Evolving Excellence

The Reshoring Story of GE Appliances

By Kevin Meyer

Perhaps I'm just an optimist, but it's starting to seem like the discussion on manufacturing in America is changing.  Just a year or two ago it was a struggle to find anyone - outside of manufacturing that is - that believed that the U.S. could be a manufacturing powerhouse again. 

Richard McCormack's Manufacturing & Technology News puts this on display in it's latest issue with a story and accompanying interviews on GE Appliances.  Unfortunately most of what I will quote here requires a $495 subscription, but that could almost be worth the stories in this issue.

After decades of neglect, General Electric has a newfound love affair with its appliance manufacturing division. The 122-year-old company created by Thomas Edison has recommitted itself to developing and producing a new line of innovative products in America. It is re-invigorating its 900-acre Appliance Park located in Louisville with $1 billion of investment in a new generation of designers, engineers, workers and production systems. And for the first time, it is applying the lean methodology to all of its operations.

It's a pretty big deal, but perhaps even bigger is the realization - and example - that even the worst outsourcers can learn that total supply chain cost can trump supposed "cheap labor" savings.

When asked by Manufacturing and Technology News if the 80 percent drop-off of manufacturing workers was caused by robotics, automation and high levels of productivity, virtually every GE person who responded said the same thing: No. The loss was due to offshore outsourcing.

So what did they do?

In moving production back to the United States, GE decided that every aspect of the water heater needed to be redesigned through a team approach under a lean planning system that included GE’s sales division, designers, product and process engineers, accountants, executives and workers. It included the involvement of plumbers, retailers and customers. Anybody involved was allowed to suggest improvements. “What this shows is what can happen when we all sit down and work together,” said GE International Union of Electrical Workers President Jerry Carney.

In the process, it made the unit more affordable, reducing the retail price from $1,599 for the product made in China to $1,199 to $1,299 for the unit manufactured in Louisville. The production line uses the common lean practice of a “pull” system based on demand. There are visual controls. Inventory is in plain sight. The factory is bright,

The article goes into considerable detail on those changes, including the fact that they can only claim "Produced in America," not "Made in America" because they could not find a domestic source for some key components required to achieve the domestic content rule.  Sad, but perhaps that will change too.

And you read that right - the factory is still unionized.  In two accompanying articles Richard interviews both key company officials as well as the union chief.  First from the company side of things.

Q: When you were considering moving production of the water heater from China to Louisville, were labor costs a major consideration?

Rick Calvaruso [Appliances Lean Leader]: The cost of wages is only one factor. What you have to look at is total cost of the whole product. When you make a product far away from where consumers buy it, you have costs of shipping, duties, customs and you have to carry more inventory.

Keith Burkhardt [Marketing Manager]: You can respond quicker if your factory is domestic. You have time on the water when you manufacture a product abroad. It takes time to respond to fluctuations in demand. We had a very successful promotion last fall where we sold more units than we expected to and as a result we were out of stock for a lot longer than we would have been had we had a domestic factory.

Q: Do you think what you are doing can be replicated by other large OEMs that have outsourced so much of their production?

Rich Calvaruso: We hired [lean export] John Shook [chairman and CEO of the Lean Enterprise Institute] to coach us and I’ll just tell you what John said. He said that he normally doesn’t care whether or not a company does lean well. “But you guys are GE. You guys matter. What you are doing here is not only important for GE Appliances Louisville, Kentucky, it’s important for the whole country.” So some of us say, “Wow, that is pretty impressive.” But somebody has to show the way because we can do these things. This is a real. This is a real factory, with real people making real stuff.

Steve Downer [Product General Manager]: There will be a lot of eyes on this place and we welcome it because these are really exciting times.

Q: Do you think the United States will see a big insourcing trend?

Steve Downer: I think it’s going to be case by case [based on] very thorough analysis. I would expect every company to evaluate why this is a good business.

Rick Calvaruso: There are a lot of things being talked about outside of here. If you listen to what [James] Womack [founder of the Lean Enterprise Institute] says, the momentum starts to build back. The whole notion of going to the cheapest labor place isn’t always the best answer. You see continued inflation in China. It’s not as cheap as you think to put stuff on a boat and ship it half way across the world. Plus you have to have all the inventory and you have to hope six weeks or eight weeks before a customer wants to buy it that you bought the right stuff. The world changes fast. People may want something different and if you have to wait a long time, they’re going to buy something else.

And from IUE union president Jerry Carney:

Q: There is widespread perception that unions have killed American manufacturing because they have refused to budge. They got paid too much and stuck with their old work rules. One worker only does one thing. The union’s militancy in trying to protect jobs has meant they’ve lost them all.

Carney: That’s all changed. We know we have to be globally competitive. We know we can’t just look at what’s happening right here. We have to look at other appliance manufacturers to make sure we are competitive with them, otherwise we will lose our jobs. If I keep a closed mind and keep my eye only on my union hall, then I’m not doing my workforce any good because these jobs will leave here in a heartbeat.

Q: Why did it take GE so long to wake up to lean?

Carney: I don’t know.

Q: How about you as a union?

Carney: Our union international president Jim Clark is a big promoter of lean. He comes out of the automotive industry. Years ago, he was watching all of these manufacturers closing down and said that if IUE didn’t embrace lean, we would be closed down as a whole. He was in Evansville, Ind., at Whirlpool represented by the IUE. They closed down last year. It was the same size facility as our refrigeration plant with the same number of employees. It closed and went to Mexico. Lean will help us bring jobs back.

Q: Does the lean focus on eliminating waste mean eliminating jobs?

Carney: It’s not always a person that is waste. Lean takes the waste out of a process, but if we have waste and we have two people able to do a job that three people can do, you pull that third person out and take $40,000 or $50,000 off that line. We become more competitive with Mexico or China. Our agreement with General Electric is if I can take one person off the line, we’re going to create another job for that person and it will help us bring back more work from overseas. There is no layoff.

No layoffs for lean improvement policies are common, but at a company like GE?  Are pigs flying?  And we've been telling you about the Whirlpool nonsense for years.

The main story and accompanying interviews are several pages long and also discuss the issues with skills and hiring, government regulations (from both sides), struggles at other GE facilities, and struggles with suppliers.  I wish I could reprint more here, but that would be doing Richard a disservice for a great piece of reporting in Manufacturing & Technology News.

As for GE - this is a good story.  But GE doesn't exactly have the best reputation from a manufacturing in America standpoint, so the proof will be in the pudding.  We'll be watching.

Lean Chickens 1 Fat Lions 0

by BILL WADDELL

 
So .... Golden Bear Ltd gets the contract to produce the official mascot for the 2012 British Olymic Team, and decides labor costs - excuse me, labour costs - are way too high in England to make them there.  So they make them in China and, as a result of 26p per hour Chinese labor is able to sell this thing for $20 (12.99 pounds). 

Meanwhile, West Paw Design in Montana makes something called a Spring Chicken - 2" bigger and filled with recycled material (instead of God knows what Golden Bear's Chinese friends put in the Lion), pays something like $15 an hour and sells it for $14. West Paw is a profitable, rapidly growing, enterprise.

Maybe the difference is that British accountants are mostly a serious, professional bunch who would not be caught dead working without a suit and tie, and just maybe those ties are choking the flow of oxygen to their brains, while the last West Paw accountant I saw was wearing blue jeans and a sweat shirt to work. 

Maybe the problem is that Golden Bear has to factor the cost of their "Hong Kong office which, co-ordinates production and oversees quality in the manufacture of product.", while West Paw "coordinates production and oversees quality" through kanbans and hiring the best people Bozeman has to offer. 

Or maybe the problem is that I have never seen Golden Bear - or any other British company for that matter - at the Lean Accounting Summit while West Paw sent a small army last year.  West Paw seems to have 'labour' in a bit better perspective. 

In all seriousness, there is no excuse for a manufacturer in England, the USA or anywhere else, making critical decisions based on traditional accounting.

Beyond Just Words - What Apple Could Do

By Kevin Meyer

The New York Times created a deserved furor last week with their article describing how the U.S. supposedly can't compete with China on manufacturing - specifically the manufacturing of Apple products.  As our fellow blogger Mark Graban points out in an excellent summary of that article, we shouldn't want to compete in that manner.  The stories of worker abuse and managerial tyranny are appalling.  Time magazine, in typical Time "hey please read us too" fashion, jumped on the bandwagon with an article on the human price of success.  And Apple CEO Tim Cook tried to deflect the PR carnage with a long email describing all that Apple supposedly does.

Don't get me wrong - I'm a huge fan of Apple... products.  I made the leap from PC to Mac a few years ago and haven't looked back.  I also own an iPhone and iPad, a 27" Thunderbolt display, use iTunes - the whole kit and kaboodle.  Those that haven't used Apple products for more than a few hours simply don't understand - the bloomin' stuff just works - and works like I want it to work - every time all the time.  That has value, and is why I happily pay more for Apple products.  Just this past weekend I watched a friend spend nearly an hour trying to get his Android phone to do what he wanted it to do.  Wow.  Really?  There's a reason why less than 1% of Apple users leave Apple.

I've heard several people call Tim Cook the world's greatest supply chain executive.  Sorry, I've never bought that.  Tim Cook executed a traditional "chase cheap labor" supply chain strategy in a great way.  But in my book that's not excellence - that's being the shining star of lemmings - the golden sheep if you will.  The China factory isn't necessarily a bad thing - one valid reason to have a factory overseas is to be closer to your customers, and there are a lot of potential customers in that part of the world.  But as nearly a singular factory serving the whole world?  With employees that are abused?  Sorry, no dice.

Apple, and Tim Cook, has done some good things.  They do audit their supplier's factories more than most companies.  They are taking some strong workers rights positions in their industry.  They are opening their kimono and exposing more of their dirty laundry.

Apple has $96 billion in the bank - think of what they could do.  More than just words and policy statements and such.

They could significantly increase the wages of their employees in China - even if they doubled their wages Apple would still have record profits.  But that could actually cause more harm than good.  Many workers simply want to earn enough to eventually go back to their home town or help their remote families.  Some social destabilization dynamics need to be understood.

However consider this, Mr. Cook:

How about immediately hiring and sending an Apple observer into every plant, perhaps every line in every plant, full time.  That way Foxconn wouldn't be able to shift workers from one line to another to hide abuses before audits occurred.  How much would that cost?  A million or two a year?  Put Foxconn on notice that this is not acceptable, with milestones that could transfer manufacturing elsewhere.  Difficult?  Sure.  Ethical business often is.

How about publicly saying (words...) that chasing low cost labor is not a long-term "manufacturing" option and then back it up by sinking a billion or two into developing truly innovative manufacturing methods and systems. Imagine what could happen if the same level of design prowess that was applied to product design was applied to manufacturing design.  Perhaps Apple could become the next Toyota - instead of just another cheap labor chaser lemming.

I could go on - and I'm sure there are lots of other ideas out there.  The bottom line is that thanks to its success - built on the backs of abused workers - Apple has the unique opportunity to change a global dynamic.  But that will take more than just words.

As my friend Shrikant Kalegaonkar tweeted this morning, the world is changing.  Voice of the customer now extends beyond products, and now includes the process for making the product.  As an Apple customer - and also a shareholder - I care about Apple's financial performance.  I want it to do well so it can return value to me in terms of new products and direct shareholder gains.  I don't have a problem with wealth being created and distributed commensurate with individual effectiveness.  But I also have a conscience, and increasingly I hate battling my conscience when using my Apple products.  I bet many Apple customers are feeling the same way.  That's dangerous for any company, and especially one like Apple which claims to embrace people.

So imagine.  Imagine what would happen if Apple took the high road, then backed up the words with serious, solid, perhaps expensive action.  Action that would change a global dynamic, showing that it is possible to be very profitable, very global, and very human-centered.  $96 billion gives Apple the ability to do something truly incredible. 

In addition to the actual improvement of the global condition, I bet a lot of folks would be impressed with the company - and would be inclined to buy its products.

Uh - But What About the Product?

By Kevin Meyer

That old retail icon, JC Penney, is undergoing a transformation thanks to Apple.  Apple?  Yep - JCP's new CEO is one of the guys responsible for creating the Apple Store.  Anyone that has been in one knows it is a bit of a different experience.  Where else can you pick up a $2000 piece of equipment at the back of the store and walk all the way out without a receipt - because it was emailed to you - with no one batting an eye?  Where else can you sit for a couple hours playing with the equipment with no one trying to give you the hard sell?  Apple believes that if you help people to use and like the technology, the technology will sell itself.

So now that concept is coming to JC Penney.

The first significant change will be embracing a new pricing strategy, consisting of "fair and square" pricing. It includes three types: everyday, regular prices; monthlong values; and best prices, on the first and third Fridays of every month. To determine new prices across its product range, Mr. Johnson said that the retailer looked at what it was charging and what customers most often paid after numerous discounts. He found that only one in 500 items sold at full price, while 72% of revenue was derived from selling products at 50% off or more.

Ok, perpetual sales are sort of useless.  Sounds good.

The strategy will trim JC Penney's promotions to 12 a year from 590.  "Steve [Jobs] would have called this insanity," Mr. Johnson said of the sheer volume of promotions. "At some point you, as a brand, just look desperate. JC Penney spent over $1 billion, and the customer didn't even pay attention."

Funny, I have always thought of JC Penney as something of a "desperate" brand - never quite understanding what they stood for.

Working with PMH, JC Penney created a personality and color palette for each month that will be carried throughout marketing, in-store displays and even external lighting on stores. By focusing on one month at a time, Mr. Francis said, JC Penney can highlight important consumer events, such as Valentine's Day, Super Bowl or the Academy Awards.

Ok, ok... I get it.  New logo, new store colors, streamlined promotions.  All good... except...

What about the product?  Advertising does not create value, a new logo does not create value.  If your product is valuable in the eyes of the customer, it will sell.  Advertising may mask true value to a customer, but just for a short while.  Apple has a great store experience... but there are great products inside. 

So, Mr. Johnson, is all the glitz to just sell the same old stuff? 

Milliken, the Anti-Kodak

By Kevin Meyer

The last couple weeks have brought the story of yet another icon of business, Kodak, collapsing and filing for bankruptcy.  Yes, failure a key component of capitalism, and when you try to skew things so they feel better you get some crazy outcomes... like $250,000 Chevy Volts.

But failure doesn't have to happen.  And that's the story we also read about last week - the story of a successful textile company, no less - and in the United States.  Milliken.

Milliken & Co. of Spartanburg, S.C., arguably should have been crushed by global competition, just like Kodak. Its roots are in the textile industry, a labor-intensive business that long ago decamped for lower wages abroad, leaving abandoned mills throughout the Southeast.

And yet a visit to Milliken's vast campus finds the company thriving. "All of Milliken's traditional textile competitors are gone," says John Fly, a top executive who just wrapped up 45 years at the company. "They're out of business. And Milliken is having the best economic performance it's ever had. It's clear we did something different."

So what did they do?  Well at first they joined the folks that whine and complain about how all the external forces... regulations, taxes, and the like... are crushing them.

What Milliken did was first try to hold back the flood of cheap imports—a strategy that chewed up management time and ultimately failed.

But then, unlike many of their brethren and unfortunately most manufacturers for that matter, they took a good hard look at their business.

Milliken diversified rapidly out of traditional textiles and moved deeper into niche products that built off its knowledge of textiles and specialty chemicals. And it bore down on scientific research and manufacturing innovation.

Today, Milliken makes the fabric that reinforces duct tape, the additives that make refrigerator food containers clear and children's art markers washable, the products that make mattresses fire resistant, countertops antimicrobial, windmills lighter, and combat gear protective.

Along the way it has amassed thousands of patents, focusing on specialty fabrics and chemicals, floor coverings and performance products. Milliken boasts that we come in contact with its many products almost 50 times a day.

"They were different because of their willingness to change," says Bill Fischer, co-author of "The Idea Hunter" and an expert on innovation. "And they moved fast."

Not too shabby.  And that last statement by Mr. Fischer is critical.  A willingness to change.  Not ask for handouts, not ask for bailouts, not spend millions lobbying for less regulation and the like.  And then they did it fast.

While Milliken doesn't disclose its financial data, Mr. Fly says revenue and profit have been rising steadily. Mr. Salley says the company is also debt free, has double-digit returns on invested capital, and has increased in value more than 30% since 2007 alone.

Yes, a textile company.  In the United States.  So tell me again why your business is in trouble?  And in which direction are you pointing the finger?

Assembly Mag Thinks Whirlpool is Lean. Really.

By Kevin Meyer

I really have no words.  Well, you know that's impossible.  But Austin Weber's article on Assembly Magazine's website that glorified the supposed lean accomplishments at Whirlpool nearly made me sick.  I won't quote any of the article except suffice it to say it included lots of talk about tools.  Not people.

The oft-forgotten second pillar of lean, respect for people.  Forgotten by Whirlpool.  Forgotten by Assembly Magazine.

We've followed the disaster at Whirlpool for several years.  Back in August of 2006 we told you about their plans to lay off hundreds at their Evansville plant, while saying that "the company will continue to have committees explore lean manufacturing or efficiency practices." Sorry, that's not real lean.

As that post predicted, those committees didn't exactly do much good as in December of that same year we told you how they were adding a couple thousand people at their Clyde, Mason, and Amana facilities while losing a thousand at Fort Smith thanks to chasing lower labor costs to Ramos Arizpe in Mexico.  Trading tens of thousands of years of experience for newbies and the associated huge training costs and quality curve... oh and a buck or two per hour in labor "cost."  Sorry, that's not real lean.

A year or two later we updated the story, comparing Whirlpool to a company that does understand the value of brains - Rockwood.  September of 2009 then brought the news that Whirlpool's Evansville factory was finally being closed for good - an expected but unnecessary death.  In March of 2010 we were a little amused to learn that Whirlpool was now looking for trained lean folks... at a facility just a few miles from a facility they had closed... which had been filled with trained lean folks.  Seriously.  I can't make this stuff up.  Sorry, that's not real lean.

Bryan Zeigler at the Lean is Good blog quoted Evolving Excellence in its own analysis of Whirlpool last year, but then added a comment that hits the nail on the head.

Yes, Mr. Colburn [Whirlpool VP] is giving the Evansville plant accolades but at the same time each employee has to deal with the slow agonizing pain of slowly seeing their factory move piece by piece.

Yep, as if that knucklehead version of lean stands even a tiny chance of being successful.

Real lean companies understand that success results from harnessing the creative ideas of experienced people that are treated with respect.  They understand that the value of the brains far outweighs the cost of the pair of hands - and that the value of brains is real but not captured on traditional financial statements.  Real lean companies understand that far more cost can be removed - and value created - through improvement ideas rather than chasing low cost labor.  Especially when that silly chase results in shedding thousands of years of experience and paying large amounts to retrain and absorb initial quality issues.

Sorry Austin, Whirlpool is about as far from an example of real lean as you can get.  Do your homework next time please.  This is why lean gets a bum rap.

Stretching the Eulogical Boundaries

By Kevin Meyer

Bill's post on Steve Jobs earlier today drew quite a bit of response - from both sides.  Lots of supporting comments on the post itself, lots of emails presumably to both of us saying, to put it politely, the opposite.  A few wondered why I even "allow" Bill to post such stuff.

I do have a partial difference of opinion with Bill on Steve Jobs; more on that later.  First I wanted to clarify a couple of things for those of you who thought it was inappropriate or that I should exercise some additional editorial control.

Those of you that know me well know that I thrive on being challenged, mentally, philosophically, and otherwise.  I like my job because I have a staff and peer group, and an industry, that challenges me every day.  I purposely read newspapers and online material from the extreme opposite end of the political spectrum from me - which in my case exists on both sides - because it challenges my thinking and mental models.  I ran a marathon this year to prove to myself I could - and next year I might just be wacky enough to try this.  For over 20 years I've had an annual goal to visit two new countries and try something completely different - and I've done it every year.  And I'm better because of it, at least in my own mind.

When I first met Bill many years ago he challenged my thinking.  And he still does - with every post and every conversation.  Sometimes I may not agree with or like what he says, but it sets those neurons a firing.  And that's good.  As you recently read in one of my posts, I believe that questioning conventional thinking, the status quo, even "settled science" is necessary to improve.  Anyone that doubts that should read the story of today's Nobel Prize winner in Chemistry.  Bill, unlike many consultants and so-called "thought leaders," has lived in the real world - running real manufacturing operations in real companies around the world.  We read a lot of mumbo jumbo from people who have never had to implement - and live with - the theoretical crap that spews out of their heads.  Bill, and I, have been in the trenches.

There are a few people in life that get the emotions boiling and the juices flowing.  Bill Waddell can be one of them; another is Pamela Anderson, with apologies to my loving wife.  (Yes I've waited years to put Bill and Pamela together in a sentence.)  Maybe I should add Paul Krugman to the list, and now that we're talking about idiots let's add the gal at Starbucks who refused my money a few years ago.  Yes I do read Krugman's articles to challenge my thinking, although I then usually laugh and roll my eyes.  Sometimes I do that to Bill's posts.

The point is that you learn from being challenged, and Bill does that to us a few times a week.  If you don't like it, tough noogies.  I do, and I know a few thousand others that similarly like the challenge.  I wish I could find some dude that truly believed MRP or China was the answer to all production ills to really broaden the challenge, but I haven't been able to find one brave enough to join us.

Now on to Steve Jobs.  There is one part of Steve, a very big part, where I completely agree with Bill.  Steve and Apple did not exhibit manufacturing excellence - they executed a very traditional "chase low cost labor" supply chain excellently.  That's fairly easy to do if you have the profit margins to fund planeloads of engineers to go to China every week to oversee hoards of underpaid people and to beg them to not jump off of factory buildings.  But it was still a very traditional supply chain and "manufacturing" operation.

I wonder what would have happened if the incredible design innovation that Apple, and by proxy Steve, exhibits had been equally applied to manufacturing and the supply chain.  Doing the unconventional, finding the best path.  Would Toyota and TPS be a distant memory and we'd be benchmarking Apple and APS?  Only dreams at this point.

Now some of you are now saying "innovation?"  Like the guy who made the comment about "it's just a transister" or Bill's statement that it's just a computer or just a pair of earbuds.  Innovation doesn't have to be a "thing."  In fact it usually isn't.  In Apple's case the innovation was and is how those things interact with and add value to humans.

I'll illustrate this with a handful of stories about my direct and slightly indirect interaction with Apple.  Let's begin with Steve Jobs himself.

Steve by all accounts isn't exactly a nice person - if you consider "nice" to be calm and tender in demeanor.  If you read some history on Bell, Edison, and Franklin you'll discover those luminaries of invention weren't either.  In fact they were basically tyrants.  So maybe Jobs does belong as part of that group.

But perhaps Jobs is also a tyrant along the lines of our lean buddy Shigeo Shingo - known for his outbursts and rage.  Of course the lean community excuses such supposedly "disrespectful to people" attitude as "teaching" and "not accepting anything less than perception."  What a perfect segue into my first story.

A friend of mine worked at Apple until very recently when he left to move overseas to follow his woman.  A couple years ago he told me the story of when he stepped into an elevator at Apple HQ and before he could turn around in walked Steve Jobs.  They went up a couple floors - in his words the longest elevator ride of his life.  Steve asked him what project he worked on, my friend told him, and Steve proceeded to yell and scream at the status of the project.  My friend felt flattened for days... until it dawned on him that he wasn't being personally criticized, but the project was.  And it wasn't really a criticism, but a challenge to do it better, to find a better way.  And several weeks later, in typical Steve Jobs micromanagement style, he received a followup call and was able to discuss the better way he had discovered.

My very first experience with an Apple was with the Apple II in high school - yep that dates me.  Unlike the TRS-80 that also existed in our brand new computer lab, the Apple didn't require finetuning the volume control on a tape recording to load programs at 300 bits per second.  (not kb, not MB...).  And I soon learned to draw a square on the screen!  Woo hoo... but it just worked.  A few years later, while on co-op making chocolate bars and boullion cubes at Nestle in Connecticut, I got to play on an Apple Lisa.  One of the first graphical interfaces, with a funny mouse thing.  Sure beats typing DOS commands.  A computer that began to think like me.  Visually.  Xerox PARC technology applied to the real world.

A little over three years ago, March 2nd, 2008 to be precise, I dumped my almost-new Dell laptop for a Mac.  I had had it with the excruciating PC experience.  I was dreading connecting the new Mac to the printer hanging off my wireless network as for other reasons I had a rather complex setup.  Helping a PC navigate through two routers with different passwords to find the HP printer usually took hours... then after a few weeks the PC would strangely lose it's way.  I turned on the Mac, went to printers, and it immediately said "would you like to connect to the HP Photosmart on your network?"  Uh... yes, thanks.  It just worked.  And it still does.

Here's another one: I have a 90 year old neighbor lady who switched from a PC to a Mac two years ago.  Really.  She's a wicked smart gal who has sailed the world and worked for presidents and generals, but her PC drove her nuts.  So one day she called up the Ride On bus and had it take her to the Apple store fifteen miles away, and came home with a Mac.  And to this day she still takes the bus down there once a week for a class on some subject or another.  In fact, just last night she was telling me how she learned how to make calendars and cards.  And she made a point of telling me how the folks at the Apple store never push her to buy anything, they just want to help her learn how to use the technology.  Enabling the technology to work - creating value for the customer.  Not pushing the sale.

I have one more, then I'll stop.  My company has some very unique materials processing technologies.  One day Apple came across us and asked for a meeting.  After the usual NDA exchange we discussed how some of these technologies could be used.  One in particular excited them, but we explained that using it on a scale required by Apple would require procuring more processing machines than existed in the world at that time.  They didn't care.  Their group identifies technologies that could add value - defined in terms of user experience.  Then and only then would they figure out how to make it commercially viable.  This "backwards" thinking is why we have MacBooks that are individually machined out of solid aluminum - which also required procuring 30% of the world's CNC machine output one year - which would seem unreasonable if not impossible to most companies.  Not to Apple.  That impossibility and unreasonableness creates value which creates high margins.

Apple didn't invent the computer, or the mouse, or the graphical interface... or the portable music device or even tablet computer.  Those really are just "things."  But they did reinvent how they worked with people.  As Chris Taylor at CNN puts it, Steve Jobs saved technology from itself.

Real innovation isn't a thing.  It's a thing that adds value, that changes our lives.  There's a reason why Apple folks stand in line to get the latest products - because they know those products will change how they operate.

The iPod isn't just a portable music player.  It is a device that allows for easy recall and genre categorization of vast amounts of music.  That was then coupled with iTunes to disrupt the traditional music business - and let people experience a far wider variety of music - with thousands of additional artists getting a chance to be heard.

The iPhone isn't just a phone.  It lets you hold your music with a phone thereby eliminating a device, then it seamlessly links contacts, a nice browser, eventually a camera and HD movie recorder - thereby eliminating even more devices.  Who buys a standalone pocket camera these days?  But the real beauty, again, is the seamless integration.

The Mac isn't just a computer.  It's a computer that thinks and operates like humans do.  A 90 year old lady can get one and be up and running - and adding value - in ten minutes.  All the programs work perfectly together, the computer just springs to life when opened.  It does what you want, period.  Sure if you want complete customization over every little nuance you won't get it - but then again you probably aren't really a human at that point.

The iPad isn't just a tablet.  It's a mobile information platform.  I now get all of my magazines and newspapers on the iPad because the experience is so much better - so much easier.  My books are on it because I can bookmark, make notes, even translate - without scribbling.  I just downloaded a travel guide for my upcoming trip, and unlike a paper book this guide now knows where I am to bring up relevant material, can help me find my way, and create a multimedia learning experience.  I saw a demo of an iPad in a university classroom that combined the textbook, notepad, professor's PowerPoint, and audio recorder.  Anyone still want to invest in backpacks for students?  And then there's Angry Birds...

It's not the thing.  It's how the thing works, how it interacts with us and other things, and how it adds value.  That's the innovation. And that's what Steve Jobs did, and Apple does, better than anyone else.  That's what anyone who has used an Apple product for more than fifteen minute experiences.  And that's why around the corner from my hotel last weekend, at the Apple Store in Palo Alto, there was the following scene.  They, like I, experienced Steve Jobs and Apple.  And the experience changed our lives.

Thanks Steve.  RIP.

(PS: Tim Cook, can you PLEASE turn a few of your guys loose to create a real, innovative, supply chain too?)

Boeing's Lesson in One Piece Flow

By Kevin Meyer

One piece flow is a core concept of lean and thanks to its counterintuitive nature also one of the more difficult ones to embrace.  We naturally want to group processes and activities together instead of completing one unit before starting another.  There are some great videos showing how even common activities, such as addressing and mailing Christmas letters, go faster one at a time rather than addressing all envelopes then stamping all envelopes etc.

Perhaps Boeing should watch one of those videos.  Now I don't pretend to suggest that building airplanes is the equivalent of mailing Christmas letters, and I also know that the ramp-up pre-approval phase of airliner production is incredibly complex, but there are still lessons to be learned.  Especially when the 787 design and manufacturing outsourcing adventure seriously complicated matters.

Here's what Boeing is dealing with right now, just as their 787 Dreamliner obtains approval for commercial operations:

That’s left the maker of the much-hyped, long-delayed aircraft with more than $16 billion in inventory tied up in planes under construction, forcing it to stash 35 nearly finished jets outside its plant in Everett, Wash., and at facilities as far away as Texas.

We've all been there during our early or non-lean days... inventory all over the place.  Cash just waiting to be dropped to the bottom line. $16 billion or so in this case.

However, most of the 787s in the works will be sitting on the tarmac for months more as they complete construction, eating into the returns of a program that’s already unlikely to log a true profit before the tail end of this decade. “This is like dinner in the anaconda right now,” says Bill Batcheller, chief investment officer at Tower Wealth Management. “It’s a big bulge in the middle of the balance sheet, and it’s got to work its way through.”

That's one way of putting it.  Perhaps even the birth of a new lean metaphor... the anaconda vs. the water moccasin?  The financial cost is significant - more than a simple little number like $16 billion suggests.

Counting all those mothballed 787s, plus four aircraft in the factory and six test jets, Boeing has more planes on hold than Virgin Atlantic Airways has in service. That’s put a crimp in the aerospace giant’s finances: Working capital as a percentage of sales is approaching 50 percent, vs. less than 25 percent in 2009. Explains Wolfgang Demisch, a partner at Demisch Associates, an aerospace financial consultant: “It’s like they’re dragging a boat anchor equivalent to 25 percent of their sales, which is at the expense of the profitability of their enterprise.” Boeing’s stock has fallen 34 percent since the first 787 delay in October 2007.

Anyone who has started their own business, particularly one dealing with real physical products, knows the hidden danger of working capital.  How many companies have literally sold themselves out of business - another counterintuitive concept of how rapid sales growth can strangle a company's finances to death?  Not that Boeing is anywhere close to that pickle.

So that's the direct financial side.  But consider how all that physicall stuff moving through the anaconda clogs up production systems - leading to indirect costs.

Struggles with new materials and manufacturing processes extended testing to 20 months instead of the eight originally planned. That meant about half the 787s in inventory were already built before Boeing pushed back deliveries again last year after a fire during a test flight.  Each of the partially built planes is in a different state of readiness, since Boeing kept improving processes after the jets began rolling out in 2009. They’ve undergone waves of repairs based on testing tweaks; many jobs remain, including replacement of electrical panels redesigned after the test flight fire.

Production has been stalled at a rate of two planes a month for more than a year, and Boeing repeatedly has frozen the final assembly line in Everett for catch-up sessions, including a four-week pause last month. “Anytime you’re building an airplane out of sequence, the amount of work that’s required probably goes up by a factor of 10, because they have to unbuild all the things you built on top of whatever you have to change, and then build it all back,” says Demisch. “It’s cost that will be added to production and make the likelihood of a profit on this program over the next half-dozen years very, very low.”

Waves of repairs, "unbuilding", retesting.  "... the amount of work that's required probably goes up by a factor of 10."  Nope, we're not talking addressing envelopes anymore.

One piece flow.  Boeing just helped you learn why it's so important.

Congratulations, Boeing

By Kevin Meyer

Over the past several years I've taken Boeing to task, sometimes severely, on their 787 Dreamliner program.  By now we know that the outsourcing misadventure that many of us lean bloggers warned about in the early days was a mistake - ranging from Rube Goldberg contraptions such as the DreamLifter to having tiny parts stop a global supply chain.  There are many lessons that have been learned.

However after years of delays Boeing is now ready to deliver the first 787 Dreamliner airplane to ANA.  That's a milestone, and a positive one.  It looks like there will be more than 800 following.

A long road, lessons learned, and some brilliant new design and manufacturing technology.  A nice piece of good news in an otherwise rather miserable few weeks.  Bravo!

 

Here are several videos and photos of the configuration of the first ANA 787.

Lean à la Chromalloy and Steelcase

By Kevin Meyer

Last week brought us two stories of two companies mentioning their respective lean manufacturing efforts.  I thought I'd show you a couple quotes and see if you notice something.

First we have Chromalloy in Georgia.

Newnan's Chromalloy facility has announced an expansion that is expected to bring 125 new jobs over the next year. Chromalloy, located in the Shenandoah Industrial Park, repairs components of aircraft engines and industrial gas turbines.

Chromalloy will add new capabilities to the existing facility, building new lean manufacturing lines to service additional turbine power systems.

The expansion is already under way, [Tim, General Manager] Ulles said. For the past several months, the company has done some recruiting and hiring, and will be ramping that up over the next few month. "The types of jobs that we will be hiring for will be welders, machinists, shipping and receiving people" as well as engineers and customer service employees, Ulles said.

"We have a very committed and educated workforce, and we just look forward to adding more of the same here in Newnan, to expand the lines of operation," Ulles said. "We find there is a rich talent base here for skilled workers," he said, and "we have robust training programs that allow us to develop people, as well."

Ok, and now we have Steelcase in Michigan... well sort of in Michigan.

The corporate restructurings of the past decade put Steelcase Inc. in a better position to drive future sales growth and profits, CEO Jim Hackett told shareholders today.

The latest restructuring move started in January, when Steelcase announced plans to shut down three factories, including its Kentwood East seating plant, and move the work to Mexico. The closing will eliminate 750 jobs, including 400 in Kentwood.

Getting fit required Steelcase to shed excess manufacturing capacity and implement lean manufacturing and new sales and distribution models, Hackett said. “In order to execute the growth strategies, we know we must be committed to fitness,” Hackett said. “Investment in one area often means curtailing or re-inventing our activities in another.”

For one company lean means growth. For another lean means reduction, elimination, and shedding (oh sorry... "re-inventing").

For one company lean means leveraging a rich talent base and even improving on it through further training and education.  For another lean means moving a couple thousand miles away and starting over with brand new people.

Bill described this beautifully a few days ago in his post on how lean is not a cost reduction strategy.  Lean is realizing that attached to the pair of hands meticulously and erroneously watched by traditional accountants is an experienced, creative brain filled with brilliant ideas for improvement.  The oft-forgotten second pillar of lean, respect for people.

I wonder which company will be thriving in a decade... and which will still be "re-inventing" itself for the tenth or twentieth time, in search of the mysterious missing piece.  When it is, or was, right in their factories.