Womack on China Costs and Lean Healthcare
Other blogs, including Gemba Panta Rei have already linked to this, but I’ll also post it with a few different highlights. Jon Miller has a very good discussion about Womack’s assertion that “Toyota does it right the first time” while American companies are on the “kaizen kick.” I think the truth is somewhere in the middle, that Toyota doesn’t magically do it right the first time, there is a lot of planning and PDCA involved early on. Kaizen shouldn’t be an excuse to not plan and say “we’ll kaizen our way out of it.”
Two details I’ll pull out of there. I always like the way Jim tries to explain the need to look at total cost when making sourcing decisions. It’s not that anyone is stupid, but that company departments and silos tend to suboptimize their own measures. Companies need to reorient their incentive structures to make sure people are making decisions that are best for the company as a whole. Womack says:
“ most companies in my view are pretty abysmal at calculating total cost, and I was just up in the Midwest talking to a big company that has absolutely no way to figure out total acquisition costs for materials that they are buying in. Which is to say they’ve still got a purchasing organization that whatever they may say, is incentivized on lowest piece part right now, and so it’s lowest piece part plus slow freight is what purchasing is doing. And then it turns out that nothing ever comes on time so there’s lots of expediting, but that’s on the logistics budget. And they’ve got big quality problems, but that’s on the quality budget. And then the biggest thing is they’ve got very long lead times so they’re always ordering the wrong stuff, which means that they’re either remaindering or they’re doing more expediting, and that goes on the SG&A budget. So you say, gee, can anybody count? All you have to do is add up the quality budget, the logistics budget, the SG&A budget and the purchasing budget, and what you’d see is that an awful lot of what you’re buying is not cheap the way you think it is. It just amazes me every day — big companies can’t do simple math. If you did do simple math, does that say people would quit going to China? Well no, not for certain categories of things, but there are a lot of other places like Mexico that would be an awful lot better for the North American market, and Eastern Europe for the Western Europe market if you did what we call lean math and counted in all of the factors.”
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They can do the “simple math” but they’re doing locally isolated math, not system-wide, company-wide math.
Jim also chimes in on the opportunity for Lean in healthcare, saying:
“that’s a particular challenge in healthcare because the management is just so hopelessly screwed up with the doctors, the managers and the nurses pulling in opposite directions. These kind of three big factions of doctors who are point optimizers, managers who are asset optimizers and nurses who are process optimizers, except historically they didn’t have any method, they were just workaround specialists. So you put that together, and the challenge in healthcare is not whether these ideas work — they absolutely do, and we’ve seen demonstration after demonstration — the problem is how do you change the management system and the mentality of the professionals working in the system so that you can actually sustain them?”
That’s very true that hospital employees (not just the nurses) tend to be workaround specialists. But that sounds like exactly the situation Jim found at Boeing — lots of managers being heroes, expediting, and working around the system (you can read his comments on that at the Industry Week website). What is it about human nature that drives us to be heroes, rewarding that behavior, instead of rewarding the practices that proactively prevent problems from occurring?