Evolving Excellence

The Soul Of Lean

by BILL WADDELL

I have often made feeble attempts to describe why publicly traded companies find it virtually impossible to embrace lean manufacturing, and its principes of respect for people, it's long term perspective and its focus on crating value for the customer.  Both Kevin and I have long tried to point out the destructive affects of outsourcing as a business model.  A master wordsmith has emerged on the matter to state the case much more eloquently than I ever have ...

"Today's international economic scene, marked by grave deviations and failures, requires a profoundly new way of understanding business enterprise. Old models are disappearing, but promising new ones are taking shape on the horizon. Without doubt, one of the greatest risks for businesses is that they are almost exclusively answerable to their investors, thereby limiting their social value. Owing to their growth in scale and the need for more and more capital, it is becoming increasingly rare for business enterprises to be in the hands of a stable director who feels responsible in the long term, not just the short term, for the life and the results of his company, and it is becoming increasingly rare for businesses to depend on a single territory. Moreover, the so-called outsourcing of production can weaken the company's sense of responsibility towards the stakeholders — namely the workers, the suppliers, the consumers, the natural environment and broader society — in favour of the shareholders, who are not tied to a specific geographical area and who therefore enjoy extraordinary mobility. Today's international capital market offers great freedom of action. Yet there is also increasing awareness of the need for greater social responsibility on the part of business. Even if the ethical considerations that currently inform debate on the social responsibility of the corporate world are not all acceptable from the perspective of the Church's social doctrine, there is nevertheless a growing conviction that business management cannot concern itself only with the interests of the proprietors, but must also assume responsibility for all the other stakeholders who contribute to the life of the business: the workers, the clients, the suppliers of various elements of production, the community of reference. In recent years a new cosmopolitan class of managers has emerged, who are often answerable only to the shareholders generally consisting of anonymous funds which de facto determine their remuneration. By contrast, though, many far-sighted managers today are becoming increasingly aware of the profound links between their enterprise and the territory or territories in which it operates. Paul VI invited people to give serious attention to the damage that can be caused to one's home country by the transfer abroad of capital purely for personal advantage. John Paul II taught that investment always has moral, as well as economic significance. All this — it should be stressed — is still valid today, despite the fact that the capital market has been significantly liberalized, and modern technological thinking can suggest that investment is merely a technical act, not a human and ethical one. There is no reason to deny that a certain amount of capital can do good, if invested abroad rather than at home. Yet the requirements of justice must be safeguarded, with due consideration for the way in which the capital was generated and the harm to individuals that will result if it is not used where it was produced. What should be avoided is a speculative use of financial resources that yields to the temptation of seeking only short-term profit, without regard for the long-term sustainability of the enterprise, its benefit to the real economy and attention to the advancement, in suitable and appropriate ways, of further economic initiatives in countries in need of development. It is true that the export of investments and skills can benefit the populations of the receiving country. Labour and technical knowledge are a universal good. Yet it is not right to export these things merely for the sake of obtaining advantageous conditions, or worse, for purposes of exploitation, without making a real contribution to local society by helping to bring about a robust productive and social system, an essential factor for stable development"

This and more is from Pope Benedict VI's Encyclical Letter Caritas in Veritate- Charity From Truthfulness.  It is well worth your time to read the whole thing, and it confirms that we hold the moral high ground in urging our wholistic understanding of lean upon the manufacturing world.

Boeing Continues to Re-Learn the Outsourcing Lesson

By Kevin Meyer

Boeing is in the news again, unfortunately announcing more delays with the 787 Dreamliner.  We've talked for years about how the company's outsourcing of design and manufacturing has lead to innumerable problems, not to mention that Rube Goldberg contraption known as the Dreamlifter.  The latest delay is design-related, however Boeing continues to have supply chain issues with key suppliers, and is now taking a "retro-innovative" (should I copyright that term?) strategy: insourcing.

Boeing Co. is in negotiations to purchase operations from one of its main suppliers, as part of an effort to gain more control over the supply chain of its troubled 787 Dreamliner program, according to a person familiar with the matter.

The company is close to announcing that it will buy a facility from Vought Aircraft Industries that makes sections of the 787 fuselage. The facility is located in North Charleston, S.C. The person familiar with the matter said negotiations have been under way for months.

That's all the more interesting as 18 months ago we wrote how Boeing should actually learn from Vought.  The company has been working hard to improve their operations, which is also helping the division that makes assemblies for the 787.

Vought managers are implementing a "Vought Operating System" modeled on the legendary Toyota manufacturing system. Some Vought managers have visited Toyota plants to see the highly efficient automaker in action. Vought is implementing lean manufacturing practices on many programs as fast as workers can be trained and new tooling and machinery put into place.

The results indicate that this is real lean, not LAME.

Quality has improved sharply. The rate of defects has declined 25 percent companywide from 2006 and 35 percent from 2005. Defects have dropped about 10 percent at the Dallas plant and a dramatic 47 percent at the Marshall Street plant, which builds sections for Boeing airliners.

Inventories of parts and supplies are being used at a 28 percent faster rate, which means the company has less cash tied up in materials and lower costs.

The emphasis on people shows that they even understand the importance and value of people.

The credit, Doty says, goes to Vought employees who responded to the challenges facing the company.  "When you look back at these numbers, they restore your faith in one thing: We've got great people here. They really want to be world-class," he said. "If you've got good, motivated people, which we have, all you have to do is provide good leadership, support and resources." 

At the time Boeing was blaming Vought for some of their woes, but we thought that Boeing should learn something from them.  Maybe they are.

The move [acquiring the Vought operations] would represent another admission by Boeing that it needs to take a more direct role in the manufacturing process of its marquee product.  When Boeing first rolled out plans for its Dreamliner, it said that it was reinventing the way it builds commercial airplanes.  Instead of manufacturing most of the plane at its Everett, Wash.m facility, many parts would be made by suppliers around the world.

Boeing, however, quickly discovered that keeping track of the different suppliers - and keeping the whole project on schedule - was more difficult than it had anticipated.  Bringing more of the production in-house could increase Boeing's ability to manage the complex project.

Of course "in-house" is something of a misnomer.  The Everett facilities have been decimated over the years, with tens of thousands of years of experience, knowledge, and creativity laid off in the name of "reducing cost."  How's that working now?  Will anyone be held accountable, or at least learn from, those decisions?

So "in-house" now mean's "Boeing East" in South Carolina, the Vought operations being acquired.  At least it appears Boeing is smart enough to not lay off those experienced folks and try to move the "simple manufacturing" to Everett. 

The move also potentially paves the way for a second 787 assembly line once Boeing is able to ramp up production, far from the current facility in Everett, an option Boeing officials have said recently they are exploring.

Boeing's outsourcing games have cost the company dearly, but hopefully this time the lessons will be learned.  And there are a lot of others out there that should take a look at Boeing's experience and learn as well.

An Outsourcing King Has Second Thoughts

By Kevin Meyer

Could it really be??  The king of outsourcing changing his stripes?

Mr. Immelt (CEO, General Electric) said GE had "outsourced too much," and would rebuild its own capabilities around activities such as developing software and manufacturing aviation components.  He said GE wouldn't cut outsourcing contracts or close research divisions abroad, but would open new facilities in the U.S. geared for export.

In a speech Friday to the Detroit Economic Club, Mr. Immelt said the U.S. should chart a "dramatic industrial renewal" that would boost manufacturing to 20% of the nation's jobs, about double its current share.  He called for the U.S. to reinvigorate efforts to improve its competitiveness as an exporter, by boosting investment in research and development, education and training.

Mr. Immelt said the U.S. has "lost our leadership in many growth industries, and other new opportunities are at risk."  He called for a new emphasis on the importance of engineering as a profession, as well as efforts to improve the technical prowess of U.S. companies.

Ok, so not quite a complete turnaround, but it's a good start if he puts meat behind those words.  And at least initially there's some real money behind the change.

General Electric Co. said it would open a $100 million research-and-development facility near Detroit to employ about 1,200 scientists and researchers in a region hit hard by job losses and a sagging auto industry.  GE said work at the center, formerly occupied by auto-parts maker Visteon Corp., will focus on developing information-technology, clean-energy and transportation products.  The company will also build a 100,000-square-foot building on the site.

Ok, who convinced Immelt to read Bill's book??  Apparently someone did.

Long is not Lean

A recent article in Logistics Management raised my ire a bit.  The title is The Downside of Lean Logistics, but the author completely misses his own point, therefore the title itself is way off base.

"Lean logistics," is also brought into question. In a serious recession, the probability of company failures among transport and logistics vendors is heightened, as is the threat of cargo theft, while moving products from offshore locations to final markets continues to create specific business risks, according to the recently-published report.

“Drewry argues that international sourcing has introduced in global business more and higher risks related to transport and logistics, and that these risks are often more complex and more significant than in the past but are still misunderstood,” said Philip Damas, director of Drewry Supply Chain Advisors.

For example, the dilemma with lean international supply chains, coupled to lean manufacturing, is that they can become more vulnerable to risk factors. If the supply chain becomes longer (due to outsourcing the supply or manufacture) this vulnerability can increase. Vulnerabilities commonly would include stock-outs when lead times become extended to such a degree that variations in the supply and demand that are unpredicted (perhaps due to deficiencies in the demand and supply forecasts), cannot be accommodated without building into the supply chain some slack – or buffer inventory – which is in itself an anathema to the “lean” ethos.

By now you probably see the issue... although no company can or should be completely vertically integrated, international outsourcing is usually not part of a true lean manufacturing operation.  The best lean manufacturers move overseas for only one reason: to be closer to a market.  Long supply chains by definition create more inventory, more inventory consumes cash and creates potential hidden quality risk, and reduces overall agility.  All costs, whether they show up on a P&L or not.

But the other, and perhaps more important issue, is that this portrays lean as reactionary instead of proactive.  A "lean" supply chain that falls apart due to disruption is not a robust supply chain, lean or otherwise.  Robust does not necessarily mean inventory buffers, but could include internal agility to adjust product mix to a change in incoming raw material sequencing, additional backup suppliers, assembly alternatives, and the like. 

Perhaps a better title could have been "The Downside of Long Convoluted Supply Chains."

More Lemmings Come Marching Home

Pardon me if I'm a bit unfair to Delta Air Lines, but they happened to be the scapegoat of the article I'm referencing. 

Delta Air Lines Inc. said Friday it has stopped using India-based call centers to handle sales and reservations, making it the latest U.S. company to decide the cost benefits of directing calls offshore are outweighed by the backlash from customers.  Delta said it stopped routing calls to India-based call centers over the first three months of the year. Customers had complained they had trouble communicating with Indian agents, the airline said.

Even an "outsourcing adviser" has figured that out.

"It is fundamentally cheaper to do it in India, but there's also the question of whether it's better to do it cheaper or better to do it better in terms of the relationship with your customers," said Ben Trowbridge, chief executive of Alsbridge Inc., a Dallas-based company that advises on outsourcing.

No kidding.  "Better" drives value to the customer, "cheaper" temporarily drives savings to the supplier.  Which creates an optimal long-term situation?  More and more companies are beginning to understand this, even if it flies in the face of traditional accounting. Delta isn't the only company to figure this out.  In this article alone: Chrysler, United, SLM (Sallie Mae), and US Air.

Welcome home.  I hope you remember the lesson.

Pop Goes China

by BILL WADDELL

It may have passed under your radar in the global economic hubub, but Chinese manufacturing is in the tank and sinking deeper.  While the economic meltdown threw a fair amount of gasoline on the fire, Chinese manufacturing was heading in the wrong direction well before the credit and capital markets went haywire.

The cost of labor in China is going up fast, fueled by inflation (before the economic debacle) and by Chinese government actions.  The goal of Chinese economic policy is twofold: first to draw in vast amounts of foreign - mostly American - cash.  They have obviously met that goal very well.  They also look to create jobs; after all they have 1 point 3 billion mouths to feed.  Here they have come up short - about 300 million mouths short.

To correct this the Chinese toughened the minimum wage and overtime laws at the beginning of '08.  The idea was to cut back on hours worked so manufacturers would hire more people.  The result has been about a 20-30% increase in labor costs, which was China's stock in trade.  Absent cheap labor, China is just a very, very far away place that manufactures stuff with dubious quality and absurd lead times.

Compound all  of that with their lead-in-the-toys and toxins-in-the-milk-and-baby-formula fiascos, which led to tighter regulation and enforcement, which resulted in even more cost increases.  Then throw in a taste of just how expensive Chinese logistics can be when oil is selling for over a hundred bucks a barrel, and the net result is 70,000 Chinese factories closing over the course of the last 12 months and more than 20 million more unemployed Chinese wrokers.

It will get worse for China before it gets better. In the long haul, China knows that their 'One Child Policy' presents a huge problem.  As a Chinese friend told me recently, "Our family trees are all upside-down".  By that, he means that as long as there are >2 children per family there will be more young people working than old folks sitting on rocking chairs.  One child per two parents, however, violates that basic law of math.  It is driving China to a population aging condition that makes the retirement of the baby boomers look like a minor blip.  Who is going to pay for the growing hordes of Chinese Geezers?

Add it all up and China's days as a low labor country are rapidly winding down.  This should come as no big surprise.  As I have often written, no country can build a long range economy on the principle of low labor costs. It simply cannot sustain.  India and Malaysia are already better deals, and Mexico is creeping back into the game.

Another guy I know who is in the business of beating the Chinese bushes to find sources for American companies put it this way: "They just don't understand that they can't survive any longer by saying 'You buy - it's cheap'".  What he meant was that the typical Chinese manufacturer knows and cares little about quality, customization, delivery performance, lead times ... all they know is low cost.  And they have been able to get away with dismal quality and customer service because they were so cheap and could ship in big quantities.  Now, as they lose that low cost advantage, they had better figure out the rest.  In other words, China had better get on the ball with lean manufacturing.

Ironically, this means that Mexico will get another shot at the brass ring.  They completely missed the boat in the 1990's when they were the low cost country of choice.  Instead of grabbing hold of manufacturing and taking it to a higher level, they were content to be a low labor cost enclave, and when they lost that edge, they lost it all. Mexico is beginning to look like they are worth another try - if they can stop shooting each other long enough to get serious about manufacturing.

Then next 5-10 years will be interesting.  We shall see if China figures out lean manufacturing fast enough and well enough to remain a global manufacturing player, or if they settle back into being a regional producer for their own sizable market and the countries nearby.  Given the dismal record of lean progress in China thus far, their prospects are not good.  The few true lean experts trying to help them like McCain Koo have had too big a job to swallow alone. 

Oh and that loud popping noise you hear from the east?  That is the sound of millions of bubbles bursting in the hallowed halls of the academic elite who have preached long, loud and eloquently that China will be the center of this flat world throughout the 21st century. It will also be interesting to hear the academic rationalizations for the failure of that prediction, and to hear their next grand global theory of why manufacturing is best performed anywhere but here.

You can read more about the evolving disaster in China in the Shanghai Daily, which I regard as about as good as you are going to get from still heavily censored China.

The Evolving Excellence Crystal Ball

Sometimes we surprise even ourselves.  Unfortunately.  From an Evolving Excellence post nearly thirty months ago:

Ahh... to be a world tourist.  Globetrotting from country to country in search of lower direct labor costs to help offset unrecognized internal process waste cost.  The first stop was Mexico, then on to Honduras or the Dominican Republic.  After a while there were too many gringos there as well, so how about a nice cruise over to Asia. 

China's pretty nice... lots of cheap labor... that should do just fine for a while.

Uh oh.  It's only been a few years but something's going wrong.  Why are labor costs shooting up?  It's not tracked, but it appears training costs are going through the roof as well.  What's going on?

Time to start looking for the next destination.  Africa is looking pretty good.  It's going to cost a lot to move the factory over there.  But surely the reduced labor cost offsets moving, retraining, putting more inventory on ships, and rejiggling the supply chain.

Yes, Africa was in our sights.  And so it has come to pass.

After the fall of the Berlin Wall, Japan's Sumitomo Electric Industries joined a crowd of automotive suppliers setting up low-cost plants on Europe's eastern rim. But now, Sumitomo is shifting production south of Europe—to the ancient Moroccan port of Tangier and to Bou Salem, a market town set among wheat fields in northern Tunisia. As costs rise in Eastern Europe, the company says, it's getting harder to make a profit. North Africa, by contrast, offers far lower wages and plenty of eager workers.

Sumitomo isn't the only company beating a path to the Maghreb, a swath of four developing countries along the Mediterranean's southern shore. Led by Morocco and Tunisia, the region of 84 million people is attracting serious investment—more than $30 billion over the past five years—to build everything from auto and aerospace factories to five-star resorts and call centers for multinationals.

Why?  Labor cost, obviously.

The Maghreb's appeal is obvious. It's in the Continent's backyard: Tangier lies just eight miles from Spain across the Strait of Gibraltar. The region's governments are relatively stable and business-friendly. And it's cheap, with factory wages averaging $195 to $325 a month. Compare that with the average $671 monthly paid by French automaker Renault at its Dacia Logan factory in Romania.

And who's going?

Those numbers help explain why Renault is building an assembly plant in Tangier that will be one of its biggest anywhere. The factory is expected to employ 6,000 workers, and Moroccan officials say it could attract suppliers that would provide jobs for 35,000 more.

Europe's aerospace industry is just as bullish on the region. Next year, Airbus plans to open a $76 million factory in Tunisia with 1,500 workers. And the industry's suppliers already employ more than 10,000 in the Maghreb, making fuselage panels, high-pressure pipes, and much more. France's Groupe Safran, for instance, has six facilities in the Maghreb employing almost 1,400 people. Inside its airy, brightly lit factory near the Casablanca airport, women in white jackets painstakingly weave electric wires into cables destined for Boeing and Airbus jets.

There are risks.  But the narrow-minded see the short term reward.

Despite such uncertainties, the Maghreb looks relatively well positioned to ride out the economic storm. Unlike Eastern Europe, it didn't gorge on foreign debt. And while the U.N. says overseas investment in the Maghreb dropped by some 5% last year, that's not bad compared with the 21% decline in the Middle East. "We are seeing some projects delayed or scaled back," says James Morrow, Citigroup's chief for Morocco, Tunisia, and Libya. But, Morrow says, "it's the next logical location for companies that want to diversify their exposure."

"Diversify their exposure."  Yes, sure.  Instead of focusing on improving internal business fundamentals and efficiency.  With so many companies now headed to Africa after stints in Mexico, Asia, India, and elsewhere... and that demand then raising the labor costs they sought to minimize. 

Where next after Africa?  I guess Antarctica is wide open.

Lego Figures It Out

What a wild ride it's been at Lego.  First in mid-2006 Bill told us about their initial decisions to outsource manufacturing.

The only trick the ponies from McKinsey know is outsourcing, which is exactly what [CEO] Jørgen Vig Knudstorp did.  The work in the U.S. plant in Connecticut is being sent off to Mexico.  The Danish town of Billund where Lego is headquartered and the factory has long been the biggest employer in town, is being decimated as most of the work is being farmed out to Flextronics to do in the Czech Republic.

Then last year, after only a few months, we began to hear of problems.

The Lego corporation's large scale outsourcing has created so many problems that there will not be any downsizing of jobs in Danish factories in 2007. The plan was to cut the workforce in Billund from 1200 to 300, and outsource the jobs to their partner Flextronics in Kladno Czech Republic.

It then appeared one of the final chapters of Lego's outsourcing adventure may have been written. One of our long-time readers from across the pond sent us the following news:

Lego drops partnership with Flextronics - Quality and effectiveness have simply not been good enough for the production that was outsourced to a Czech factory.

Now it appears that they have completely gotten religion.  Once again, thanks to our Danish correspondent Peter,

The recipe for the good result is, according to Lego's CEO Jørgen Vig Knudstorp two significant ingredients: Insourcing and intellectual capital.

Holy camoly.  Insourcing and the power of knowledge.  Could it be they actually get it?  Three years of destroying the lives of thousands of employees and their families, but I guess better late than never.  Well, maybe I better qualify whether they really understand what has transpired...

"After the fact that we, 4-5 years ago, had a rehearsal of the financial crisis that the world is having now, Lego was trimmed hard and now we focus on our core output. The result is mainly due to optimized management of costs, but especially the ability to quickly react to the demand. Insourcing of the previously outsourced prodction has contributed to this" says Jørgen Vig Knudstorp.

No, I think it would be more accurate to say you experimented with traditional McKinsey solutions, they failed miserably, and you were at least smart enough to realize they had failed and you figured out how to save your company.  In other words, you screwed up, but caught it in the nick of time.  Actually, Mr. Knudstorp comes right out and admits this screwup, which is far more than most CEO's will do.

"If we go out and search for someone to make bricks for us then they will say: 'Yes please, how much of your equipment can we have?' and then you are in a situation where you are paying someone to produce on your own machines. You have to scratch your head a bit for that math to work out." Says Jørgen Knudstorp, who acknowedledges that he made a mistake with Flextronics that Lego has now stopped working with, after a lack of fulfillment of quality and efficiency targets.

"I should maybe have discovered that a long time ago. But now when our contract is running out, I am glad that we are running the production again. But it has been a ok experience where we have learned a lot about where we have our competencies and where we lack them."

He does seem to have a pretty good idea of the limitations of oursourcing, something those among you who still bow to the siren song of outsourcing should use as a lesson.

When we make 22 billion bricks all year, or 30.000 per second i around 7.000 variations, in 115 million boxes. And these boxes have to be at a retailer in a given city in a give country by 17.15 next wednesday. And these boxes are not there, then they will not enter the distribution. Then we need to keep track of all the elements and how they are placed in giant storage facilities. To produce exactly what is needed in exactly the right qualities is extremely demanding of our planning and data-integration.

You can have suppliers like smaller satellites that supports your production and whom you get into the system, but you have to be like the spider in the web and control all your master data. We couldn't do that while we were outsourcing 70 percent of our (finished goods)production. It just didn't work. So now we have optimized by taking everything back.

Lego learned a very painful lesson.  Hopefully others can learn from Lego.

Outsourcing & Supply Chains: The Oprah Factor

Oprah Winfrey has appeared in this blog two times in the past, once in relation to my mother in-law and a second time when announcing Craig Woll joining us as an occasional blogger.  Although intentionally rare, I think it's finally time for a third appearance.

Earlier this week Amazon announced it's latest version of the Kindle.  I've been intrigued with the device for several months, and this new version may just tip me toward buying one.  The ability to hold 1,500 books, free wireless download of new books in seconds, being able to have an electronic version of my favorite newspapers waiting on my device each morning.  Sounds appealing and environmentally friendly.

Amazon Inc. is announcing a new version of its Kindle e-book reader on Monday. And, in a sign that the electronic book is gaining clout in the publishing world, Amazon is also expected to say it has acquired a new work by best-selling novelist Stephen King that will be available exclusively, at least for a time, on Kindle.

Before I get to the impact of Oprah, let's take a look at some of the production issues that have impacted the first version of the device.

The $359 Kindle, which allows people to read books in an electronic format, has been out of stock on Amazon's Web site since November, which meant it was unavailable over the crucial holiday shopping season. Now clues from the contract-manufacturing industry in China and Taiwan suggest the Seattle company may have been blindsided by demand for the book-size device and that it has since been ramping up production for the launch of its new Kindle.

The maker of the Kindle's special screens, Taiwanese manufacturer Prime View International, says the Kindle shortages came from Amazon's conservative sales forecast for the device. Prime View adds that Amazon is now trying to avoid repeating the current shortage by asking it to pump out more screens, which it is now doing in case orders increase suddenly.

This is not a small business, although Amazon refuses to disclose specifics.

Citigroup Inc. analyst Mark Mahaney estimates 500,000 of the devices have sold to date, based on data reported by Sprint Nextel Corp., the carrier used by Kindle users to download new books. He forecasts the product will bring Amazon $1.2 billion in sales by 2010.

Ok, I know.  Get to the point already.  So here's the impact of Oprah...

One factor that may have contributed to Amazon's supply problem was an Oct. 24 endorsement by Oprah Winfrey, who called her Kindle "my new favorite thing in the world." Ms. Winfrey's production company, Harpo Inc., says she wasn't paid for that endorsement, and chose to promote the Kindle on her own after being shown one by a friend.

The day of the endorsement, visits to Amazon's Web site were up 6% over the previous Friday, according to Experian PLC's Hitwise. Web traffic going from Oprah.com to Amazon.com increased more than 15,000%.

While Amazon had some warning about her endorsement -- the company offered a $50 coupon to Oprah viewers -- it would have required several months' lead time to ramp up production of the device and ship it from China, say analysts.

Now... how fast could Amazon's offshore contract manufacturers respond?  How long did it take to communicate the change in demand, across time zones, ramp up production, procure additional containers to go on container ships, and then have those ships traverse the largest ocean in the world?  And what would have happened if a glitch was found after those devices were on the high seas?

Aren't long supply chains fun?  And more costly than you'd initially expect...

Outsourcing is NOT a Lean Initiative

I've followed JDS Uniphase for many years, ever since their downturn during the 2001 telecom meltdown demolished a previous employer.  Last week they had a quarterly earnings call where CEO Tom Waechter discussed their lean initiatives.

A little over 12 months ago we began productivity improvement program in the form of lean initiatives across the company. They are designed to reduce the overall complexity of JDSU to move the company from a fixed to variable cost manufacturing model. As a result of these actions, more than 20% of presently occupied real estate will be vacated. JDSU started these measures in advance of a downturn, which I believe puts us at an advantage compared to our peers.

Great!  Maybe they won't get into the excess inventory situation, one shared by an entire industry confronting overbuilt fiber optic capacity, which caused the mayhem seven years ago.  So what does Mr. Waechter say next?

I will now cover a few of the major milestones recently achieved as part of these initiatives. An agreement with Sanmina, which transfers our Shenzhen manufacturing facility to Sanmina to the manufacture of JDSU’s optical communications transport and transmission product line. The Communications Test and Measurement has signed an agreement with contract manufacturer Benchmark. This will enable the largest JDSU business to move primarily to a variable manufacturing cost model and improve overall scalability. And finally, agreements are already in place with Fabrinet for a production of select laser products.

Two, maybe three, manufacturing operations will be outsourced, to create a "variable manufacturing cost model and improve overall scalability."  As if that can't be accomplished with basic good manufacturing, especially real lean manufacturing?

Sorry Tom, you've just signed away a potential core competitive competency.  And proven that your lean initiatives are really just LAME.