Is Merck Getting Lean Right This Time?
November 2005: I’ll Bet That Merck’s “Lean” Effort Fails
Merck announced a goal of 7,000 layoffs in conjunction with a lean effort. The Merck CEO confused Wall Street by saying the drug maker was going to become like Dell Computer. An analyst commented:
That left “a couple of people scratching their heads,” said David Risinger, an analyst at Merrill Lynch who attended one of Mr. Clark’s sessions. Dell makes a low-margin product with a short life cycle, while Merck makes a high-margin product with a long life cycle, said Mr. Risinger.
January 2006: Merck, I Told You So
In the followup article, Merck had stated directly:
“Determining job cuts are part of the lean manufacturing system aimed at streamlining.”
I pointed how lean is based mainly on employee engagement, getting people to implement continuous improvement ideas with the idea that they and the company will both succeed. When improvement ideas start leading to layoffs, it’s only human nature that the improvement efforts will dry up and lean will fail.
So the new article gives an update on Merck’s first U.S. lean site. From the sound of the article, it actually sounds like Merck might be doing it right. Or, they’ve learned how to position it better in the media.
From the article:
“The Wilson site applied the new concepts about three weeks ago. Benefits have come already â€” quicker response times, lower inventories and shorter cycle times. The benefits result in lower costs and more efficient operations, according to a company press release.”
Those are the benefits that you would expect to see. But three weeks? Nobody implements lean in three weeks. Merck might have made some improvements based on lean principles, something that Norm Bodek might call “kaikaku” (or radical change). Merck may have improved their layout (is that easy to do in a pharma plant?) or taken some gross waste out of the process. The real test is three months from now and three years from now…. are they still improving, have they sustained their gains?
“Merck’s lean manufacturing strategy â€” called the Merck Production Systemâ€” features some key aspects. The system is lean (elimination of waste), agile (quick response to customer needs) and customer-driven (production based on what the customer actually requires).
Lean manufacturing targets seven areas of waste such as defects, overproduction, motion and inventory. The system isn’t used to reduce head count. In many cases, head count may not be affected at all, Ryan said.”
Some of that sounds good, the definition of MPS. But it’s somewhat wishy-washy on layoffs… “isn’t used to reduce headcount” or “may not be affected”??
“At Wilson Merck, manufacturing processes have been streamlined, so unnecessary steps were removed. Production is no longer based on sales forecasts but on customer demand.
A prominent feature of a lean facility is the use of visual aids that inform employees about the status of production, improvement opportunities and performance results. The end result is a more flexible, agile and responsive manufacturing process. Now manufacturing delivers what is needed, when it is needed, in a cost-effective manner.”
I wonder how close they are to real customer demand? I always thought that drug making involved batch processes and long cycle times. It’s not the same as slapping together parts at a Dell factory. I wonder if Merck is playing a semantics game with “forecasts” and “customer demand”. Did they do some creative re-naming of their forecasts? Has the production planning process really changed? We’re not going to learn that in a newspaper article.
Well, good luck to you Merck. Again, I’m skeptical that you’ve really made huge gains in just three weeks. I’m skeptical that your employees aren’t scared to death of layoffs. I’m skeptical that you’re actually getting employee involvement… are the managers and engineers making all of the “lean” decisions?