In my last post, I discussed two important aspects of globalization of the auto industry: The need to develop partnerships with suppliers and customers around the world, and the need for a global portfolio of products.
There is another effect of globalization: Increased competition. In the new major growth markets of China, India and Russia, every major automaker – Asian, American, German or otherwise – faces competition from local companies. And that competition will not be contained within geographic boundaries.
This reality was evident while I was at the Automotive News World Congress in Detroit last week, where there was plenty of coffee-break discussion of the new Nano – and I don’t mean the iPod. I’m talking about the just-released car from Tata Motors in India that is selling for the equivalent of about $2,500.
I described last year how the Nano is at least partly the result of a lean strategy that enabled Tata to produce the car rapidly and at low cost.
Inevitably, there was discussion at the conference of whether the Nano will be sold in the U.S. It won’t. It doesn’t meet U.S. safety standards, and most Americans would not be interested in a tiny car with one windshield wiper, manual windows and no air conditioning.
But U.S. automakers should not be breathing a sigh of relief, a point made during a conference presentation by Dr. Pawan Goenka, automotive sector president of Mahindra & Mahindra, an Indian manufacturer of pick-ups and SUVs, and a competitor of Tata Motors.
Goenka noted that foreign competitors are arriving already. His company will be exporting a small number of vehicles to the U.S. within the next year.
The bigger point, though, is one he made while talking about the Nano.
Whether one specific car – the Nano – will be sold in the U.S. is not the point, he said; the real issue is that if a company can make a $2,500 car in India profitably, “the day will come when they will sell $10,000 cars in the U.S.”
Do you feel the foreign competition breathing down your neck? You should.
1.28.2008
The Globalization of the Auto Industry: A Lean Challenge
Any manufacturer striving to be lean must work to establish partnerships with both suppliers and customers so that the entire supply chain operates as smoothly or as “leanly” as possible.
That is both a challenge and a necessity for today’s major automakers, who must rapidly expand operations with a whole host of new partners throughout the world. They must also have a portfolio of products for the entire world.
I’ve just returned from the Automotive News World Congress, an annual conference in Detroit. Clearly one of the overriding issues of that event was the globalization of the auto industry.
The United States may be the largest market for cars and trucks, but as a market it is both mature and saturated. Future growth for the industry lies elsewhere, most notably in three countries: China, India and Russia. (Brazil is fourth.) And while all major automakers have rapidly growing operations in all of those locations, those operations are still relatively small, with tremendous opportunities for growth.
Chris Lacey, who is General Motor’s executive director for central and eastern Europe (including Russia), summarized the challenge in his conference presentation when he described the “5 Ps” of GM’s approach. P stands for Partners, and Lacey said GM seeks five categories of the right partners:
Within GM to provide products for the range of price points required:
In the marketplace for manufacturing
For component supply
In the market for vehicle distribution and repair
With the right philosophy with customers
The same challenge faces every automaker, but it’s a lot tougher than in the West. Lacey pointed out that in Russia and neighboring European countries, all sales of motor vehicles were through the government until about 20 years ago. China also has a very limited history of capitalism, and India lacks significant infrastructure for cars.
Beyond setting up supply chains in numerous locations, the other challenge of globalization is having a global portfolio of products. Derrick Kuzak, Ford’s group vice president for global product development, described how this has prompted Ford (and probably many other automakers as well) to move in the direction of fewer platforms that support a wide range of vehicles worldwide. (He said Ford will reduce its number of global vehicle platforms by 40 percent by 2012.)
This requires a lean approach, something recognized by Ford CEO Alan Mulally. According to The New York Times,
“The real work at Ford going forward is that we continually integrate the four companies around the world,” he said in an interview.
Mr. Mulally is modeling his “One Ford” idea on his former employer, Boeing, as well as on Toyota’s vaunted product-development system. A self-proclaimed admirer of Toyota, Mr. Mulally said the company could cut costs further by copying the Japanese automaker’s strategy of building differently styled vehicles on similar basic chassis structures.
“Toyota grew up as a global company,” he said. “They tailored their vehicles for unique regions of the world, but the fundamental platforms are the same.”
Ford, of course, is trying to achieve the same thing every other automaker is trying to achieve. The winners in this game of hardball will be those who move the fastest, are the most disciplined, and who most successfully embrace and implement lean strategies.
The race is on.
1.25.2008
Overbooking: The Wrong Solution for Medical Clinics
A couple of academics are suggesting that overbooking patients at medical clinics can be a good idea.
Say what?
The two academics (in the Leeds School of Business at the University of Colorado at Boulder) say overbooking can increase patient access and improve clinic productivity, resulting in reduced costs and greater patient satisfaction.
According to the study, overbooking would address patient no shows and enable clinics to see more patients.
Instructor Linda LaGanga became interested in the issue after noticing the large number of no shows at the public health care clinic where she works. “Many clinics overbook, but they don’t do it well,” she said. “Anecdotally, they will admit they do it, but it’s not done systematically. It’s done in the sense of ‘squeezing in’ another patient.”
For their study, LaGanga and researcher Stephen Lawrence developed a computer simulation tool that enables health care administrators to weigh benefits such as seeing more patients and making health care workers’ time more efficient against potential costs such as increased patient waiting and staff overtime…
The study examined a wide range of clinic sizes and no show rates, which can be as low as 3 percent and as high as 80 percent. Typically, overbooking was most beneficial to clinics that serve a large number of patients, had higher no show rates and had appointments that did not vary greatly in length. However, the study found that many clinics achieve positive results with overbooking even if appointments varied greatly in length.
However, the study does recognize a possible downside.
Clinic administrators must be willing to endure increased patient waiting and increased clinic overtime…
“If you had a clinic in Hollywood and had only movie stars as patients, you might not want to ever make them wait longer,” Lawrence said. “So the administrator would assign a much higher relative value for increased patient waiting time.” In contrast, LaGanga’s clinic places a high value on its ability to serve more people. “We want to stop turning people away because of lack of capacity. Seeing one more person in the morning and afternoon could make a great difference,” she said.
First of all, if overbooking results in increased waiting time, I don’t know how the study can claim it will lead to increased patient satisfaction. (I guess the answer is because more patients will be able to get in, but I’m skeptical.) Also, it seems to me that ALL people deserve respect for their time, not just movie stars.
I’m willing to bet that these two academics have never heard of lean principles and don’t understand there are other ways to increase capacity. A focus on patient flow, some value stream mapping, some kaizen events, and most clinics could probably increase their capacity significantly.
I concede that no-shows can be a significant problem. But I suspect no one has ever done a good job of determining WHY that occurs. Could it possibly be that some people cancel because they decide putting up with a long wait just isn’t worth it? Or that some make appointments on several dates, or at several locations, then only stay where it looks like the wait won’t be too bad?
If a clinic applied lean thinking to increase capacity and reduce waiting time, they would get a lot of good word-of-mouth publicity about how quickly they see patients. The result might be fewer no-shows.
Encouraging overbooking simply reinforces the use of bad processes.
Say what?
The two academics (in the Leeds School of Business at the University of Colorado at Boulder) say overbooking can increase patient access and improve clinic productivity, resulting in reduced costs and greater patient satisfaction.
According to the study, overbooking would address patient no shows and enable clinics to see more patients.
Instructor Linda LaGanga became interested in the issue after noticing the large number of no shows at the public health care clinic where she works. “Many clinics overbook, but they don’t do it well,” she said. “Anecdotally, they will admit they do it, but it’s not done systematically. It’s done in the sense of ‘squeezing in’ another patient.”
For their study, LaGanga and researcher Stephen Lawrence developed a computer simulation tool that enables health care administrators to weigh benefits such as seeing more patients and making health care workers’ time more efficient against potential costs such as increased patient waiting and staff overtime…
The study examined a wide range of clinic sizes and no show rates, which can be as low as 3 percent and as high as 80 percent. Typically, overbooking was most beneficial to clinics that serve a large number of patients, had higher no show rates and had appointments that did not vary greatly in length. However, the study found that many clinics achieve positive results with overbooking even if appointments varied greatly in length.
However, the study does recognize a possible downside.
Clinic administrators must be willing to endure increased patient waiting and increased clinic overtime…
“If you had a clinic in Hollywood and had only movie stars as patients, you might not want to ever make them wait longer,” Lawrence said. “So the administrator would assign a much higher relative value for increased patient waiting time.” In contrast, LaGanga’s clinic places a high value on its ability to serve more people. “We want to stop turning people away because of lack of capacity. Seeing one more person in the morning and afternoon could make a great difference,” she said.
First of all, if overbooking results in increased waiting time, I don’t know how the study can claim it will lead to increased patient satisfaction. (I guess the answer is because more patients will be able to get in, but I’m skeptical.) Also, it seems to me that ALL people deserve respect for their time, not just movie stars.
I’m willing to bet that these two academics have never heard of lean principles and don’t understand there are other ways to increase capacity. A focus on patient flow, some value stream mapping, some kaizen events, and most clinics could probably increase their capacity significantly.
I concede that no-shows can be a significant problem. But I suspect no one has ever done a good job of determining WHY that occurs. Could it possibly be that some people cancel because they decide putting up with a long wait just isn’t worth it? Or that some make appointments on several dates, or at several locations, then only stay where it looks like the wait won’t be too bad?
If a clinic applied lean thinking to increase capacity and reduce waiting time, they would get a lot of good word-of-mouth publicity about how quickly they see patients. The result might be fewer no-shows.
Encouraging overbooking simply reinforces the use of bad processes.
1.23.2008
Atlanta: A Case Study in School Improvement
The public school district in the city of Atlanta is a turnaround story. In recent years, the district has achieved significant improvements in many respects, not the least of which is student achievement levels. Part of what is happening in the district pertains to a lean approach.
Superintendent Dr. Beverly Hall, who joined the district in 1999, is the driving force behind a three-pronged approach focusing on the quality of instruction, the improvement of facilities and the improvement of business processes.
I spoke recently with Wendell Love, program director in the district Office of Strategy and Development. Love is one of the lead people in the effort to improve business processes.
Love, who was hired in February 2007, is focusing on areas that he says “cause the most pain,” including the lengthy time it takes between a teacher requesting something and then actually receiving it. His office also oversees project management, and he is working both to developing cross-functional teams and to establish process owners who accept responsibility for an entire process.
Love had previously worked with the district as a consultant. His background is in process improvement; among other credentials, he is a certified quality auditor with the American Society for Quality (ASQ).
As in any such situation, cultural issues are among the most challenging, particularly when it comes to dealing with any negative information. “It is at once a very public kind of thing, and at the same time there is the need to kind of contain the bad information as much as possible until you can do something about it,” he says.
And a school district, especially one with 51,000 students, presents unique difficulties. “You don’t have access to principals and teachers during the time that they work,” he notes. In addition, “you can’t go to 90 schools every week. It would be amazing if you could get to 90 schools in a year.”
While the business process strategy is the one that most clearly ties in to principles of continuous improvement, other efforts also present evidence of the right approach. In a report on the district this past October, Hall described some of what the district does to raise achievement:
1. We put comprehensive school reform models in all our schools.
2. We gave school teams planning time and put coaches in the classroom to help our teachers improve their delivery of instruction.
3. We aligned our curriculum and scope and sequence with the Georgia Performance Standards.
4. We gave teachers and school leaders the tools to analyze student performance so they can continually adjust instruction
5. We recruited high quality principals and invested in principal training to help them become even more effective instructional leaders.
6. We put together school reform teams that provide cross-functional support to schools under the leadership of high performing executive directors of schools.
7. And, finally, we targeted our resources to help our lowest performers.
Hall has also been effective in helping the district obtain new sources of funding, including a $10.5 million investment from the Bill & Melinda Gates Foundation, announced last spring.
Not many school districts have forward-thinking leaders who can both envision and implement far-reaching improvement strategies. Here’s hoping Atlanta can serve as an example for many others.
Superintendent Dr. Beverly Hall, who joined the district in 1999, is the driving force behind a three-pronged approach focusing on the quality of instruction, the improvement of facilities and the improvement of business processes.
I spoke recently with Wendell Love, program director in the district Office of Strategy and Development. Love is one of the lead people in the effort to improve business processes.
Love, who was hired in February 2007, is focusing on areas that he says “cause the most pain,” including the lengthy time it takes between a teacher requesting something and then actually receiving it. His office also oversees project management, and he is working both to developing cross-functional teams and to establish process owners who accept responsibility for an entire process.
Love had previously worked with the district as a consultant. His background is in process improvement; among other credentials, he is a certified quality auditor with the American Society for Quality (ASQ).
As in any such situation, cultural issues are among the most challenging, particularly when it comes to dealing with any negative information. “It is at once a very public kind of thing, and at the same time there is the need to kind of contain the bad information as much as possible until you can do something about it,” he says.
And a school district, especially one with 51,000 students, presents unique difficulties. “You don’t have access to principals and teachers during the time that they work,” he notes. In addition, “you can’t go to 90 schools every week. It would be amazing if you could get to 90 schools in a year.”
While the business process strategy is the one that most clearly ties in to principles of continuous improvement, other efforts also present evidence of the right approach. In a report on the district this past October, Hall described some of what the district does to raise achievement:
1. We put comprehensive school reform models in all our schools.
2. We gave school teams planning time and put coaches in the classroom to help our teachers improve their delivery of instruction.
3. We aligned our curriculum and scope and sequence with the Georgia Performance Standards.
4. We gave teachers and school leaders the tools to analyze student performance so they can continually adjust instruction
5. We recruited high quality principals and invested in principal training to help them become even more effective instructional leaders.
6. We put together school reform teams that provide cross-functional support to schools under the leadership of high performing executive directors of schools.
7. And, finally, we targeted our resources to help our lowest performers.
Hall has also been effective in helping the district obtain new sources of funding, including a $10.5 million investment from the Bill & Melinda Gates Foundation, announced last spring.
Not many school districts have forward-thinking leaders who can both envision and implement far-reaching improvement strategies. Here’s hoping Atlanta can serve as an example for many others.
1.21.2008
Failing to Grasp the True Costs of Outsourcing
A private equity fund manager with a background in manufacturing is trying to raise awareness about how many companies fail to analyze the true costs of outsourcing. Unfortunately, his own analysis stops short of telling manufacturers what they really need to hear.
Michael Marks manages equity fund Bigfoot Capital. In commentary published on Forbes.com, Marks says he is “surprised by the naivete of many sophisticated executives” concerning outsourcing.
Recently, I asked associates in one of my portfolio companies to prepare an analysis of the costs of building our product in Mexico vs. the U.S. To my surprise (shock?), the analysis consisted of taking the labor hours required to build the product, and multiplying those hours by the direct labor costs in the two countries. That was it! No analysis of overhead costs, transportation costs, labor efficiencies, power costs, average hours worked, overtime policies. And subsequently I had similar conversations with other very sophisticated executives that confirmed the need to write this particular column.
Marks then offers his own analysis of manufacturing costs based not only on labor costs, but on factory general and administrative expenses, manufacturing overhead, freight in (meaning the cost of transporting materials from suppliers), scrap, cost of materials and real estate costs.
He looked at four locations: San Jose, Calif.; Guadalajara, Mexico; Eastern Europe (Hungary, Czech Republic, Romania); and Shenzhen, China. He says his figures are “based on thousands of projects, mostly electronic or mechanical, over a period of years and a variety of locations in these countries. They are also generalized (each particular product has its nuances) but the numbers should serve to make the point.”
Marks then concludes that the full factory level costs for a product with material cost of $100 are $127.20 in California, $113.40 in Eastern Europe, $110 in Mexico and $98.90 in China.
Near the end of his column, Marks casually comments
As a final thought, these costs are at the factory location, and don't take into account the cost of freight to the customer's location. That cost can be substantial, and has been increasing quickly with the increase in the cost of oil. So transporting Chinese-made goods to the U.S. costs more, and for some products, makes moving manufacturing back to the U.S. or at least to Mexico more reasonable.
Duh!
Marks has his heart in the right place. But he would have done a much greater service for his readers by factoring in that “cost of freight to the customer’s location.” And he should have discussed in some detail issues of time to market, ability to respond quickly to market changes, quality and all those other pesky problems that can arise when you move your manufacturing several thousand miles away.
Transportation is waste. Transportation across thousands of miles is a big waste. That reality deserves more than a brief mention that it wasn’t taken into account.
Michael Marks manages equity fund Bigfoot Capital. In commentary published on Forbes.com, Marks says he is “surprised by the naivete of many sophisticated executives” concerning outsourcing.
Recently, I asked associates in one of my portfolio companies to prepare an analysis of the costs of building our product in Mexico vs. the U.S. To my surprise (shock?), the analysis consisted of taking the labor hours required to build the product, and multiplying those hours by the direct labor costs in the two countries. That was it! No analysis of overhead costs, transportation costs, labor efficiencies, power costs, average hours worked, overtime policies. And subsequently I had similar conversations with other very sophisticated executives that confirmed the need to write this particular column.
Marks then offers his own analysis of manufacturing costs based not only on labor costs, but on factory general and administrative expenses, manufacturing overhead, freight in (meaning the cost of transporting materials from suppliers), scrap, cost of materials and real estate costs.
He looked at four locations: San Jose, Calif.; Guadalajara, Mexico; Eastern Europe (Hungary, Czech Republic, Romania); and Shenzhen, China. He says his figures are “based on thousands of projects, mostly electronic or mechanical, over a period of years and a variety of locations in these countries. They are also generalized (each particular product has its nuances) but the numbers should serve to make the point.”
Marks then concludes that the full factory level costs for a product with material cost of $100 are $127.20 in California, $113.40 in Eastern Europe, $110 in Mexico and $98.90 in China.
Near the end of his column, Marks casually comments
As a final thought, these costs are at the factory location, and don't take into account the cost of freight to the customer's location. That cost can be substantial, and has been increasing quickly with the increase in the cost of oil. So transporting Chinese-made goods to the U.S. costs more, and for some products, makes moving manufacturing back to the U.S. or at least to Mexico more reasonable.
Duh!
Marks has his heart in the right place. But he would have done a much greater service for his readers by factoring in that “cost of freight to the customer’s location.” And he should have discussed in some detail issues of time to market, ability to respond quickly to market changes, quality and all those other pesky problems that can arise when you move your manufacturing several thousand miles away.
Transportation is waste. Transportation across thousands of miles is a big waste. That reality deserves more than a brief mention that it wasn’t taken into account.
1.18.2008
The Causes of Boeing’s Dreamliner Problems
Since Boeing this week announced new delays in production of its new Dreamliner 787 aircraft, much of the related commentary has focused on supply chain issues.
That is appropriate. The problems plaguing Dreamliner are indeed primarily supply chain issues, though there are several different issues that fall under the heading of “supply chain.” These include the basic concept of outsourcing design and production of so many parts to far-flung locations; not verifying that the suppliers have the capacity to produce what is needed within the specified time frame, and then initially not working enough with those suppliers to improve their processes; and poor communication that meant Boeing didn’t see and address the problems early enough.
However, Jon Ostrower, writing in FlightBlogger, mentions an additional – and interesting – issue. He discusses how Boeing announced this week that it will change the focus and sequence of the production process during the next year.
Boeing must remember that doing work out of sequence was what got them in trouble in the first place.
Basing the program over the next year around flight testing and certification rather than jumping ahead to production ramp up, allows the aircraft, the processes and the management of the supply chain to mature into on a smaller scale that sets Boeing up for long term success with its production ramp up.
If the ramp up had continued as planned, any design modifications that would have come out of flight testing would have had to be applied to already complete aircraft waiting for certification on the flight line in Everett or stored in the desert. This is a tedious and costly process. By allowing flight test to be the core of this program, Boeing will save enormous energy by giving retrofit design change responsibility largely to the partners themselves.
The supply chain issues and the issue of work sequence are all lean issues, touching on matters ranging from the waste of transportation to the proper flow of both work and information.
It is not unusual for companies to run into these kinds of problems. But as I’ve said before, it is disappointing to see this happen to Boeing, which has been on a lean journey for many years and presumably understands these issues better than many other businesses. I sincerely hope they get back on track soon.
That is appropriate. The problems plaguing Dreamliner are indeed primarily supply chain issues, though there are several different issues that fall under the heading of “supply chain.” These include the basic concept of outsourcing design and production of so many parts to far-flung locations; not verifying that the suppliers have the capacity to produce what is needed within the specified time frame, and then initially not working enough with those suppliers to improve their processes; and poor communication that meant Boeing didn’t see and address the problems early enough.
However, Jon Ostrower, writing in FlightBlogger, mentions an additional – and interesting – issue. He discusses how Boeing announced this week that it will change the focus and sequence of the production process during the next year.
Boeing must remember that doing work out of sequence was what got them in trouble in the first place.
Basing the program over the next year around flight testing and certification rather than jumping ahead to production ramp up, allows the aircraft, the processes and the management of the supply chain to mature into on a smaller scale that sets Boeing up for long term success with its production ramp up.
If the ramp up had continued as planned, any design modifications that would have come out of flight testing would have had to be applied to already complete aircraft waiting for certification on the flight line in Everett or stored in the desert. This is a tedious and costly process. By allowing flight test to be the core of this program, Boeing will save enormous energy by giving retrofit design change responsibility largely to the partners themselves.
The supply chain issues and the issue of work sequence are all lean issues, touching on matters ranging from the waste of transportation to the proper flow of both work and information.
It is not unusual for companies to run into these kinds of problems. But as I’ve said before, it is disappointing to see this happen to Boeing, which has been on a lean journey for many years and presumably understands these issues better than many other businesses. I sincerely hope they get back on track soon.
1.16.2008
What Makes Toyota Different
Once again, Toyota has demonstrated that what distinguishes it from other automakers has less to do with products and processes than with how its people think.
Toyota executives are obsessed with creating value and quality for the customer. That was clear from comments this week by its president, Katsuaki Watanabe, during his first visit to the Detroit auto show. According to The New York Times, Watanabe used the visit to “convey a passionate plea to his employees on Monday to take personal responsibility for the quality of Toyota cars and trucks.”
“Each individual must carry the responsibility” for ensuring quality, from design to manufacturing and selling cars and trucks, Mr. Watanabe said.
Speaking through an interpreter, Mr. Watanabe said the dictate was “something that’s really shameful for us to share with you...”
Speaking in a fervent tone, often gesturing with his hands, Mr. Watanabe refused to blame Toyota’s parts suppliers for the quality problems, which have largely occurred in vehicles that are more than 10 years old.
“I do not regard the problem as something that suppliers are responsible for,” Mr. Watanabe said. “We must work together so that we are fully aware of where suppliers are.”
To help reduce recalls, Mr. Watanabe named a senior executive for quality control and established a Customer First Activities Program Committee to examine processes.
Toyota also has begun keeping track of quality problems on its older vehicles for a longer period than it did in the past, he said.
Mr. Watanabe attributed some of the company’s problems to its growth spurt over the last few years…
“When Toyota was a small company, we could expressly communicate” any quality improvements that were required, he said. “But now that Toyota is so big, we’ve realized that we have not adequately communicated.”
Can you imagine Bob Nardelli of Chrysler, or any other auto company president or CEO, making similar statements? I can’t. They would probably be so hung up on looking strong and powerful that they’d have a tough time being humble and apologetic. They focus on making the business profitable before they think about serving the customer. At Toyota, they know that doing the best job of serving the customer is what makes the company profitable. And that is what sets Toyota apart.
Toyota executives are obsessed with creating value and quality for the customer. That was clear from comments this week by its president, Katsuaki Watanabe, during his first visit to the Detroit auto show. According to The New York Times, Watanabe used the visit to “convey a passionate plea to his employees on Monday to take personal responsibility for the quality of Toyota cars and trucks.”
“Each individual must carry the responsibility” for ensuring quality, from design to manufacturing and selling cars and trucks, Mr. Watanabe said.
Speaking through an interpreter, Mr. Watanabe said the dictate was “something that’s really shameful for us to share with you...”
Speaking in a fervent tone, often gesturing with his hands, Mr. Watanabe refused to blame Toyota’s parts suppliers for the quality problems, which have largely occurred in vehicles that are more than 10 years old.
“I do not regard the problem as something that suppliers are responsible for,” Mr. Watanabe said. “We must work together so that we are fully aware of where suppliers are.”
To help reduce recalls, Mr. Watanabe named a senior executive for quality control and established a Customer First Activities Program Committee to examine processes.
Toyota also has begun keeping track of quality problems on its older vehicles for a longer period than it did in the past, he said.
Mr. Watanabe attributed some of the company’s problems to its growth spurt over the last few years…
“When Toyota was a small company, we could expressly communicate” any quality improvements that were required, he said. “But now that Toyota is so big, we’ve realized that we have not adequately communicated.”
Can you imagine Bob Nardelli of Chrysler, or any other auto company president or CEO, making similar statements? I can’t. They would probably be so hung up on looking strong and powerful that they’d have a tough time being humble and apologetic. They focus on making the business profitable before they think about serving the customer. At Toyota, they know that doing the best job of serving the customer is what makes the company profitable. And that is what sets Toyota apart.
1.14.2008
Do Lean Companies Create Fewer Jobs?
A thought-provoking column in The New York Times recently spotlights a little-known fact: a decline in job churning.
What that means is that there is less volatility in the job market. Most people focus on the number of jobs created each month, but that is a net number. In recent months, the total numbers of jobs eliminated and jobs created – and the percentages of total employment those numbers represent – have declined.
Contrary to popular belief, the most recent numbers show that job cuts in the private sector have fallen to a near-15-year low. In the first three months of this year, workplaces that downsized or shut down have eliminated 7.1 million jobs, equal to 6.2 percent of the nation’s total private-sector employment.
That may sound like a lot, but it’s a lower percentage than at any point from 1992 (when the Labor Department began keeping such records) to last year. Scott Schuh, a senior economist at the Federal Reserve Bank of Boston, says that job destruction rates have probably been on the wane for most of the last 50 years.
Unfortunately, the number of new jobs created by start-up and growing businesses has also been falling. These businesses added 7.5 million jobs in the first quarter of this year, which made for the slowest pace of job creation on record.
David Leonhardt, who wrote the column, suggests that the situation is not the result of downsizing or free trade agreements.
The biggest problem with the job market isn’t the jobs that are being eliminated, shipped overseas or filled by temporary workers. The biggest problem is on the other end of the equation. There are far fewer jobs being created by new or expanding companies than there were throughout the 1990s.
He calls it the Honeywell syndrome. Honeywell laid off thousands of people from 1999 through 2001, but then its business turned around – revenue in 2007 was up 50 percent over 2002.
So you might think that the company would be hiring scads of workers. But it isn’t. Around the world, it employs 118,000 workers today, not so many more than the 108,000 it employed back in 2002. Honeywell has simply figured how to do more business with fewer people. That’s good for the company’s investors and for the employees already on its payroll, but it doesn’t do much to strengthen the job market.
On its Web site, Honeywell proudly declares its commitment to continuous improvement and its “Six Sigma Plus” strategy, whose methodologies include what the company calls Lean Enterprise.
So as more companies adopt lean strategies, does that contribute to fewer jobs being created? Is a side effect of lean that the job market is less robust? Do you know of any other examples that support this idea? Share your thoughts below.
What that means is that there is less volatility in the job market. Most people focus on the number of jobs created each month, but that is a net number. In recent months, the total numbers of jobs eliminated and jobs created – and the percentages of total employment those numbers represent – have declined.
Contrary to popular belief, the most recent numbers show that job cuts in the private sector have fallen to a near-15-year low. In the first three months of this year, workplaces that downsized or shut down have eliminated 7.1 million jobs, equal to 6.2 percent of the nation’s total private-sector employment.
That may sound like a lot, but it’s a lower percentage than at any point from 1992 (when the Labor Department began keeping such records) to last year. Scott Schuh, a senior economist at the Federal Reserve Bank of Boston, says that job destruction rates have probably been on the wane for most of the last 50 years.
Unfortunately, the number of new jobs created by start-up and growing businesses has also been falling. These businesses added 7.5 million jobs in the first quarter of this year, which made for the slowest pace of job creation on record.
David Leonhardt, who wrote the column, suggests that the situation is not the result of downsizing or free trade agreements.
The biggest problem with the job market isn’t the jobs that are being eliminated, shipped overseas or filled by temporary workers. The biggest problem is on the other end of the equation. There are far fewer jobs being created by new or expanding companies than there were throughout the 1990s.
He calls it the Honeywell syndrome. Honeywell laid off thousands of people from 1999 through 2001, but then its business turned around – revenue in 2007 was up 50 percent over 2002.
So you might think that the company would be hiring scads of workers. But it isn’t. Around the world, it employs 118,000 workers today, not so many more than the 108,000 it employed back in 2002. Honeywell has simply figured how to do more business with fewer people. That’s good for the company’s investors and for the employees already on its payroll, but it doesn’t do much to strengthen the job market.
On its Web site, Honeywell proudly declares its commitment to continuous improvement and its “Six Sigma Plus” strategy, whose methodologies include what the company calls Lean Enterprise.
So as more companies adopt lean strategies, does that contribute to fewer jobs being created? Is a side effect of lean that the job market is less robust? Do you know of any other examples that support this idea? Share your thoughts below.
1.11.2008
Measurement Improves School Systems
Measurement is critical to improving organizational performance. It is also central to a lean strategy.
That is why I was pleased to read about a small but growing trend in which greater effort is being made to measure the performance of school systems. A recent article in The New York Times described this trend. Its jumping-off point was a description of the Paterson, N.J., school district, which has been under state control since 1991 because of fiscal mismanagement and poor academics.
It is the latest evolution of Compstat, a widely copied management program pioneered by the New York Police Department in 1994. Paterson is one of a half-dozen school districts around the country that have embraced this confrontational approach, known here as SchoolStat, in an effort to improve school performance and overhaul bureaucracies long seen as bloated, wasteful and unresponsive to the public.
SchoolStat borrows the tactics of the Compstat program — regular, intense meetings in which police officials famously pick apart crime data and, just as often, their subordinates — to analyze police performance and crime trends, and to deploy resources to trouble spots. The school version taps into an ever-expanding universe of data about standardized testing and school operations to establish a system of accountability.
In Maryland, the process has been credited with reducing teacher vacancies and increasing student immunization rates in Baltimore schools. In Montgomery County, Md., it has pushed principals to come up with strategies like encouraging students to take the Preliminary SAT by offering a free pancake breakfast if they attend.
In Jackson, Miss., the state’s largest district has used it to increase food sales in high school cafeterias by adding salads and hot breakfast items, after the data showed that more than one-third of the students were not buying meals. In Philadelphia, where as many as 42 SchoolStat meetings are held each month at all levels in the district, officials say it has helped develop strategies to reduce the number of suspensions, increase attendance and raise standardized test scores…
While school officials have pored over data like test scores for decades, in SchoolStat the information is broken down into unusual detail, not just by school but also often by student, and presented in elaborate charts and graphs so the SchoolStat panel can look for problems or trends that are not evident in routine reports. The data is updated every three to five weeks in “relentless follow-up,” said Michael Kanarek, a district official who plans the meeting.
For instance, when the SchoolStat panel examined the backlog of work orders in the district’s 52 schools last spring, the data specialists created an electronic tracking system to find out when work orders were being completed, and also kept a running tally of the results in weekly and monthly charts. When SchoolStat looked at classroom instruction, it started keeping tabs on the number of visits by instruction support staff who are required to — but do not always — go to schools three times a week.
Once the data has been analyzed, SchoolStat follows a predictable pattern in which assistant superintendents and their staffs are called into meetings to answer questions and explain problems.
It is unfortunate that the Times article, written by Winnie Hu, describes the system as “confrontational,” although I’m sure many school officials view it that way. The article notes that, as always, the cultural challenges loom large.
In some school districts, there has been a backlash against SchoolStat. Bryan Richardson, a former director of Baltimore’s program and now a consultant who helps implement SchoolStat nationwide, said that after Baltimore stepped up its efforts in 2005, the windows in his car were broken on school grounds, and a school employee called him and his staff derogatory names on a local radio show.
“Is it a dramatic shake-up of a school culture? It certainly can be,” Mr. Richardson said. “When you start moving from a culture that rewards relationships to one that rewards results, there are people who feel a sense of diminished importance and loss, and that’s upsetting and makes them angry.”…
Some school districts, in response, have sought to adopt a version of the process that avoids criticizing people or making it part of job evaluations. Instead, these districts seek to provide help to failing schools rather than assess penalties. Questions are typically addressed to a group rather than to individuals.
Questioning administrators about their schools is hardly a new practice, although it is often not as formalized as SchoolStat. Michael E. Glascoe, the Paterson superintendent since 2005, recalled that as a district official in Montgomery County, Md., he would be called to meetings to explain test scores and disciplinary issues.
“We called it ‘hell’ because some of us would go in there and be there for four or five hours,” Dr. Glascoe said.
This kind of approach is valuable. It would be even more valuable if it were part of a broader lean approach, in which lean strategies and tactics were used to identify even more waste and problems, with methods and tools available to achieve improvement.
That is why I was pleased to read about a small but growing trend in which greater effort is being made to measure the performance of school systems. A recent article in The New York Times described this trend. Its jumping-off point was a description of the Paterson, N.J., school district, which has been under state control since 1991 because of fiscal mismanagement and poor academics.
It is the latest evolution of Compstat, a widely copied management program pioneered by the New York Police Department in 1994. Paterson is one of a half-dozen school districts around the country that have embraced this confrontational approach, known here as SchoolStat, in an effort to improve school performance and overhaul bureaucracies long seen as bloated, wasteful and unresponsive to the public.
SchoolStat borrows the tactics of the Compstat program — regular, intense meetings in which police officials famously pick apart crime data and, just as often, their subordinates — to analyze police performance and crime trends, and to deploy resources to trouble spots. The school version taps into an ever-expanding universe of data about standardized testing and school operations to establish a system of accountability.
In Maryland, the process has been credited with reducing teacher vacancies and increasing student immunization rates in Baltimore schools. In Montgomery County, Md., it has pushed principals to come up with strategies like encouraging students to take the Preliminary SAT by offering a free pancake breakfast if they attend.
In Jackson, Miss., the state’s largest district has used it to increase food sales in high school cafeterias by adding salads and hot breakfast items, after the data showed that more than one-third of the students were not buying meals. In Philadelphia, where as many as 42 SchoolStat meetings are held each month at all levels in the district, officials say it has helped develop strategies to reduce the number of suspensions, increase attendance and raise standardized test scores…
While school officials have pored over data like test scores for decades, in SchoolStat the information is broken down into unusual detail, not just by school but also often by student, and presented in elaborate charts and graphs so the SchoolStat panel can look for problems or trends that are not evident in routine reports. The data is updated every three to five weeks in “relentless follow-up,” said Michael Kanarek, a district official who plans the meeting.
For instance, when the SchoolStat panel examined the backlog of work orders in the district’s 52 schools last spring, the data specialists created an electronic tracking system to find out when work orders were being completed, and also kept a running tally of the results in weekly and monthly charts. When SchoolStat looked at classroom instruction, it started keeping tabs on the number of visits by instruction support staff who are required to — but do not always — go to schools three times a week.
Once the data has been analyzed, SchoolStat follows a predictable pattern in which assistant superintendents and their staffs are called into meetings to answer questions and explain problems.
It is unfortunate that the Times article, written by Winnie Hu, describes the system as “confrontational,” although I’m sure many school officials view it that way. The article notes that, as always, the cultural challenges loom large.
In some school districts, there has been a backlash against SchoolStat. Bryan Richardson, a former director of Baltimore’s program and now a consultant who helps implement SchoolStat nationwide, said that after Baltimore stepped up its efforts in 2005, the windows in his car were broken on school grounds, and a school employee called him and his staff derogatory names on a local radio show.
“Is it a dramatic shake-up of a school culture? It certainly can be,” Mr. Richardson said. “When you start moving from a culture that rewards relationships to one that rewards results, there are people who feel a sense of diminished importance and loss, and that’s upsetting and makes them angry.”…
Some school districts, in response, have sought to adopt a version of the process that avoids criticizing people or making it part of job evaluations. Instead, these districts seek to provide help to failing schools rather than assess penalties. Questions are typically addressed to a group rather than to individuals.
Questioning administrators about their schools is hardly a new practice, although it is often not as formalized as SchoolStat. Michael E. Glascoe, the Paterson superintendent since 2005, recalled that as a district official in Montgomery County, Md., he would be called to meetings to explain test scores and disciplinary issues.
“We called it ‘hell’ because some of us would go in there and be there for four or five hours,” Dr. Glascoe said.
This kind of approach is valuable. It would be even more valuable if it were part of a broader lean approach, in which lean strategies and tactics were used to identify even more waste and problems, with methods and tools available to achieve improvement.
1.09.2008
Tapping Employee Expertise: A Nurse Seeks to Prevent Infections
Workers often have the most knowledge about their workplace; as a result, they often come up with the best ideas for improving the workplace. That is why kaizen events are conducted by cross-functional teams of workers who actually do the work.
This latest example of the often-untapped expertise of workers comes from healthcare, as reported recently by the Cincinnati Enquirer. The article, by Val Prevish, describes a new invention to prevent the spread of germs: a plastic sleeve to cover the diaphragm and neck of a stethoscope so that it does not actually touch the patient.
This invention was not created or even conceived by a hospital administrator, a director of medicine or a consultant. The inventor was Jenn Giroux – a nurse.
Giroux said she saw a need for a method to quickly and thoroughly protect patients from the germs that collect on healthcare workers' stethoscopes, which often go unsterilized between patient exams…
Several years ago Giroux experimented with some baby products she had around the house after the birth of her ninth child in 2002. She came up with what she hopes will soon be standard medical equipment, StethoClean - a protective plastic sleeve that covers the diaphragm and the neck of a stethoscope so that it does not directly contact a patient.
"This was truly a case of necessity is the mother of invention," said Giroux, 45…
Although guidelines call for practitioners to clean their stethoscopes with alcohol between each use, she says, "there truly is not time to wipe down a stethoscope every time you use it…"
This latest example of the often-untapped expertise of workers comes from healthcare, as reported recently by the Cincinnati Enquirer. The article, by Val Prevish, describes a new invention to prevent the spread of germs: a plastic sleeve to cover the diaphragm and neck of a stethoscope so that it does not actually touch the patient.
This invention was not created or even conceived by a hospital administrator, a director of medicine or a consultant. The inventor was Jenn Giroux – a nurse.
Giroux said she saw a need for a method to quickly and thoroughly protect patients from the germs that collect on healthcare workers' stethoscopes, which often go unsterilized between patient exams…
Several years ago Giroux experimented with some baby products she had around the house after the birth of her ninth child in 2002. She came up with what she hopes will soon be standard medical equipment, StethoClean - a protective plastic sleeve that covers the diaphragm and the neck of a stethoscope so that it does not directly contact a patient.
"This was truly a case of necessity is the mother of invention," said Giroux, 45…
Although guidelines call for practitioners to clean their stethoscopes with alcohol between each use, she says, "there truly is not time to wipe down a stethoscope every time you use it…"
Giroux, who spent part of her career in an infectious disease hospital unit, said she knew that for a protective covering for stethoscopes to be used effectively, it would have to be convenient and easily deployed by the worker.
Her patented design allows providers to clip a dispenser for the sleeves directly onto the neck of their stethoscopes. Ideally, each time a practitioner examines a new patient, he would apply a new StethoClean sleeve to his stethoscope in the same way he would change gloves, she said.
While there are products designed to cover a portion, usually the diaphragm, of the stethoscope, Giroux said her design attaches directly to the stethoscope and so is easily accessible during an emergency…
Giroux has partnered with a major manufacturer of barrier infection control products for the health care workplace, Microtek Medical Inc., based near Atlanta, to manufacture and market her new product.
Kurt Huelsman, vice president of Microtek, said he sees a healthy market for Giroux's invention because stethoscopes are widely used and have not been the focus of any prior campaigns to stop infection spread.
Think what could be accomplished if large numbers of hospitals sought to tap the expertise of their employees.
1.07.2008
Does Your Company Fix Problems or Prevent Them?
My daughter works for a large e-commerce company. She is one of the people who makes sure its Web site functions the way it should.
She recently told me that, about a year ago, her employer created several new positions of Incident Manager. When something goes wrong, an IM is responsible for fixing the problem.
The types of problems an IM addresses might range from a server constantly running out of memory to the Web site crashing when someone adds a new page.
I asked my daughter whether it is also the IM’s job to take steps to ensure that the problem doesn’t recur. The short answer is no; that might be the job of a software developer.
I know next to nothing about software programming, and I suppose it is inevitable that sometimes a Web site will encounter problems. But from my perspective as a lean advocate, the concept of the Incident Manager set off all kinds of alarm bells.
I’m sure the IMs are good people who are skilled at rapidly putting out fires. But first and foremost, the goal should always be to improve the system to prevent problems from flaring up in the first place. If there are enough problems to justify the company having people work full-time to solve them, then I can’t help thinking there are some serious quality issues in the design of the Web site.
Also, while I didn’t ask specifically about this, I got the impression the company does not have cross-functional teams working on continuous improvement. It sounds like they need them.
I may have this all wrong. It may be that there is a lot going on at the company to prevent recurrence of problems, and I am simply not aware of it. It may also be that I am naïve about the volume of problems that occurs on a Web site, even one that is well-designed. However, I can’t help being skeptical.
Does your company have the equivalent of an Incident Manager? Is your workforce focused more on firefighting or fireproofing? Post your comments below.
She recently told me that, about a year ago, her employer created several new positions of Incident Manager. When something goes wrong, an IM is responsible for fixing the problem.
The types of problems an IM addresses might range from a server constantly running out of memory to the Web site crashing when someone adds a new page.
I asked my daughter whether it is also the IM’s job to take steps to ensure that the problem doesn’t recur. The short answer is no; that might be the job of a software developer.
I know next to nothing about software programming, and I suppose it is inevitable that sometimes a Web site will encounter problems. But from my perspective as a lean advocate, the concept of the Incident Manager set off all kinds of alarm bells.
I’m sure the IMs are good people who are skilled at rapidly putting out fires. But first and foremost, the goal should always be to improve the system to prevent problems from flaring up in the first place. If there are enough problems to justify the company having people work full-time to solve them, then I can’t help thinking there are some serious quality issues in the design of the Web site.
Also, while I didn’t ask specifically about this, I got the impression the company does not have cross-functional teams working on continuous improvement. It sounds like they need them.
I may have this all wrong. It may be that there is a lot going on at the company to prevent recurrence of problems, and I am simply not aware of it. It may also be that I am naïve about the volume of problems that occurs on a Web site, even one that is well-designed. However, I can’t help being skeptical.
Does your company have the equivalent of an Incident Manager? Is your workforce focused more on firefighting or fireproofing? Post your comments below.
1.04.2008
When You Should Look for a New Job
Continuous improvement is part of what makes a good employer, according to the folks over at Computerworld.
In an article called “8 Signs It’s Time to Look for a New Job,” writer Thomas Hoffman offers a list that includes much of what you would expect from a piece with that title: you’re being excluded, your level of influence is waning, etc.
But he also mentions
Continuous improvement isn't part of the mantra.
Sometimes there are organizational changes -- or lack thereof -- that you should regard as career alerts. These include stagnation within a corporation or an IT department. If your IT organization has been using the same application-development techniques for 15 years and has made no effort to update its approach, "then something's wrong," says David Van De Voort, principal consultant at Mercer LLC in Chicago. If your company is unwilling to invest in continuous improvement processes such as CMMI, ITIL or Six Sigma, it may be time to seek a company that is, he adds.
What do you think? Should continuous improvement be a determining factor in whether you look for a new job? Would you leave a job – or refuse to take one – at a company that isn’t involved in continuous improvement? I look forward to your comments.
In an article called “8 Signs It’s Time to Look for a New Job,” writer Thomas Hoffman offers a list that includes much of what you would expect from a piece with that title: you’re being excluded, your level of influence is waning, etc.
But he also mentions
Continuous improvement isn't part of the mantra.
Sometimes there are organizational changes -- or lack thereof -- that you should regard as career alerts. These include stagnation within a corporation or an IT department. If your IT organization has been using the same application-development techniques for 15 years and has made no effort to update its approach, "then something's wrong," says David Van De Voort, principal consultant at Mercer LLC in Chicago. If your company is unwilling to invest in continuous improvement processes such as CMMI, ITIL or Six Sigma, it may be time to seek a company that is, he adds.
What do you think? Should continuous improvement be a determining factor in whether you look for a new job? Would you leave a job – or refuse to take one – at a company that isn’t involved in continuous improvement? I look forward to your comments.
1.02.2008
Is That a Lean Milkman at Your Door?
Home deliveries of milk are making a comeback, according to a recent article in The New York Times.
It is happening mostly in less-populated areas, and there are a variety of reasons. Convenience is one, either because people are busy or because they don’t want to lug around heavy milk containers. Another is that the milk usually comes from local dairies, and customers believe it to be fresher and of higher quality. And one dairy distributor says “We started home delivery after 9/11 because we saw people pulling everything in back close — not traveling as much, not wanting products from far away.”
Home-delivered milk usually costs more than milk in the store, but demand is growing.
So why am I writing about this? Consider the article’s description of how the milk makes its way to customers:
The process is simple. The milkman puts the milk in a cooler near the front door once a week, and Ms. Tait puts the empty milk bottles out the night before the deliveries and he takes them away…
In many cases, small dairy farms work with local distributors to deliver their milk to local consumers.
There are lean principles at work here, whether the participants know it or not. Establish a supply chain where all parties are near each other. Eliminate much of the waste of transportation. Set up a kanban system, where an empty container signals the need for replenishment.
Granted, there is nothing new about home delivery of milk. And I’m not aware of any local dairy or distributor that is consciously following a lean strategy. Also, I’m sure that the resurgent demand for home delivery of milk is unlikely to make any significant dent in store sales of milk.
My point is that new demand for products, or for products to be delivered in an unusual way, can come at any time, often without warning. An understanding of lean strategies, and the ability to apply them to new situations, can help you adapt to the ever-changing marketplace.
It is happening mostly in less-populated areas, and there are a variety of reasons. Convenience is one, either because people are busy or because they don’t want to lug around heavy milk containers. Another is that the milk usually comes from local dairies, and customers believe it to be fresher and of higher quality. And one dairy distributor says “We started home delivery after 9/11 because we saw people pulling everything in back close — not traveling as much, not wanting products from far away.”
Home-delivered milk usually costs more than milk in the store, but demand is growing.
So why am I writing about this? Consider the article’s description of how the milk makes its way to customers:
The process is simple. The milkman puts the milk in a cooler near the front door once a week, and Ms. Tait puts the empty milk bottles out the night before the deliveries and he takes them away…
In many cases, small dairy farms work with local distributors to deliver their milk to local consumers.
There are lean principles at work here, whether the participants know it or not. Establish a supply chain where all parties are near each other. Eliminate much of the waste of transportation. Set up a kanban system, where an empty container signals the need for replenishment.
Granted, there is nothing new about home delivery of milk. And I’m not aware of any local dairy or distributor that is consciously following a lean strategy. Also, I’m sure that the resurgent demand for home delivery of milk is unlikely to make any significant dent in store sales of milk.
My point is that new demand for products, or for products to be delivered in an unusual way, can come at any time, often without warning. An understanding of lean strategies, and the ability to apply them to new situations, can help you adapt to the ever-changing marketplace.