Goldratt’s book “The Goal” has been long on the wish list. The book is about the Theory of Constraints (ToC). Recently I bought the book and started reading it.
Essentially you asked the questions; what is the flow of money into the system, what is the flow of money out of the system, and how much is kept in the system? These 3 measures are called Throughput, Inventory, and Operating Expense.
- Throughput is the rate at which the system generates money through sales.
- Inventory is all the money that the system invests in purchasing things which it intends to sell.
- Operating expense is all the money the system spends in order to turn inventory into throughput.
I read the first 50 pages, got excited, went to www.amazon.co.uk, and found out that Critical Chain and It’s not Luck had a very low price (I always order second hand books). A few moments those books were mine.
I kept reading and then suddenly I understood what I just had done….I increased my inventory and did nothing about my throughput and operational expense.
Hmmmmm……good lesson, which cost me €20, which is actually a very cheap price to understand the Theory of Constraints.