Value is not created in business until work is completed, and work is not completed until the finished product has been sold.
A table that is not ready for sale is work in progress, and is not really valuable. It represents the inputs, but no outputs.
If you have tables that are ready to sell, but nobody is buying them, they are still inventory, which is to say, value that has been put into making tables, but cannot be extracted. It still only represents potential, but it is actually an accumulation of costs, both in work, as well as in inventory carrying costs.
How do you reduce inventory and production costs, while maximizing throughput (which is sales)?
An analogy, by way of a story, helps to illustrate.
In The Goal, at one point, the hero is leading a boy scout troop on a hike.
He keeps noticing gaps in the line of boy scouts, as parts of the troop are going faster and pulling ahead.
He notices that the trail isn’t “hiked” until the last scout passes over, and he realizes it is just like his factory. The part is not “done” until it’s sold. And he realizes that the fastest walkers have the illusion of getting a lot done, but overall, they are just creating inventory, or work in progress, which in this case is the distance between the first and last scout.
But how to fix it?
His solution is somewhat surprising. He first starts by pausing the line, keeping it in order, and then reorganizes it with the slowest in front, and fastest behind.
The line, predictably, moves at the same pace in terms of how much trail has been “hiked” because the end of the line is moving at the same pace.
One might conclude this was a pointless exercise, but in fact, the capital required for the business to create the same throughput has gone down! Work in progress, represented by the distance from front to back, is much lower, which means there is less money invested in things that can’t be sold.
The financial risk of the business is lower.
The rest of the workers are spending less energy, which also could represent the opportunity reduce labor and materials costs.
But his next realization is that the slow guy is slow because he’s carrying a lot. He’s got 60 pounds of gear in his bag.
By making it clear what the bottleneck is, he was able to put his attention on the slowest part of the process, which made a real improvement in flow, which is the amount of trail the troop could hike.
In a real business, this would translate to being able to produce more with the same amount invested as inventory.
Once he unburdened the slowest kid, the whole troop marched faster. It kept its formation tight and quickly converted trail started into trail finished.
Anytime there are multiple steps in a process, the important thing is the speed of the slowest or last finished, not the speed of the first.