Evolving Excellence

Keep an Eye on Iraq

Over the past several months I’ve noticed an increasing amount of Superfactory activity originating from Iraq. Several university students have requested more information on lean manufacturing methods, industry professionals have downloaded some of our tools and training presentations, and our website stats show that Iraq is becoming a measurable (albeit barely single digit) component of our visitor base. Other Middle Eastern countries are also increasing in representation, with inquiries from Oman, Saudi Arabia, and Yemen just in this past week. Bill also mentioned that he’s seen a similar response to some of his blog posts.

I’ll refrain from getting involved in political commentary, and simply say that an industrial revitalization and re-connection with the world is occurring in Iraq. How it came about, whether it will continue, and whether it will spark similar changes throughout that region are subjects for another day and other blogs. The changes appear to be driven from two general sources: direct investment by external commercial, non-profit, government, and military organizations, and also the unleashed entrepreneurial drive of Iraqis themselves.

Jumpstart International is one such external organization, founded by an old Rensselaer roommate of mine, Sean O’Sullivan. After creating and selling a successful software company, MapInfo, he went on to pursue several personal and philanthropic goals. When the reconstruction of Iraq shifted into high gear, Sean was convinced that this activity could be performed far more efficiently, and within months he had created jobs for over 1,300 Iraqis. He’s delivering on his promises for "lean re-construction"… even though his business partner was executed. I remember (well, sort of…) Sean and I crawling back to the dorm from downtown pubs, and wondering if he’d ever amount to anything. 

One of the more unique organizations is Rapid Prototyping for Baghdad. A group of RP, medical, and engineering design companies such as Materialise, StrataSys, and 3D Systems are collaborating to provide medical device RP, primarily for limb replacement prostheses. Besides providing a valuable service, they are also educating Iraqis on RP methods and techniques.  This is along the lines of the personal fabrication "factories" that we blogged about several months ago.

A rather controversial article a few months ago suggested that a major advantage of the Chinese was that they could create lean-oriented factories from the ground up, while the industrialized world was constrained by existing plant layouts and methods. For better or worse, much of Iraqi industry has a similar opportunity. With a nascent stock market fueling internal capitalism, a growing number of educators and professionals trying to learn more about lean methods, external organizations transferring knowledge, and a large educated but inexpensive labor pool, conditions may be right for a strong manufacturing industry. Of course this all depends on increasing political stability, which is by no means guaranteed.

Most of us are keeping an eye on the competitive realities of the growing Asian economies, particularly China and India, but it would be wise to also watch other areas of the world… even Iraq.

Looking Lean vs. Being Lean: A Critical Debate on Leadership

Evolving Excellence has become a bit punchy lately, but this is because we feel that a critical debate is needed within the lean manufacturing community. 

Paradigms, methods, and outcomes need to be challenged, as how we move forward may determine the future of manufacturing competitiveness in North America.  We are sometimes being very blunt in asking some tough questions of individuals and organizations that we have tremendous respect for, but we believe we need to take a step outside of the box and look inward to ensure that our vision of lean is really "being lean" and not just "looking lean."

The debate began in May when we published a post questioning an article in Target by Jeff Owens of Delphi, where he describes how his company's culture helps create excellence.  By then Delphi had won many Shingo Awards for manufacturing excellence, but the company was already experiencing severe financial problems.  In July my co-author Bill Waddell published a post on Steve Miller joining Delphi to ostensibly turn it around, however we noted that he did not have the background to actually attack the manufacturing side of the operations.

In October things started to heat up, with Delphi filing for bankruptcy on the 8th of the month.  Jim Womack of the Lean Enterprise Institute sent out his regular missive, where he talked about Delphi's lean activities and how they weren't enough to offset "legacy" costs associated with union contracts and healthcare benefits.  That got us to thinking... is Delphi truly lean?  In a follow-on post we questioned that assertion... even though they had won many Shingo Prizes.

But what really got to us were the statements that lean was in place but couldn't succeed due to the legacy costs.  We've always believed that true lean requires lean management thinking, and therefore excellence in management.  Leadership, planning, hoshin kanri... all are core to the Toyota culture.  As we described in a later post, Delphi paid a shareholder dividend only months before declaring bankruptcy and they decided not to use their substantial cash reserve to buy out legacy agreements or shutter plants.  They knew they had these commitments coming due, but they did not confront them and instead opted for bankruptcy... and an apparent attempt to join the hoardes of mis-managed companies chasing low labor rates instead of internal waste reduction.  That is not excellence in management, and definitely not leadership.

This led us to ponder the difference between "looking lean" and truly "being lean."  Bill wrote a thought-provoking post on the issue, where he discussed the importance of looking outside of the actual assembly process.  In early November the requirement of "lean management" to ensure lean success was discussed in this post, again with Delphi as a specific example, with a discussion of one culprit being the difference between Sloan/DuPont ROI-driven management and Toyota/Henry Ford cash-driven management here.

The debate grew louder at the AME Annual Conference in Boston last week, where Jim Womack was a keynote presenter.  His presentation (view his presentation here, courtesy of LEI) was enthusiastically received, but also very sobering... which sparked a lot of debate with dozens of posts on forums such as NWLean.  Jim's remarks were interpreted with surprisingly large disparity... from a warning to manufacturers to a potential positive solution to pure gloom and doom.

Today Bill published a post reviewing a recent article in Manufacturing & Technology News, which discussed the apparent conflict between Delphi's Shingo Prize awards and their business performance that led to bankruptcy.  Shingo's executive director, Ross Robson, falls back to using legacy costs as the excuse, thereby completely forgiving management.  The plants that won Shingo Prizes had some great lean activities (although even Mr. Robson indicates one was unprofitable... how does that compute?), but lean is about leadership, culture, people... and profit.  Eli Goldratt said The Goal of manufacturing is to make money.  It's hard to be excellent if you aren't... even if you have supreme command and deployment of the tools.

The debate is not just ours... there have been similar hard-hitting posts in the Gemba Panta Rei blog and Mark Graban's Lean Manufacturing Blog, sith several follow-on comments.

Looking Lean versus Being Lean.  How do we ensure that our lean programs are really focused on true lean?  How do we avoid having manufacturers simply implement tools or simple training programs... aka "lean lite"?  How do we align awards and recognition such as the Shingo Prize, and certification programs such as the excellent SME/AME/Shingo collaboration so that they reflect true excellence... and not an oasis of lean tools in the middle of a desert of inept management?   Leadership is driving a vision throughout an organization, planning for success, accepting responsibility for failure, and making the tough decisions. 

How do we create real Lean Leadership? 

Start the debate and stay tuned.  The next issue of the Superfactory e-Newsletter will explore this further.

Katrina & 9/11 - A contrast in leadership, planning, and execution

Like all Americans, I've been watching events unfold in New Orleans.  A lot of it is emotional, however I've been struck by the difference in leadership styles between New Orleans' mayor Nagin and New York's mayor Giuliani after the terrorist attack on 9/11. 

I'll try to keep this as politically neutral as possible, as one thing that really aggravates me is how political this situation has already become at the expense of simply helping those in need.

9/11 was an event unlike any experienced before in the United States.  However New York had a very detailed and well-rehearsed emergency action plan that was immediately put into place.  The mayor and his various commissioners immediately knew where to go and assembled a rapid-response "war room".  Communication issues were experienced, but they had been planned for and hence the impact was minimized.  Giuliani took immediate charge, and very visibly commanded and coordinated his team.  He also visibly reassured his city and the nation.

Katrina, by contrast, was known to be an event waiting to happen.  Many scientists had predicted this type of catastrophe for decades.  Unlike 9/11, a specific plan was created for this type of event, one part of which called for an immediate and mandatory evacuation when a category 3 hurricane was poised to hit the city.  They waited until a full category 5 threatened before issuing the evacuation order.  They knew the levees could only withstand a category 3 hurricane and the Army Corps of Engineers had tried without success to get a project approved to upgrade them to withstand a category 5. The plan also called using city and school buses to evacuate those without transportation, but this plan was never executed... leaving tens of thousands stranded and hundreds of buses submerged only blocks from the Superdome.  The governor had the authority to call out the National Guard immediately, but waited, and almost 1,000 of the New Orleans police deserted immediately.

Planning and execution.  The plan was there, but the execution wasn't.  I'm sure there will be the investigations and commissions, but one lesson to be learned is to plan, and trust your plan.

Global Competition and Lean Manufacturing

Advanced Manufacturing has a thought-provoking article on the need to rebuild our factories if we are to compete.  The premise is that simply implementing traditional Lean in existing factories won't be enough... we must create new factories from the ground up to build in efficient layouts.  Costly, but necessary in the author's view.

Some of my colleagues and I have been discussing a similar topic... global competition and the potential of Lean to maintain the success of more mature economies.  One person in our group, a senior executive at one of the largest corporations in the world, had an excellent commentary on the article:

Once again, I think too many people are over simplifying what it takes for North American manufacturers to compete and prosper over the long haul.

"The business world is complicated ... yet in some ways inherently simple"

This author points out a real hidden nugget of truth, and a situation that is a little scary.

If you remember the US Steel industry in the 70's as an example. The infrastructure of US steel was old and tired, the companies had not invested much in new P&E, preferring to live off the gravy train of much depreciated assets. The US after World War 2 actually helped Japan invest in and build new modern steel plants, and the result was they absolutely kicked the butts of US steel, it was a total bloodletting. Now, here is the unvarnished truth. If US steel had of "Leaned" the hell out of their factories within the infrastructure they had, and the minimal P&E investments they were allowed; if they did the best lean implementation ever in the history of the planet, it would not have mattered one iota, they would still have been crucified ... this is not to say that the Japanese with new modern steel mills and the monstrous advantage that provided, should have then sat on their laurels and not also driven lean practices for a true double whammy (not that they didn't)

The author makes a similar relevant example. If a group of manual sharecroppers created the most lean manual farm operation ever designed in 5000 years by mankind, they could not come close to competing with the biggest klutz in possession of a combine ... again not that the klutz in possession of the combine should have stopped there and not also driven lean practices with his newfound tools.

The reality is many (not all by any stretch ... but many) US manufacturing enterprises are not investing a lot of P&E in their factories. In fact I'll bet the re-investment ratio of P&E to depreciation is less than 1 in most manufacturer's North American operations. Yet in the emerging markets (particularly China but not relegated only to China), there is a tremendous investment underway in new capital spending. In my view when one looks at it, if this trend sustains and grows, all of the North American lean efforts in the world won't keep the scale from tipping. In total, North American manufacturing is mostly in harvest mode with their North American operations.

You know, I have a theory about what I call "Cranes in the Sky". I believe truly that cranes are an indirect indicator of growth, prosperity, focus and success, as well as a predictor of the future. If one were to have such a simplistic measurement of say:

# of cranes in the sky to country geographic square footage

... or # of cranes in the sky to country population

... or # of cranes in the sky to GDP

... we would find today that China alone on any of these metrics would be an orders of magnitudes higher ratio that in North America. This in and of itself is creating a major advantage.

I do think though that even this author is oversimplifying the total picture. Clearly we can do more lean work over here, a lot more, and clearly he is on to something with the P&E, but the advantages moving China's way are significant, even the perceived advantages we have are minimal in my view, if one really wanted to honestly provide a realistic synopsis of the current situation:

- China (but more importantly it's fellow countries) are investing more in the plant and equipment

- China is modernizing it's supporting infrastructure a lot more than North America ... new power plants, new transmission systems, new major transport hubs and facilities, new roads, new airports and planes, etc etc

- China's management and leadership expertise's are behind, but they are gaining rapidly, they are investing much more in education, even of graduated employees

- China is beginning to invest more in acquiring companies and technologies

- China's (and in truth many developing nations), may not be lean yet, but in some of their better factories, they are on par or ahead of many of our best, and many of their mid tier ones are on their own lean journeys ... the lean advantage we might be able to get, we can't keep from them, they will achieve parity and it will not take long

- China and other emerging markets do have a significant labor advantage

... so what do we do, just roll over?

NO!!!

but we need to be open and honest and we need to play it smart!

In my view we need to:

- adopt and drive lean principles and practices in our factories

- adopt OTHER world class manufacturing best practices in our factories

- separate our products and services into ones where labor is significant and ones where it isn't

- where it is not significant, invest in our factories over here, lean them and upgrade them

- where it is significant ask if lean can offset the disadvantage then do it

- where labor is simply an advantage then do build and grow a low cost region supply chain

- support better education ... promote engineering over law (or arts)

- lobby our gov'ts to invest a bigger percentage of our money in infrastructure projects verse social and welfare initiatives ... give the bums a job building the next transmission line, don't just hand them a check ... we will be better off and so will they

Most importantly, and this is where we are not getting it, especially Canada

- We have a certain piece of the pie of the current domestic or possibly global market

- That piece of pie will come under threat from many new emerging serious competitive forces

- While maybe just maybe we can sustain our pie size, chances are we will end up giving some of it up

- In truth, we will have to share some of our slice of the current market pie with others, the laws of demographics just predict it

- At the same time what is happening is the size of the pie is increasing ... and that is where the opportunity lies

- WE NEED TO BECOME better and broader TRADERS. We need to be taking our manufacturing enterprises and making sure we command and get a share of this growing total pie.

- The trick to manufacturing success tomorrow in my view is not just in driving better operational excellence, it is in learning how to better sell into a full global market place. If one just does the former, they are destined to shrink, maybe to die.

If one had a macro long term crystal ball we might be digging our own grave and not even know it.

On the other hand, I am an optimist and believe in the strength of the US capitalist model to persevere. I do think we can make it better, I do think we should not be moving quite as many jobs as we do, and I do think we should be investing more than we are in our plant and equipment and country infrastructure ... but, I also think that the US was not going to get much more share of a fixed global pie. Investing in others (a bit like spending on R&D or adding new sales channels), and helping to maybe double or triple the global economy over the next 20-25 years, so that there is more available market to go after, could prove prescient. However, the US companies need to be aggressive at building relationships and a market presence in these growing economies, we have got to become even better global traders.

Perhaps having a 50% share of a 100 unit equivalent global market may prove to be less valuable than a 30% share of a 200 unit equivalent market. Of course, ending up losing half of your share of the current market and gaining minimal share of an emerging new growth economy, is not a good scenario either.

If we aren't willing to let small market economies grow and compete and even import to us, the biggest world market, that global pie size may never grow significantly.

It sure is complicated, there are few rules, some untread paths, no guarantees, opportunities abounding for growth, risks permeating for disaster ... then again, seems like a typical day in the office.

Really something to think about, and like he mentions, it can be a bit scary.  How much can Lean help a mature operation, especially when compared with an operation designed with Lean in mind?

You may have also noticed a few sideline comments on Lean and "other manufacturing best practices."  This is really the root of our ongoing discussion... can there be best practices that aren't part of, or even contract, Lean?  But more on that in a future post.