Maximize Throughput Minus Inventory Minus Expenses

Now that you understand the goal (make money, ROI, cash flow), and the metrics which can be used to quantify those things (throughput, inventory, operational cost), it’s time to think about optimizing them.

What does it mean ‘to optimize these metrics’ relative to the goal?

Pretty simple:

Maximize throughput.

Minimize inventory.

Minimize operation cost.

Hopefully that’s pretty obvious considering what you know those metrics to be. Throughput is the money flowing into the system, so that’s probably a good one to maximize. The other two are costs, so they should be minimized.

There might be ways of making the analysis more complicated, but this book is about simplicity and distilling complex systems into simple metrics and goals.

So, in summary, the goal is to make money (with an acceptable ROI and cash flow) by maximizing throughput (money generated through sales) and minimizing inventory (money invested in things which you will sell) and operational cost (money spent to turn inventory into throughput).