E Goldratt - The Goal

DW: What changes did you make in the press room?

CM: We chartered some teams to look at the various products that we made and began to challenge assumptions on how we use the presses. We make two types of books, a perfect-bound paperback book and a casebound hardcover book. We have sheet-fed and web presses. We began to devise rules on what type of books went on what pieces of equipment, to maximize the capacities of the equipment and to meet

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customers' needs. By creating new standards we eliminated an incred- ible amount of waste. Before, we were constantly reworking jobs to meet what we thought were customer needs. In reality it was forever putting us farther and farther behind. Rethinking all our assumptions forced us to discipline ourselves and to maximize each component in the press room. That allowed us to flow the work more consistently.

DW: How did you involve the employees?

CM: Employees at Thomson-Shore have the ability to influence the standards and the way work moves within their area of expertise. When you're strictly localized in your thinking, every person wants the job designed to benefit themselves. And that creates chaos. Before we did our TOC implementation, we could never agree on anything without a long, involved discussion. If we wanted to make a change we had to get 12 people in a room and then try to reach a compromise on everything. We could never please everybody. Having everyone read The Goal helped everyone understand that the basis for everything we do wasn't localized thinking anymore. So, for example, if a job had to spend a little more time in the bindery, that's okay, as long as that's what's most effective for the press, which we had identified as the major constraint. In the end we got the throughput that we needed.

DW: As a finance guy, what was your specific contribution?

CM: The Theory of Constraints is built on the premise of breaking the barriers of the cost model of accounting, and we were a heavily cost-driven organization, as a lot of manufacturing companies are. Everything in the company was designed as the cost-system would dictate. That's where I began to add value-by helping to develop dif- ferent measurement tools that we could use instead of the traditional cost tools. And that's what I believe began to drive real change in the organization. We are still struggling on the sales side but we've made progress in breaking away from the cost method of sales and estimating.

DW: How does that work?

CM: The cost method of accounting creates departments and it al- locates indirect overhead expenses. TOC, however, says you're one

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big happy family, you have fixed expenses and you have variable expenses. Your variables are your materials and your fixed is every- thing else. And sitting around spending all your time trying to figure out how much electricity and square footage of air conditioning and cooling goes to the press room, how much to the bindery and the prepress and how much to the office doesn't help you manage your business.

DW: Because it distracts you from the goal.

CM: Yes! Of meeting the needs of the customer. And flowing the work in a timely fashion. When we began to concentrate on making the work flow, that is, maximizing the capacity of the press room, and subordinating everything else to that, we began to improve our on- time delivery. The critical issue is how you measure the performance of the organization. We use two methods.

DW: And they are?

CM: Eli Goldratt talks about developing a constraint management tool. Ours is called TCP, for throughput contribution per press hour. When the market isn't a constraint, you choose which products and which customers to bring in based on that number. That's how you build profitability. Assuming, of course, that the constraint is not in the market.

DW: And when the constraint is in the market?

CM: For that we came up with another internal measure. We call it CRH, for contribution margin per resource hour. We try only to capture hours that represent value that customers pay for. We take the contribution-which is sales less materials-and we divide by the hours consumed and come up with a relative measure that has validitv across the whole organization. It has taught us an immense amount about what we do here.

DW: By confirming what you already suspected or by

revealing what you hadn't known before?

CM: Both. It confirms that certain types of customers, certain types of

work, are difficult and cost us more to manufacture-it clearly pointed that out. And then it also began to show us how technology affects our margins. I mean, we get most of our books on PDF files now, and the cost difference between working with a PDF file and working with what I'll call the old conventional way is incredible. What was happening was that we were being forced by the market to reduce our prices across the board, but then any job done the old way was not very profitable. Hah! Not profitable at all! People were expecting PDF pricing for conventional work, and that just doesn't work. Bot- tom line: In a harsh business climate, in which the market is the new constraint, and sales are declining, we've actually built profitability. Significantly.

DW: Does it help that you're an ESOP company? Does that make it easier for employees to align their interests with the goal?

CM: It depends on the individual. Someone who is ten years from retirement is more interested in the value of the stock. Someone who's been here three or four years, they're looking at the individual-based bonus. So we actually began to implement team bonuses instead of individual-based bonuses. Today we're working on disconnecting the link between compensation and performance feedback. Feedback is going to be all team-based.

DW: You said you had 300 employees before and now you're at 280. Is that the fault of a bad business climate or a benefit of being more efficient?

CM: It's both. The business climate has not been healthy. But at the same time, some of the changes we made freed up capacity, and as people quit we didn't replace them, which built profitability. No layoffs. We just didn't replace everyone who left. And we moved individuals around.

DW: Is the constraint still in the presses?

CM: Well, it shifted to the bindery. DW: What about market constraints?

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CM: Yeah, we have more capacity than the market's willing to give. That's an issue. I think we're prepared to meet the market when and if it comes back. And in order to do that we have to do three things. We have to fulfill the requirements of speed and delivery. We have to stay profitable to maintain our equipment and provide the quality that customers expect from us. And then, three, we have to have em- ployees who are participating fully, who want to come to work every day, and who understand why they're here and why they're doing what they're doing. TOC has allowed us to do all three.

Interview with Eli Goldratt continued. ...

DW: I'm back to my previous question. How come most readers of The Goal do not rush to implement TOC?

EG: TOC is built on the realization that every complex environment/ system is based on inherent simplicity and the best way to manage, control and improve the system is by capitalizing on this inherent sim- plicity. That's why the constraints are the leverage points. That's why the five focusing steps are so powerful. But, what we have to bear in mind is that such an approach is a major paradigm shift. And people will do almost anything before they will shift their paradigm.