Evolving Excellence

Reminiscing... and Looking Forward

The turn of the new year stimulates many of us to look back... and hopefully look forward.  This is important, and could even be construed to be the "check" part of a Deming PDCA of life.  It provides context, and a foundation upon which to build the future.

Looking back, I vividly recall my first ever experience with "lean."  I didn't know it had a name, and in fact I don't think the analogous term for the Toyota Production System had been coined yet.  It was during the mid-80's and I was a development engineer with Sylvania, working to design halogen headlamps.  We had recently scored something of a coup, and had sold over 100,000 headlamps to a major Japanese automaker.  A few weeks later they called to request a meeting to discuss a "major quality problem."  Dutifully we went over and met with our new Japanese customers in a large conference room.  Three headlamps were on the table.  We talked about a small crack in the resin base, proposed improvement programs, made commitments, and got up to leave.  On the way out we asked if the rest of the problem headlamps could be returned to us to help our analysis.  The answer stopped us in our tracks:

"Those are all of them."

The looks on the faces of the Sylvania folks are burned in my memory.  Unfortunately most of them were along the lines of "Those crazy Japanese, this has just wasted a few days of our time."  But a couple showed fear.  They understood.  They realized that the game had just changed.  3 out of 100,000 was unacceptable, and that was the new quality bar.

Many years later I was helping my boss design a new infusion pump manufacturing facility.  Neither of us knew anything about lean, but we knew what a pain it was to get different functions to talk to each other and to track inventory in a regulated medical device environment.  We created a huge open room, clean linear flows from raw material inventory through production to finished goods.  Lines were designed to minimize inventory with one piece flow.  All production support folks were grouped together in an open area on the manufacturing floor.  It worked... tracking costs went down, inventory nosedived, scheduling convolutions disappeared, decisions were made rapidly, and quality shot through the roof.

I was later transferred to run a large medical molding facility, and wanted to duplicate the results.  This time I did a search on the then very small world wide web and found some resource links.  Other department managers soon wanted access, so I put it on the intranet.  Colleagues from outside the company wanted access, so with ten seconds of thought the domain "superfactory" was found and the website created soon thereafter.    The Superfactory website has grown to become one of the largest manufacturing excellence resource sites with several thousand daily visitors, the monthly e-newsletter reaches 50,000 subscribers worldwide, and the blog a couple thousand a day.  Along the way I've met some amazing people and learned an incredible amount.  Hopefully directly and via the website and blog I've been able to share back.

2007 will mark Superfactory's tenth anniversary.  All along the primary mission has been to deliver and promote manufacturing excellence knowledge worldwide.  In keeping with that mission we've been working on several projects to radically improve, via new technology and new content, how knowledge is delivered to organizations and individuals.  You will hear more about these new projects and capabilities during the upcoming months, with the first on schedule to be rolled out in February.

Best wishes for a peaceful and prosperous 2007!

First Airbus, Now Volkswagen

I know it's not just a German or even European thing, but this morning we have yet another example of our friends from across the pond promoting a leader bent on creating excellence and then effectively firing him when his solutions create discomfort.

Last October we told you about Airbus.  Christan Streiff was hired to straighten out the disastrous manufacturing and design processes that had led to costly delays on the A380.  He took the job under the condition that in 100 days he would lay out the plan and the Airbus board could either back it or fire him.  He delivered his plan on schedule, and it included implementing lean and shifting production to plants that demonstrated specific competencies.  That was a bit much for the German and French owners and, you guessed it, he was fired.  Louis Gallois took over, a French civil service bureaucrat whose manufacturing experience consists solely of learning to spell "usine" in grade school. No wonder minority investors are bailing.

The Wall Street Journal this morning has an article titled Volkswagen Restructuring Drive Starts to Sputter telling us that VW chief executive Wolfgang Bernhard is "poised to leave."  Basically the company's largest shareholder, Ferdinand Piech, is planning a management shakeup that will eliminate Mr. Bernhard.  The VW "supervisory board" will be reorganized the into direct functional oversight positions similar to what exists at Porsche... where Mr. Piech is also a board member and coincidentally the grandson of Ferdinand Porsche himself.  Porsche itself now owns 27% of VW.  It will be a neat trick to try to apply the narrow focus supervisory oversight structure of a company with a single brand making only 100,000 cars a year to a company with brands ranging from VW to Lamborghini and Bentley with 340,000 people making five million vehicles a year.

What evils of Mr. Berhand prompted this massive disruption and the probable loss of an experienced exec with guts?  He decided to pull the underwhelming high-end Phaeton from the U.S. market, coincidentally the vehicle championed by Mr. Piech when he was CEO during the 1990's.  He has worked to break down the barriers between the various VW brands to improve design commonality and consistency, thereby reducing procurement and supply chain costs. 

"The most critical thing in this company is to develop vehicles across the functional borders," a person familiar with Mr. Bernhard's thinking said.  "The teams are now working and functioning.  If you tear these teams apart, the restructuring process will slow down and come to a crunching halt."

He has done the same between functional silos in single brands, such as

He shaved one new model's cost by more than $2,000 per vehicle by ordering hundreds of engineers, production experts, designers and sales-and-marketing employees to report to an auditorium a few miles from Volkswagen headquarters.  They were ordered to stay there until they had figured out how to develop the vehicle on time and within budget.  He has since expanded the practice to cover all new models in development.

Call is a "monster kaizen."  With that number of people and a rather dictatorial approach, it probably wasn't optimal from a lean standpoint.  But it rapidly broke down functional barriers and has sparked a culture change.

Mr. Bernhard has overwhelming confidence by the minority shareholders, to the extent that VW's market value rose $1.25 billion the day he was recruited.  Many investors consider him critical to the company's attempts to improve profitability.

But once again, when the going looks tough, the tough get thrown out the window.

Questioning Lean

Over the past year I've given Dr. Shahrukh Irani of Ohio State a pretty hard time, especially in the post The False God of the Almighty Algorithm.  Dr. Irani is a major proponent of software solutions, but as someone who fundamentally believes in excellence through simplicity and the beauty and elegance of simple solutions, I prefer white boards and manual visual methods.  In my opinion software is often like conveyors or six sigma... it can speed up or optimize a wasteful process instead eliminating the underlying waste itself. 

On his JSLEAN Yahoo group, Dr. Irani is also vociferous with regards to questioning fundamental aspects of "Toyota lean."  He believes that "TPS is just a rehash of common sense" and "lean is just a smorgasborg of tools."  I disagree rather strongly, and believe that what Toyota, Ohno, and Shingo created out of the concepts originally developed by Ford, Deming, and others goes much, much deeper... it's a fundamental business philosophy.  Core aspects, such as the oft-forgotten "respect for people", are not tools and certainly can't be modeled by software.

However my recent post on Toyota Questions Everything got me to thinking that my own exhuberance in defending lean was actually detrimental and contrary to the lean philosophy itself.  Just like Toyota, a true lean company questions every aspect of their business and operating methods, including the most core components.  Therefore the questions and comments from smart people like Dr. Irani should be encouraged, discussed, and used to help create further improvement.  I have a sneaking suspicion that this discussion, analysis, and application is what helps Ohio State create some great manufacturing engineers.  As Bill wrote early this year, low tuition plus good football equals a useful education... and he included Dr. Irani and Ohio State in the select group that blows away the likes of Wharton with regards to true manufacturing knowledge.

Coincidentally our friend Jon Miller at Gemba Panta Rei wrote about a similar subject yesterday in a post titled Being an Improvement Agnostic.  As he put it, 

I have no certain conclusions Lean manufacturing is "the way", except through direct experience. It would be foolish of me to claim that Lean manufacturing should come before any of the other "beliefs" such as ERP, CRM or Six Sigma without first seeing what an organization needs most and understanding the available solutions.

Being an improvement agnostic means not holding to a particular system of belief too strongly if it has not been demonstrated or if they are not demonstrable. Test the null hypothesis, in other words. Follow reason to its natural conclusion, regardless of what we want to believe as fans of kaizen and the Toyota Production System.

I don't know that there is a perfect process, or that we can ever know the perfect process. I have a strong hunch that it does not exist today (except perhaps in nature) and that I may never see it. I don't have an unshakable faith that Lean manufacturing works, only belief from demonstrated experience.

The story that drove Jon's thoughts is a good read, and something many of us have been through.  I know lean works because I've experienced it.  I've seen the rather astounding results, and I've felt the fundamental elegance, simplicity, and common sense in the methods.  People like Norm Bodek have helped us understand the human aspects that in many respects transcends western business thought and priorities.

Lean, and "Toyota Lean" can definitely help pretty much any organization create incredible improvements.  Even Toyota, which many claim to be a decade further advanced in efficiency than their nearest competitor, believes they have just begun to scratch the surface.  The danger is that because implementing lean is very hard work requiring very serious commitment, lesser-hearted leaders and organizations will just look for another, easier way instead of taking advantage of the established improvement potential of lean.  We see this every day with failures resulting from half-hearted or complete misapplication of lean.  This is why some of us may jump too quick to squelch lean dissenters... we know real lean can really work. 

But does that mean it's the only way?  Of course not.  I harbor no illusions that lean is the end-all business process.  Lean, and more globally "enterprise management" must continually improve, and we must encourage discussion in order to further the improvement process.  Although Dr. Irani and I and many others may have differing opinions, I'm sure we all share a fundamental passion to help manufacturers succeed.

Small and Great

Last week one of my favorite blogs, The Skeptical Optimist, had a post titled Grow or Die.  In it Steve Conover proposes that companies must grow, or else they will perish.

There are only two kinds of problems in business: (1) growth problems; and (2) liquidation problems.  Grow or die.  Expand or liquidate.

At first I thought I could be comfortable with his assertion as long as "growth" could be defined in multiple ways, including "growth of knowledge" or "growth of capability."  However when he clearly defined it as "expand" then I had a problem.  In my view there are two positive alternatives to the "grow or die" black-or-white scenario:

1. Grow revenue by "growing" pricing.  Become so good at the product or service you provide that the value to the customer increases, and the price you can charge goes up.
2. Simply be comfortable with a level profit.

Increasing the value to the customer, or reducing the amount of non-value-added from the perspective of the customer, is core to lean.  Many lean companies, such as Toyota, balance price, value and volume to help level load production facilities.  In other words, Profit = (Price-Cost) x Volume.  This is pretty much the polar opposite to tradition American accounting where Cost + Profit = Price.  Sound identical?  Think about what the arrangement of the formula implies.

The second alternative is rarely used, perhaps unfortunately.  In a public company it would be virtually impossible.  Private companies have more latitude.

One of the better books I've read over the past year has been Bo Burlingham's Small Giants: Companies That Choose to Be Great Instead of Big.  As Jim Collins, author of Good to Great, says in his forward:

This book should inspire thousands of entrepreneurs to reject a mantra of growth for growth’s sake in favor of a passionate dedication to becoming the absolute best. Bo Burlingham reminds us of a vital truth: big does not equal great, and great does not equal big.

The author profiles a variety of small companies ranging from a two-person dressmaking firm to O.C. Tanner with 1,700 employees and sales over $350 million.  The common aspects are that the owners understood their niche, understood they had options besides growth, and decided to focus on becoming the absolute best at what they did.  This usually included exceptionally close ties to customers and suppliers, unique forms of corporate governance, giving back to their communities.  As Burlingham points out:

The businesses in this book have other, nonfinancial priorities in addition to their financial objectives. Not that they don’t want to earn a good return on their investment, but it’s not their only goal, or even necessarily their paramount goal. They’re also interested in being great at what they do, creating a great place to work, providing great service to customers, having great relationships with their suppliers, making great contributions to the communities they live and work in, and finding great ways to lead their lives. They’ve learned, moreover, that to excel in all those things, they have to keep ownership and control inside the company and, in many cases, place significant limits on how much and how fast they grow.

To learn a bit more about the companies he profiled, his research methods, and conclusions, take a look at one of the excerpts that is publicly available.  If you're trying to be great, and not necessarily big, I'd recommend reading this book.

A Sweeping Success

When you read about a company, there is one very notable combination of phrases that will immediately tell you that they are probably knee-deep into real lean manufacturing.  An example of that combination are the following statements from a recent article on the Atlantic Broom Company:

The company produces annual revenue of $10-to-$20 million, and has been growing at a rate sometimes exceeding 40 percent a year.

The company just moved into a new 40,000 facility that is slightly smaller than the old one.

Growing, and very rapidly at that, and also moving to a smaller facility.  That takes guts, or at least a strong understanding of process capacity in a lean environment.  How many of us would look for a smaller facility if business was doubling every couple of years?

But the story gets even better.  Atlantic Broom makes industrial brooms, street sweeper brooms, snow plow blades, and aluminum highway signs.  During peak periods they can make almost 1,200 signs a day, and over the past two years they have shipped over 20,000 to the military.  Almost all competitive-bid government contracts for low margin high labor content products.  Do they complain about "competitiveness burdens"?  Are they chasing low-cost labor around the world?  Nope.

While some companies with high knowledge content products are laying off thousands of years of experience to save a couple bucks in Mexico, American Broom is growing 40% a year in making low margin products in high-cost New England.  They are family-owned, which gives them the luxury of not being beholdened to short-term stockholders.  They focus on improving processes, creating a culture that respects and grows their people, and providing impeccable customer service. 

American Broom could teach Whirlpool a thing or two about manufacturing.   

Understanding Lean at Whirlpool

A few days before Christmas I received a long email with the subject of "Help me to understand."  It was from a worker a Whirlpool's Evansville factory, who was among 500 people laid off earlier in the month.  To avoid causing him any further grief, I'll just call him "Bob."

The human side of Bob's email tugged at me, as only five years ago I had to lay off 183 people, including myself.  It was on September 10th, 2001, and the events of the next morning put things in perspective again.  Thanks to lean we had quadrupled productivity in under a year, but because we had done such a poor job of promoting our success, our operations were being absorbed into far less efficient operations at corporate headquarters.  I vowed to never let that happen again.

Coincidentally we wrote about Whirlpool's Evansville operation just last August, comparing their announcement of impending layoffs to a same-day announcement of Sealy building a new domestic plant.  We found the difference between a couple statements in their press releases very telling:

Whirlpool: "The company will continue to have committee explore lean manufacturing an efficiency practices."

Sealy: "The company will employ lean manufacturing techniques in the design and operation of the plant."

The difference is what we called the "Nike factor"... some companies think of lean as some foreign concept that has to be studied and analyzed by committees with plans and buy-in from all groups to achieve synergy and consensus and other meaningless buzz words.  Some companies just do it.

Bob's first email to me described several situations that unfortunately make perfect sense when you think about the statement in their August press release:

• "Management is consumed with operating like Toyota.  I heard it everyday for more than a two years."
• "Management was not willing to make the necessary changes in conjunction with their employees."
• "Meetings, meetings, meetings all day long.  All that really gets accomplished is a re-hash of the previous meeting."
• "Waste is abundant.  They talk about it being a problem but every year it seemed to multiply."

Yes, that sounds like a lot of talking, committees, and meetings with no action.  Just like the press release implied. 

There is nothing wrong with obsessing about Toyota.  You can learn a lot and become very effective with such an obsession, and the learning is even easier since Toyota's Princeton facility is only 27 miles away.  Toyota is famous for helping out other companies, and even their competitors.  But apparently some critical components of lean were lost in translation: respect for people, planning, and action.  Implementing a form of hoshin kanri would have created a simple plan for the lean transformation, which would have been very visible for all to review.  Some basic kaizen training would have led to "meetings" that had immediate and dramatic effect on waste.   

Whirlpool's rationale for the layoff is that demand for top-mount freezers has been shifting to side-by-side models, which aren't made at Evansville.  However, at the same time Whirlpool is adding over a thousand new jobs existing factories in Clyde and Mason, Indiana, as well as Amana, Iowa.  But those jobs need to be netted against almost a thousand jobs soon to be lost at the Fort Smith, Arkansas plant due to the rapid expansion of the Ramos Arizpe plant in Mexico. 

So let me get this straight... tens of thousands of years of manufacturing knowledge are being disposed of in Evansville and Fort Smith, huge hiring and training costs in Clyde, Mason, and Amana to bring workers up to a few weeks of manufacturing knowledge, it's "too expensive to retool" the Evansville plant but easy to swallow a hundred million bucks of severance charges (not to mention what the taxpayers shoulder).  A few bucks an hour savings in Mexico is worth a much longer multinational supply chain that requires more oversight, longer transportation of thousands of heavy objects a day, far more training expenditure to handle a foreign language in an area notorious for extremely high turnover, and the resulting quality problems from such a lack of long-term manufacturing knowledge. 

That is some wacky accounting.  Actually it is traditional accounting, and it makes sense to a traditional accountant.  But not from a real-world perspective, does it?  Experienced employee knowledge and creativity doesn't show up on the balance sheet.  A severance charge is easier to sell to short-term shareholders than a long-term investment.  Turnover costs are always underestimated.  A pair of hands with a day's experience is worth the same (if not more... they "cost" less) than a pair of hands doing the job for ten years.   Some companies are realizing that this is bizarre and not the real world, which is why lean accounting is starting to take root.

After a couple emails back and forth, I had hoped that Bob wouldn't be soured on the potential of lean manufacturing itself.  He wrote back "No, I have not let what is currently going on at Whirlpool change any thoughts that I have on lean manufacturing.  If anything, it has made me feel even stronger about the concept as a whole."

Best holiday wishes to you and yours, Bob, as well as to your Whirlpool coworkers who have suffered through this pathetic situation.  I hope the new year brings a good job with a company that truly understands excellence, and you have one nearby at Toyota's Princeton facility.

Productivity Myths - Real Studies and Data

Over the past week we've been exploring whether the outsourcing or offshoring of subassemblies, later finished, in the United States, has a hidden impact on the rather exemplary manufacturing productivity numbers of the past few years.  The premise is that since productivity is output per labor hour, reducing input labor at U.S. plants by offshoring intermediate components would lead to a calculated increase in productivity.  The original post was mentioned on TheStreet.com, which led to a flurry of emails from some prominent economists, some of which were reprinted here.  The consensus seemed to be that offshoring had some effect, but no one could quantify to what extent.

Earlier today I received an email from Dr. Menzie Chinn, professor of economics at the University of Wisconsin's LaFollette School of Public Affairs.  His comments indicated that "in principle" the BEA attempts to related "value added" to the quantity of inputs, therefore theoretically manufacturing productivity should be accurate.  Theoretically.  Then he pointed me to two recent papers that do attempt to quantify the effect of offshoring intermediate components.

The first is from Organisation for Economic Cooperation and Development (OECD), entitled Productivity Impacts of Offshoring and Outsourcing: A Review.  The result of this study:

The most apparent conclusion drawn from the review is that there appears to be no clear patterns as to how offshore outsourcing affects productivity, and that much depends on both sector and firm-specific characteristics. There are some indications, however, that positive productivity effects from foreign material sourcing depends on the degree to which firms are already globally engaged, but also that such engagements generally could be close to their optimum level in developed economies. There is little existing research on offshoring of services, but it appears that its productivity enhancing effects generally are small in manufacturing plants while being of a somewhat greater magnitude for firms in the services sector.

The second study, from the International Monetary Fund entitled Offshoring, Productivity, and Employment Evidence from the United States, quantifies the effect a bit more.

We found that offshoring has an effect on productivity: service offshoring accounts for 11 to 13 percent of labor productivity growth over this period; and material offshoring for 3 to 6 percent of labor productivity. The positive effect of service offshoring on productivity is robust to the inclusion of industry fixed effects, high-technology capital share and import shares.

So there you have it, at least from one study: there is an effect, but it is relatively small.  Perhaps 3 to 6 percent of the total productivity improvement.  Perhaps as high as 13 percent depending on the service component.

The second study has some other interesting data, and is worth a full read.  For example, it details how a significant number of manufacturers that outsourced offshore actually saw their costs increase.  This is presumably traditional costs, and doesn't account for oft-uncalculated costs such as supply chain risk and in-transit inventories.

Productivity Myths - Comments From Real Economists

Earlier this week we discussed the myth of manufacturing productivity, and how the number may not account correctly for reduced labor resulting from subassemblies being outsourced offshore but finished in the U.S..  Apparently it struct a chord, and this morning it was mentioned on TheStreet.com Real Money.  That, along with a couple of emails I sent to blogger colleagues, has generated a flood of emails in response, with a sampling of the comments posted below.  Right or wrong, these guys forget more about economics than I will ever know to begin with.

UPDATE: A reader provided some studies that helped quantify the effect on productivity.  Read about it here.

Columnist Alan Reynolds wrote,

The value of manufacturing output really has been going up, not down, and rather strongly. People think otherwise because they're thinking of older products -- T-shirts rather than electronic equipment. Even auto output is quite strong in the USA -- the "Big 3" may be moving more production overseas but Germany, Japan and Korea are moving here.   The data are at bea.gov, but it's not easy.  That's why I wrote a textbook.

And we've lost fewer manufacturing jobs by far than Japan, Germany and (yes) even China.  The data and sources are in my book, Income and Wealth, but I think I must have touched lightly on the topic in past columns.  They're all online at townhall.com, or at cato.org.

Donald Luskin of Trend Macrolytics and Conspiracy to Keep You Poor and Stupid wrote,

As a first observation, I would point out that the issue you raise is very real – but it only makes the published productivity numbers incorrect if those numbers didn’t already account for it, and I have no idea whether they have or haven’t. These things are always a combination of “economics” and the real-world process of census-taking.

Russell Roberts of Cafe Hayek wrote,

Interesting point, Kevin.  I assume that manufacturing output is only "value added" but that could be wrong, too.

Alex Tabarrok of Marginal Revolution wrote,

Interesting post.  There are many different measures of productivity. The one you seem to be relying on is physical output per worker in which case I think you are correct. But suppose we measure productivity as the value of output per worker. In that case it's not obvious to me that overseas labor should be counted. Suppose that instead of shipping the intermediate assembly overseas a bunch of robots were used.  Then U.S. labor productivity would increase. Why is overseas labor different than robots? In other words, if the value of the output goes up relative to the US labor input that is an increase in the productivity of American labor regardless of how that increase in output relative to input was created. True, the difference is not an improvement in technological productivity but it is an improvement in economic productivity.

Steve Conover of Skeptical Optimist wrote,

Although we are turning into a service economy, Brian Wesbury has said recently that even manufacturing is picking up. 

Here's a link to an article I wrote a while back that explains some of the things that aren't so apparent in the official numbers:
http://www.optimist123.com/optimist/2006/02/the_economic_st.html

Brad Setser of RGE Monitor wrote,

I am not an expert on productivity/ how productivity is calculated/ how intermediate subassemblies are accounted for. Theoretically, productivity is measure of the US component of output relative to US inputs -- it tries to measure how efficiently work in the US is done, not how efficiently work outside the us is done.

For the tiny bit it is worth, I have often wondered the same thing -- i.e. if some of the reported gains in productivity weren't mismeasured gains from offshoring/ pure mismeasurement.

So there you have a sampling of comments.  I'm going to have to think a bit about the comparison of offshore labor to robots... I'm sure there's a knowledge and creativity component there that should be accounted for.  Stay tuned for more analysis.  Now back to the vacation...

Virtual Factory Tours

The wife and I are going to spend a nice quiet Christmas a couple hours up the coast in Carmel.  In the meantime, how about sharing the joys of manufacturing with your kids and family, and perhaps help create the next generation of people who believe manufacturing can thrive and excel in America!  Below is a list of some streaming video virtual factory tours that can be found on the internet.  For even more video and web-based factory tours, visit the Superfactory Virtual Factory Tours page. 

Happy holidays!

• 3M Duct Tape
• Advanced Barcode and Label Technologies
• American Flags
• American Italian Pasta Company
• Applied Materials IC Chips
• Applied Materials Flat Panel Displays
• Ball Corp. Aluminum Cans
• Ball Corp. Plastic Bottles
• Beneteau Boats
• Blenheim Ginger Ale
• BMW Z4
• Bowater Paper
• Budweiser Beer
• Campbell's Soup
• Carnival Food
• Carolina Ceramics Bricks
• CertainTeed Fiberglass Insulation
• Channellock Hand Tools
• Corning Glass Fiber Optic Cable
• C-130 Hercules
• Diamond Sparklers
• Edelman Carpet
• Fender Stratocaster Guitars
• Harley-Davidson Motorcycles
• Herman Miller Eames and Aeron Office Chair
• Intel IC Chips
• John Deere Combines
• Karsten Mfg PING Golf Clubs
• Krispy Kreme Donuts
• Lego Toys
• Louisville Slugger Baseball Bats
• Mack Trucks
• Mercury Marine Boat Engines
• MicroCreamery Ice Cream
• Mississippi Power Coal Plant
• New Balance Running Shoes
• Patagonia Clothing
• PPG Glass
• Raven / Aerostar Parade Balloons
• Sam Adams Beer
• Selmer - Trumpets Clarinets Flutes Saxophones
• Silly Putty
• Smithfield Foods Bacon
• Thomas Built School Bus
• Toro Lawnmowers
• Toyota - Georgetown KY Cars
• U.S. Steel
• USS George H. W. Bush Aircraft Carrier
• Whirlpool Washing Machines
• Wolfgang Candy
• Wilson Tennis Balls
• Zambelli Internationale Fireworks

The Idiot Grinch of Fake Lean

The title of this post does not adequately convey my frustration, and outright anger, at the idiots that give lean a bad name.  Our friend Dan Markovitz sent me a Wichita Eagle news story from a couple days ago unfortunately titled Efficiency Leads to 20 Jobs Cut at Global.  After reading it I had to take a drive to cool off and clear the steam from in front of my eyes so I could write a somewhat intelligible rant.

The president of Global Engineering and Technology, Finley Nevin, is eliminating 20 out of 265 positions at his company, while the company is growing, and claiming he had to because of lean.

Nevin said the job cuts come from implementation of lean manufacturing practices at the 16-year-old company, which designs, builds and installs interior components for aircraft.  "Right now, our aircraft order backlog is excellent," he said.

"It's sort of a Jack Welch approach to try to make us a better business," Nevin said Tuesday, referring to the former General Electric chief executive. "We've gone through, looked through everything, and there are some areas we don't need."

And of course he waited until Christmas to do it, and then bragged about the accomplishment to the paper.  Where do I begin?   There is so much wrong here that it is tough to get my thoughts around it.

First and foremost, Mr. Nevin doesn't have a clue what real lean is all about.  I'm sure he believes it simply a set of tools that remove waste, which is an unfortunately common interpretation.  And similarly he has a very narrow understanding of manufacturing accounting and believes he must remove labor to achieve savings, so he fires people at the first glimpse of a "savings" opportunity... without even thinking about the off-balance sheet value of those people.  What could that knowledge have contributed, and what was lost?  What new ideas, new products, process improvements, and new market opportunities has the company forfeited in order to save a few bucks an hour?

One of the primary pillars of lean is "respect for people."  Unfortunately this is often forgotten and we sometimes need a course correction to remember how important it is.  There's a reason why Toyota, and many other "real lean" companies, have never laid off.  They leverage the value of employees freed up by lean improvements to further improve and grow the business.  One characteristic of companies that truly attempt lean is that they make a formal commitment to their employees that no one will lose their job due to lean improvements.  Implementing lean is hard.  Basically you are asking employees to remove waste and improve efficiency, which puts their jobs, and thereby their family's income, at direct risk.  That's scary.  Think about that for a moment and you'll realize how important the commitment from the company is.

Secondly, Jack Welch is not exactly someone to be admired or emulated, especially in an organization that embraces true lean manufacturing.  He is pretty much the antithesis of "respect for people."  His management philosophy calls for force-ranking and then culling the bottom 10% of any organization, each year.  Regardless of the fact that there's still value in those employees, perhaps their lack of contribution is due to poor management or being pidgeon-holed into the wrong position, or maybe the entire organization is high-performing.  For this reason many of us believe Jack Welch is a turkey. 

Thirdly, there's the backlog.  Traditional companies believe this is a good thing, and panic when the backlog disappears.  But almost by definition a backlog is a customer service issue and is contrary to lean.  From the perception of the customer, which is how true lean companies look at all activities, the company has consciously made a decision to delay a delivery to the customer by not providing sufficient resources.  The lead time is unnecessarily long, creating unnecessary supply chain risk, requiring unnecessary intermediate or transition inventory.  Laying off "excess" employees when there's a backlog just further reduces the value to the customer, not to mention basically being a contradiction in terms to begin with.

All around the Wichita area many other companies are trying to implement lean, and now have to deal with employees that read the paper and will wonder if they should support the concept.  Mr. Nevin's ignorance may have singlehandedly hurt the competitiveness of the entire central Kansas industrial sector.