Evolving Excellence

Guru Parthasarathy, Meet Guru Bill

Straight from the Times of London is another story of American business schools teaching kids about everything except real business.  Apparently the latest fad is "karma capitalism, and newly-minted MBA's with newfound "inner peace"... but no experience... will miraculously be able to turn around nosediving businesses.  Of course, as the article points out, this new fad is for "budding hedge fund managers, investment bankers, and venture capitalists"... and they often specialize in making businesses nosedive anyway.  Now I guess they'll be able to whack thousands of knowledge workers and feel even more at peace with themselves.

Supposed bastions of business know-how, like Wharton, Harvard, Ross, and Kellogg, are adding the likes of Guru Parthasarathy, Ram Charan, CK Prahalad, and Vijay Govindarajan to their syllabi.  They lecture on Vendanta, Bhagavad Gita, and conversations between Krishna and Arjuna.   All great and interesting subjects, some of which even I have explored at various times in my life.  But not in business school, and especially not in that cold snowy engineering school I went to.

Those biz schools are moving even farther from delivering the basics of business management... the logic, the long-term view, and the execution.  Let alone teaching about newfangled areas of thought such as innovative accounting concepts that focus on value delivered and not inventory amassed.  Newfangled areas that many of us knuckle-dragging manufacturing types are already implementing in the real world.   

Earlier this year Bill wrote a great piece titled The Tao of Santa Claus, taking brutal aim at the growing plethora of so-called management experts and the silly books they write.  He puts it like no one else can...

To be a leader, a manager should master Accountability Leadership, Collaborative Leadership and Contagious Leadership. He should get his or her arms around the Tao of Leadership and learn how to Lead From the Front and know Leadership That Works. There is Zen Leadership, Spiritual, Ethical, Inspirational and Moral Leadership - all separate approaches. There is a 5th Wave of Leadership to master (no first through fourth, however), along with Thought Leadership, Facilitative Leadership, Systematic Leadership and, most important, I would imagine, Grown Up Leadership.

Yep, apparently you need a hefty Amazon account to become a leader.  His last paragraph sums it up neatly...

This is manufacturing, folks - a very logical endeavor.  And the companies we work with and for are all about dollars and cents - math. If we have to include leaps of faith and Gandhiesque "leadership" in the equation, we are missing something.  Far better, I believe, to demand that we and our leaders commit to deeper learning about lean.  Eliminating ignorance by wrestling with the lean body of knowledge until we have logical answers to all of the questions is a tougher, but far better and more honest approach than sending the big bosses down the path of 'The 21 Principles of the Tao of Santa Claus'.

Bingo.  Welcome to the real world.  Luckily most of the new, inner-peaceful, MBA's will never see a factory floor.  Unluckily many of them will soon be in positions to send the factory floor to the deserts of Mongolia in search of peaceful cheaper labor while being peacefully oblivious to their new supply chain costs... because those costs don't show up on peaceful standard cost accounting P&L.

Last July we told you about a RSM McGladrey report on what is supposedly required for small and medium manufacturers to be successful.  62 pages of mumbo jumbo with fifteen "best practices" that range from the incredible insight of "devote time and energy to marketing" to the incredibly... uh... enlightening "look for a long-term relationship with a banker."  Lean?  Nope, no where to be found. 

We then created our own off-the-cuff list of real best practices, ranging from "a complete understanding of your real cost structure, regardless of how current reporting regulations compel you to think" to "a relentless focus on indentifying and destroying wasteful activities."  Other readers added some of their own.

These business schools, or "outsourcing centers of excellence" (OCE) as they should be called, would better serve their customers by analyzing and teaching the stories of success from Toyota, Danaher, Texas Nameplate, to name a few.  How a focus on real business management is leadership, and how a real understanding of how truly successful companies work... and not how they appear to work on  a traditional P&L... will create excellence. 

Maybe we need to get Bill a change of clothes so he'll be invited into those ivory towers to teach about the real world.  Wharton, say hello to Guru Bill.

Does the Rock Star Have Clothes?

Another day, another article about the wonders of Carlos Ghosn.  He was even appointed an honorary knight commander of the British empire, joining the likes of Bill Gates, Rudy Giuliani... and Eric Clapton, Bob Hope, and Pele.  Another reason why many execs consider him a rock star.

Granted, he did pull off the impressive feat of saving Nissan from extinction a few years ago.  And he did it by making a commitment and holding himself accountable by saying he'd resign if Nissan didn't turn a profit only a year later.  A level of personal accountability that sets him apart from his peers at GM, Ford, and basically the rest of business and government for that matter.

And he also loves to walk the factory floors... going to the gemba to find out what's really happening and as the article points out he even directly drives 5S methods.  He talks straight, is focused on results, and requires his managers to also focus on results.  Problems are confronted, there is a focus on the individual, and like myself he has an appreciation for simplicity in business... which he claims resulted from being educated by Jesuit priests. 

"If you find things complicated, it means you haven't understood them.  Simplicity is the basis of everything."

How true.  I wish many of today's leaders would realize that if an issue appears complicated it's generally because you can't see the forest for the trees.  Patchwork solutions create complexity.   Lean is simple when you clear away the old organizational brush.  Even taxes could be simple if the pols didn't try to use it as a social engineering excercise.

His executive style could be called lean, in that he forces concise meetings by alloting only the minimum amount of time necessary.  When you read the text of his speeches you realize he takes out any word or phrase that doesn't directly "add value"... they have short concise sentences.  He even carries two black briefcases to keep Renault and Nissan work separate, and for a while we thought he might need to buy a third GM briefcase.  There's still a chance he may need one for Ford.

Wait a minute.  He doesn't shy away from the tough decisions.  He is a strong, fact-based, albeit occassionally brutal, leader.  Yes he did turn around Nissan a few years ago.  But as Dr. Phil likes to say, "how's that working for you?"

Nissan's operating profit is sliding and there is a "drought of new products."  Operating margins at both Nissan and Renault have been consistently dropping over the past two years.  Nissan's U.S. sales are off and market share is decreasing.  He relocated Nissan's U.S. headquarters from Los Angeles to Nashville, and the $100 million investment resulted in the resignation of 58% of his U.S. staff.  That's a big loss of knowledge just to change from hip-hop to country music.  Renault's net income and operating profit is also declining.

But in true Ghosn style, he has made a personal commitment to improve both companies.  He is almost halfway into his second 3-year plan at Nissan, called Value Up, which promises a significant increase in sales and operating profit, and has a similar plan at Renault.  We'll see in a couple years if the rock star has clothes.   

Insourcing and Outsourcing Capital

The November issue of Business 2.0 has an article by Stanford's Jeffrey Pfeffer on Why It Pays to Be Private describing how more and more companies are opting to go or stay private.  Bill has blogged about how lean companies, especially those working on leading edge concepts like lean accounting, seem to be predominantly privately held.  Pfeffer's article reinforces what Bill noted, with some other aspects.

Pfeffer references comments by Berkshire Partners' partner Kevin Callaghan who believes there are three main factors pushing companies to "go private":

The ability to run a business more effectively

This is what Bill has been talking about, and what many companies in the lean world experience.  Public companies are beholdened to the quarterly numbers, with access to capital, cost of capital, and often management compensation tied directly to how Wall Street perceives the short-term financial metrics.  Some public companies, such as Toyota, have the clout to ignore demands for short-term success, but most don't.  Private companies can focus on the long-term, keep strategies under wraps instead of effectively disclosing them to competitors on analyst conference calls, and compensate executives based on fundamental results. 

As Pfeffer points out,

"When I teach executive courses on why companies don't implement what they know they should be doing, executives invariably tell me that the markets won't let them do the right thing.  If that's true - and private companies are starting to enjoy some inherent advantage just from being private - then natural selection will take over, and more companies will follow the same path."

The hassle factor

Most notably the increased costs in time and attention to comply with Sarbanes-Oxley, but also including the higher risk of shareholder lawsuits and dealing with boards, Wall Street analysts, investment conferences, and the like. 

As with all regulatory efforts, the more regulations, the more attempts to find loopholes, and the more complex then the more loopholes that will be found.  Exhibit 1 is of course the U.S. tax code, with 60,000 pages that waste 6.2 billion hours and costs the equivalent of the GDP of some small countries to enforce... imagine the value that those hours and dollars could create with any of the far simpler tax methods... flat or VAT or whatever.  But this is a subject for another day.

Like it or not, we already live in a global market.  A heavy regulatory environment in France is causing companies to flee that country, leading to even greater unemployment.  Similarly single-payer "universal" care in Canada creates very long waits for even critical care, with the wealthier already going to the U.S. for faster treatment, leading to a two-class healthcare system.  It's like a balloon... constrain a free market in one direction, and a secondary result (or "opportunity") will pop out some place else.

The same exists for capital markets... and we now also have the "outsourcing of capital."  There are many companies that still go from private to public.  Startups and other private companies that desire access to public capital are starting to avoid U.S. markets in order to avoid the "hassle factor."  Many U.S.-based companies are now choosing to go public on foreign exchanges, which speaks to the competitive viability of American capital markets.

The money factor

Private firms can operate in a more leveraged capital structure and thereby increase the potential returns to equity investors.  Compensation structures become much more flexible.  The trend of going private, in effect "insourcing capital," is accelerating.  Since 2003 more than 40 companies worth over $400 million each have completed privatization.  During the first half of 2006 leveraged-buyout activity acocunted for 11 percent of all M&A deals, a 50 percent jump from 2005.  Over 2,000 companies are now controlled by U.S. private equity firms, 254 of which firms have assets greater than $500 million. 

Perhaps the trend toward privatization will help create companies with better long-term fundamentals.  However the reduced access to large capital markets, and especially technology companies that effectively become foreign owned by accessing overseas capital markets, should also be a concern.

The Air Force Drives Lean Healthcare

Many lean blogs, including ours, have written about how the military is embracing lean to improve efficiency and effectively stretch their budget dollars.  Earlier this year Bill nominated Army General Jim Pillsbury for manufacturing czar.

The U.S. Air Force has also been strong in this regard, with a clear lean directive driven straight from the top.  And that's one of the keys... it is driven straight from Secretary of the Air Force, Michael Wynne and Chief of Staff General Michael Moseley.  The second key is that it is very focused on results, which are then reinforced and shared.

And the results have been impressive.  Robins AFB decreased C-5 repair time by 60%, Hill AFB reduced F-16 work-in-process by 45%, Tinker AFB reduced KC-135 overhaul time by 45%, McChord AFB reduced cycle time by 67%, and the Air Force Civil Engineers reduced the design-build time on new projects by 42%... just to give a few examples.  Some have resulted in Shingo Prizes.

At the AME Annual Conference earlier this month, Lieutenant General Donald Wetekam gave a  presentation on the lean efforts in the Air Force.  He discussed the results mentioned above, as well as the structure and methods.  Their AFS021 program is an interesting combination of lean, six sigma, and theory of constraints that focuses on the process but keeps the product and mission front and center.  A variety of consultants have been used to kickstart individual projects, but the overall thrust and growth of the program is driven by internal personnel.

As anyone who has been part of a lean effort can imagine, transforming the world's largest logistics operation is no small effort.  Couple that scope with the unique characteristic of a "management staff" that rotates from operation to operation every couple years, which makes it difficult to completely embed the tools and culture in an individual operation.  Another one of the keys to success has been the development of a very structured and visible approach to program  implementation, with a graphic of the "Air Force Operating System" that is remarkably similar to the early Danaher Business System among others.  This system is then transformed onto the core governing, operating, and enabling processes within the Air Force.

But perhaps the best indication of how lean has taken root is how it is transforming ancillary administrative activities... such as base medical support.  General Wetekam took a few minutes to describe these improvements, which include improving access time from 15 days to 5, reducing no-shows and overdue exams by 50%, and reduced outsourced dental care by 58%.  Yes, a government organization that has actually reduced outsourcing.

So while the rest of government is still deluded into thinking that spending and tax revenue is a zero-sum game, the military is preparing itself for a probable less defense-friendly Congress by reducing internal waste to get more from the same limited budget.  Unfortunately the rest of government still prefers to go after our wallets.

Thanks For Nothin' Al

Here's a quick Friday quiz for you:

Which of these two is a jackass?

If you picked the one on the left, you would be incorrect,  It is actually a donkey, which is a different animal all together.  In fact, if you picked the one on the left, you should be ashamed of yourself for insulting donkeys in such a manner. when the donkey is clearly a far nobler beast than the actual jackass depicted on the right.

On the other hand, if you picked the image to the right - the jackass known as Alan Greenspan, former Chairman of the Federal Reserve and the economic visionary who presided over the destruction of American manufacturing during his almost two decade reign - you would be quite right.  He measured the American economy strictly by the Dow Jones Average.  Brayed Jack - I mean Alan - when asked about the demise of manufacturing on his watch, "Manufacturing is something we were terrific at 50 years ago," adding that it "is essentially a 19th- and 20th-century technology."

Thanks for nothin', Al.  Those of us still muddling around in that "19th and 20th century technology" will keep at it so we can cover your Social Security and health care tabs at the Happy Hills Retirement Home as you sit in your rocking chair, making your daily stock picks, with the rest of the great economic minds of your time .

Sophisticated Waste Management

I just returned from a get-together with the Honda Suppliers Group where I had the honor of ranting to the assembled gang about accounting, management, MRP and my usual litany of manufacturing travesties; and while I was there I had the opportunity to see a number of their "Lean Showcase" presentations.  A Lean Showcase is a short dog and pony show a supplier puts on to highlight their lean accomplishments since the last session.  By far, the most impressive was a half hour or so spiel by an engineering senorita from a Methode plant in Reynosa, Mexico.  She and the rest of the folks running the plant are doing just about all the right things except for one that they are powerless to correct - their very existence is a gross contributor to one of the core 7 wastes:  The waste of transport.  Making electrical and electronic components in Mexico then shipping them to Ohio pours a lot of money down the drain and ties up a lot of inventory.

A guy named Michael Stolarczyk writes a pretty good logistics blog - as logistics blogs go, anyway - and while he is a tad late to the lean accounting party, his article on logistics costs is a good one.  The only problem with the article, his blog and the logistics community in general is that they never get around to challenging the basic problem with the Methode plant in Reynosa - why manufacture thousands of miles away from the customer to begin with?

Instead of pondering the best way to get cost visibility in the supply chain, why not simply chop the supply chain by 90% and not worry about it?  The starting assumption with the big systems crowd is that making stuff in China to sell in the U.S. or Europe makes financial sense.  With that as a given, the need to have sophisticated tracking systems jumps to the top of the priority list.

In one of his blog posts, Stolarczyk cites as an example:  "A typical apparel company, for example, might source fabric from China, manufacture garments in Malaysia, send them to Italy for custom design work, then ship final products to a 3PL warehouse in the United States for delivery to major department stores around the country."

Given that scenario, he explains that "sophisticated logistics technology" is not a luxury, but a necessity.  It seems to me that, if that scenario is real, sophisticated logistics technology is throwing away good money after bad.  The management of any outfit that thinks a China to Malaysia to Italy to the United States flow for a yard of cloth is cost efficient is certifiably insane.  They don't need a sophisticated logistics system or better accounting - they need a basic lesson in common sense, or psychiatric help, or both.

Stolarczyk is absolutely correct in urging the need for better financial understanding of logistics costs, but the opening principle for optimizing logistics should be a clear understanding that logistics is 100% waste and the best way to optimize logistics is to eliminate it.  Companies that do not understand the cost of logistics, as Stolarczyk eloquently explains, compounded by ignorance with manufacturing accounting tunnel visioned on labor cost, do incredibly stupid things - like sending a shirt across four countries in three continents in order to save a dollar in direct labor.

The cost of logistics is an unavoidable fact of economic life - but only because the raw material needed to make something is not always near the customer.  If someone in the Arizona desert wants an oak desk, the oak is going to have to be hauled in because oak trees are hard to come by amid the cactus.  Any logistics expense beyond that, however, is inherently wasteful.  Hauling the oak from the eastern US to China to cut it up and slap it together in the shape of a desk, then hauling it back to Arizona, and thinking that is good economics, is a tribute to moronic accounting.

Lean manufacturing is regional, or local, manufacturing.  There is a very good reason why Pella operates regional factories, rather than one massive plant in Pella, Iowa or Ningbo, China.  Hauling raw material in bulk is always cheaper than shipping finished goods.  So they pay to haul the stuff it takes to make a great window to the the neighborhood where people want to buy windows.  Then they pay very little to get the window from their plant to the customer.

My hat is off to the creative and innovative hard working folks in Reynosa who are doing everything possible to be as lean a plant as you'll find on this earth.  What Methode ought to do to assure their success is to process the immigration paperwork and move the whole crowd up to Ohio.  If the Methode folks can't see the inevitable financial boom such a move would generate, they need to get themselves a new accounting system.

Unlearning in India

Last June, Bill wrote a piece on Learning is Easy, Unlearning is the Trick, where he talked about how important unlearning and relearning is to an organizational transformation.  One of my favorite quotes from the post is,

It takes a sound intellect and a fair degree of self confidence to abandon something you know and have believed in, and replace it with something new.  That is especially true if your faith in that something has served you well and your knowledge of the new thing is a little shaky.  The easy path is to keep all of your beliefs intact and only adopt the bits and pieces of the new idea that supplement those beliefs.

I know more than a few politicians, from both sides of the aisle, that should take that to heart.  Not to mention a lot of manufacturing execs. 

For some reason his post has been very popular among a rather unique audience.  Every few days, out of pure curiousity, I take a look at the blog stats.  I can tell what search terms were used to find Evolving Excellence, and where the visitor is located.  At least once a day someone finds Bill's post by searching on "unlearning."  Every one of them has been from India.

What is driving this fascination with unlearning in India?  Is there a cultural issue that makes unlearning more difficult?  As they absorb more and more outsourced production and services from western countries, do they need to unlearn old cultural attributes and relearn new ones?  Digging into the other search results gave no additional clues.

Perhaps the more important question should be why is no one from outside of India trying to learn more about unlearning.

Many of us just returned from this year's AME Annual Conference in Dallas, the largest lean learning event around.  Listening, participating, and learning is the easy part.  Unlearning our past experience-driven knowledge is the hard part.  Learning how to execute a kaizen event is easy, unlearning twenty years of traditional standard cost management and then relearning lean accounting is tough. 

Many consultants are making a buck promoting "learning organizatons."  Perhaps we should be promoting "unlearning organizations" instead.

Domestics in Multinational Clothing

Earlier this month we told you about the duel at NAM, where the NAM executive committee voted against the wishes of the majority of its membership to not endorse the Hunter/Ryan bill. That piece of legislation would have allowed manufacturers to petition the U.S. government for relief under trade laws due to foreign governments subsidizing their currencies… obviously aimed squarely at China. As we pointed out, neither side really gets it. The large companies are in love with outsourcing, and the small companies that make up the “Domestic Manufacturer’s Group” (DMG) are trying to blame everyone and everything except their own internal wasteful methods on why they aren’t competitive.

Let’s take a closer look at this so-called DMG. The companies often mentioned as being leaders of the ad-hoc DMG gang are Nucor, Russell-William, and Festo. Interesting bunch, and even more interesting when you dig a little deeper.

Nucor is a large steel company, and its stock has been a rather phenomenal performer over the past five years. Lately they’ve been pretty vocal about blaming China for a global oversupply of steel, but when you look deeper into the steel market you learn that demand for steel has decreased rather substantially due to reduced domestic auto production. But while they’re blaming China and advocating as part of the DMG, they are also partnering with Chinese steel maker Shougang Corporation to build a new steel plant in Australia. All those “blame China” comments and press releases must make for interesting partners meetings. Nucor is also involved in a joint venture that operates a pig iron plant in Brazil. The term “lean” is not mentioned anywhere on their website, but it does note that employee bonuses are “not paid if equipment is not operating.” Nothing like incenting one of the core lean wastes of overproduction.

Russell-William, one of the largest acrylic manufacturers in the U.S., was acquired by idX in 2005. idX has seven manufacturing facilities globally, of which four are in North America. Their website touts that “because we’re dedicated to lean manufacturing, we manufacture the highest quality products as efficiently as possible.” But later on they brag about “over 1,000,000 square feet of warehousing space” and how they “drive labor savings.” A company supposedly committed to lean that is in love with warehouses is a company that is trying to look lean, not be lean.  No, on second thought they aren't even trying to look lean.

Festo is actually a German automation equipment company with operations in 56 countries, including China. The first U.S. facility was opened in New York in 1972 to provide parts for woodworking machines. Two other manufacturing facilities were later opened in Illinois and California. There is nothing about lean on their website, although they do talk about “continuous improvement” in their mission statement… a few lines after they talk about the importance of “allocation of capital.” Like Russell-William they also like to brag about the size of their warehouses.

Just for grins I checked the registration list for last week's AME Conference in Dallas.  About 2,000 manufacturing professionals attended, trying to learn more about lean.  But no one from Nucor, Russell-William, or Festo.  Likewise I checked the Superfactory Newsletter 50,000-strong subscriber list and found the same result.  Of course this doesn't necessarily mean anything; attending a conference or subscribing to an e-newsletter is by no means a requirement to be lean.

I guess just because you have factories overseas doesn't mean you can't advocate for domestic manufacturing.  But let's call them what they really are... multinationals.  Our friend and occassional target Pat Cleary at the NAM blog had a good post last week titled Behold the 'Multinationals'.  He takes on the common misperception of the term, oft promoted by the likes of Lou Dobbs, that a "multinational" is an "evil large corporation."  As he points out, there are many small manufacturers, such as Quality Float Works, Al-jon, and Pacific Plastics that happen to also have factories overseas.  I'm guessing that most of them are chasing cheap labor, but perhaps, hopefully, some are truly trying to be closer to their new overseas customers.

We've said it before.  Many times.  There are hundreds of truly domestic companies, of all sizes, that compete globally by focusing on eliminating their internal waste.  These companies know that the magnitude of that waste is far greater than other "competitive burdens."  These are the companies that will survive while those that simply complain will fail.

The Problem With Gross Domestic Product

We've taken Jim Womack to task a few times in the past, but today's edition of his regular email missive is right on the money.  Of course he speaks from the 50,000 foot view and once again leaves it to the rest of us to add the operational details, but I'll live with that this time.

Today he wrote about the problems inherent in the Gross Domestic Product statistic.  As he puts it,

GDP simply counts all economic activity in the economy. Any goods produced or services provided that someone paid for is “product.” Thus the surge of growth in on-line and telephone help desks to aid consumers using products they can’t understand how to install, that won’t work with their other products, or that simply won’t turn on, counts as growing domestic product. So does increased spending on recalls of defective products.

Clearly the problem here is that one measure called “product” co-mingles two very different things: value and waste. What we really need is to measure Gross Domestic Value (all of the “product” that actually creates value as perceived by the consumer) and compare this with Gross Domestic Waste (or maybe GDM, for Gross Domestic Muda.) We want the former to grow but we want the latter to shrink.

Obviously this isn't a problem just with the United States.  In fact,

A recent study by the Chinese government’s environment ministry estimated that of the officially recorded 10% growth in Chinese Gross Domestic Product last year, 3% was actually expended on trying to deal with the environmental damage to human health and agriculture caused by the other 7%! In this case the “internalities,” in the form of the goods and services produced for consumers, are confused with externalities: the burden of their production on the environment. Both are counted as GDP.

Now for the hard part... how do we do it?  Jim's high-level solutions is presumably intentionally simplistic...

What I propose instead is that Lean Thinkers help others with less vision to see that growth is good but only the growth in value, not the growth in waste. And then I hope we will all re-examine every process we touch to clearly distinguish value from waste. That of course, is just the necessary preparation. The value of the exercise lies in removing the waste, not just counting it.

... re-examine every process we touch to clearly distinguish value from waste.  Those of us in the lean world know that it is common, and almost expected, to remove at least 30% of an activity's cost during just the first pass value stream analysis.  This statistic is surprisingly consistent, whether it's building a car, treating a patient, or providing a government service.  Second and third passes can remove additional waste, and we've seen processes where almost 90% of the cost can be removed.

The problem, of course, is that the people with the power to make the improvements are usually so immeshed in the activity or process that they cannot analyze it from a detached viewpoint.  Ask any production manager, or government official, to perform his department's same function with half the resources and they'll laugh.  The tools are known and proven, but it takes a different perpective from outside the box.  Lean companies do it every day.  Even some lean governments, like Mesa, Arizona and Portland, Oregon, are doing it.

Bob Emiliani penned an article for Superfactory a few months ago titled Lean Government: Crazy Dream or Absolute Necessity in which he discussed some of the waste reduction opportunities in government.  He highlighted the rather spectacular waste reduction achievements of Canada Post, and how the Japanese post office is looking for similar results from its lean and privatization efforts.

About a year ago we also wrote about lean government, and the difference between porkbusting and true waste reduction.  The post quoted from one of my favorite non-partisan economic analysis blogs, The Skeptical Optimist.

When we “cut” the budget (as a % of GDP) without changing the processes, incentives, and controls in budget making and money spending, the guaranteed result will be “less of the same.”  Alternatively, if we effectively reform the government’s processes, measures, controls, and accountabilities, we’ll get better results from the same level of spending.

Welcome to value stream analysis.  Lean companies have seen the rewards.  The military has been doing a great job with rather spectacular savings.  A few pockets of government here and there.  But the enormous size of the government also creates an enormous opportunity.  Imagine what a 30% savings across the federal budget would mean... and what could be done with it (both increased services and giving it back to the people to invest).

Something to think about the next time some politician insists that taxes must go up, or a bond measure must be passed. 

An Eventual Manufacturing Revival?

The October 20th issue of Welling@Weeden, a newsletter circulated only to high impact institutional investors, has an interview of David Levy of the Jerome Levy Forecasting Center titled It's Only Just Begun.  It primarily discusses the impact of the reduction of home prices, especially when non-traditional mortgage vehicles are involved.  However Mr. Levy also makes some interesting non-housing-related predictions, one of which is...

Manufacturing, not this year, not next year, maybe not even in five years, but over the next generation, we’re going to see reviving in the U.S. as labor costs become much less important and logistics, proximity to markets, become dominant factors.

I seriously doubt that Mr. Levy knows anything about lean manufacturing.  In fact, there are only two or three Wall Street analysts that really understand lean, one of which is our friend Cliff Ransom.  But Mr. Levy could be correct if, and it's a relatively big if, manufacturing executives wake up and begin analyzing their processes instead of chasing low labor costs around the globe.

Lean manufacturers know that the impact of internal wasteful processes is often far greater than the labor cost discrepancy between the United States and the developing world. However proximity to markets is a valid reason to build plants overseas... and for overseas manufacturers such as Toyota to build plants in the United States.  In fact, the value of being closer to the customer more than offsets increased labor costs, regulatory costs, energy costs, and legal costs... all the areas that NAM insists are serious competitiveness burdens.

In any case, there are going to be a lot of bloodied and battered, if not outright killed, manufacturers before this revival occurs.  Completely changing your business model and continuously searching for internal waste is often a radical process change... which takes more guts than most manufacturing execs have.