the firm has a more efficient unit flow. 

Reduce the weight on the bottleneck: Since the bottleneck has a capacity that is less or equal to demand, the firm should utilize its limited capacity. Hence it should reduce the input weight on the bottleneck and offer the load to the non-bottleneck resources for processing. 

Bottleneck resources and non-bottleneck resources should not be synchronized: Bottleneck resources control throughput. Hence, when non-bottleneck resources are over-utilized it does not boost throughput. Overutilization of non-bottlenecks increases operational expenses and inventory. 

The bottlenecks should not process defective inputs: In case bottleneck resources process defective inputs or are not allocated the proper input units, the output units emerge as time loss on the bottleneck. The bottlenecks work inefficiently and lose time. Every hour lost on the bottleneck count as a double loss of money for the firm since the resource has limited capacity. 

Question Four 

The goal explains that the general rule of cost accounting is that capacity should be balanced with demand and the flow should be maintained ( Eliyahu .M. Goldratt and Jeff Cox, 2004) . However, the rule was applied in the past. Currently, firms should not balance capacity, they need to exceed capacity. Currently, firms should be balancing flow with demand and not the capacity. 

In cost accounting, the incentives offered are based on a hypothesis that worker’s level of utilization is based on his own potential. This is not the case due to dependency. For all no bottleneck resources, the individual potential does not determine the level of activity that the system can profit from. The level of activity is determined by the limitations of the system. 

Cost accounting argues that activation and utilization are similar but utilizing a resource and activating a resource are different things. When a bottleneck resource loses an hour the entire system loses an hour. This is contrary to the cost accounting belief that when a bottleneck loses an hour, it is just an hour lost on the resource. It is worthless to save an hour on a non-bottleneck but cost accounting holds that when a non-bottleneck saves an hour the resource saves an hour. Bottlenecks do not limit throughput. Bottlenecks control inventory and throughput. 

References 

Eliyahu.M. Goldratt and Jeff Cox. (2004).  The Goal  (3rd ed.). Great Barrington, MA 01230: North River Press.