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"It averages around a thousand dollars a unit," says Lou.

"And you're worried about spending a dollar or two at the bottlenecks to make them more productive?" he asks. "First of all, what do you think the cost of, let's say, the X machine is for one hour?"

Lou says, "That's well established. It costs us $32.50 per hour."

"And heat-treat?"

"That's $21 per hour," says Lou.

"Both of those amounts are incorrect," says Jonah.

"But our cost data-"

"The numbers are wrong, not because you have made a cal- culating error, but because the costs were determined as if these work centers existed in isolation," says Jonah. "Let me explain: when I was a physicist, people would come to me from time to time with problems in mathematics they couldn't solve. Thev wanted me to check their numbers for them. But after a while I learned not to waste my time checking the numbers-because the numbers were almost always right. However, if I checked the assumptions, they were almost always wrong."

Jonah pulls a cigar out of his pocket and lights it with a match.

"That's what's going on here," he says between puffs. "You have calculated the cost of operating these two works centers ac- cording to standard accounting procedures... without consid- ering the fact that both are bottlenecks."

"How does that change their costs?" asks Lou.

"What you have learned is that the capacity of the plant is equal to the capacity of its bottlenecks," says Jonah. "Whatever the bottlenecks produce in an hour is the equivalent of what the plant produces in an hour. So... an hour lost at a bottleneck is an hour lost for the entire system."

"Right, we're with you," says Lou.

"Then how much would it cost for this entire plant to be idle for one hour?" asks Jonah.

"I really can't say, but it would be very expensive," admits Lou.

"Tell me something," asks Jonah. "How much does it cost you to operate your plant each month?"

Lou says, "Our total operating expense is around $1.6 mil- lion per month."

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