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If the Wall Street Journal can be believed, Toyota, Honda and Nissan are about to outdo Coke’s 1985 debacle in the annals of business stupidity. If it comes to pass, Ford’s ‘Way Forward’ will be clear, and GM will most certainly come roaring back to life. It seems as though the Japanese are planning to sink to U.S. levels and save the American companies the trouble of having to rise to Japanese performance.
According to the Wall Street Journal, “Japan’s car makers are adopting what Mr. Ghosn, Nissan’s chief executive, characterizes as an American approach to corporate finance. Shares of all three Japanese car makers [Toyota,Honda,Nissan] trade in the U.S., with Honda and Toyota listed on the New York Stock Exchange. As a result, the companies are moving to staff investor-relations departments with English speakers and to report quarterly earnings under standards expected of U.S. companies. At Nissan, which trades as American depository receipts on the Nasdaq Stock Market, Mr. Ghosn says the gauge of performance has shifted from market share, the traditional measure in Japan, to metrics such as profitability, cash reserves and return on investment. ‘These are the direct influence of the U.S. side,’ Mr. Ghosn said.”
To Jon Miller and all others who objected to my categorization of Toyota as ‘racist’ for their failure to put Americans on the board, I can only say mea culpa, mea culpa, mea maxima culpa. Had I known that this is what the Americans working for the Japanese companies would do, I would have lauded Toyota’s history of making the Americans sit at the kid’s table for Thanksgiving and Christmas dinner.
I owe a thank you to Marcus Newman at International Specialty Products (which, among many other things, “adds flavor and clarity to beer”, so they must be a good company) for passing this tip along to me. His note said, “I guess Toyota and Nissan didn’t read the Rebirth of American Industry book.” If they did, Marcus, they apparently didn’t think too much of it.
For those who haven’t read it, the message Rebirth tries to send is that the early Ford Motor Company and then Toyota were driven by market share and cash flow. That concern drove them to create management practices and a management infrastructure that supported lean manufacturing. In order to optimize cash flow, production flow has to be fast. You can’t get good cash flow by building inventory. That is why Toyota calls inventory ‘waste’ - it kills cash flow. Continually striving for market share keeps constant pressure on prices, which in turn keeps constant pressure on costs - hence Toyota’s Profit = Price - Cost formula (as opposed to the American version, Price = Cost + Profit) This economic philosophy drove Ford to do things like constantly reduce the price of the Model T. He was growing market share and ratcheting up cash flow. It caused Toyota to do the same - a strategy so confounding to the American mindset that Toyota is often blasted in Detroit for ‘buying market share’ - a practice viewed as almost criminal by the ROI crowd.
American companies, particularly GM where the ROI concept was elevated to an art form long ago, do not put market share or cash flow at the top of the list. They measure themselves by Profits and ROI. With inventory as an asset and full absorption accounting allowing them to take overhead costs away from the profit calculation and park them on the balance sheet in the inventory account, an opposite set of management practices makes sense. Instead of eliminating the waste of setup time and defects, the numbers are better (at least in the short term) when you simply amortize them over big batches of production and move the cost out of the profit calculation.
Ford stopped being lean on the day in 1947 that they changed over to the GM/ROI economic model. If the Wall Street Journal article is correct, Toyota, Honda and Nissan will trace the death of their manufacturing excellence to the day they decided to adopt “profitability, cash reserves and return on investment” as their primary measures of performance.
It is really quite that simple - no lean manufacturer drives itself by profitability and ROI. No company that drives itself by profitability and ROI has become lean. If Toyota and the rest really plan to elevate ROI to prime metric status, I say welcome to the world of batch manufacturing.
Posted in Lean Accounting & Management Systems, Lean Manufacturing | No Comments »
The Slums of Manufacturing
Saturday, April 22nd, 2006
Every time I write something negative about Ford, GM or the big American manufacturers the comments and email fly, decrying my lack of faith, my bad attitude and my overall crabby disposition. Let me try to explain this.
GM narrowed their losses in the first quarter and many in Detroit and Wall Street are pointing to it as the beginning of the turnaround. They had record revenues, up 14% from last year. Proof that things really are changing, right? Not if you dig into the details and see that perhaps as much as 1/3 of their sales during the quarter were to car rental fleets. None of the auto companies willingly divulge their fleet sales numbers, because fleet sales are generally not a good deal. When they sell a few thousand cars to Hertz or Enterprise, for instance, the terms include an agreement to buy the cars back in six to nine months. Then GM will have to sell the cars as used, competing with their own new car sales. In short, fleet sales make the numbers look good now, but are usually a money losing proposition in the long term. (You didn’t really think it was out of patriotism and a ‘Buy American’ philosophy that all of the car rental companies have loads of Ford and GM products, but very few Toyotas, did you?)
Selling out the long term for the sake of immediate results is at the root of GM and Ford’s problems to begin with. The ridiculous wage and benefit structure UAW members and retirees get is 100% due to GM and Ford being unwilling to take a short term strike in order to have a workable long term cost structure. As a GM exec recently asked me, “What would you have had us do, take a strike that we thought could last over a year?” Yes, as a matter of fact, I would. A year, or even two, of disastrous results to get the cost structure right sure beats insolvency in the long term, doesn’t it?
The same is largely true with their weak products. Investing in product development risks money now in the interests of long range success, which is not something they do easily. The fleet sales figures are a pretty solid indication that GM has not really changed at all. They are still willing to do things that are harmful in the long term in order to give good news to Wall Street now.
So here you and I are, trying to convince the big publicly traded manufacturers to commit to long term manufacturing strategies that will most certainly bring about radical improvements to their cost structures, and give them a tremendous boost in the market, but they aren’t buying it. It makes no sense, does it? After all, these are bright people and it can be maddening for them to fail to appreciate the obvious value of manufacturing excellence.
In order to understand it, and to understand why I hold out little hope for GM, Ford or any of the big manufacturers - why I am so ‘crabby’ and ‘negative’ - look at it this way:
Picture the execs at these companies as people living in a drafty old house with ever increasing heat bills as the cold air pours in every winter. Picture yourself as the guy selling insulation and new windows. You have a great product. It won’t cost too much, and it will pay for itself in a year or two. Yet at house after house, no one will buy a thing. Why not? Because the execs you are selling to are not the home owners, they are renters. A renter is not about to make an investment in a home that takes a few years to pay off since the renter does not expect to be living in the house for that long.
But the execs are usually there for a long time, you say. How can they be renters? They work for the stockholders - not the employees or the customers or the communities or the suppliers - and the stockholders do not intend to be in GM, Ford or anywhere else for more than a few months. They are just renting GM for a couple of months - not buying it. Short term tenant stockholders do not want to spend money now for storm windows, insulation, employee training or a strike in order to get a payoff a few years down the road, no matter how great the payoff might be, since they won’t be around to collect the payoff.
Your next logical question is, if the execs and the stockholders are only renters, who is the landlord? The execs and the stockholders would tell you that, if there is a landlord at all, it is the government. They think the government should pay for employee training, and for investments in factories and machines, and for any number of subsidies to pay for the consequences of the renters’ behavior or the investments needed for long term viability. That is because the government - which in our democratic society, means all of us - are the only ones with a stake in things. The long term viability of GM and Ford is really of little consequence to the stockholders. It is only important to the society as a whole, and the other stakeholders, in particular. To Wall Street, so long as they are not the ones holding the stock when the music stops, the idea of GM or Ford going under in five or ten years really doesn’t matter.
This renter mentality is what drives GM, Delphi and the rest to pay dividends to stockholders even as bankruptcy stares them in the face. It drives them to give away the store to avoid a strike, then have massive layoffs to temporarily avoid the consequences. It drives them to demand tax incentives and outright cash in order to make any investments in plant and equipment. It drives them to outsource to a low cost country now in order to reap quick cost reductions. It drives them to think like Bill Ford - that the government should subsidize Ford’s work on vehicles that use alternative fuels in a highly efficient manner.
When I write about the detrimental impact of the DuPont ROI formula as a management device, the staunch defenders of the financial status quo are quick to point out that lean reduces both inventory and costs, which generates a favorable ROI. True, but it takes a while to make that happen. If you want a short term ROI kick, the best way to do it is to build inventory. The worst thing to do in the short term is to reduce inventory. To renters, those short term ROI effects are all that ever come into play.
So long as the execs are renters instead of homeowners, they are not going to become very good at manufacturing or product development or anything else that requires even a minimum amount of short term sacrifice. The problem with having the government as the landlord is that, for one, they are not very good at it. The government is not any good at much of anything, so any hope that they are going to effectively assure the right long term investments for the big manufacturers is folly. Second, the government is tired of being pushed into the landlord’s job. The renters at GM and Ford have broken out all the windows and punched holes in the walls too many times and the government is tired of cleaning up the mess. While Toyota and Honda are consistently good tenants, taking good care of the property and asking the landlord for very little, GM and Ford continue to trash the place.
None of the plans proffered by GM or Ford give any indication that they have identified and corrected the root cause of their problems. The labor cost fiasco is not the result of one terribly flawed agreement with the UAW. It is the result of hundreds of bad agreements going all the way back to the 1950’s. The mistake has been repeated over and over for far too long for them to be errors in judgment. They are clearly the result of a terribly flawed decision making process. Why on earth should anyone think that either company is going to make those decisions any differently once they get out of the swamps of their current crises?
The same is true with the idea that bad product decisions have caused their problems and better product decisions will get them out of the swamps. Between them, Ford and GM have 91 different models displayed on their web sites - and all of them are the result of errors in judgment? The downward slide has been relentless for twenty five years. Since then, they have made a handful of good products and a few thousand such errors in judgment? Not hardly. The basic process for making new product investment decisions is clearly not working, and the process has to be fixed if anyone is to have much faith that the next twenty five years are going to be much different from the last ones.
So how do we get Wall Street and the execs that do their bidding to start acting like homeowners, rather than renters in a run down trailer park? And how do we get the government out of the role of industrial slumlord? Change the tax code - in particular, the Capital Gains Tax.
The Republicans argue that the money invested by stockholders has already been taxed, and the profits from the companies in which they invest has already been taxed, and to tax the gain stockholders realize from investment in stock represents double or even triple taxation. Further, reducing, or even getting rid of, the Capital Gains Tax will spur greater investment in business. The Democrats argue that Wall Street and the execs are looting the companies, taking millions out of the system at the expense of the workers, and that the rich investors should pony up some of the loot they are taking from the system.
The solution is to accept neither argument, or both, depending on how you look at it. The solution is a sliding Capital Gains Tax over a five year period. The tax rate ought to be somewhere in the 80-90% range for the first year - you buy stock in GM and cash it out within a year then you pay just about all of the profit to the government. That way the government has the dough to pay for the broken windows and cigarette burns in the carpet a short term renter like you left behind. You hold onto your stock for five years or more and your gains over that period are tax free. You have been a good custodian of the property and you deserve to get all of your damage deposit back. Slide the scale in between.
It really is not that radical an idea. After all, employees usually have plow their money into the 401K program for at least five years before they are vested and can cash in the stock. It’s just telling the investors that they need to be ‘vested’ in the company too.
That simple solution will turn the stockholders into people with a property owner’s point of view, which in turn will push the execs into a long term perspective. Until this changes, however, don’t hold your breath waiting for the publicly traded manufacturers to become particularly lean, or to start putting out products that reflect any vision. Instead, look for them to go the way of Cabrini Green.
Posted in Lean Leadership / Change Management, Lean Accounting & Management Systems, Lean Manufacturing | No Comments »
A Thought To End The Week
Friday, April 21st, 2006
Stanley Furniture just announced their first quarter results. Sales were at a record level, earnings were off a bit from last year, but strong enough to pay another dividend. They company was honest with Wall Street about the earnings. Energy and raw material costs were up, but the big hitter was that labor costs relative to sales were too high. They had anticipated even greater sales revenue, but furniture buying in what they call the “car states” was soft. Just the same, they made a decent profit, cash flow was good and the company repurchased another million bucks worth of its stock.
The company will “caringly and lovingly manufacture two-thirds of what we sell, relying on imported furniture to offer companion furniture pieces or items Stanley does not build“, according to Jeff Scheffer, Stanley’s chairman and CEO. The Wall Street analysts were apparently challenging him to join most of the furniture manufacturers in the US in their exodus overseas. Company spokeswoman Robin Campbell said Stanley “does not anticipate using layoffs or reduced work weeks to cut production costs“. All of this according to the Roanoke Times.
Instead, Stanley’s plan is to get lean. They hired a veteran lean guy named Rick Lovorn from Masco, which I have mentioned previously, to run their four manufacturing plants. Scheffer says “Stanley will compete by offering furniture customers want, speedy delivery and products of high quality“. They’re gonna “ramp up efforts to adopt principles of lean manufacturing, focusing on ways to monitor efficiency and continuously improve production“.
It all sounds good to me. Sales are good, the company is making money, paying dividends and generating cash. They could do better and competition is tough, so they brought in a high powered manufacturing expert to start draining the swamp.
Wall Street’s reaction? The price of a share of Stanley Furniture stock dropped two bucks upon hearing all of this.
This is why it is so difficult - perhaps even impossible - for publicly traded companies to adopt lean manufacturing. Wall Street wants earnings to increase NOW. They want headcount reductions and plant closings NOW. They want Scheffer to start buying products in Asia NOW. They want earnings up this quarter. Nobody plans on hanging onto Stanley Stock long enough to wait for Rick Lovorn to start getting results.
If Jeff Scheffer is like most CEOs these days, his compensation plan includes some healthy stock options. His annual performance bonus is most likely tied to the stock price. Announcing a lean strategy and having the stock price drop, rather than outsourcing, probably cost him a lot of money - not the company - him - personally - the Scheffer family - the Scheffer kids college fund. The same is apt to be true for his direct reports.
And it’s going to get worse before it gets better. From what I can tell, the Stanley swamp is pretty deep. Inventory is turning so slow as to be imperceptible, so when Lovorn leans it up, there is going to be a lot of under-absorbed overhead hitting the bottom line. All the years of waste the accountants have put on the balance sheet through their blind devotion to full absorption and the matching principle have to come off the books, into the light of day, and it will be ugly. The company will be improving by leaps and bounds, but you would never know it by the way the accountants do arithmetic. To Wall Street, the company will be going in the tank, and the pressure on Scheffer and the rest will be enormous. If he sticks to his guns long enough, the board of directors might even decide to fire him.
The path not chosen by Scheffer sure is a tempting one. Instead of Lovorn and lean, and committing to the employees, it would be awfully easy to close the plants, throw in the towel, and announce that all of the Stanley products are coming from Asia. The stock would skyrocket, earnings would be great - for a few years, anyway - and Mr. Scheffer would put quite a bit of money into his pocket. Long before the bottom drops out at Stanley, he could have moved on to ‘turn some other struggling company around’. He would be a Wall Street hero and he would be rich. But he did not choose that path.
He may not be able to sustain the journey down the road to lean manufacturing. The pressure might be too much, or Wall Street might pull the plug on him. No matter how it turns out, he is already a hero in my book.
It’s easy to complain about a lack of strong leadership and executive failure to commit to lean. I do it all the time. I am sure many of you have some not so complimentary things to say about the boss where you work. The fair thing to do, however, and the decent thing to do, is for all of us - me especially - is to knock off the criticism of the CEOs of the public companies who do not commit to lean. In an honest moment, I am not so sure I would have the personal courage and integrity to take the high road Jeff Scheffer is on when the guaranteed payoff on the low road is so great. Instead we should all recognize and admire the few like Scheffer who commit a lot more than mere words to lean manufacturing.
Excellence Is Not Enough
Wednesday, April 19th, 2006
Hey Detroit! Are you listening? Here’s how you turn things around when you are in trouble:
Step 1 is to close the excess plants and lay off the extra people. That’s not part of lean, but it is the price to pay for not being lean in the past.
Step 2 is to reorganize the company from the top all the way down through the production folks into teams focused on each value stream
Step 3 is to implement 5S in order to “clear the underbrush out of the way and allows high visibility management”
Step 4 is to scrap the data collection and measurements systems, replacing them with strictly verbal communications at regular team meetings. As the relevant data needed to manage performance becomes clear, slowly bring up new reporting and metrics.
Step 5 is do some value stream mapping and selectively implement TPM and reduce set up times by 90%
Step 6 is to launch a continuing all out effort to get the people involved in business decisions at all levels, including their participation in redefining the nature of the business from providing hardware to providing solutions. Bring greater flexibility and customization to the market. Make sure people know that ““Part of their daily business is they are discussing company business, what they did yesterday, what they did right, what they did wrong and what they are going to experiment with today to make that better tomorrow.”
Step 7 is to use the millions of dollars in cost reductions, and delivery and quality improvements to begin to grow the business back. Selectively add people back into the company.
Step 8 is to lay plans in place to go after the materials management and supply chain part of things next year (That’s right - go after the suppliers last, not first)
This isn’t my idea. It is the formula followed by Rittal, a German company just outside of Dayton, Ohio that has brought itself back from a coma, if not near death, through a very impressive lean commitment. It is well worth it to read about them here, here and here. While other companies carry on about the affect of the economy and external forces on their business, Rittal says, “It’s going to be a superb year. It’s nice if the market continues to grow, but we don’t care if it does or doesn’t.” They are planning to grow by taking over the market through their superior production capabilities, so the size of the market really doesn’t matter.
As their head guy says, “Fortunately for me, 99 percent of all manufacturing companies are not anywhere near where they should be in terms of the way they manufacture and develop strategies.” I can easily picture Toyota saying that to themselves now and then. It is fortunate for the few lean companies that most of the other guys don’t get it.
The best news of all for Rittal is that the boss is probably right when he says, “We have a long way to go,” and “We have spent three years turning the company around, but we haven’t tapped into one percent of the human resource. It goes back to that lean thinking — wasted resource, wasted brain capital of our people.” So Rittal is just getting started, and the competition has given them a pretty good head start.
What particularly impressed me is that they approached lean from the opposite direction than that taken by most companies. They started with their organizational structure and made value streams the formal way they work, instead of the old functional departments the rest of us cannot seem to get past. They scrapped the data systems, thinking that just talking to each other was better than using bad data. Most companies are so dependent on computers and reports, instead of visual control and verbal communications, that such a thing would be unimaginable. Most of us would cling to the old systems with a death grip, even if we knew they were wrong, rather than operate with no computer reports.
They took on 5S and red tagging, but view it as a casual event along the way, calling it “clearing out the underbrush“. They deployed the tools of lean where they were appropriate - a value stream map here and a kaizen event there, a little TPM and some set up reductions. They don’t seem to view any of these tools as the ‘cornerstone’ of anything and they do not seem to have elevated any of the tools into any sort of a big deal.
In total, they are changing their business model and their culture, and letting the application of the lean tools fall out of that new business model wherever and whenever they are appropriate.
“We have a long way to go. Ask 100 people and you get 100 different answers what world class is. My simple answer is that world-class manufacturing is the way Toyota develops and manufactures its products. It’s about lean, it’s about the total elimination of waste, it’s about speed, it’s about best practice, it’s Kaizen.“ Can it be stated any better than tha? What I like best about Rittal is that they seem to view the debates we often hold within the lean community concerning the relative value of different tools and terminology as a colossal waste of time. Lean is about everything.
Says Rittal’s head guy, “Excellent for me is not enough any more. It will only get you through tomorrow. I am looking for an organization that is going to develop into something that’s going to be spoken in the same vain as a company like Toyota. That is the only way we are going to survive long term.”
Posted in Lean Leadership / Change Management, Lean Accounting & Management Systems, Breakthrough Lean Transformation / Kaikaku | No Comments »
Walmart Escalates War on US Manufacturers
Tuesday, April 11th, 2006
Walmart’s business model has long been biased against American manufacturers. They have forced American companies to compete on Asian producers’ terms. Now they just made it tougher. It is difficult to see how any American company can - or would even want to try to - sell to them.
Over the years, Walmart has poured billions of dollars into its vaunted logistics system. They have vast distribution centers loaded with automated equipment and whiz bang technology, employ thousands of people, and own a fleet of trucks. All of that represents a very big fixed cost that was put in place to handle massive amounts of inventory. They do not order quantities a single store needs for a short period of time. They order quantities a region full of stores will need for a long period of time. They order by the truckload - or lucky for the Asians - by the container load. They then dump those mountains of product into the distribution system that slices, dices, sorts and otherwise whips it around to where it needs to be.
That works out real well for the Asians. They don’t have to meet anything close to ‘just in time’ to meet true customer demand. An American manufacturer who heads down the lean path has always found that their short cycle time, small quantity capabilities are of little value to Walmart. Since Walmart already has their great big fixed cost in place, they don’t want small lot, short interval deliveries - they want big quantity, long lead time deliveries. After all, that is what their system is designed to handle.
But Walmart has caught the JIT fever. They now want short lead times from their suppliers - but only from their American suppliers. P&G, Clorox, Spectrum Brands, Kellogg’s and Playtex are a few of the big American manufacturers crazy enough to try to make money selling to Walmart. They are the ones now under the gun to deliver with short cycle times to the Walmart DC’s in the US. The Asians, who are rapidly approaching half of all of Walmart’s purchases, are under no such pressure. Despite the fact that most of Walmart’s stores are in the U.S., and this is where most of the goods Walmart buys in Asia are sold, it is still OK for Walmart’s Asian suppliers to deliver to Walmart’s great distribution system in China - not in the US. The month of inventory Walmart carries while the Chinese goods are on the boat and clearing customs, then jockeying around in the US is OK by Walmart. No penalty there. It is only American made inventory they don’t want.
By laying in such a huge pipeline and a huge fixed expense for it, Walmart has made the incremental cost for buying in Asia, rather than the US, negligible. American companies have had to compete solely on purchase price with little penalty to the Asians for hauling their stuff halfway around the globe. Now Walmart demands that the US companies to carry the inventory, as well.
There is no company lean enough to do business with someone who places no value on time or logistics savings - doing all of their buying based solely on the price at the manufacturer’s shipping dock. It is even worse when that customer puts a cost on your inventory, but not on your competitor’s.
The companies I mentioned sell great American brands. Walmart is big - they account for 20 or 30% of some of these outfit’s business - but if the Americans can’t make money selling to Walmart, staggering volumes won’t help. They ought to tell Walmart to pound salt. If Walmart wants to tilt the playing field so radically in favor of the Asian suppliers they have come to know and love so well, let them become nothing more than a retailer of Chinese goods.
I bet that, when Crest toothpaste, Clorox, Rayovac batteries and Remington shavers - or any other great American made products - are no longer on the Walmart shelves, replaced with brands no one has heard of from some place no one can find on a map, even Walmart’s NASCAR customer base will abandon them. I know I’m done with them. I’m too selfish to be much of a ‘Buy American’ crusader, but I have my limits. And I won’t buy from someone who is blatantly anti-American.
Posted in Lean Accounting & Management Systems, Supply Chain & Logistics | No Comments »
Lean Machines
Saturday, April 1st, 2006
In some respects the lean manufacturing community is like the IT community. There are software people and there are hardware people, with not much common ground between them. I am a manufacturing software person, which is to say that I was not willing to work as hard in college as the folks who got engineering degrees, so I blog away about organization, accounting, people issues and so forth, with only a passing reference to manufacturing technology from time to time, treating lean as though it is 99% software. It is just as bad when you venture into the manufacturing engineering world. They go on and on about machines and automation, paying short shrift to the soft side of manufacturing. To read many of their sites, you would conclude that lean manufacturing is purely a function of what kind of machines you buy. In fact, lean manufacturing includes both the soft side and the hard side, and machines are central to manufacturing in any scenario.
To their great credit, there are a number of manufacturing technology folks who are working very hard on lean. While they sometimes go back and forth in some of the lean forums arguing about the minutiae of the correct way to calculate OEE, or the proper role of certain types of conveyors, or the most effective cell footprint, to the point of missing the forest for the trees, there is no questioning their intent or their contribution to lean. Mike Gardner at the TPM blog is really a gem. He is leading a machine centered lean effort, but has a very well balanced overall view of lean. Guys like him who can walk on both the hardware and software sides of the street are rare and essential pieces to getting factories truly lean.
The people at Toyota, of course, have long kept manufacturing technology in sharp focus, and a pretty good case can be made that the real key to Toyota’s success is that they understand the appropriate level of technology to use and how to integrate it into the soft side - people and information - better than anyone else. For that matter, his genius at innovative integration of people and machines accurately defines Henry Ford, the originator of lean.
The mantra at Toyota and among the effective lean companies when it comes to machines is that a machine is at its worst performance the day it is purchased. Rather than depreciate, a machine should become more reliable and more efficient over time as it is maintained, modified and continually improved by the operators, engineers and maintenance people who take ownership of it. It should become more effectively and seamlessly integrated into the process flow over time.
A recent survey of senior executives in the automobile industry demonstrates just how far that sector is from really understanding lean manufacturing, or of understanding manufacturing at all for that matter. 53% of them, all with job titles of CEO, CFO, or C something O said they were four square in favor of outsourcing machine maintenance. People with the technical skills to take care of machines were just too expensive and too hard to recruit and keep. Outsourcing ownership and responsibility for machines is the antithesis of the lean principles of continually tightening the integration and improving the performance of machines in process flows.
Outsourcing is to these folks is what hammers are to carpenters. They may use a lot of tools over the course of the day, but it is the one they keep hanging from their belt, ready to pull and use with the speed of an old western gunfighter. In fact, the survey said that over 70% of the execs said that all skilled labor was a good candidate for outsourcing.
Skilled labor is problematic to the professional managers because it cannot be managed by numbers. Unskilled folks are interchangeable parts that can be hired and laid off at will - no real thinking required. Skilled people, on the other hand, require actual management. They have career choices and their lives are not in the hands of management. They have to be treated with respect or they will leave. The people who run the small and medium sized, privately owned manufacturers understand that managing people is the most important element of their jobs. The professional managers spread pages of the Wall Street Journal out on their office floors, kneel on them facing New York City and pray to their gods of finance six times a day. Messy issues like people are a distraction when there are so many numbers and ratios to calculate.
The ultimate irony in all of this is that the same executives who think the more skilled people are, the better off the company is to outsource them, are the driving force behind the Bush administration push to mold the new economy around more and better skilled people. Commerce Secretary Carlos Gutierrez repeated that philosophy, saying that China is not a threat because they are building their manufacturing economy around unskilled labor. He said “the United States needed to keep building its economy looking at value-added products, high technology and better paying jobs, and for that needed to better train its workers“. I have to wonder who the skilled workers are going to work for - the executives of the auto industry don’t want them. In fact, their business vision is the same as China’s - build the whole thing around unskilled labor.
Lean does not change the central focus of manufacturing from a core of manufacturing technology. While lean does a better job of integrating a relatively unskilled production workforce with the machines they use, creating ownership and an economic synergies, there is just as great a need for people with deep knowledge of manufacturing technology and solid experience in optimizing its performance as ever before. That means skilled labor and that means bigger paychecks. In Detroit and elsewhere among the publicly held manufacturers, the old Sloan accounting and management model is so deeply ingrained in their thinking that people who command a good wage will never be seen as assets, rendering lean virtually impossible.
The results of the survey were broadcast to the world as part of a marketing effort by an outfit that is in the business of providing third party machine maintenance services - the guys the work gets outsourced to. I hope they have a backup business plan or a branch office in China because a manufacturing company that will outsource predictive and preventive maintenance of its core technology - letting someone else assume ownership of the results - will outsource anything (except accounting and senior management, of course, since they perceive those functions as the only true value adding endeavors they have). It is a matter of time before all of their manufacturing is outsourced and the third party machine maintenance providers will have to go find another inept management team to work for until there are none left.
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