Evolving Excellence

Counterintuitive Productivity Statistics

We've had a fascination with manufacturing productivity statistics for quite some time.  Several months ago we began exploring a possible problem with how manufacturing productivity is calculated. 

Very briefly, we were concerned that intermediate subassemblies that were built at overseas factories but then turned into completed product at U.S. factories would distort productivity in that it would look like more was being produced with fewer domestic hours.  An offshored subassembly doesn't represent an increase in true output by a U.S. worker, therefore this distortion potentially called into question the oft-heard comment that productivity gains have led to the steep reductions in manufacturing employment.

Our questions got some real press, which led to some comments from real economists.  Then we were pointed to some actual studies that showed that the productivity impact of offshored intermediate components was about 3-6% of total productivity gain, so not a huge factor.  Since total dollar manufacturing output in the U.S. continues to rise, and the impact of offshored intermediates is small, the reduction of manufacturing jobs can be predominantly attributed to productivity improvements.

Now our friend Don Boudreaux of Cafe Hayek tells us of another way productivity statistics can be misinterpreted.  In an article in the Christian Science Monitor titled Statistics Can Mislead As Easily As They Can Enlighten, Boundreaux takes on some popular myths regarding country-to-country comparisons of productivity, such as:

Not long ago, Corinne Maier boasted in The New York Times that "... in many years French workers have a higher productivity rate than their American counterparts."  Measures of productivity do regularly reveal French workers to be more productive than American workers.

Stats are stats and facts are facts, right?  Well...

France's labor regulations are much more burdensome than those in the US. By artificially raising the cost of hiring workers in France, these regulations make it unprofitable to hire the lowest-skilled workers. One result is that only higher-skilled workers get jobs in France. But because US labor regulations are less restrictive, a higher proportion of low-skilled workers find jobs in America.  With a larger proportion of highly skilled workers, France's average productivity is bound to be higher.  But the French shouldn't be cheering.

So you can have much higher unemployment primarily of the lower skilled workers creating a higher productivity statistic.  Boudreaux clarifies this even further in his article via a couple simple examples.  But this is only only one example of why you have to be careful with statistics.

The larger lesson is that proper interpretations of statistics often are surprisingly counterintuitive. After all, our intuition tells us that countries with higher labor productivity do better economically than do countries with lower worker productivity. But our intuition is wrong.

There's another example that ties in directly with a debate currently going on in the U.S.:

Statistics can also fool us when averages change over time. Suppose that the average real-wage rate in the US falls. Do we conclude that American workers are worse off? That's one possible explanation. But before jumping to that conclusion, be aware that another, very different, explanation might better fit the facts.  If lower-skilled workers enter the labor force in unusually large numbers, the average wage rate will fall without necessarily reducing any worker's pay. Indeed, the typical worker can even see his real-wage rate rise while the average rate falls!

Obviously this has been happening with the mass influx of immigrants, legal and otherwise.  Overall unemployment is at near all-time lows and dangerously close to the point where wage inflation could ignite.  Average wage rates have dropped due to the number of new people coming into the country and taking lower skill jobs.  But we're not thrashing statistics in general.

None of this is to suggest that statistics are useless. Quite the contrary, statistics are indispensable to grasp reality better and to distinguish explanations that are correct from explanations that are merely plausible or even downright erroneous. But statistics will assist us in our quest for understanding only if we approach them critically, aware that they can mislead as easily as they can enlighten.

Just be careful, and be aware of the potential for countintuitive explanations.

Oracle vs. SAP - Battle of the False Gods

Regular readers know that we have a pretty low opinion of MRP/ERP software and in general prefer the simple excellence of manual visual systems for shop floor control.  It's not that we're luddites living in fear of new technology, but instead it's that technology can have an annoying habit of covering up waste.   A wasteful process that is carried out with extreme methodical efficiency is still a wasteful process, and as such it adds no value to the customer.

So you can understand my amusement and perhaps outright frivolity when I read about Oracle suing SAP.  A battle of the titans!  A duel of the supreme false gods of the almighty algorithm!  What could be more fun to watch, except perhaps Florida taking on UCLA in the NCAA final four this Saturday?

The lawsuit is obviously no laughing matter, although the allegation is of an ingenious attempt by SAP to offer better and cheaper customer service on Oracle products to Oracle customers than Oracle itself does in order to eventually convert them to SAP.  Get that?  Pretty neat trick, eh?

Just before Oracle completed its acquisition of PeopleSoft, 37 PeopleSoft support techs created a new company called TomorrowNow, based in Bryan, Texas.  SAP rapidly snatched them up, closing the deal at almost the same time as Oracle closed the PeopleSoft deal. 

Oracle's lawsuit alleges that SAP TomorrowNow (SAP TN) then began to access Oracle's protected customer support databases, using usernames of PeopleSoft (now Oracle) customers that would soon expire.  Massive downloading of technical and support documentation was recorded and traced back to Bryan, Texas.  SAP then went after Oracle customers and offered them support on Oracle products for half the price of Oracle's own support.  The program was called "Safe Passage," as it was intended to offer a "safe" pathway to migrate from Oracle to SAP products.

Oracle confessed to wondering how a small company like SAP TN could develop and offer "customized ongoing tax and regulatory updates," "fixes for serious issues," "full upgrade script support" and "most remarkably, '30-minute response time, 24x7x365' on software programs for which it had no intellectual property rights" at "50 cents on the dollar, and purported to add full support for an entirely different product line with a wave of the hand.

No kidding... that does sound a little suspicious.  It's rare to get that level of support at any price... even from the actual creator of the product.  Let alone its archrival!  Stay tuned; this duel will be going on long after UCLA takes the crown.

The Value in Pricing

Hopefully you caught the front page article in the Wall Street Journal on Tuesday discussing how Parker-Hannifin completely revamped its pricing strategy.  While most company use the traditional "cost plus profit" approach, Parker-Hannifin embraced the lean concept of value from the perception of the customer and began to set prices based on the value delivered to the customer.  Net income and return on invested capital went up 3x in four years.

I was so busy making copies of this article to send to business colleagues that I never got around to blogging about it.  However our friend Mark Graban at the Lean Blog wrote an excellence analysis and discussion of the article.

This is a very important concept for anyone in the lean manufacturing world, especially if you are struggling with conventional pricing models.  I encourage you to read Mark's analysis. 

The Value in Jobs

Don Boudreaux over at Cafe Hayek, one of my favorite blogs, had a post yesterday titled Creating Value.  It is ostensibly an introduction to a new book by Charles Koch, CEO of Koch Industries, titled The Science of Success.  That just-published book has received praise from a wide variety of big company CEO's like Rob Walton of Wal-Mart, investors like T. Boone Pickens, and even a Nobel laureate in economics... so it's no wonder it ranks slightly higher than my first book, Evolving Excellence.  Even if I don't exactly consider some of those companies and individuals models of excellence.

However it's not Koch's book that I'm interested in, but instead the first couple paragraphs of Boudreaux's post on value.

There are two kinds of people in the world.  Members of the first group think of jobs as being rather like boxes, each of which has a monetary figure on it as well as a set of levers inside.  A job-holder occupies a box, yanks on the box's levers, and in return receives pay in the amount of the prescribed monetary figure.  Lucky workers are those who land in boxes paying big money and whose levers are easy to manipulate; unlucky workers are those who find themselves in boxes paying little money and whose levers are difficult to manipulate.

That's an interesting way of describing what is unfortunately the majority of workers.  I have a small problem with that description, but first let's read what he says about the other kind of people.

The second group of people in the world understand that real jobs are a matter of creating value for buyers.  The greater the amount of value I create for others, the better -- or, at least, the higher-paying -- is my job.  In markets, your job isn't a box that you get assigned to; your job is an opportunity to perform, to help improve the lives of others and, in return, to persuade these others to help you improve your life.

Those are obviously the people lucky enough to work in a lean environment... an environment focused on creating value from the perspective of the customer.  The problem I have with the first statement, and indirectly with the second statement, is the concept that "the workers think of their jobs..."  and that it is written from the perspective of the worker.  I don't buy that.  The workers are to varying degrees intelligent and creative, but they still operate within a framework and structure created by their leadership.  It is the job of the leadership to show that they are valued, that they can use their brains to help create customer value, and to provide the tools to help them accomplish those objectives.  Boudreaux does end up with some similar thoughts.

And one of the most important of these performances is corporate management -- the ability to coordinate large amounts of resources, time, and workers in ways that create large amounts of value for others and that makes it easier for those of us with less vision and administrative ability to find jobs that maximize the value that each of us, individually, creates for others.

True.  However I think it is the most important factor, not a concluding "and."  A Burger King can unleash more creative power than a large high tech factory if the right leaders are in place who understand how to get the juices flowing and leverage the value of knowledge and creativity. 

This is why the success or failure of a lean manufacturing or lean enterprise transformation hinges on the commitment of top leadership.  Without the patience for an often difficult journey and a vision of excellence that is shared continually with all employees, the transformation will probably fail.

Boeing's Balancing Act

Many of you probably saw Monday's front page article in the Wall Street Journal on Boeing.  It describes a problem many companies wish they had and one I've personally experienced with the result that Boeing is very afraid of.  Because of this I've been mulling it over for several hours and still have no clear conclusion as to how I feel about it.

Basically Boeing has had a couple of really great years, to a significant part at Airbus' expense. 

Boeing... won more than 2,000 jet orders over the past two years from airlines in fast-growing markets such as China, India, and the Middle East.  Without a major jump in production rates, it is largely sold out until 2011.

However domestic and European airlines haven't placed orders yet, but they have a huge forthcoming need due to aging equipment.

Longtime U.S. and European customers are finally emerging from a slump that followed the Sept. 11, 2001, terro attacks.  They're starting to shop seriously for new planes to replace hundreds of aging jetliners.

This creates a problem for Boeing.

Though they [U.S. and European airlines] previously canceled or delayed hundreds of orders, these arlines still feel entitled to priority treatment.  "If Boeing or Airbus wants our business, the can ramp up production," says Mel Fauscett, Delta Air Lines' managing director of fleet planning.

So now what?  The typical response from a manufacturer would be to ramp up production to handle the increased demand and satisfy the customer.  But training people to assemble products as complex as airplanes is very time-consuming and costly, and Boeing got burned badly just a few years ago when they had a similar situation.

In 1996 Boeing won 712 aircraft orders by promising airlines they could have their planes in just a few months.  Of the next 18 months, the company hired 32,000 workers and set about doubling production to 43 airplanes a month by early 1998.  Top managers describe what happened next as a "train wreck."  Badly needed components were at such a  premium that they were rushed to the factories by private jet, helicopter, and even taxicab-- and that was on a good day when there were parts to deliver.  Boeing ended up shutting down its 737 and 747 lines for almost a month.

The subsequent fallout led to thousands of layoffs... and the loss of a huge investment in training and the resulting employee knowledge and experience.  Those are lessons that stay with you for quite a while.

Mr. Jamieson, who now runs all of the company's airplane factories, keeps a 1997 photograph of a row of unfinished planes sitting forlornly outside as a reminder of the perils of promising too much.  "I never, ever want to go through that again," he says.  The experience left an indelible mark on a generation of middle managers.

Boeing has learned a lot from the experience, and put in place processes and systems to prevent it from happening again.

The new No. 1 rule, he [Scott Carson, head of Commercial Airplanes unit] says: "We don't sell airplanes on the assumption that the factories have infinite ability to produce them."  One of Boeing's first steps was to require approval of major aircraft orders by a committee of high-level managers.  This team, which includes engineers and accountants, makes sure the factories can handle the work on the promised timetable.

Boeing keeps in touch with suppliers, monitoring their ability to deliver parts.

Just as crucial is to keep a close watch on the customers and their shifting needs.

Suppliers love the new disciplined and planned approach.  Boeing has also created new training methods and implemented new lean manufacturing initiatives to boost jet output by 41%.  The company recognizes that assemblers and knowledge workers can only be stretched so far before the system breaks.

The company demonstrated its restraint in 2005 when it refused to pile on overtime for workers after it fell behind.  A month-long strike by the machinists caused it to miss more than 30 deliveries.  Boeing chose to work the planes into the schedule over a period of a couple years, even though it meant making customers wait.

This commitment to and understanding of the factories comes straight from the top.

Mr. Carson makes a point of wandering each month through the factories looking for signs that the production system is under stress.  He keeps an eye on overtime and quality, and a key test is simply to count heads: A busy factory looks relatively empty.

But here's the real problem: customers mean money, and money talks.  It will become very tempting to ramp up production, especially if Airbus does. 

I understand Boeing's quandary at a deep and personal level, driven by experience.  A few years ago I was running a factory for a telecom photonics equipment company experiencing hyper growth... 25% per quarter.  We took the factory from 30 to 180 people in about six months.  We implemented lean manufacturing to create an even greater leap in productivity.  Even then we had a backlog greater than a year.  Then an industry analyst figured out that there was an extreme overage of fiber optic telecom capacity, and the bottom fell out of the industry.  Within six months we had laid everyone off and closed the plant.  The announcement was made on September 10th, 2001... and the next day put things back into perspective.

But what about the customer?  Delaying orders for many years isn't exactly creating value from the perception of the customer.  It is protecting the factory and the workers, but does it truly protect the long-term health of the company if orders are lost?  Theoretically productivity and efficiency increases created by lean manufacturing will create more customer value, and more customer value will drive additional orders that fuels future growth.  This keeps the "excess" employees employed. 

Boeing has done a lot with lean.  They have also gone in the opposite direction, sometimes forced due to political considerations, with overly convoluted supply chains.  Single units of production take huge amounts of effort and hours.  A very difficult situation to level load.

It will be interesting to see if Boeing holds firm and doesn't try to rapidly increase production, and if they lose orders by doing so.  Or perhaps they will rapidly increase production and then have unexpected quality and supply chain problems.

But hopefully they find a third way that increases output and improves customer value in terms of shorter lead times, while mitigating the risk of having to remove knowledge workers. 

Furniture Circling the Globe

Last month we told you about a couple more furniture companies that are following the outsourcing lemmings chasing cheaper labor overseas without looking at their total costs and internal waste.  If they would take the time to look around they would find several examples of furniture companies who are globally competitive from U.S.-based factories by implementing lean manufacturing methods.

A hat tip to our friend Mark Graban at the Lean Blog for letting us know of a rather unique article that describes some other outsourcing lemmings in the furniture industry who got a jolt of global perspective that helped put them on a different path.

As president and chief executive of Sauder Woodworking Co., the $700 million ready-to-assemble furniture giant in Archbold, Ohio, he made tough calls in recent years to move some production to Asia to cut costs and stay competitive.

But then the jolt came down from on high.

Then, last July, who should show up on his corporate doorstep but Ikea officials, who had a similar problem. The Swedish retail giant had to cut costs -- and planned to do so by moving cabinet frame and shelf production from Europe to America.

However he didn't quite understand it at first.

We are to Ikea what China is to a lot of furniture companies.

No, that isn't what's going on at all.  Sauder outsourced to China out of a mistaken understanding of total cost and a lack of understanding of the impact internal waste was having on his cost structure.  Those products were being returned to the U.S. on container ships... huge amounts of cash tied up in inventory potentially at risk and long cycle times.  Ikea on the other hand is trying to be closer to their customers in the U.S., and that is one of the very few valid reasons to move a factory to a different country.

Ikea designs in Sweden, runs the costs of shipping, resources, materials, and labor, and found that it was cheaper to make furniture in Archbold for distribution than to make it at its Poland plants and ship it to the U.S.

Unfortunately most of the furniture industry doesn't understand this concept, and instead simply follow the lemmings.

The average American furniture worker is paid $14 an hour; Chinese counterparts get 69 cents an hour, according to a 2001 industry study.  Labor-intensive items made overseas can yield savings of up to 800 percent in labor costs, Sauder said. "There are certain products you can automate and certain processes you just can't," he said.

I'm a little curious how you can achieve "800 percent savings"... isn't 100% the maximum?  I think the numerator and denominator got flipped... but that shouldn't surprise us since they don't really understand manufacturing cost to begin with.  And this has the expected effect:

Today, 75 percent to 80 percent [of furniture] is made in China, Taiwan, Vietnam and other Asian countries.  "We should have seen it coming earlier than we did. All we needed to do is look at textiles," said Michael Dugan, chief executive for 17 years at Henredon Furniture Co. who now is a business professor at Lenoir-Rhyne College in Hickory, N.C.

Of course part of the reason they don't understand is due to the likes of Professor Dugan.  Like most business school professors, he thinks in terms of simple wage rate differentials instead of total cost and the opportunity presented by a focus on internal waste reduction.  Luckily some business schools are starting to realize that domestic manufacturing can create competitive advantage.

Sauder was smart enough to eventually realize the true cost of offshoring and the opportunity of onshoring.

Sauder bought two firms with ties to Asian production -- Progressive Furniture Inc., of Swanton and Studio RTA of Los Angeles. Progressive used factories in Mexico, China, and Indonesia; Studio RTA used plants in China and Taiwan. "They were knowledgeable about world markets and world production, which was something we lacked," Sauder said.  But he quickly realized Asian manufacturers have limitations and U.S. plants could be competitive by streamlining.

As he learned, wage rates aren't the only factor.

Still, labor costs aren't the only factor. Others include labor hours, materials, freight costs, time in transit, overall time to make a product and get it to market, and who has been trained to do what.  "I would not want to go head on with real cheap labor costs. That would be death," said Art Padilla, a professor of business management at North Carolina State University. One advantage of building domestically is faster delivery, he said.

Yes!  Another business school professor that comes clost to actually getting it!  Tack on the potential quality and obsolescence risk in that transit inventory, the lost investment opportunity for the cash tied up in transit inventory, and intellectual property concerns and you are getting close to the full picture.  Close enough.  We'll add NCSU to our unfortunately short but thankfully lengthening list of universities that are teaching their students how to succeed in America.

The article cites La-Z-Boy as another example of a furniture company that gets it.

Delivery speed is why La-Z-Boy continues to assemble upholstered products in America and why it likely always will, said Stegeman, the company treasurer.  La-Z-Boy uses Toyota's production system that eliminates waste, operates with virtually no inventory, and continually improves production. The Michigan firm calls its version "celluar" manufacturing, or using a team or "cell" of employees with the skills to make an item of furniture, like a sofa. They produce customized items quickly and as needed, saving on resources, inventory, warehousing, and delays.  About 40 percent of its U.S. plants use the system; the rest are to convert within 13 months.

Other furniture manufacturers should first look to the likes of La-Z-Boy before following the outsourcing lemmings off a cliff.
 

The Teaching Leader

Ego seems to often get in the way of effective leadership.  Yesterday we told you about a study that compared the size of S&P 500 CEO's homes and the performance of the companies they run.  The larger the home, presumably linked at least indirectly to ego, the lower the performance.  Today we came across a different but parallel perspective in the Open Debate section of the April issue of Fast Company.  The "debate" (actually both sides pretty much agree) is between Bill George, the ex-CEO of Medtronic, and Wendy Kopp, President of Teach for America.

The premise for the debate is whether leaders teach and do teachers lead.  As George starts out by describing, leaders often fail due to ego:

Leaders who fail often do so because they fall prey to the pressures and seductions they face. It isn't that they lack leadership skills, style, or power--but that their egos, their greed, their craving for public adulation, and their fear of loss of power overwhelm their responsibility to build their institutions.

This ego can take many forms, from the constant media addiction of Carly Fiorina, to lavish estates, to that personal peeve of mine: the reserved parking space.  Effective leaders are different.

[George]: In contrast, authentic leaders understand that leading is about serving others and bringing them together around a common cause.

[Kopp]: The best leaders keep focused on the outcomes they're trying to achieve, resisting the very human temptation to get distracted by issues of ego and insecurity.

But one key characteristic of leaders is that they are teachers.

[Kopp]: we know that teaching successfully is an act of leadership. I often hear our corps members and alumni describe the moment they broke through as a teacher as the moment they realized that this work is not about them, but rather about their students.

[George]: I believe that great leaders are also excellent teachers. I wonder, would actually thinking of themselves as teachers help leaders be more effective?

This is especially true in the world of lean enterprise and lean manufacturing leadership, where the fundamental concepts are often counterintuitive.  How many times have we had to prove to our organization that building product in units of one instead of batches of hundreds is really faster, less risky, and consumes less spaces and resources?  How many times have we had to prove that 90% of a process is waste, while people in the organization are convinced that it is already as efficient as it can be?  The leader... the teacher... must create that vision of the future, which to most will seem unattainable.  Kopp agrees.

The most successful teachers set a vision for their students' achievement that many think to be unreasonable. They motivate others--their students and the students' parents--to work harder than they've ever worked before to realize that vision. They are purposeful and effective in planning and executing toward that vision, work relentlessly to tackle the immense challenges that inevitably arise, and reflect constantly on their students' performance and their own practice. In other words, they do what the most effective leaders do in any context.

That is the fundamental responsibility of an effective leader: not to make decisions and wallow in the aura of power, but to teach their organization how to make decisions with the right knowledge and to guide their organization toward a vision of excellence.

Size Matters

I admit it, I'm a metrics geek.  I'm always on the lookout for new ways of measuring even inane processes, and always probing for the underlying forces that influence those metrics.  Ratcheting back to a small set of three or four key metrics for my organization, a manageable number for the typical person, requires great effort on my part as I'd rather see a balanced scorecard filled with wonderful numbers in one point type.

This weekend's Wall Street Journal pointed me to an article in the latest issue of Business Week that described a study comparing the size of the mansions of S&P 500 CEO's and the financial performance of the companies they run.  Most people would now comment that the two finance professors that undertook the study have too much time on their hands.  However I, being the metrics geek, of course say that it's about time someone looked at that relationship.  The result?

Yermack and Liu found that 12% of them lived in homes of at least 10,000 square feet, or on a minimum of 10 acres. And their companies' stocks? In 2005 they lagged behind those of S&P 500 CEOs living in smaller houses by 7%, on average.

Yermack and Liu also looked at 164 CEOs in the sample who bought houses after taking the corner office, and found 23 had gone for big homes. There was the 13,000-sq.-ft. L.A. house bought by Hilton Hotels' Stephen Bollenbach in 1997 and the 24-acre estate in Bedford, N.Y., purchased by Howard Solomon of Forest Laboratories in 2002. In the 36 months after their purchases, Hilton trailed the S&P by 74% and Forest Labs by almost 25%. Hilton declined to comment, as did Forest. And together, all 23 companies lagged the S&P by roughly 25% in the three years after their CEOs' purchases, while smaller-home buyers' companies beat it by 22%.

Now the mind of the metrics geek goes into overdrive.  What underlying factors could cause such a relationship?  Of course the article goes silent at that point and leaves the answer to our imagination and perhaps informed speculation.  I can think of a couple possibilities, the first being:

• The CEO is more focused on size than value.

To test that hypothesis we need to put aside any speculation that would require interviewing the CEO's spouse and urologist.  But a perfect test case might be GM's Wagoner, who is very focused on being "#1 in sales" regardless of profitability.  Although GM's fortunes have improved significantly at least in the short term, they are still pursuing strategies like buying an unprofitable Malaysian automaker simply to retain the title of number one in unit sales.  So... does anyone know the size of Wagoner's house?

But a second possibility also comes to mind:

• The CEO doesn't know how to recognize waste.

Let's be serious... who really needs a 13,000 square foot house?  My wife and I sometimes go to open houses, especially in neighborhoods we might be interested in moving to.  Last weekend we went to one just south of San Luis Obispo in an area known as Edna Ranch, which is a 3,000 acre working cabernet vineyard with 35 custom homes sprinkled on it and the rest forever zoned vineyard.  If you've been to California's central coast wine country you'll know the area is visually stunning.  My wife and I, wine lovers with no kids, have kept our eyes on the small handful of homes in that area that are of average size but architectually stunning, and even made an offer on one last year. 

But the rest of the "homes," if that's the correct word for them, would be more at place in Orange County.  These McPalaces are in the 7,000+ square foot range, often the french chateau style that is a little out of place in California, and have so much marble that you wonder if the weight of the house would cause the entire vineyard to sink.  Luckily each "home" is separated by many acres of rolling vineyard so you don't have to look at them.  The McMansion my wife and I toured had so much space, so many bedrooms, so many nooks and crannies, that there would be entire sections of the house that we wouldn't see for years at a time.  The cats might get lost and never be found, or we could give each cat their own bedroom suite. 

So much waste.

Waste really bugs me, as I'm sure it does most people in the lean manufacturing community.  Too much space, too much room to store clutter, paying for utilities on space you never spend time in, lost cats.  But apparently it doesn't bug those executives with their mansions.  Putting on a show of style and opulence overrides whatever pang of waste they feel. 

And I bet that same confluence of forces carries over to how they run their companies.  Without a focus on and disdain for waste, the efficiency and competitiveness of their companies suffers compared to their peers, and the stock performance declines.

Metrics can be so much fun!   

Even More Lean At New Balance

New Balance is well known for their focus on lean manufacturing, which has allowed them to be globally competitive from factories in the United States.  We've written about them before, as have our friends Mark Graban at the Lean Blog and Kathleen Fasanella at Fashion-Incubator.  Kathleen's blog provides a rather unique and surprisingly intriguing (at least for those of us in the greasy and apparently knuckle-dragging manufacturing world) discussion of lean in the sewing and apparel manufacturing industry.

Yesterday Kathleen shot me a note with a link to another interesting story on New Balance, and she was so understandably excited that she didn't want to wait for me to blog about it, so she also wrote a great post.  Not only are their six U.S. factories very lean, they are now taking the best of the best to create a production line that takes lean to new extremes.  They call this "Super Team 33."

What is Super Team 33? Out of the 6 New Balance factories in the USA, one of the best is located in Skowhegan, Maine - a district famous for its shoe manufacturing. From the engineers in the factory, a special production line was built, made up of the best 28 workers and 5 craftsmen (longest career 25 years, total career of 33 workers: 265.5 years). The collection made from these talented workers was named “Super Team 33″, because of its production line #33, and because of the total number of workers on the team. They value “high quality” and “aggressiveness”, and create the best quality shoes in New Balance.

This production line, which knowing a bit about New Balance is probably in the form of series of u-shaped cells, is dedicated to a collection of shoes also known as "Super Team 33."  But also knowing New Balance I bet there's a deeper purpose behind the line besides just another shoe collection.

If you understand real lean like New Balance, you also value the knowledge, creativity, and experience of your workers.  When a company like New Balance creates a team comprising their best knowledge from their best plant, they want to leverage that value to the hilt.  They want to turn that creativity loose to see just how good, how efficient, how waste-free a production line can be.  Then they will use what they learned to train others and spread the new methods and processes to their other cells and then the other plants.  Because that's how much a real lean company values its employees.  Sure they could reduce their basic hourly labor cost by 90% by going overseas, but that few bucks an hour is returning multiples in terms of new processes that keep the company competitive.

Knowledge is an asset, not a cost.  Used correctly and respectfully it can create immense value.  New Balance has to continually improve because their offshored competitors are also improving.  We pointed this out the other day in the article on Joseph Abboud.  Standing still is the kiss of death. 

I have worn New Balance shoes exclusively as my sports shoe of choice since 1980.  I simply liked them for their comfort and durability during the earlier years, and for the last several years I have come to respect the company as I make more and more purchasing decisions using social/moral/ethical criteria.  My wife used to call me an old fart for wearing shoes that her late father loved, but the funny thing was that he was also a manufacturing and engineering dude.  With all his kids being liberal arts majors and none too understanding of his passion for tinkering, he was very adamant that my wife marry me so he'd have someone he could talk to.  Looking back I bet he also realized there was a deeper quality to those shoes.

And now that she is training for a marathon, she needed top quality shoes that came in very specific widths.  Guess what her coaches recommended and what she bought and now loves.  Yep, New Balance.  Because they leveraged the knowledge of their workers to create value for their customer.

A Telling Lean Typo?

Each day I use a news aggregation service to scour thousands of publications around the globe to bring you the latest in lean manufacturing news.  Ninety-percent of the "news" are actually press releases from companies touting lean manufacturing efforts.  Generally I ignore all of those, as most of those companies have no idea what "real lean" is all about. 

As our friend Mark Graban creatively pointed out in a post this morning, they aren't "lean"... they are "LAME" - Lean As Mistakenly Executed.  Other potential words fitting the acronym come to mind as well.  It's interesting that the "real lean" companies like Toyota and Danaher never issue press releases touting lean and never try to win lean awards.  They simply let results speak for themselves, and believe expending resources on awards paperwork really adds no value from the perception of their customers.

Today one of the news stories that popped up in my search was on Bendix Spicer Foundation Brake LLC, a joint venture of Bendix and Dana.  The venture is going to build a new manufacturing facility in Kentucky... not Mexico or China.  The story looked promising as the brief summary my search returned provided the following quote:

Lean manufacturing experts have review the entire production process using a Systematic Layout Planning Model.  It's the first foundation brake facility for the wheel-end joint venture.

This type of statement usually prompts me to go and read the entire article for more clues as to whether they are truly lean or just lame.  When I did I found something curious.  The article had been edited and changed, and the above statement now read:

Production and manufacturing experts have reviewed the entire production process.  It's the first foundation brake facility for the wheel-end joint venture.

Hmmm... what happened to "Lean?" The phrase "systematic manufacturing facility layout process model," whatever the heck that is, is now used later in the story.  So here I was ready to write about the potential problems with using "lean manufacturing experts" instead of teaching their people about lean and leveraging the power and creativity of many years of knowledge and experience to create excellence.  Not that "lean experts" can't help... they can and do.  But an entire facility shouldn't be designed based solely on their input.

However now the facility was just designed by "manufacturing experts."  That's an even scarier proposition.   I envision a team of APICS certified "experts" designing a massive incoming warehouse to ensure they have at least a year's supply of raw materials and a massive finished goods warehouse to hold all the product made to an algorithmic planning guesstimate.  Long batch-flow push manufacturing lines instead of u-shaped cells pulling based on actual customer demand.  Lead and cycle times measured in months.

Of course that's pure uninformed speculation.  After all, they do have enough confidence in their abilities to make a large investment into a new domestic plant creating low margin products.  That demonstrates some understanding of true total cost, which is better than all of the outsourcing lemmings out there.

Obviously I wish them luck and success; we need more domestic manufacturers.  We'll check back in a year.