Let's face it, manufacturing is all about efficiency. It's the process of transforming raw materials into a unique finished product through a series of coordinated activities. Unlike pre-industrial age handcrafting, modern production process manufacturing utilizes specialized skills within a team, ensuring that each operation benefits from the best skillset available to deliver an optimum final product faster. This is the essence of industrial age manufacturing: the ability to flow products efficiently through activities, directly impacts its quality, speed of delivery and profitability.
In his groundbreaking book The Goal, Eli Goldratt revolutionized manufacturing cost accounting theory by challenging the notion of traditional job efficiency costing. He introduced the concept of throughput costing, highlighting the importance of focusing on the big picture. By solely reducing costs on individual tasks, one might overlook the overall process efficiency, in a classic case of being penny wise but pound foolish. Productivity lies in optimizing the entire process, enabling faster, cheaper, and better product outcomes. Goldratt also emphasized that each factory has a bottleneck(s), which typically consumes a significant portion of costs. By eliminating or expanding that bottleneck, even if it requires additional time in other processes, overall cost savings are achieved. Profit primarily hinges on accelerating overall throughput of the manufacturing plant. After all, it's the lead time from raw material purchase to customer delivery that defines manufacturing cost.
If you have read The Goal (and you should!) here’s a rhetorical question.. by the end of chapter 9 it has already established that Alex Rogo will improve his bottom line by investing in a new robot or an improved scheduling system? The answer of course is better scheduling, which is ironically the far cheaper option and can yield truly game-changing results.
In practice, we often find that the average factory has an overwhelming number of concurrent jobs, making it impossible for a single person to remember everything effectively. Additionally, a factory's operations are constantly changing in real-time, and unexpected events occur. It's impossible to anticipate all of them, which is why a practical central planning tool must combine both proactive and reactive planning.
Ultimately, the success of your factory and its profitability depends on how well you coordinate and execute your production plan. Remember, throughput is directly linked to cost.
Production planning is not some minor efficiency gain - it is the whole game !
A final point you may note is that none of the recommendations in The Goal actually refer to, or apply to, accounting systems. Your chosen accounting system has no bearing on this, and it can’t. These efficiencies are all operations based. You need smart operations management software and factory data collection to achieve the profitability improvements proposed in The Goal. An accounting package in this environment is just the ‘add-on’, not the core process.
Elihayu M.Goldratt The Goal Gower Publishing Group