"Theory of Constraints"

Paper Summary:

This paper examines the book "Theory of Constraints" by Eliyahu Goldratt and looks at how Goldratt, using his main character Alex Rogo, establishes the idea or premise that the goal of any manufacturing organization is simply to make money. It shows how Goldratt successfully in his work creates the idea that a company must make money and turn a profit to succeed and how the path to this goal is recognition of an organization's constraints, or potential bottlenecks to success. It discusses how his ideas are supported in the field by like minded entrepreneurs that are seeking to realize reduced inventory and profit.

Outline
Introduction
Financial Measurements
Conclusions/Assumptions
Dependent Events/Statistical Fluctuations
Support of Goldratt's Premises/Ideas
References

From the Paper:

"Goldratt establishes three types of financial measurements that he believes are necessary to measure the achievement of the ultimate goal, making money (CBPA, 2003). He studies net profit, ROI and cash flow. Net profit refers to the amount of sales after operating expenses are subtracted (CBPA, 2003). ROI measures net profit as divided by investment and cash flow is according to Goldratt, a "standard measurement of survival" (CBPA, 2003). Goldratt assumes correctly that financial measurements are critical to measuring the success of the company and progress toward the ultimate goal (Goldratt, 1990). They provide insight as to the conditions currently present in a plant environment, and the conditions necessary to provide a profitable and safe environment."

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