Your Competitors May Not Be So Blind

Have you thought recently about how the internet has changed the world?  I'm dating myself, but I do remember playing Pong in high school, feeding IBM cards into the central computer at college and then stopping by the next morning to see if my elaborate program really averaged five numbers, and using an Apple Lisa to type engineering reports at my first job.  The "telecopier" was a novelty, and it would still be many years before I got my first Prodigy email account to use on my 8 mHz computer... of course I had to play with the volume on the modem to try to get it to connect at a full 300 baud.

More importantly, think about how computers and especially the internet have changed the nature of learning.  During my early career days I had to order books, read trade magazines, or travel to learn about new technologies or methods.  If I was lucky I'd get a Betamax tape of a training presentation. 

Fast-forward to today, and take a look at the graphic on the right.  That is straight from our blog reporting system and is a snapshot of where visitors came from just in the past couple hours.   The distribution is very similar to what our friends at other lean-oriented blogs also report, and to what we see with the Superfactory website.

Now think about it in the context of a person finding and reading this blog... at 10pm here in California, 1am in Boston, 12am in Lima, 7am in Johannesburg, 3pm in Sydney, 2am in Brasilia, 6am in Lagos, and 8am in Bucharest.  Those are people who are interested enough in lean (or in Bill's witty prose...?) to want to learn more.  That person in Maputo or Arequipa or Mumbai is learning how to take waste out of his or her operation, how to optimize value, how to create and engage a dynamic and creative workforce, and how to harness the power and magic of lean. 

That person is your competitor.

Many of you have already read co-blogger Bill Waddell's book, Rebirth of American Industry.  But if you haven't, you should at least read this excerpt, Blind to the Opportunities.  With people from all over the world learning how to be extremely competitive, you cannot afford to be blind.  If you are playing the in-vogue game of chasing low labor costs all over the globe, you will lose.  If you still believe that buying bigger and bigger machines will make your costs decrease, you will lose.  If you worship the false god of the almighty algorithm, you will lose.  If you are spending millions on automation without having a solid understanding of takt time, you will lose.

We are going to China to save labor costs when one-piece-flow, properly implemented, will cut labor costs drastically. Recently, I visited a plant where five people were standing in what looked like a one-piece-manufacturing cell, But, the workers stood in front of their machines waiting for a part to be handed to them. If the workers were multi-skilled and simply walked along the cell, they easily could have reduced the number of people from five to two without having to go to China to save labor. Toyota discovered that focusing on improving labor productivity, within the constraint of takt, was much more advantageous than focusing on machine efficiency.

Shigeo Shingo presented a paper at a technical conference conducted by the Japan Management Association in 1946 entitled “Production Mechanism of Process and Operation”. It was based on the principle that optimizing the overall production process – the complete sequence of operations that take a product from raw material to completion – is the key to manufacturing. To quote Shingo, “Improvement of process must be accomplished prior to improvement of operation.”

Your competitors, from all over the globe, are up at all hours of the day and night learning about lean and how to improve their processes.  Are you ready for them?

Comments

[Joe]

Damn you're an old fart!

The global competition scenario really hit me when I read an article about how some companies in India are now starting to outsource TO the U.S.. They aren't just about low labor cost any more. They now know how to manufacture high value products very well.

[rd]

You state they could have easily reduced the number of people from 5 to 2 to save labor. If that does not happen thru attrition in the short term how would it happen other than laying them off

[Graham_C]

RD:
If you are paying the same wages as before and producing the same output as you had before then you can do what the hell you like with the 3 people, it's not costing you any more for them to wander around reading newspapers.

Hopefully the fact you've got 3 spare heads floating around would help you nail off some issues you've had floating around.

You don't have to sack the saved heads, just do something different with them.

[Bill Waddell]

The question jumps right to the heart of the matter. Remember that you only read one chapter a bit out of context, but I will try to give you the short answer that much of the rest of the book explains:

If you were Henry Ford or Kiichiro or Eiji Toyoda, you would take advantage of the newly freed up people by reducing prices to increase volume and sell more.

The high performing lean companies measure their success primarily on the basis of cash flow and market share, not ROI or ROS. Under the old Sloan/ROI American management scheme, it is hard to see any way to realize the savings other than laying people off.

As people are freed up through lean efforts, the availability of additioanl capacity that is essentially 'free' has to be continually communicated to sales and marketing, and they have to sell that capacity.

Your question really gets to the heart of why lean is an enterprise wide approach to doing business. It also highlights the fact that lean is a fundamentally different economic model. If your company still measures itself based on DuPont's old ROI model, you will never be able to see the profit potential that Ford and Toyoda saw.

Becoming lean in the factory without integrating it with a sales and marketing strategy that assures a controlled, steady increase of volume through the plant by manipulating pricing; and converting to a lean economic /lean accounting model, drives companies to layoff people as lean frees them up, which undermines the lean effort. The inevtiable result is 'looking lean' through all of the factory changes, but not being lean at the bottom line.

[Bill Waddell]

Graham is correct, too. In the immediate short term, Toyota would use those three people in a kaizen effort to attack the process they came from in order to improve it more, and perhaps even free up more people.

Sooner or later, however, the productive capacity of the freed up people must be sold, however, to bring the befeit of eliminating them from the process to the bottom line.

[rd]

I understand the sales strategy but if the sales don't materialize how are the people cost handled.