Evolving Excellence

Happy Labor Day

by BILL WADDELL

I thought I'd share this video from Brainpickings at the kickoff of the Labor Day weekend - seems appropriate to see where manufacturing has come from.  It is from the Raleigh Bicycle company in England in 1945.  For those unfamiliar with Brainpickings, it is a very cool site full of all sorts of generally worthless, but fascinating information - a lot like me I suppose.

Lots of impressions from the video ... from a lean perspective, of course, the amount of work in process inventoryand the size of the batches is striking ... from a production perspecctive, the labor intensity and the gains in productivity are even  more striking. 

I like the fact that it demonstrates the importance of the bicycle industry in manufacturing evolution.  They were making bikes for the mass market long before they were making cars.  Henry Ford owes his assembly line and interchangeable parts, in large measure, to the modern machine tool era which arose from the late 1800's bicycle industry.  After seeing this, you will understand why it was natural for aviation to spring from the Wright Brothers bicycle shop.  Bike makers were very skilled manufacturers in 1903 - the year Orville and Wilbur flew  (and incidentally the same year the Ford Motor Company was formed).  When the Wright boys went to Kitty Hawk Model T's  and the assembly lines that made them were not even a dream.

Click here for the video

Have a great holiday weekend!

 

Original: http://idatix.com/manufacturing-leadership/happy-labor-day/

You Don't Set the Rules

by BILL WADDELL

Kevin's post the other day reminded me of a lesson from a wise mentor a long time ago in my supply chain days (while I started in accounting and ended as an operations exec supply chain is what I did for a living for most of the time in between ... and it was in supply chain that I first learned lean).  That is, payment terms, lead times and quality policies are not up to you - the end customer in the supply chain - the one that ultimately buys the product and uses it up - gets to call those shots.

It works like this:  The Acme company sells to an end buyer - a government agency.  The government wants two week lead times and will pay in 45 days.  The Beta company is a supplier to Acme.  There is nothing to negotiate but the price.  Beta must provide the same lead times and payment terms.  If Acme demands one week lead times, they are trying to shift a disproportionate she of the inventory investment (and risk) to Beta.  If Beta demands four week lead times, they are attempting to shift the investment and risk to Acme.

Same is true with payment terms - Acme pays Beta in 45 days - period.  Anything other than that is one company attempting to get the other to finance the supply chain.

 Every supply chain has its own rules.  The rules when you sell into a retail supply chain are apt to be 3 days lead times, 60 day payment terms and anything gets returned far any reason - or no reason at all.  If you want to sell components into that supply chain you need to play by those rules ...or go find another supply chain more to your liking. 

If you demand other terms, you are asking someone somewhere along the chain to make you investment for you - to take on your risk - and the fundamental principle of risk and return always prevails.  You will pay for it sooner or later ... most often by someone willing to play by the rules.  If you demand that your suppliers carry your risk, sooner or later your suppliers will penalize you for it ... or quit on you and compel you to buy from less capable suppliers who are desperate enough to put up with your abuse.

Hardly anyone plays by these rules, of course.  Walmart gets their money from customers almost immediately and uses it to finance their business for a month or more before its suppliers get paid.  I run into machining, extruding and molding companies all the time who live three or four steps up the chain who tell me their lead time, payment and return 'policies', as if anyone three or four steps up the chain ever get to set such 'policies'.  They set RMA policies as if any of their customers really care a whit about their suppliers' return rules.

But sooner or later the rules prevail, and quite often such suppliers are replaced and they never even know why.  In fact, the supply chain found someone willing to do business on its own terms.  More often, customers that abuse the rules of the supply chain never know how many extremely capable suppliers never knock on their door because they are unwilling to take the abuse.  Walmart especially comes to mind.  They believe American suppliers can't compete with their offshore sources, wholly ignorant of the hundreds - probably thousands - of very, very good small and mid-sized American companies that never try to sell to Walmart because they wouldn't put up with Walmart's abuse if you put a gun to the CEO's head.

You have to know the rules of the supply chain before you get into it, and you have to be ready to play by those rules.  You can cheat for as long as someone has no choice but to put up with it, but it will bite you in the end.

Original: http://idatix.com/manufacturing-leadership/you-dont-set-the-rules/

Payment Terms: A Leading Indicator of Partnership

By Kevin Meyer

Anyone that has been in business, especially running a business, for two or three decades has noticed patterns that aid their decisions.  Nothing earth-shattering there - it's called experience.  And if we're smart it's why we hire people with a couple decades of experience to run companies - or countries for that matter.

Two such patterns have become ingrained in my psyche when I come across new customers.  The predictive pattern has a nearly 100% correlation.  What are they?

1. The partnership aspect of a relationship will be inversely proportional to the payment terms.
2. The maintenance level of a relationship will be inversely proportional to the requested automatic annual price reductions - targets or fixed.

Net 30 terms are fairly reasonable and I use that as the "zero" point.  It does take some time for a typical customer to receive incoming components, inspect them (yes, traditional, not optimal), and release payment.  Waiting 30 days has minimal impact on my cash position and can be easily planned for and accommodated.

If a customer offers to pay at less than 30 days I know I have a customer that sees value in our relationship, and believes our financial stability is important.  I should qualify that - I don't mean less than 30 days terms with a discount.  In those cases they're just trying to sneak in a price reduction.  If receiving cash fifteen days early is worth 2 or 3%, then I've got other issues.

Unfortunately companies that offer to pay full value at less than 30 days are a rarity.  In most cases traditional supply chain and financial management promotes the concept that terms should be stretched.  Far more often I receive requests for Net 45 or Net 60.  Last week I even received one from a Fortune 10 company for Net 120.  That company, previously known as a six sigma powerhouse, has recently been lauded for leveraging lean to move a bunch of appliance manufacturing back to the United States.  Apparently the respect for people side of lean, which in my book includes suppliers, doesn't run deep in that company.

Those requests for longer terms come in spurts, which I roughly correlate to when there are purchasing-related conferences.  Luckily my company is in a strong position from competitive and technology perspectives, so I have some leverage of my own.

Upon receipt of such a request for greater than Net 30 terms we send a letter from me indicating that we use our cash to improve processes, we look for partnerships and our real partners are actually shortening terms, and we feel it isn't in the spirit of partnership for a much larger company to effectively ask a small company for a loan.  Terms will be Net 30, or else the order will not be accepted.  That usually does the trick.

In some cases, such as the Net 120 situation above, the larger company still tries the abusive approach.  If they continue to push the issue I have a second letter that asks them if their desire for longer terms is an indicator of financial problems on their end, and perhaps we should be concerned enough about that to request cash in advance.  I used to have a statement in the letter asking if the purchasing agent would accept a paycheck 60 or 90 (or 120?) days after the work period, but I know payment terms are generally directed to the poor purchasing agents from way on high.

The kicker with those extended terms is that the customer is setting themselves up for ongoing financial tension.  Just like paying your January mortgate payment in December will help taxes - it helps one time.  If you don't do that for each of the following years, you reverse.  Dell is discovering that with it's well-known inverse cash flow cycle - receiving cash from consumers prior to having to pay for parts for the products.  A great cash generator during growth - but it reverses direction during contraction.  In effect, a suckers bet.

It can be a fun game, although I obviously do have to be careful to not get too comfortable with my competitive advantage.  We're not, and we work on increasing our value to our customers every day.  But the bottom line is that I can predict how a relationship will be developed by the terms that are requested and ultimately agreed to.

If the customer offers to pay at less than 30 days with no discounts, it is going to be very valuable.  If the company demands 45, 60, or even 120 day terms, it is going to be an increasingly difficult and adversarial relatiionship.

Just because a potential customer is big doesn't mean it's a valuable customer.  Just ask all the poor folks that salivated over selling to Walmart and learn a painful lesson.  Volume does not automatically equate to success.

A similar situation exists with the automatic price decreases that many customers demand.  Usually they start off with around 5% per year, with no qualification or adjustment for uncontrollable changes in raw material prices, specification changes, and the like.  Believe it or not, most suppliers swallow and accept such nonsense, again out of lust for the big company customer.  Some will first negotiate to try to even the playing ground a bit - the ability to roll through raw material increases at least at cost, triggers to review pricing if specifications change, and the like.  That helps a lot.

But you know what really changes the game?  Offering to target even greater cost reduction, if (and it's a hugely important "if") a defined project matrix is created that defines the projects and the very specific contributions by both parties.  An attempt to create partnership.

As soon as you document what the customer also has to bring to the price and cost reduction project, such as analysis of changes and performance from improved processes, the responsibility shifts.  And we all know how frustrating it is to get customers to play a role in projects - and how they still demand the results that are impossible without their role.  Document it, and define in supply agreements that price changes must be tied to specific projects, and those specific projects will define the roles of each party.

If the customer demands x% price reductions per year, period, it's going to be adversarial.  If the customer agrees to terms that specify projects and contributions, it can work out well.  If the customer doesn't even talk price but instead talks quality and final customer value... jump on and hang on.

So if you are a supplier, or a customer, think about the predictive value of payment terms and automatic price decreases.  What is that saying about your relationship?  Is it what you want?

Be a Better Doer Than A Marketer

by BILL WADDELL

Business experts often advocate bad ideas ... some times appallingly bad ideas.  When I read a marketing 'expert' by the name of Debbie Mayo-Smith waxing dreamily about the advice she received from another marketing expert to 'Be a better marketer of what you do than a doer of what you do" I realized I was reading a new low.  It is hard to imagine worse advice.

The reason lean is universally the best and only business strategy that can succeed is that it drives every aspect of the business to focus on creating more and more value for customers, and cut out everything possible that does not add customer value.  There is no other way to go about running a business that can possibly be better.  And the simple fact is that marketing is usually non-value adding waste.  It typically does not make the product one iota better than the product would be without any marketing at all.

Ralph Waldo Emerson wrote, "If a man has good corn or wood, or boards, or pigs, to sell, or can make better chairs or knives, crucibles or church organs, than anybody else, you will find a broad hard-beaten road to his house, though it be in the woods."  He was absolutely correct.  Good products sell themselves. 

Ms Mayo-Smith's advice - to be better at telling people how good your chairs, knives, crucibles or church organs are than you are at making them - is so absurd as to defy all common sense; yet many companies seem to see wisdom in those words. 

How else are we to explain companies that treat advertising and brand management as an 'investment' that should increase year to year in order to build the business, while manufacturing expenses are costs that should be relentlessly decreased?

How else are we to explain marketing departments that operate off on their own, largely disconnected from the factory floor and the engineering spaces, creating web sites, literature, advertisements and the like intended to create the illusion that your products will make them richer, sexier or more popular, rather than creating information that will help customers make truly more informed decisions? 

 How else are we to explain senior managers who spend more time in marketing meetings than on plant floors?  And how else are we to explain the almost complete lack of involvement from the marketing function in lean transformations, as if it had nothing at all to do with their role?

Within the sales and marketing universe there is widespread opposition to aligning the sales people and marketing people on the same teams, let alone aligning them with the value creation functions.  They tend to be functionally a group apart - and far too often a group above - the rest of the business.

There is certainly a role for marketing in a lean organization, but normally a much smaller one.  The prism through which marketing should be evaluated is exactly the same one used by lean companies everywhere else in the business:  Is this creating value for our customers?  Is this use of resources helping customers to understand the product, use it better, and make the best choice among the various versions and types available?  If so, then the expense may be well worth making.

Or is this expense merely attempting to persuade customers to buy our stuff, even though it may not be the best choice for the customer?  If this is the case, and it is perceived to be a necessary element of the business strategy, the company is in big trouble.  If educating the customers as to the choices that serve them best will not result in a "broad, hard-beaten road" to the business, no amount of brand management and advertising can save it.

Original: http://idatix.com/manufacturing-leadership/be-a-better-doer-than-a-marketer/

Organization Structure Change Doesn't Solve Leadership Issues

By Kevin Meyer

So how many of you are in the middle of an org change?  I'm guessing about everyone, as it seems to be the common knee-jerk response to organizational issues.  The topic came up last night as I was having a conversation with a couple friends of mine that I have a lot of respect for - and it hit a nerve.

First off, I do want to say that there are many valid reasons for changing an organizational structure.  My organization happens to be embarking on one now, with the purpose to eliminate arbitrary site- and silo-based structures to align around cross-site value creation processes.  Keep that in mind as it will become one of my main points.

A typical overly-simplified corporate organization looks something like the following:

Of course would usually include functions like HR and such.  But a CEO would typically have five or six reports.  Yes, plus a bevy of admin assistants with questionable roles.  Usually in such traditional organizations considerable friction exists between various functions, such as Sales and Development, or Operations and Development. The knee-jerk reaction is to then bridge the functions by adding a new layer, such as a COO.

Voila!  Problem solved, right?  Of course not.  Yes Ops and Dev are now aligned (if the COO has any leadership juice at all), but new problems are created.

First off, what about the conflict between Ops or Dev and Sales?  Or the frequent conflict that exists between Ops and the CFO/Finance?  Still there.  And probably heightened as concerns from the Dev group have to go through another layer before being addressed between the COO and CFO.

But also think about this from a "respect for people" perspective.  The heads of Ops and Dev no longer receive the mentoring of the CEO, they have been diminished in stature, and their voices and concerns have to go through another layer to be heard.  If I was the head of Ops I'd be demotivated and my performance would suffer.  I've become another cog in the wheel instead of a key member of the CEO's staff.  If I was an engineer in the Dev group I'd feel similarly.  Should I?  Perhaps not, but I bet I would.

It's time to take a look at the root cause of the underlying situation.  Groups, and their chiefs, aren't communicating effectively.  They aren't leading, and they aren't aligned.  Changing the organizational structure will not change that one iota - it will just shift the problem around and probably create new problems.

Years ago I was having similar issues in my company.  Leaders weren't leading, they weren't talking, and they weren't aligned.  So one very powerful thing we did was drag the entire extended executive leadership team through Patrick Lencioni's 5 Dysfunctions of a Team book and accompanying workbooks.  It took a year, but we addressed absence of trust, misalignment, communication, and the like.  Sometimes it was very difficult, like the exercise where each member of the leadership team stood up and listened while the others openly and candidly discussed their "areas for improvement."  We nearly lost a couple team members that day.  But in the end our leadership team learned how to openly and honestly communicate, and be aligned.  We have recently found we need to work hard to sustain this improvement, otherwise we lapse into traditional silo politics.

The second thing we did was by accident.  We had to demolish one of our new buildings to make room for a new facility.  During the two year construction period I moved most my leadership team into a triple-wide trailer.  Uncomfortable, and the walls were paper thin.  We had to learn to live together, and deal with the conversations we heard on the other side of the walls.  But again, it helped us improve.  The daily executive leadership team standup meeting, where we also videoconferenced in the leadership of our other sites, also helped.

One side note on that last point: as we were designing our new facility we had a lot of debate about where the senior leadership team members should reside.  Initially I favored an approach that is common in lean environments: the leadership team member is with his or her team.  We've all heard the stories of company presidents that use a mobile office, sometimes even on the factory floor.  And I once visited a company in Japan where the entire team sat at a single conference table in the middle of a huge room with 1,000 employees - and no walls.

We decided to go against lean convention and locate the senior leadership team together, on the second floor.  Horrors?  Nope.  One big reason is that we noticed that when a senior leadership team member spent too much time with his team, the supervisory and decision-making capability of junior leaders suffered.  As much as we tried, it was just too easy to revert to the senior guy making the decisions.  But more importantly we found that it was easier to focus the senior leadership team on forward, future strategy rather than the day-to-day mayhem.  This does not mean that those senior team members don't spend a lot of time mentoring, teaching, and helping their teams.  But the small change in physical location, and thereby focus and perspective, has been important.  And our junior leaders have stepped up and added a lot of leadership bench strength to our company.

So where did we end up?  A flatter organization, similar to the following:

In fact, this doesn't begin to describe it.  In addition to key functions and value stream managers, I also have QA, Supply Chain, Facilities, Customer Care, and Marketing managers.  A total of 14, believe it or not.  And it works just fine and I do not feel overworked.  And it really is a lot of fun - that's what happens when great leaders work together to do great things.

There are some caveats.  For an executive staff of 10 or even 14 to work, the team must be comprised of very capable leaders.  Creating that competency takes a lot of work and a lot of training - not to mention the right kind of people.  There must be a very high level of organizational focus and alignment.  Daily, open, trusting communication is key.  And it also requires an experienced CEO or President that is comfortable delegating, has a broad knowledge to enable that span of control, and can be a good mentor.  Obviously as you flatten organizations you reach a point where the span of control and responsibility may be too wide to be effective.  14 works for me, 10 might be optimal for another, perhaps 20 for some CEO lucky enough to have an incredible leadership team.

Simply changing the structure of an organization doesn't create excellence and effectiveness.  You have to dig deep to improve the underlying leadership competence.  As you do that the organizational structure takes on less and less meaning.

One last note.  As we embarked on our current change to improve our alignment to value creation processes, I came across a great article by Pete Abilla on "customer journey maps."  Looking at the parts of your organization - and processes - from the perspective of the customer is interesting, and we're using the concept as an input to our changes.  I recommend you take a look at it.

My bottom line points:

1.  Align organizations around customer value creation processes.

2.  Respect the managers by providing training, mentoring, and feedback to improve their leadership skills.

3. Respect the managers by allowing them to interact across a wide span, and be mentored by senior leaders.

4.  Respect others in the organization by reducing layers and barriers to communication.

5.  First look to solve conflict issues by improving leadership capability - not adding a new layer.  In fact flattening might actually improve communication and lessen the issue.

 

The Zip-A-Dee-Doo-Dah Gang

by BILL WADDELL

Harry Truman once said, "The only things worth learning are the things you learn after you know it all." - a very wise observation. So what are we to make of manufacturing accounting people who know little about lean manufacturing, nothing about lean accounting, and little interest in learning about either of them?

You might want to read this mundane accounting document, called Accounting Research Bulletin 43 issued by the Finacial Accounting Standards Board.  If you drop down to Chapter 4, page 11 you can read a lot of language that sounds a lot like exactly the same stuff you probably heard in accounting 101 classes.  It discusses "the general principles appicable to the pricing of inventories of mercantile and manufacturing enterprises."  The basis for standard costs and all of the accounting practices preventing companies from shortening cycle times and becoming lean.

It was issued in 1953 - but is actually just cleaning up some of the details in Accounting Research Bulletin 29 issued in 1947 - during the Truman administration.  1947 - the year Jackie Robinson made it to the big leagues; stamps cost 3 cents, drive in movies were invented and Zip-A-Dee-Doo-Dah made it into the top ten on the music charts. 

 

 

Inevitably, when August rolls around and the Lean Accounting Summit looms, I get emails and phone calls from frustrated manufacturing people who are desperate for a way to get their accountants on board with the lean effort.  They hope that, somehow, I have a magic formula for getting through to people who have not lifted a finger to learn anything more about their chosen profession since the day they walked off of a college campus. 

I hate to disappoint, but I cannot begin to fathom such minds.  It seems to me that everyone has a fundamental moral and ethical obligation to their employer to keep up with that which they are supposed to provide expertise; and at the very least degreed, intelligent people should have a trace of curiosity, but for so many in the accounting trade this is not the case. 

The accountants who block their employers from achieving success because of a conviction that they already know it all and have nothing to learn beyond that which they learned in school and can find codified in dusty, old tomes from the Truman addministration seem beyond salvation.  One has to wonder why any of them are paid more than basic, entry level wages given that they can all be replaced overnight with another accountant who knows ARB 47 inside and out and has not contributed a single original thought to the business - they are available by the legions and more are being cranked out from colleges every day.

After explaining, cajoling, berating, begging and pressuring for ten years I am out of ideas.  Perhaps if everyone whistles Zip-A-Dee-Doo-Dah whenever the cost accountants come into the room they might get the message ...but probably not.  Folks who think 1947 thinking is cutting edge probably think Zip-A-Dee-Doo-Dah is a pretty hip tune.

 

 

Original: http://idatix.com/manufacturing-leadership/the-zip-a-dee-doo-dah-gang/

A Lot of Miscellany

by BILL WADDELL

Lean Accounting Summit Time

Getting close to LAS time. It is really the only serious gathering of folks pursuing the fundamental changes to your management processes needed to take lean to the next level - accounting and senior management centered, of course, but very valuable for anyone who is a part of the management team.

If you have never attended one, you should.  It cannot help but change how you see the business.  Use my name in the promo code when you register - WADDELL - and get 10% off.  Orlando - September 13-14.  Hope to see you there.

Tom Johnson's Reading List

"He [Robert Kaplan] concluded that American business school research and teaching contributed almost nothing to the most significant development in the business world over the last half century - the quality revolution."  This from Confronting Managerialsim - How the Business Elite and their Schools Threw Our Lives Out of Balance.  With a quote like that you know it has to be a good book.  It was written by Robert Locke and J.C. Spender.

Locke, an academic mostly from The U of Hawaii with guest stints all over the place, also wrote Management From Hell - How Financial Investor Logic Hijacked Firm Governance (you gotta love a book with a title like that based on name alone). 

I thoroughly enjoyed both of them.  Tom Johnson recommended them to me, writing, "I now insist that all my MBA students read Confronting Managerialism. The other book, Management From Hell, is a shortened and more biting version of Confronting that is intended primarily for management audiences."  That said, if I could have only read one of them, I would pick "Confronting Managerialism".

Undercover Bosses for Good Reason

Fernando Aquirre was shown the door at Chiquita - the banana outfit- the third Undercover Boss star to get the heave ho.  Lean folks have to wonder juts how out of touch does a CEO have to be to be able to work side by side with the rank and file and not be recognized.  Given that these folks pay $200K for the privilege of being the star of the show (at least that is what the show approached one CEO I know with) I have to ask just how ravenous are their egos to even want to be on the show.  Out of touch or egos out of control - either way it is a surprise that all of them haven't been fired by now.

Lean - Kiwi Style

A few weeks ago I wrote about some New Zealand companies having a great deal of success selling right into the USA's back yard.  Here is a pretty cool video describing one of them - Oasis Engineering in Tauranga:

  

If Auto Can do it Why Not Everyone?

A pretty cool interactive graphic showing the evolution of the auto supply chain can be found ...

BY CLICKING HERE

The customer may, in fact, be right

I thought everyone knew there are two cardinal rules in business:  (1) The customer is always right; and (2) If the customer is ever wrong, refer back to rule #1.  Turns out this is innovative thinking in some circles, as the Wall Street Journal considers customer-centric business as something of a revolution.

They write, "It's why marketers still talk about customers as "targets" they can "acquire," "control," "manage" and "lock in," as if they were cattle. And it's why big business thinks that the best way to get personal with customers on the Internet is with "big data," gathered by placing tracking files in people's browsers and smartphone apps without their knowledge—so they can be stalked wherever they go, with their "experiences" on commercial websites "personalized" for them."

Sadly, the WSJ seems to be right - customer centered business may be something of a novelty.  Good article!

 

Hope you all have a great weekend!

 

Original: http://idatix.com/manufacturing-leadership/a-lot-of-miscellany/

A Fire Truck When an Ambulance Would Suffice

By Kevin Meyer

An article in today's Wall Street Journal made me think a bit about organizational scope creep.

It takes twice as many firefighters to put out half as many fires as it did 30 years ago. Fewer fires because of better fire safety is one reason, but another is the dispatch of overqualified firefighters and their vehicles to things that aren't fires.

In Orange County, Calif., only 2% of responses involve fires. In Massachusetts the figure is 5%—only because Massachusetts doesn't count emergencies that don't result in injury or property damage.

The Orange County Grand Jury, an official watchdog agency, is the latest to plumb this phenomenon: "This transition from fire emergencies to medical emergencies has not generated major changes in the operation model. . . . Each emergency call generally results in both fire trucks and ambulances being dispatched to the site of the emergency regardless of the type of emergency."

What would really make sense, of course, is properly manned fire trucks responding only to fires, leaving other emergencies to one- or two-person police or ambulance crews.

The article describes several similar situations, and provides a lot of fodder for those that believe government has become too large or that there's an alternative to raising taxes.  But that's not my point and I won't go there.

It's not just big cities.  Here in my small central coast beach town, I regularly see ambulances go up the street to check on my plethora of retired elderly neighbors... followed by a couple of large fire engines.  Of course the police blotter in this town is filled with such nepharious activities as "Mildred heard a noise but it ended up being her gate swinging in the wind."  Or something mischievious happening at the local "medical" marijuana dispensary.

The scope of the fire department has changed over the years, and now includes responding to medical emergencies.  Perhaps that's entirely appropriate as firefighters have EMT training.  But as noted above the operational model hasn't changed, so unnecessary equipment and personnel also respond, therefore the response cost has increased.

We could identify innumerable other examples of this in government - safety nets that have become entitlements provided to 100 million citizens, intelligence strategies that have become "proactive" offensive missions (see!  I covered both sides!), etc.  All requiring more money - more taxes - to provide a skewed but now expected level of service.

But my point is that the same happens in business.  How many bandaids upon bandaids of "quality checks" or "signature approvals" get added because managers don't have the guts (ok, "no time") to attack the root cause of a problem or issue?  How many non-value added admin groups expand and expand thanks to managers focusing on power instead of what's best for the organization?  How many times does a senior manager have to get involved to make very small decisions because the folks that actually own and run the process aren't empowered - or trained - to make the decision.

When do you use a fire truck when an ambulance would do just fine?

Ford Gets It - Do You?

by BILL WADDELL

Just to put things in perspective - after all it is easy to get tangled up in all of the short term ups and downs and spin regarding the auto business - I thought it might be helpful to look at where the auto companies are compared to 2007 - the last year before the recession hit.

The story is fairly clear.  GM and Chrysler were taken over by the government because they were mismanaged ... and nothing much has happened since then to indicate much of anything has changed.

The so-called'niche'  producers - Kia/Hyundai and the collection of cats and dogs in the 'Other grouping - VW, BMW, Audi, Mercedes, Subaru, Mitsubishi, etc... - have collectively been growing.  Ford, Honda and Nissan have generally held their own.  Toyota has slipped a bit and the jury is still out on how much of that is due to tsunamis and bad PR, and how much is reflective of a loss of cultural mojo.

The bigger story, however, is the fundamental change in the economic model the chart indicates.  If 'economy of scale' means operating at full capacity, then it is alive and well.  To the extent it is achieved by making one thing in staggering volumes, or it is achieved by carrying lots of inventory, it is as dead as Marley's ghost.

 There is no 'mass market' for anything - especially cars.  Each person's definition of what constitutes the best value is unique.  Every market is a collection of niches of one.  The old model - the mass production model - is to make a one-size-fits-all product, keep the cost down through high volume, try to fool the public into thinking there are differences through superficial means - sheet metal and packaging - and push it with clever advertising and marketing.  Through deception, discounts and a never ending price game, people are pushed into compromising their individual value proposition to buy something that is 'close enough' to what they want.

The lean model is to achieve low cost by fully utilizing capacity - but to do so with many genuinely unique products.  This doesn't affect the small producers so much.  They have smaller plants and can fully utilize capacity with few products and still find enough people to buy them - the BMW's, Subarus and the like.

But for the big guys, it means flexibility.  This article indicates that Ford understands this basic principle.  "By 2015, Ford will be able to make 4.5 different vehicles per plant or 25% more derivatives on average compared with 3.6 vehicles in 2011."  The formula is pretty simple: create a relatively few basic platforms, create a large number of variations from each core platform (true variations rather then pure wallpaper), then create the manufacturing capability to quickly switch from one platform to aother and from one variation within the platform to another.  Use standard processes and common components as much as possible to minimize the changeover task, then get very good at changing over that which must be changed - design for manufacturability means design for flexibility.

The idea of making one thing in huge volumes to fully leverage capacity is the old Henry Ford - 'one color so long as it's black' approach.  It is alive and well.  In fact it is the under-pinning of the whole 'innovation craze' - if we can conjure up something really unique and cool it will appeal to a huge number of people and we can get away with Henry Ford style mass production - the Apple model.

Making more than one thing through batch production and carrying a lot of inventory is the alternative for mass producers without whiz-bang products, who then must resort to discounts, rebates and massive investments in marketing to move the inventory - the GM and Chrysler model that has not changed just because the government bailed them out.

The heart and soul of Toyota's success was SMED - flexibility - the ability to make lots of things in one factory without losing too much capacity in the process.

Ford has maintained its position through tough times with some innovation, a lot of quality, and some marketing ... enough to get by.  Now they understand what it takes to really succeed.

Eat Mor Chikin

by BILL WADDELL

This is not a post about gay marriage.  It is a post about whether principles matter - they do.

In my lean seminars when the subject turns to culture I have been using a slide with this graphic for years: 

The point is not that any particular religious beliefs should be imposed on the business in order to achieve a sound culture.  It is that principles matter.  The best companies are led by people with a clear sense of right and wrong that supersedes profit concerns - that profits must be realized in a way that is fair, honorable and fully respective of employees, suppliers, customers, shareholders and communities - all of the stakeholders in the business.

The alternative is the 'Godfather approach' - you know - when Sonny got after Michael for making things personal when they were really just business.  It is the idea that personal feelings and principles have no place in business ... that all that matters is profit.

When a business is driven solely by the Godfather principle the slippery slope that begins with abandoning what the Cathy family believes about gay marriage in order to avoid losing sales to those who disagree cannot help but lead to abandoning loyalty to employees and the Chick-fil-A communities for the same narrow reasons.

You can read an eloquent rationalization from the conventional business thinking community of why the Cathy's should keep their moral compass out of the business ... "Leaders tend to perform best when everyone feels welcomed and valued," says the Bloomberg Business Week author.  I would suggest that, when a leader keeps the principles he professes to believe in church on Sunday or a synagogue on Saturday or wherever else he or she goes to connect with what drives the soul out of the business, no one is valued because nothing is valued but money.

I happen to be a big supporter of Chick-fil-A and their principles driven business model, and I don't agree with much the Ben and Jerry's people believe in, but I have equal respect for Ben and Jerry's for the simple reason that they have a long track record of driving their business on clearly stated and firm principles.  People know where they stand with these companies because their leaders make it clear that decisions are made in a manner relentlessly consistent with principles.  People work for, sell to and buy from these companies because their principles align with those of the business. 

When the only principles driving the business are market share and profit, and decisions are made on the basis that anything advancing those goals is acceptable, people are little more than cannon fodder.

 Every truly lean company I have ever known is guided by a north star that reflects the values of its leaders, and those leaders profess the same values on Saturday and Sunday they do at work from Monday throuh Friday.  They make a lot of money because people are inspired and driven in large part by those values.  There are lots of companies without principles that lose an awful lot of money.