The Goal

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the goal," he says. "When you lay off people, do you increase sales?"

"No, of course not," I say.

"Do you reduce your inventory?" he asks.

"No, not by cutting people," I say. "What we do by laying off workers is cut our expenses."

"Yes, exactly," Jonah says. "You improve only one measure- ment, operational expense."

"Isn't that enough?"

"Alex, the goal is not to reduce operational expense by itself. The goal is not to improve one measurement in isolation. The goal is to reduce operational expense and reduce inventory while simultaneously increasing throughput," says Jonah.

"Fine. I agree with that," I say. "But if we reduce expenses, and inventory and throughput stay the same, aren't we better off?"

"Yes, if you do not increase inventory and/or reduce throughput," he says.

"Okay, right. But balancing capacity doesn't affect either one," I say.

"Oh? It doesn't? How do you know that?"

"We just said-"

"I didn't say anything of the sort. I asked you. And you as- sumed that if you trim capacity to balance with market demand you won't affect throughput or inventory," he says. "But, in fact, that assumption-which is practically universal in the western business world-is totally wrong."

"How do you know it's wrong?"

"For one thing, there is a mathematical proof which could clearly show that when capacity is trimmed exactly to marketing demands, no more and no less, throughput goes down, while inventory goes through the roof," he says. "And because inven- tory goes up, the carrying cost of inventory-which is operational expense-goes up. So it's questionable whether you can even ful- fill the intended reduction in your total operational expense, the one measurement you expected to improve."

"How can that be?"

"Because of the combinations of two phenomena which are found in every plant," he says. "One phenomenon is called 'de- pendent events.' Do you know what I mean by that term? I mean that an event, or a series of events, must take place before an-