Evolving Excellence

The Antithesis of Lean

by BILL WADDELL

In the interest of protecting client confidentiality I won't name the town. Recently, however, I was out west in a beautiful spot in the Rocky Mountains working with a company doing extraordinary things in its commitment to lean. Like a few of my other clients they are making money doing what is supposed to be impossible - manufacturing low-tech consumer products and not only selling them in big quantities in the USA, but exporting them. By coincidence I happened to be staying in the same hotel as a film crew.

Thirty four people - count 'em - thirty four of them - were there to spend four days filming 2012 Toyotas driving in the snow. They were not actually filming a commercial mind you - just creating fim footage for an advertising agency that would sit on the shelf in case either Toyota or its dealers wanted to make a commercial that included Toyotas driving in snow. Most of the 34 were flown in from Los Angeles for the task.

A few weeks ago I wrote a piece that pointed out the fact that Ford spent $3.9 billion on advertising in 2010- a billion more than they did on value adding direct labor. They are right in there with the rest of the auto industry and well behind the spending levels at major league advertisers like P&G - $11 billion plus. Now I am sure there is a lot to the advertising game I don't know, but I do know that 34 manufacturing people working 4 full days would create a pretty impressive pile of valuable stuff and I have to wonder exactly what the value is of the product of these folks work. They are basically creating inventory that may never be used.

More important, I know that 34 manufacturing people would be micro-measured and there would be relentless pressure to challenge whether what they are doing is needed at all and, if so, to see how it could be done with 33 people. I have to wonder exactly where is the value in this - and in advertising in general? It seems to me that advertising spending is driven more by conventional wisdom than by the relentless pursuit of data and the continual cost/benefit focus on the operating side of the business. This was at least a $25,000 venture by the time they were finished and what executive would spend $25,000 on a manufacturing investment without demanding precise justification, cash flow and ROI analysis and a comparison to alternatives?

Perhaps I am the odd person out there, but I do not buy cars or beer, book airline flights or do much of anything else based on advertising. (Oh I know that the ad folks would say that I actually do based on some subliminal impact - sounding a lot like the global warming folks who say that blizzards are also proof of global warming - the old, no matter what happens I'm right argument). I TiVo through all the ads I can and hit the delete button on virtually every ad that pops into my email inbox. If the occasional ad sparks my curiosity and I try something I certainly do not decide whether to buy it again based on advertising once I have personal experience with the product.

So I have to question just how a company - the fact that the company in question is Toyota notwithstanding - claim to be lean and focused on customer value and send 34 people into a resort town to take film of cars in snow that create no value at all for its customers?

Holiday Hansei and the Power of Why and How

By Kevin Meyer

It's that time of the year again when many mortals look back on the year and basically say "crap I should have been able to do more."  The end of the year holiday, Christmas or otherwise depending on your particular faith, but eventually New Year's to most.  I've become sensitive to such retrospection and resulting future planning occuring at the end of the year ever since I heard Steve Player at a Lean Accounting Summit long ago ask what is so special about December 31st magically becoming January 1st.  Good question.  Based on that aha moment my company eliminated traditional budgeting.  Eventually I noticed that the arbitrary nature of the end of the year applied to many aspects of business - and life - including the desire to create a step change via usually unattainable New Year's resolutions.

So here we are yet again at the end of year holiday period.  My wife and I always travel at this time to escape and rejuvenate.  Last year we were in Phuket, Thailand.  This year we're in Kauai.  We didn't wake up Christmas morning to snow shoveling and presents under trees.  We woke up to...

Yep, that's right.  Coffee made by someone else.  And a halfway decent view.  And warmth.

But as much as I have become sensitive to the silliness of the changing of the year, to the extent that I try to use academic year calendars to mask it, I do take advantage of this time to ponder the past and consider the future.  Hansei, by any other name.  This year was no different.

Each year for the past twenty or so I've had a simple annual goal: visit two new countries and do something "different."  In the past that "different" goal has led me to learn how to scuba dive, ski in Europe, learn html programming, publish a book - you name it.  This year it was to run a marathon, which I did in June.  I learned a couple things from that experience: I sometimes need group support and a meaningful reason to keep me on track.  I also learned that training for a marathon doesn't necessarily mean you'll lose weight.  Realizing I could finally eat a whole pizza and not gain weight pretty much counterbalanced that notion.  And yes, once again I did visit two new countries.  In 2012, an arbitrary time period by the way, I'm thinking I'll try to learn Mandarin as something different.

However in my ruminations over the course of the year, and especially over the past month and most especially on this trip, I've come to realize the power of two words, both questions: "why?" and "how?"  Those two questions are beginning to radically change my life, professionally and personally.

Many of us are already aware of how "why?" can play an important role in root cause analysis.  But I've also found that it is a key question when looking at projects, tools, and lean initiatives.  Fellow leanie Mark Graban and I had a discussion recently on the subject, specifically in response to one of Mark's readers asking why his lean programs weren't being supported.  My first response was to guess that the company had simply thrown together a bunch of tools... some 5S, some value stream mapping, a dash of kaizen or TPM, and ended up with nothing more than tools and a Japanese language lesson.  No solid meaning and culture.  I've seen it many times.  The first thing you need to do is ask "why?"  Why is that tool important?  What is the problem, what is the desired future state?  Then and only then figure out what is the most important tool.

But that same question applies everywhere.  Folks like me who are never lacking for ideas and could basically be thrown in a plain white room and not get bored, often have a problem with too many projects.  So why do we want to take on that new project?  Why is it more important than the other projects that are also competing for our time?   Or work processes, even individual. Why can't I answer that email right now?  Why is this meeting important?  Why do I need a personal assistant?  Why is cooking a chore?

That single question of "why" becomes a great simplifier and discriminator of projects, tasks, and even ideas themselves.  It helps define relative importance, works to dig deeper into rationale, and uncover hidden issues.  By asking why, and giving yourself an honest response, I've found you can free up all kinds of valuable time.

Now on to "how?"  I hadn't thought too much about this until reading one of Jamie Flinchbaugh's posts a year or more ago where he discussed why "how?" was very important as part of the hoshin planning process.  Bingo! I immediately understood why (!) certain projects weren't being completed - we didn't spend enough time on "how."  How will it compete for resources, how will it be staffed, etc. Once again that same question can apply to personal projects and life.  How will I achieve this year's "different" goal?

So now, as I'm using the results of this hansei to recalibrate and plan for the future, those two questions are front and center.  Why is a project important?  Why must I still keep doing this activity?  How will I stop?  How will I achieve this goal?  Why is it necessary?  Why can't I make progress on writing this book? I've found conventional wisdom gets challenged at every turn.

It could be an interesting few months, with some potentially radical changes.  Stay tuned.

So think about that as you look forward, even if you are making those resolutions.  Why?  How?

2011 Annual Management Blog Review

By Kevin Meyer

Once again I'm honored to be part of John Hunter's Curious Cat Annual Management Blog Review.  Check out the link for a variety of other management blog reviews.  The four blogs I selected to review provide a wide range of lean and leadership thinking that generally ranges a bit outside of the traditional - and regular readers know that's a sweet spot I love to play in.

First off we have Jamie Flinchbaugh who writes at a blog of the same name.  I feel a connection to many of his posts as we have both started and run our own manufacturing and service companies.  Yes you really do get a different perspective when you have to sign the checks - and those checks draw from your own funds.  Waste truly becomes evil, if not outright deadly.

•  In Four Myths About the Principle of "Respect for People" Jamie tackles a passion of mine, the oft-forgotten second pillar of lean.  Conflict can be respectful, being nice may not be respectful, only giving positive feedback is not respectful, empowerment can be dangerous.  A very good read.
• Most of us have always thought that effective lean transformations should be driven from the top - the very top.  But in The CEO Can't Champion Everything Jamie provides a different perspective.  In the right circumstances and environment, a lean effort may be best led from lower down the totem pole.
• Jamie confronts another common perception in The Fine Line Between Micro-Management and Surfacing Problems.  Micro-management is evil, right?  Well... not necessarily.  The devil truly is in the details, and without diving into details you might not uncover problems.  The difference between micro-management and an effective problem identification system is how management responds to the transparency.

David Kasprzak writes at My Flexible Pencil, and the name immediately tells you that he sometimes approaches leadership from a bit of a different perspective.

• In Management Excellence: The Joker he wonders if The Joker in the Dark Night might be the perfect manager.  Really.  From stating clear objectives to leading with action instead of just words...
• In October David wrote about The Management Lessons of Angry Birds.  How did he know that only a few months prior I had spent an entire 13 hour flight from Hong Kong to San Francisco launching those damn birds at crazy structures?  To preserve even a tiny amount of productivity I removed that app a couple days later.  He comes up with such gems as "efficiency isn't always rewarded" and "not every resource can be applied the same way, to the same problem, every time."  I get it.  Scary.
• Finally last month I once again learned something new from this blog: a concept called ROWE - Results Only Work Environment.  As David points out, there are several similarities between ROWE and lean - and as Mark Graban points out in the comments, process and matter as much as results.

I've come to know Dan Markovitz quite well over the past few years and really enjoy the human work improvement focus of his TimeBack Management blog.  Actually his tips that helped me vastly improve my productivity, including achieving Inbox:0, let me enjoy life again.  His new book on these concepts, A Factory of One, was just published.

• In Mise-en-place, 5S, and why tape outlines on the desk are stupid Dan gets at something that I find critical: understand the "why" before launching into a tool - even a tool as fundamental as 5S.  What is the problem? Why?  Then and only then find the right tool to improve the situation.
• Once again the oft-forgotten second pillar of lean, respect for people, is the subject of Dan's post on Go See, Ask Why, Show Respect.  Managers typically have a problem leaving their offices to visit the gemba.  Even if they go for a visit, they feel the need to solve problems and provide solutions - instead of ensuring the right questions are being asked.  Challenging and teaching is one way to show respect.
• And one more time on respecting - and motivating - employees is a great analysis of responsibility and authority in Stop Demotivating Your Employees.  What type of leader are you?  What types of leaders are you creating in your organization?  Do you delegate authority as well as responsibility?

Finally we have Matthew May at his blog of the same name.  Several years ago, while juggling way too many projects and jobs and family challenges, I began exploring the connections between zen and lean - and how those concepts can be applied to both personal and professional leadership.  I developed some great habits but they didn't fit together - until I read Matt's The Shibumi Strategy in late 2010.  Incredible book, and one I've shared with many people - including my entire staff.  Matt focuses on leveraging simplicity - in design, work, and leadership.

• In Innovation's Most Important Question Matt gives us a few real-world examples to support the point that there's always the potential for "better."  That's the source of innovation, pure and simple.  What can be better?
• Solving Healthcare Through Subtraction and Simplicity is exactly what the title suggests - a different angle on the healthcare issue.  An intriguing question - why do sick people and healthy people go to the same place? Lessons for many organizations.
• The opportunity of 5S to simplify processes and work is the focus of 5 Ways to K.I.S.S., coincidentally with assistance from Dan Markovitz.  Great minds think alike.

So there you have it - four of my favorite blogs in 2011.  Take some time to poke around at them, and I bet you'll learn as much as I did.

Why Profit Centers Work Better On Paper Than In Reality

by BILL WADDELL

I went online with walmart.com Friday evening – bought a barbecue grill for my son in California to be picked up at Anaheim Walmart. Got an order confirmation, and $160 hold was put on my debit card.

Woke up Saturday morning to an email from Walmart telling me the grill was unavailable at the Anaheim store – order was canceled – the hold would drop off of my debit card within 5-10 days depending on my bank policy. Suggested I try another Walmart nearby.

Thought I can only stand so many $160 holds so this time I would check to be sure grill is in stock before I ordered again. Found five more Walmarts near Anaheim – all had the same grill in stock. In fact, the Anaheim store showed it in stock. Not trusting the computer, I called Anaheim Walmart. Delightful lady offered to check – confirmed they have four of the grill I ordered in stock.

Called walmart.com – asked why my order was canceled due to non-availability when, in fact, they have four at the store. Young lady named Alberta explained to me that walmart.com is a separate company from the store, and store inventory is not the same as walmart.com inventory.

“Really?” I asked. “So you are not part of the Walmart Corporation in Bentonville, Arkansas?”

“Yes we are,” she answered.

“Then the Walmart store in Anaheim is not part of the Walmart Corporation?”

“Well, yes,” she said, “It is.”

“Which part of this deal is not a part of Walmart?” I asked, “And if Walmart Corp owns four grills in Anaheim, and Walmart Corp confirmed that I paid for a grill in Anaheim, why did Walmart Corp cancel my order and tell me there are no grills available for me in Anaheim?”

“We are all Walmart,” she replied. “It’s just that walmart.com is a different department, and the stores decide whether they want to make any of their inventory available for walmart.com or whether they want to keep it for themselves. They might charge a higher price in the store than we do.”

“So Walmart Corp makes promises then each Walmart Corp store manager gets to decide whether he feels like keeping those promises?”

“Walmart didn’t make a promise to you,” she answered clearly not liking where the conversation was going.

“Sure you did, Alberta. You promised me a grill when you sent me a confirmation and reached into my bank account and put a $160 hold on it.”

“No,” Alberta said, “That’s just the way our computer is set up.”

“It sounds like whoever set up the computer set it up for an auction,” I said. “You should have told me that I wasn’t buying a grill – that I was actually bidding on one, and some Walmart guy in Anaheim had the right to reject my bid and take a better offer if he could get one.”

“Would you like to talk to my supervisor?” Alberta asked.

“Does he know anything you don’t know?”

“No, but he can explain it to you better,” she said.

I then essentially repeated the conversation with a guy named Michael. The conversation was beginning to bore me until, in closing, Michael said, “Your satisfaction is my highest priority.”

“C’mon, Michael. I’m sure you are supposed to say that but we both know that’s not true,” I said, “If it were you would sell me the grill I paid for.”

“I can’t do that,” said Michael, “But how else can I satisfy you?”

“What do you have in mind, Michael? I don’t want or need anything from Walmart other than the grill I bought and paid for. I am not poor but I can’t afford to keep buying grills at Walmart stores around Los Angeles until I find one that has a manager who feels like giving up some of his inventory to make a sale. I could be out a thousand bucks in a big hurry without ever actually getting a grill. Can you do anything about that?”

“You could call the store first,” Michael suggested, “and be sure they will sell one before you place the order.”

“Are you listening to yourself, Michael? Seems like Walmart.com ought to call the stores first to see if one is willing to deliver the stuff before you try to sell it,” I said. “You sound like a good guy. Doesn’t is bother you to make promises all day with absolutely no ability to keep your promises? If anyone else ran a business that took money from people online, knowing they had no control over whether the customers ever got what was promised they would probably go to jail. I would think it would bother you to be the front man for what strikes me as basically a criminal enterprise.”

With that, Michael chose to end the call, politely apologizing for not being able to help.

I then called the Anaheim store and asked to talk to the manager. A young lady put me on hold, then returned and told me the manager was "busy with something important". She offered to take a message.

I asked how she knew what the manager was doing was more important than what I wanted to talk to her about.

She said, "I don't know but she said to take a message."

"Ask her to call me and explain the organizational structure at Walmart and how the accounting system works," I said.

"What?" the young lady asked.

"On second thought, just ask her if she is in cahoots with a guy named Michael in a criminal enterprise."

"What?" the young lady asked again.

I was trying to formulate an even better message when my wife pulled the phone from my hands and said to me, “Will you leave those poor people alone!” To the young lady in Anaheim she said, “Thank you for your time,” and hung up, so we will never know if the store manager and Michael are aiding and abetting each other in a larcenous conspiracy.

My wife then told me she had found a better grill for the same money at Lowes in Anaheim and directed me in no uncertain terms to leave Walmart alone and buy it. I did as I was told, of course. The grill was picked up the same day by my son.

Rounding Up Again

by BILL WADDELL

Software Advice

A guy named Derek Singleton over at Software Advice interviewed me the other day for a piece he wrote about the state of manufacturing software, and what it takes to support lean. I don't agree with everything he wrote, but he put together a thought provoking piece. You might want to give it a read. YOU CAN FIND IT HERE

Once Upon A Car

I just finished reading "Once Upon A Car" by Bill Vlasic - a fascinating insight into the last years inside GM, Ford and Chrysler before the bankruptcies. The story of GM was one of an executive group in an insular culture of of self-importance, denial of reality, and an obsession with finance and labor negotiations. If the realities of how cars were made, how they create value, or why Toyota was beating them with a superior value proposition ever crossed the executive groups minds they never showed it. Management decisions made by bureaucratic committees, an irrelevant board and a complete lack of leadership prevailed at GM.

Chrysler was dead before it all began - Daimler knew it and unloaded it on investment bankers, clueless and uninterested in manufacturing, while the unloading was good. Fiat wanted it as a pipeline into the US market, and was smart enough to wait until they could get it in bankruptcy for a song ... and Bob Nardelli of GE and Home Depot fame was out of touch with both products and production and in way over his head from the start.

Only Ford had real leadership in the form of Alan Mullaly. He largely ignored the deal making and financial machinations, and radically changed the Ford culture with a tunnel vision on products, core principles and the architecture of the supply chain. In short, he was the only leader in Detroit who put the highest priority on how the company actually made cars and made money, while the rest fiddled with deals and finance. No wonder Ford came out the big winner.

I highly recommend the book. Vlasic is a great writer, the book is rich in details, and it is an easy, intriguing read.

The Miracle Unraveling

I haven't written much about China lately because its all been said. Two years ago I wrote, "Add it all up and China's days as a low labor country are rapidly winding down. This should come as no big surprise. As I have often written, no country can build a long range economy on the principle of low labor costs." One year ago I wrote, "The house of cards that is the 'Chinese miracle', so widely admired by American and European academics and financiers is collapsing all around." And earlier this year I wrote, "China is left with an economy built on an increasingly fed-up labor force that has been misused and abused, inflation that is on the verge of spinning out of control, rising costs (Chinese products are up 5-10% just in the last six months and will go up further and faster in the next six), and a customer base that is leaving in droves."

The week has been cluttered with news as the media has finally realized what has been obvious for years. Manufacturing is in a tailspin in China ... and is never coming back. More about it here. Strikes and labor unrest are rampant. A Chinese town is in outright revolt.

In an LA Times article, "Now one of China’s most senior leaders has acknowledged that the souring global economy has the government on edge. According to an official New China News Agency report published Saturday, China's top security chief warned provincial officials to brace for unrest if financial conditions continue to deteriorate. Zhou Yongkang, a member of China’s nine-person Politburo Standing Committee, said the country should focus on developing better social management -– a euphemism for control aimed at stamping out opposition and unrest."

Whether manufacturing comes back to the United States and Europe depends entirely on western manufacturers - if they learned their lessons and changed their ways they can have it all back; if they think all their problems are the fault of the government and unions and believe they can operate as they did before the China debacle then Mexico and southeast Asia will be the big winners from China's implosion.

Not Enough Skilled Workers?

The latest popular excuse from far too many manufacturers is a shortage of skilled workers (Never mind that many of those doing the complaining laid off machinists, welders, pipefitters and electricians by the busload over the last few years, and dismantled their apprentice programs). They might want to give some thought to how the United States almost instantly turned some 1.6 million housewives into the machinists, welders, pipefitters and electricians who cranked out ships, planes, tanks and weapons in quantities staggering enough to overwhelm Nazi Germany and Imperial Japan.

The TWI (Training Within Industry) Summit is coming up in the Spring. TWI was a vital element in Toyota's success and it represents the opportunity to make the skilled labor shortage disappear almost over night. The TWI Institute has its tentacles into just about every corner of the US. It should be on speed dial for every manufacturer.

Only eight shopping days until Christmas - have at it - the Chinese need all the help you can give them!

Welcome to the Funhouse

by BILL WADDELL

Right from the get-go I want to make it clear that it is not my purpose to bash Ford. I am citing their numbers due solely to laziness. As the only American car company that has not undergone bankruptcy and re-invention, it is a lot easier to get apples to apples data from Ford than the others and I am always in favor of the easy way.

In 2010, Ford paid hourly (UAW) labor in the USA the whopping total of $2.9 billion. Any way you look at it, that is a lot of money. They sold a total of 1,936,000 cars and trucks, so it cranks out to a hair under $1,500 per vehicle for hourly labor.

Let's put that into perspective, shall we? With North American sales of $64.4 billion, hourly labor comes out to 4.5% of sales. Back in 2000, the number was $1,666 per car. So all of the slashing and burning, laying off and re-negotiating resulted in 1% per year in labor cost reductions - going from about 7% of sales down to the 4.5% figure - that's it.

Another interesting tidbit is that Ford spent $3.9 billion on advertising in 2010 - 6% of sales and 34% more than the hourly labor piece. I have yet to read where the auto industry is outsourcing their TV ads from Hollywood to Bollywood, or telling Congress and the film industry unions that the future of the American auto industry hinges on their willingness to cut wages and pensions.

This is where the funhouse effect comes in. The funhouse mirrors make skinny folks look fat and fat folks skinny, short ones tall and tall ones short. Their purpose is to provide entertainment by distorting reality. Someone needs to tell accounting and the management profession it is time to come home from the carnival - they have had their fun seeing value adding labor as a huge deal, and waste as trivial. Time to deal with reality.

Some people seem to like wandering through the funhouse so much they simply will not come out. Case in point: Skip Vallee who runs a convenience store chain in the northeast. The prospect of increasing the minimum wage has him concerned since that is what he pays most of his employees. If he has to start paying them all of $8.46 he is going to cut their hours and have them kick in for medical bennies. I can't wait to get to Vermont to be served by the kind of folks who would tolerate Skip. Apparently the funhouse view of labor cost being everything weighs heavier on him than the common sense principle that 'you get what you pay for'.

Same thinking from the management of the Triple Play Cafe in Ohio. If they have to start paying people the ungodly sum of $7.70 an hour, not only are employee hours going to be cut, they are going to stop washing the windows at the Cafe to cover the crushing burden of the payroll. There's some high level management thinking for you.

If you read all the way to the end of the article, Spencer Williams from West Paw Design started out with the funhouse view of his business but quickly figured out that reality was being warped. "Initially, he paid some plant workers the lowest wages possible. But when he later decided to give out raises that exceeded the minimum required, he says he gained a more loyal work force. Today his lowest-paid staffers earn $11 an hour. The minimum hourly wage that employers must pay in Montana will rise 30 cents to $7.65 next month. 'Our turnover dramatically reduced and the engagement level from our employees rose,' he says."

I know Spencer, and I know that West Paw is well along the lean journey under his leadership. He is a smart guy - smart enough to make a good product, put together a good team, and make good money - and smart enough to let common sense prevail over funhouse accounting. That cannot be said for the owners of businesses who conclude that cutting the hours of folks making minimum wage is a good idea - especially convenience stores and restaurants where the folks having their already minimal wages reduced are the ones dealing face to face with customers. I can imagine what the "engagement level" of those employees must be -and how much worse it will get after these funhouse managers get through with them.

Only in the carnival world of of two headed chickens and funhouse mirrors does hiring people so unqualified or desperate they will work for the least amount of money allowed by law, then treating them like crap make good business sense.

A Dose of Common Sense Goes A Long Way

by BILL WADDELL

The good ol' folks down in Georgia have a way of nailing things right on the head. This from Alan Barfoot with the Georgia Tech Enterprise Innovation Center.

Thanks Alan .....

A toothpaste factory had a problem: they sometimes shipped empty boxes, without the tube inside. This was due to the way the production line was set up, and people with experience in designing production lines will tell you how difficult it is to have everything happen with timings so precise that every single unit coming out of it is perfect 100% of the time. Small variations in the environment (which can't be controlled in a cost-effective fashion) mean you must have quality assurance checks smartly distributed across the line so that customers all the way down to the supermarket don't
get mad and buy another product instead.

Understanding how important that was, the CEO of the toothpaste factory got the top people in the company together and they decided to start a new project, in which they would hire an external engineering company to solve their empty boxes problem, as their engineering department was already too stretched to take on any extra effort.

The project followed the usual process: budget and project sponsor allocated, RFP, third-parties selected, and six months (and $8 million) later they had a fantastic solution - on time, on budget, high quality and everyone in the project had a great time. They solved the problem by using high-tech precision scales that would sound a bell and flash lights whenever a toothpaste box would weigh less than it should. The line would stop, and someone had to walk over and yank the defective box out of it, pressing another button when done to re-start the line.

A while later, the CEO decides to have a look at the ROI of the project: amazing results! No empty boxes ever shipped out of the factory after the scales were put in place. Very few customer complaints, and they were gaining market share. "That's some money well spent!" - he says, before
looking closely at the other statistics in the report.

It turns out; the number of defects picked up by the scales was zero after three weeks of production use. It should've been picking up at least a dozen a day, so maybe there was something wrong with the report. He filed an inquiry against it, and after some investigation, the engineers come back saying the report was actually correct. The scales really weren't picking up any defects, because all boxes that got to that point in the conveyor belt were good.

Puzzled, the CEO travels down to the factory, and walks up to the part of the line where the precision scales were installed. A few feet before the scale, there was a $20 desk fan, blowing the empty boxes off the belt and into a bin.

"Oh, that," says one of the workers - 'one of the guys put it there cause he was tired of walking over... "every time the bell rang"'.

Go Innovate Somewhere Else

by BILL WADDELL

I rail against the incompetence of the big publicly traded companies as loudly as anyone, however, I have to scratch my head at the notion that small, mom and pop owned businesses are inherently superior, or somehow critical to our continued existence. Some small businesses offer a better value proposition than the big guys - many don't. It seems to me that, sooner or later, big or small, the business offering the most for the money prevails and the rest fall by the wayside.

So along comes Amazon with 'Price Check' and I have a very hard time understanding just how it can be anything but good. Price Check basically enables a shopper to instantly compare the price someone is asking for something with the price Amazon and their third party sellers are asking. That knowledge, apparently, will be the end of local retailing as we know it. It seems to me that, if mom and pop's business model depends on making sure their customers don't know they can find a better deal elsewhere, mom and pop are pretty much doomed.

There is nothing too shocking about two-faced politicians, but it strikes me as hoot-worthy to read Senator Olympia Snowe describe 'Price Check' as "an attack on Main Street businesses that employ workers in our communities." Just a few weeks ago she was touting the Small Business Innovation Research Program, waxing about how innovation creates jobs. Apparently the size of the company doing the innovating has a lot to do with it. Little guys who innovate should get government funding, while big guys who innovate should feel the full wrath of the U.S. Senate ... figure that one out. In the foreword to a book called 'Saving Energy Growing Jobs' the good Senator wrote, "The key to helping business thrive and nurturing a healthy environment is innovation, which has been the bedrock of this nation's growth since its inception." Innovation at Amazon is somehow exempt from that lofty principal it would seem.

The objections of the 'Main Street Retailers' seem to follow two lines. First they claim Amazon is using them as the showroom for folks who will waste their time looking at stuff, then run home and make the purchase on line. Seems just as likely to me that people will use the web as the research lab to check stuff out, then run out to the local store to buy what they want. As fast as on line shopping is growing, in store purchasing still dominates.

The real gripe has nothing to do with Price Check and that is the exemption on line purchases have from sales tax - and the local retailers see Amazon as the greatest ogre in that battle. Maybe Amazon customers ought to pay sales tax and maybe not. Interestingly (and inconsistently) enough Senator Snowe co-sponsored the Permanent Internet Tax Freedom Act of 2007 before she declared Amazon to be so abusive of Main Street mom and pop retailing.

Rather than whine about Amazon and urge higher sales taxes on their competitors (and as a result, their customers), mom and pop might want to learn from Ron and Steve Fusek. Ron runs Fusek's True Value Hardware - as mom and pop as it gets. His boy Steve runs spinoff Ron's Home and Hardware - an Amazon seller. Turns out the Fusek boys don't too much care if you want to use the store as a showroom and buy on line, or if you want to do the research on line and buy in the showroom. Want to avoid the sales tax by ordering on line? OK by them. Don't mind paying it and want to avoid shipping costs and get it yourself? OK by them as well. In fact, the Fuseks will sell you hardware any way you want to buy it.

Opposition to Amazon's 'Price Check' is ridiculous. No one can make a case for keeping customers in the dark. The more information buyers have the better for all concerned - all concerned except for sellers offering a lousy deal. The honorable Senator, it would seem, is foursquare in favor of innovation and against Internet sales taxes, unless it threatens a bunch of 'stuck in the past' retailers in Maine, then she is a born-again Main Street advocate.

The mom and pop retailers - as well as the mom and pop manufacturers, restaurants, farmers and service providers - who want to preserve lousy value propositions through legislation and PR campaigns to tug on heart strings will sooner or later fail. It is usually an indictment of lousy prices, service, quality and convenience when people would rather do business on line or with big bureacratic national chains than them. They are whistling past the graveyard if they think people would rather pay shipping costs and wait days to get things for the sole purpose of saving a few percent on sales tax.

The good mom and pop's needn't worry about Price Check - it will merely confirm that they are the right place to make the purchase.

Inventory Idiocy

by BILL WADDELL

The end of the year draws nigh and ten or eleven months of ignoring supply chains in general, and inventory in particular is coming home to roost in executive offices around the world. Avon Products is out of cash due in large part to out of control inventories - borrowing money to pay dividends, but that's what you get when you appoint a CEO based on where she went to school and who she is connected to, rather than based on what she knows - and is in even deeper trouble due to a thoroughly muddled ERP implementation.

Research In Motion (RIM - the Blackberry guys) is writing off $485 million of excess inventory - the kind of thing that happens when your business model is based on Buck Rogers technology and absurdly long lead times - bet wrong on the technology and lose big - real big. Stein Mart screwed up its inventory system and, as a result, reported that - oops - we didn't lose $.3 million - we lost $1.8 million.

Of course there are the GM's of the world who screw up the supply chain on purpose. The aforementioned got in trouble as a result of ignorance but GM trashes their supply chain routinely to scam their investors. They are up to inventory levels last seen in the days immediately before its IPO. With 105 days of truck inventory shoved down their dealers throats, look for glowing headlines after the first of the year crowing of banner sales. (Other tell-tale clues: they are in a below the radar layoff of engineers - value adding folks - and pouring money into advertising) Whenever they have the need for better numbers the Wall Street manipulators and financial wizards running GM use the supply chain as their magic button to goose the top and bottom lines. That is ignorance of a different sort - or perhaps apathy. They either don't know or don't care what inventory bloat does to their cost structure and ability to control quality.

Most companies do not foul up inventory on such a grand scale as these - but foul it up many do. I once had a CEO tell me he didn't have time to take a deep dive into the details of how his company's supply chain processes worked. He seemed to have plenty of time to dive very deeply into the accounting system in mind-numbing detail, however. Apparently counting the excess inventory accurately struck him as a more important use of his time than learning how to prevent it.

It seems to happen every year and this one is no exception. Execs who have little concern for much other than sales and finance ten months out of the year go into the panic mode at year end when cash flow is foundering, line of credit payments loom, excess and obsolete inventories must be accounted for and the day of reckoning with Wall Street, the bank and the board approaches.

They know complex financial formulas by heart, but not the basics of the relationships between lot sizes, lead times and variation in demand on inventory levels. They know how to manipulate short term profits by maniputating inventory, but not how to improve long term profits by compressing cycle times. They can parrot Harvard/McKinsey philosophies about global supply chain strategy, but cannot tell you a single thing a buyer or planner actually does in the course of the work day.

After almost twenty years in this business I have come to accept that supply chain is only a major concern near the end of the year when too many managers call in help to lock the barn door in a rush months after the horse is gone. After the first of the year they will manage the supply chain by edict - issuing mandates for inventory reductions with neither thought nor knowledge of the conflict inherent in those mandates with their policies of getting 'China prices' and achieving purchase price reduction goals. If they have a supply chain strategy at all it will largely consist of a software investment. Outside expert help will be needed for lean accounting, lean sales and marketing and lean manufacturing but leaning up the supply chain will be of little importance until this time next year ... and so it goes.

Results-Based Policies and Procedures

By Kevin Meyer

Don't worry folks, although the article I reference here is on regulation, my point is aimed at corporate policies and procedures as in this case they generally have the same problem.  Let's see if I can tip-toe around the central theme of the article so I can make that point.

Organizational policies and procedures, and regulations, in the U.S. generally start from a perspective that every little nuance must be specified.

Government oversight of day care seems like a good idea—you wouldn't want children cooped up in an airless basement—but this proposal went far beyond basic health and safety.

The new rules would dictate exactly how to do just about everything: how many block sets ("at least two (2) ... with a minimum of ten (10) blocks per set"), where the children can play with the blocks (on "a flat building surface" that is "not in the main traffic area") and when caregivers must wash their hands (before "eating food," "after wiping a child's nose," etc.).

This is the way regulation works in America: Regulators try to imagine every possible mistake and then dictate a solution. The complexity is astounding.

And we all know the behaviors that are thereby created.  The folks being regulated... or "managed"... by such procedures then set out to identify the most narrow possible opening in the wall of excruciating detail, and then pry that opening apart to create a new opportunity.  Then armies of lawyers... err... executives... jump into the fray to determine and litigate whether that opening was legit, and if it was, then the regulators... err... managers... then add another few thousand words to close the latest loophole. 

Under a recent federal directive, the number of health-care reimbursement categories will soon increase from 18,000 to 140,000, including 21 separate categories for "spacecraft accidents" and 12 for bee stings. There are over 140 million words of binding federal statutes and regulations, and states and municipalities add several billion more.

We see it in the financial industry, we see it at a different level inside our own organizations.  Take a look at your company policies and even assembly and operating procedures and work instructions.  Yep, you know what I mean.

Regulation is deliberately designed to avoid human discretion—to create a regulatory code that is self-executing. By making rules as precise as possible, we hope to avoid bad judgment. The unfortunate side effect has been to preclude good judgment. Modern regulation doesn't just control undesirable practices—it indiscriminately controls all the work of regulated entities.

Taking responsibility is basically illegal in the modern regulatory state. A teacher can't maintain order in the classroom without filling out forms and facing a potential legal hearing. Judges sit on their hands, letting people sue for almost anything. An inspector feels that he has no choice but to shut down an unauthorized neighborhood lemonade stand—a rule is a rule.

As a side note, how many of you still throw new hires into a small windowless room with a five foot stack of documentation to read, and then after a day of speed reading consider the poor soul to be "trained"?

There is another way.  Instead of regulations... procedures... that attempt to identify and control every option, how about results-based regulations and procedures that attempt to describe the desired outcome?  Could this even be analogous to push- vs pull-based procedures?

In place of today's regulatory micromanagement, what we need is results-based regulation, with simpler rules tied to the outcomes they produce. What would such a regulatory system look like? In the first place, it would be radically simpler. Most bureaucratic detail could be scrapped, and law would become understandable again. The focus would shift from complicated rules to desired results: clean air, safe food, honest business.

Are any of you lean folks experienced in the results-based focus of TWI starting to get a twinge of understanding?  Ya, me too - that's what prompted me to write this.  How about a couple examples, the first from our friends across the pond that already use this method.

In Britain, financial institutions have to answer to such principles as "A firm must conduct its business with integrity" and "treat [customers] fairly." Applying those principles to Wall Street would provide ample authority for regulators to stop the next bubble without smothering credit transactions under thousands of pages of new rules.

I can already see some people getting squeamish about definitions.  You've been living in a world of over-specification for too long.  Change your perspective.  Ok, I'll admit it shakes me a bit as well - how do you prevent abuse from the regulated as well as the regulator... the team member as well as the manager?  The article continues with several suggestions along those lines, but the bottom line remains the same:

Specify what the desired result looks like, not every aspect that could contribute to the result.  Then provide boundaries and specifics only on key contributors in the process - the "key points" in TWI parlance.  Promote understanding of the process and result, not the creation of mindless automatons following a narrow, winding process path.  Again, many similarities to TWI, which my company has found to be one the most powerful drivers of lean transformation and even a foundation for kaizen.