“So this is the goal: To make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow.”
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The Goal by Eliyahu Goldratt will fundamentally change the way you think about business and operations. A great book to learn how to properly analyze and optimize systems.
The Goal: Executive Summary
The three areas where you should focus:
- Throughput: the rate at which the system generates money through sales. The money coming in
- Inventory: all the money that the system has invested in purchasing things which it intends to sell. The money inside the system
- Operational Expense: all the money the system spends in order to turn inventory into throughput. The money you pay to make throughput happen
The Goal: increase throughput while simultaneously reducing both inventory and operating expense
The system only moves as fast as the bottleneck.
To increase the capacity is to increase the capacity of ONLY the bottlenecks.
An hour lost on the bottleneck is lost forever.
How to optimize a system:
- IDENTIFY the system’s constraint
- Decide how to EXPLOIT the system’s constraint
- SUBORDINATE everything else to the above decision
- ELEVATE the system’s constraint
- If in the previous steps a constraint has been broken, go back to step 1, but do not allow INERTIA to cause a system’s constraint
The goal of any organization is to make money.
Actions that move you towards making money are productive; actions that take away from making money are non-productive.
The Goal: to make money by increasing net profit, while simultaneously increasing return on investment, and simultaneously increasing cash flow