Lean Can Help Fight High Transport Costs

Stung by Soaring Transport Costs, Factories Bring Jobs Home Again - WSJ.com

Lean thinkers have long advocated the benefits of having a shorter supply chain -- faster response, keeping jobs at home, being close to the customer, and better quality. Add high oil prices (and resulting transportation costs) to the list, as rising energy costs are causing many to re-think their offshoring of production to low labor cost countries. From the WSJ:

The rising cost of shipping everything from industrial-pump parts to lawn-mower batteries to living-room sofas is forcing some manufacturers to bring production back to North America and freeze plans to send even more work overseas.

"My cost of getting a shipping container here from China just keeps going up -- and I don't see any end in sight," says Claude Hayes, president of the retail heating division at DESA LLC. He says that cost has jumped about 15%, to about $5,300, since January and is set to increase again next month to $5,600.

The privately held company, known for making the heaters that warm football players on the sidelines, recently moved most of its production back to Bowling Green, Ky., from China. Mr. Hayes says the company was lucky to have held onto its manufacturing machinery. "What looked like an albatross a year and a half ago," he says, "today looks like a pretty good asset."

They still have the equipment. But what happened to their greatest asset -- the people?

Is this good news for U.S. manufacturing? Maybe... if we can get people to drive to work, considering high fuel prices!

Edward Zaninelli, vice president of trans-Pacific westbound trade at Orient Overseas Container Lines in San Ramon, Calif., a major shipping line, says he's heard from customers who are moving production back to the U.S., including a maker of steel pans for car engines.

"I believe a decent amount of production could come back into the States within five years, not everything," he says. "But it won't be because of transport costs -- it'll be because other production costs have gone up and companies have realized they can have better control over their production when it's closer to home."

That's very much aligned with the Lean approach and older Lean arguments for keeping work close to customers.

Last fall, Crown Battery Manufacturing Co. decided to close a plant it bought in Reynosa, Mexico, and move the jobs to its Ohio home base, adding 25 workers to the 400 it already employed.

"We're shipping batteries, which are big and heavy," says Hal Hawk, the company's chief executive.

Mr. Hawk estimates shipping to customers, who tend to be clustered in the Midwest, was adding 5% to 10% to the cost of the Mexican-made batteries, which he says also suffered from quality-control problems. The smallest batteries are 20-pounders for lawnmowers, but they also make 29,000-pound giants for running underground mining machines in places like southern Illinois.

"They were traveling 2,000 miles to get to those major customers," says Mr. Hawk, and all indications are that fuel surcharges on the trucks would just keep growing.

The word "Lean" wasn't a part of that article, but it's hard to avoid thinking about Lean. Are any of you seeing your companies slow the movement of production to Asia, or are any bringing work back?

There's been a "local food" movement, where some people really pay attention to where their food comes from. It's mainly a sustainability and environmental question, with one of the factors being the "carbon footprint" of transporting food long distances. Will people start paying attention to this for manufactured goods? Will that just be a fringe movement?

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Want a Cheap "Biden '08" Hat?

As Candidates Quit, Trinkets Pile Up (Free CareerJournal.com article)

Here's an amusing article from the WSJ... sort of old news now, but also a story about old inventory, so maybe my delay in posting this is appropriate.

"...small businesses responsible for the paraphernalia are devising creative ways to unload their excess inventory. First come the heavy discounts -- all "Rudy 2008" merchandise is 75% off -- then more-imaginative steps, such as donating the swag to a homeless shelter or promoting a candidate for an as-yet-unplanned race."

Ah, the waste of inventory! I wonder how many "Thompson 2008" buttons and "Edwards '08" shirts were mass produced in huge batches? I also wonder how much of this was produced in Asia, with slow supply chains?

But those same factors made inventory control difficult. With the whirlwind pace, and no clear front-runner in either party until late in the race, the vendors struggled to calculate what they needed and when they needed it. Some products were made to order, but most items were ordered in bulk to cut costs. And while some of what is left could have collector potential, most dropped in value the moment a candidate ended his campaign.

It's a classic inventory planning problem, trying to balance the costs of excess inventory with the costs of stockouts, not being able to make a sale if a candidate suddenly surged in the polls. I wonder if Obama items were hard to find as he rose in the polls?

Ordering in bulk or having long lead times makes this planning more challenging. Longer lead times and bulk orders increase both the risk of stocking out (can't get enough in time) or the risk of excess inventory (oops, wish I hadn't ordered those last 5000 "Rudy '08" bumper stickers).

Mr. Shirey has been in this predicament before. He was the official vendor of Mr. Kucinich's campaign in 2004 and had 25,000 T-shirts left when Mr. Kucinich exited the race. Mr. Shirey tried to sell them to a car wash and investigated the possibility of bleaching the T-shirts to sell them as plain white shirts. In the end, he sold the Kucinich shirts, which cost him $6 each, to a rag company for eight cents apiece.

At least there's some use for them...

The article also describes how a campaign typically farms out their merchandise sales to a small business, a company who (out of loyalty) typically handles only one candidate. The company has an incentive to avoid the risk of excess inventory, but the campaign has the desire to avoid stockouts. So I wonder if the campaign compensates their retailers for any excess? Seems like that would be fair thing to consider a "campaign expense." That's the type of contract I'd ask for if I were the retailer... but then again, I might not get the contract.

One experienced vendor hedged -- by not putting dates on much of the Mitt Romney merchandise:

Some more-seasoned vendors went into the primary season with a better sense of how to handle inventory. Brian Harlin, owner of the GOP Shoppe, supplied the 2000 Republican National Convention as well as President Bush's first inauguration. This cycle, he received the contract to run Republican Mitt Romney's store.

His way to skirt the uncertainty? Many of the items sold on RomneyShop.com didn't have a date attached to them. So instead of designing a T-shirt with "Romney for President 2008," it simply said "Romney for President." With Mr. Romney rumored to be considering a run in 2012 or 2016, the merchandise retains its value. "This all can be used again," Mr. Harlin said.

Four weeks after Mr. Romney withdrew from the presidential race, Mr. Harlin sent out an email blast declaring "Romney Shop Sale Begins Today!" The message read: "This is a great opportunity to stock up for future campaigns."

I wonder if any of the candidate merchandisers tried to "be Lean" -- finding local suppliers (or a company like American Apparel who produces clothing in L.A.) or finding a way to order in small batches?

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The Solution is Automation?

The Challenge From China - WSJ.com:

The above linked article is pretty wide-ranging, written by a political guy, mostly about the growing military threat from China. He dabbles a bit in long-term (China) vs. short-term (U.S.) thinking... how China's economic growth is fueling their military power. He adds:

"In the past we have been able to outwit both more advanced industrial economies and those floating upon seas of cheap labor – by innovating and automating. Until China's labor costs equal ours, the only way to compete with its manufactures is intensely to mechanize our own. Restriction of trade or waiting for equalization will only impoverish us as we fail to compete in world markets. The problem is cheap labor. The solution, therefore, is automation. Who speaks about this in the presidential campaign? The candidates prefer, rather, to whine and console."

Why aren't candidates mentioning this? Well, for one, robots don't vote. But seriously now... this is a very traditional business view, that automation is the key. Automation can help, when used appropriately, but it's not the WHOLE solution.

Where is the candidate talking about the need to change our business cultures, our management systems? If automation were the key, GM and Ford would still be on top of the automotive world. If you're a regular reader here, you know all about the examples of factories, here in the U.S., using Lean methods (a new management system) to effectively compete against companies who are chasing cheap labor around the world (China and now Vietnam).

The author is right that we have to avoid whining - as politicians or as business leaders. Your competition is using cheap labor to ship from China? Then change the game!! Be like American Apparel and compete based on speed and design.

Quit whining, change the game... but you can do more than spend $$ on automation. You can manage differently and you can ENGAGE your people in continuous improvement. You get what you pay for with labor... do you want $2/hr people who you aren't asking to think, or maybe a $12/hr person here can work with you to provide value (physical AND mental) greater than their cost of labor?

A week after this commentary piece ran, there was a letter to the editor worth noting:

When Henry Ford developed his production line for automobiles, the pay for American workers on that assembly line was the highest in the world, yet by the marvel of automation the labor cost per car was the lowest in the world. We had, in effect, the world's cheapest labor with the world's highest living standards.

But the assembly lines that turned out Model Ts in 24 seconds and World War II liberty ships in 42 days were made possible by a management that took responsibility for engineering, development and production techniques. Today's management is educated to be responsible for mergers, acquisitions and gamesmanship. For the hard part of Mark Helprin's automation solution, managers are taught to put in a call to China.

That is true about Henry Ford. But, again, look how Toyota surpassed them -- it wasn't because Toyota was MORE automated. It was because Toyota engaged their people. The letter author IS correct that today's management tends to be focused on finance -- when we could really use some people focused on operations, processes, and people. That would be the "hard part" also, don't you think?

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The Shift from Factories to Hospitals

Factories Fading, Hospitals Step In - WSJ

It's inevitable -- as manufacturing jobs decline and our population ages, more people will shift from manufacturing jobs into healthcare. (Free version of article here)

BANGOR, Maine -- In this aging manufacturing region, where old-line industries like paper factories are falling away, health care has emerged as the employer of last resort.

Between 1998 and 2007, the Bangor metropolitan area (pop. 150,000) lost about 3,700 jobs in manufacturing, but gained 3,500 jobs in health care. For many residents in Bangor, the hospital is replacing the mill as the passport to the middle class. For others, it means lower wages and fewer opportunities to advance.

This trend holds true nationwide -- healthcare hiring has made up for manufacturing job losses:

Indeed, while the number of manufacturing jobs nationwide fell by 48,000 in March and by 310,000 over the past 12 months, health-care employment rose by 23,000 last month and is up 363,000 jobs on the year, according to the government's most recent data.

The article highlights a former paper mill employee, Steve Arsenault, who at 51 years old, is now working as a certified surgical technologist -- but is making about $5 an hour less than he did before.

The transition requires a good amount of retraining, leading to significant pay decreases in the meantime, as highlighted in the case of this former factory worker:

While some former factory workers find new opportunities in health care, the switch doesn't work for everyone. In 1980, just out of high school, Randy Tompkins started working in a shoe factory. A few years later, he switched to Eastern Fine Paper and worked there for 19 years, until the mill shut down.

A new father with a mortgage, Mr. Tompkins was anxious to find work and decided to look for a health-care job. "You can't seem to go around any corner and not see something health-care related: a hospital, a nursing home, a doctor's office," he says.

After six months of classes at Eastern Maine Community College, he became a certified nursing assistant, a job that paid just $7.75 an hour, half of what he was making at the mill, and with no benefits. He eventually was accepted in the school's registered-nursing program, but says he couldn't maintain a C average. Now, Mr. Tompkins is looking for a new career: This fall he plans to start taking classes in computer integrated machining.

The days of a high school graduate walking into a relatively high-paying job are over... that's probably not news to anyone, is it?

I'll also make the pitch to Lean professionals who currently work in factories. If you're bored or looking or a new challenge -- try to engage with your local hospital. Your process improvement, coaching, and leadership skills are probably more transferable than you might think. They might not have a "Lean job" but maybe you can convince them to create one. Our hospitals need a lot of help.

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The Dispersion of Toyota Talent

One of the most fascinating trends out of there is the spread of Toyota folks into other old-line automakers or parts suppliers -- Gary Convis, Jim Press, and Jim Farley, to name three. What impact can they have outside of Toyota? It remains to be seen and it's a story worth following. How much impact can one man have on the culture of an entire organization, even if they're at the top?

The big news this week was the hiring of retired Toyota executive Gary Convis as CEO at Dana, a parts maker and auto supplier. Convis is one of my favorite role models and examples of Lean leadership. Even though Dana has had some success with Lean practices (including some Shingo Prizes), it didn't save the company from bankruptcy.

Dana Puts Convis at the Wheel - WSJ.com

From the WSJ article:

Toledo automobile-components supplier Dana Corp. will announce Thursday the hiring of longtime Toyota Motor Corp. manufacturing whiz Gary Convis as its new chief executive.

I'd argue that "manufacturing whiz" only scratches the surface of his leadership talent. When you see quotes from Convis like this (from previous articles):

•

“You respect people, you listen to them, you work together. You don’t blame them. Maybe the process was not set up well, so it was easy to make a mistake.”

That type of mindset and leadership should translate well to an entire company. Will Convis be able to stem the tide of traditional blaming and strict top-down leadership? Will Convis be able to spread the "respect for people" philosophy throughout Dana? Will he have the runway to be able to do that? Or will Wall Street and the investors want short-term focus? Will Convis be able to live the Toyota Way? Will he even try, given this is Dana?

Back to the WSJ article, it gives the required analyst quote, for whatever dubious value they add to the conversation:

Lehman Brothers automotive analyst Brian Johnson said the paring of Mr. Convis with Mr. Devine should give the company a management team that is capable of strengthening relations with customers and Wall Street.

He said Mr. Convis's immediate challenge is "delivering the performance improvement" and driving the company "to a leaner manufacturing philosophy."

Well, duh, of course Convis is supposed to help improve performance. You might think, from his choice of words, that this analyst doesn't understand the Lean approach. "Leaner?" Lean isn't an end point, it's a philosophy and a business system. What does "leaner" mean? That Dana will have MORE of a long-term focus than Toyota? What the heck does that mean? It would be more accurate to say something like "driving the company to more fully implement the lean manufacturing methods and philosophies." Or how else would you put it?

Either way, I hope Convis is wildly successful at Dana. That would be a nice data point to prove that the Toyota Production System works well in other companies.

A Star a Toyota, a Believer at Ford - NY Times

The second related story is about Jim Farley and his move from Toyota to Ford. It's a fascinating profile - we learn, among other things, that he is a cousin of the departed comedian Chris Farley (there is a passing resemblance).

More importantly, Farley shares his passion for Ford and his drive to help save the company.

Now Farley isn't leading change from the top, but he can influence the culture. Hopefully, he can bring the customer obsession from Toyota:

Mr. Farley rode the fast track at Toyota. He moved to Europe in 1995 and helped introduce versions of the Yaris minicar and the Corolla compact. He also became obsessed with what cars people drove and why.

“I used to walk parking lots all the time, all over Europe,” he said. “When I’m in a new situation, my formula is to really find the truth in things, to observe and get close to the truth.”

The truth, as he saw it at Toyota, was all about the customer — unlike at some other automakers that let executives dictate what cars to build.

“One of the many things that Toyota does really, really well is that it can put the voice of the customer right there at the table in front of the chairman of the company, in a way that even he can’t change it,” he said.

Farley learned to go to the "gemba," to actually observe and talk with customers. This is a long-standing pattern in Toyota (including the stories of Japanese employees coming to the U.S. to drive minivans across the continent to understand customer needs here).

It also sounds like he will open up channels of communication:

“At Ford, it was like the boss was always right,” he said. “But it is fascinating how quickly the people I work with were able to shift to where they had their own opinions and expressed them.”

Tie that back to the Convis quote. Convis is a servant leader. He listens to his employees. That's the magic. I hope that's what they can both help bring to Dana and Ford. If it can work there, it can work anywhere.

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Turn the Tables on Haier Management?

Chinese Refrigerator Maker Finds U.S. Chilly - WSJ.com:

Here's another case of where your bosses should NOT take manufacturing management practices from the WSJ. In an article about the Chinese refrigerator maker Haier and its founder, Zhang Ruimin:

"He developed a management system of strict discipline, with a strong emphasis on quality control. Workers in China who make mistakes must stand on a set of footprints outlined on the floor and publicly criticize themselves out loud, explaining why they erred and the lessons learned."

I think we should turn the tables and ask Mr. Zhang to stand on the metaphorical footprints of this blog... why would a quality "control" program like this likely do little to actually improve quality? Nobody is implying that Haier uses the Lean approach - it actually sounds very far from Lean.

Not surprisingly, this approach hasn't gone over well in their South Carolina factory:

But Haier's hierarchical culture has been a tough fit with U.S. workers. They rebelled against being forced to stand in the footprints when they made mistakes. Haier's Chinese management has tried to adjust to American tastes. Instead of humiliating bad workers, they now encourage the best ones to stand in the footprints for recognition.

When you click on the pictures for the article, you get some further explanation:

Since the plant oppened in 2000, the American workers rebelled against the "big shoe" footprints, and even rejected Haier's plan to force the best -- not the worst -- workers to stand in the footprints.

That's just silly, either way. You don't humiliate and shame people into better quality. Making them stand there as "recognition" doesn't seem to serve much of a purpose, either.

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Learning from Restaurants

Cutback Cuisine - WSJ.com:

If you're a regular reader, you know I like to try to draw from non-traditional sources and industries. This article from WSJ caught my eye and made me think of some Lean concepts.

As in many businesses, restaurants are caught in a double pinch right now. Raw material costs (food) are going up and the sluggish U.S. economy is dampening demand, especially for some moderately-high to high priced restaurants.

"Price increases are across the board; the commodities have just gone crazy," says Brett Reichler, a corporate executive chef of B.R. Guest Restaurants, owner of the Blue Water Grill. "Flour is up 30, 40%. Beef's on the rise, fish is on the rise. Nothing is inexpensive any more."

Some restaurants are going the route of many manufacturing companies -- trying to "pass along" the costs as if it's an entitlement. This is no more true for food than it is for automobiles. Just because the price of steel goes up, that doesn't mean you can automatically increase the price you charge for cars. The prices are all driven by supply and demand, as is true in any industry that's totally warped by regulation or monopoly power.

The WSJ article focuses, however, on the restaurants that are taking action instead of just complaining or trying to raise prices. Some restaurants are looking at what menu prices customers are willing to pay and they are "engineering" the food and ingredients to hit a profitable cost in comparison to that menu price.

This is reminiscent of the Toyota practice of "value engineering" where products are designed to hit a cost that allows profitability given a market-driven price. This is different than the old "cost plus" mentality where manufacturers try to "tack on" a profit margin on top of designed or incurred costs.

Some examples from the article (which make me drool because a weakness of mine is nice restaurants):

Restaurants have long engineered menus to allow the bigger profits from pastas and vegetable side orders to subsidize such loss leaders as rib-eye steaks. But rising prices have prompted a furious new round of behind-the-scenes shuffling. San Francisco's Slanted Door is known for its rack of lamb. On many days, chef and owner Charles Phan offers a more-profitable lamb sirloin stir-fry instead, shaving his food costs by a third. It is a temporary fix that draws some complaints. "Everyone wants that rack," he says.

At Le Cirque in New York, diners can choose from four pasta dishes, up from two a year ago. "Pasta's a great item for reducing food costs," says co-owner Mauro Maccioni. He estimates that he is paying 5% more for the food his restaurant prepares, including big increases for truffles and butter. He touts as good values his new pasta dishes, which include a chestnut-flour pappardelle with wild mushrooms and a veal ragu.

In the case of the Slanted Door, I guess you could argue that the chef is not meeting customer demand (for racks of lamb). He has to weigh the trade-offs of profitability and the risk of driving away a loyal customer who might be upset.

They talk about some menu items subsidizing others. We can also see this at fast food restaurants. Do you think the price of a burger and the soda are driven by true costs? Of course not, they charge what the market bears. Sandwiches are often cheaper (compared to their costs), but they make up for it by charging a relatively huge markup on a beverage.

Chefs are also getting more creative in making full use of their food and ingredient purchases, to reduce waste:

Some chefs, such as Raphael Lunetta of JiRaffe in Santa Monica, are yanking pricey entrees from the menu to promote as daily specials. He says a good pitch by waiters for the roasted rabbit with herb polenta gnocchi, for example, helps sell more of the dish and reduces leftovers.

Another strategy is to offer less of an expensive meat and add a cheaper cut. Diners who order "Roasted Pekin Duck" at the Powerhouse Restaurant and Bar in Chicago get a half-breast and a duck confit instead of a whole duck breast. The substitution cuts costs nearly in half by allowing the restaurant to buy entire birds instead of individual duck breasts. "You're not paying for processing," says managing partner Mitchell Schmieding.

Anyway, I hope you have access to the full article, it's definitely worth reading. As you do, think through the possible parallels to your business. Can you learn something from your local fast-food joint or a snooty French chef?

One chef sums it up:

Skilled chefs, says Mr. Chang, transform whatever comes their way. "If you need to make real food out of nothing, that's real cooking," he says. Echoing a culinary maxim, he adds: "It's easy to cook a sirloin. It's harder to cook with potato scraps."

Not much whining there -- just good business.

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Hoaxer Asks Companies about Lean

Analyze This: Hoaxer Haunts Earnings Calls - WSJ.com

Some guy (not me) has been spoofing his way onto companies' investor / analyst calls, asking questions about Lean and Six Sigma. He's using a fake name and uses a lot of jargon, but companies find it more annoying than funny and nobody's sure what the point is.

One company rep "speculates that Mr. Herrick is "some minion" at a consulting firm trying to do clandestine research on companies' use of Six Sigma techniques.

Mr. Herrick's questions are usually narrowly focused on details of a company's results from well-known cost-savings techniques such as "lean management" and Six Sigma, or else supply-chain issues. They're virtually the same on each call, and he often follows up aggressively. In the Newell Rubbermaid call, Mr. Herrick asked the company's president and chief executive, Mark Ketchum, to outline his "top initiatives regarding lean manufacturing" and Six Sigma.

I guess real analysts aren't asking about Lean or Six Sigma?

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Signs of The Lean Buzzword Spreading?

Networks Plot Course - WSJ.com

As the entertainment industry works to recover from the recently-ended writers' strike, the WSJ article featured a quote from a division of General Electric:

"[the networks] are hoping to maintain some of the cost-cutting benefits of the strike, such as ending costly studio deals through the use of force majeure clauses. "

We're a little bit leaner and more agile now," says Marc Graboff, co-chairman of NBC Entertainment and NBC Universal Television Studio, units of General Electric Co"

Are the buzzwords of Lean and TPS spreading that far and wide throughout GE now that the TV people are talking that talk? Or was it just the "everyday" use of the words as we often hear?

You might remember this earlier post about a funny "Six Sigma' clip from the NBC show 30 Rock. Will we see 30 Rock mentioning the Toyota Production System, whenever they finally get new shows back on the air?

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A Lean Guy Reads the WSJ

A few short thoughts from today's WSJ:

'Headwind' Blows As Top Executives Navigate Trouble - WSJ.com

As I was reading the first article, above, about executives blaming "headwinds" and macroeconomic problems for business woes, I thought, "Sure, there are economic problems, but isn't that always a convenient excuse even when a business is being run badly?" Executives never give credit to macroeconomic conditions when times are good, do they?

The article then made the exact point:

"Weather terms appeal to economists and corporate executives because the market sometimes seems to behave like a force of nature. These days, Mr. Lakoff says, citing headwinds seems to be a way to duck blame for all kinds of business problems related to the subprime mortgage crisis, the credit crunch, even simple bad business decisions.

Some economists say the metaphorical wind only blows in one direction. Although executives are quick to blame headwinds for their woes, they are less likely to cite tailwinds for their good fortunes."

Interesting, eh?


Can Circuit City Survive Boss's Cure? - WSJ.com

This article caught my eye, since I remembered blogging about Circuit City last year when the company, which claimed "associates are our greatest asset," proved quite the opposite by wholesale firing those associates who earned too much.

This new WSJ article is laughable, as the CEO is still spooning out the same apparently meaningless tripe about valuing their employees. The CEO says tip #1 for managing a turnaround is "listening to your employees," that the best ideas come from "the bottom up." Well, after firing the "top" associates, all you were left with was the "bottom" and the cheaper replacements they hired.

I'm still not planning on rushing into a Circuit City store anytime soon, given their track record.

WSJ: How do store employees, who have been through multiple layoffs, fare in these changes?

Mr. Schoonover: We want engaged associates who have fun at work, bring a passion about the products, and enjoy serving customers. We've made a lot of changes in how we interact with our associates so that Circuit City could become the employer of choice.

Now that's just funny. Not "ha ha funny" like the WSJ's skeptical headline about whether the company can survive Schoonover or not. What do you think?

How do you fire the highest-paid associates and then expect a "fun" environment?

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Partly Correct on Rising Car Prices

GM Expects Car-Price Rise - WSJ.com

GM is raising prices:

"In December, GM raised its prices an average of 1.5%..."

This is great news if you're an employee, stockholder, or fan of General Motors. This means market demand is strong for products and overproduction has been curtailed (they're not dumping as much product on rental car fleets and they have some hot products).

The rest of the sentence I originally quoted read:

"In December, GM raised its prices an average of 1.5%, mainly because of higher raw-materials costs, especially nonferrous metals, steel and oil."

No, no, no. That is such a tired excuse, "our costs went up, so we have to pass it along." GM raised prices because they can, because the market will accept that (or they think it will). It's just so politically increase to say you're increasing prices because of increased demand, isn't it? They're not entitled to raise prices because of steel costs or elective costs, such as investments in new technologies...

"[CFO] Fritz Henderson said the industry has less manufacturing capacity than in the past and therefore less pressure to sell vehicles cheaply to move inventory."

It's all about supply and demand. I'm sure GM realizes that... they just can't say it, right?

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Can Hiding Mistakes Help Your Career in Some Companies?

Cubicle Culture - WSJ.com: Why Learn and Grow On the Job? It's Easier To Feign Infallibility

Free Version via CareerJournal.com

In the Lean / Toyota Way mindset, we have the belief that we have to be open about our problems instead of hiding them, working around them, or covering them up. "No problems is a problem," as the Toyota expression goes. Instead of blaming people, we're supposed to look for systemic causes that can be prevented in the future.

But, do we have to be careful with being open about problems (and our role in them) if we're not in a Toyota-like organization? This WSJ article says we might have to be cautious with this, as it gives examples of those who get ahead by never admitting they are wrong.

At work, some people just won't admit to making a mistake. They have a gripping fear that it will indict their character, attract more work and invite future blame -- not to mention ruin a perfect record of never having admitted to one before.

To excel at never admitting mistakes, you have to take care to burnish your unaccountability and sorrylessness. It helps, for example, to have a fall guy, someone who has responsibility for a project who is less known to your boss than you are. Also, any mistake made under time pressure can be blamed on a lack of time. Soon enough, you'll combine elements, blaming the lack of time you had because of the sluggishness of the fall guy.

The article continues:

Flub artists sometimes get their just desserts. But in too many companies, nothing ever catches up with them. In fact, they seem to thrive, not in spite of their ability to avoid accountability but because of it.

The article compares two types of people:

In the business world and elsewhere, people either have a healthy belief in growth, whereby they expect to evolve their talents over time, or they possess a fixed mindset, whereby they believe their talents are innate traits that will carry them to the top.

So the Toyota method wants and encourages the latter, those who believe the grow and develop over time... what does your company value? What types of behavior does your company promote? The article gives a pretty disturbing example of some company cultures that reward "never apologizing," suggesting that companies with the "fixed mindset" lead people to:

"wallow in your success and disown your failures rather than rectify them, which is what the growth-mindset people did." Another study showed we can adopt a company's "fixed mindset" culture faster than you can say, "Sheep."

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Why Do Patients Have to Do This?

The Informed Patient - WSJ.com

Good column in the WSJ today, as always, from Laura Landro. She writes about the need for patients to take an active role in their care and their own safety.

I'll try to keep with the Toyota philosophy of asking "why?" We could go through each of these in "the 5 Whys" problem solving method.

• Why do patients have to ask their surgeons if they are following proper surgical safety protocols?

• Related question, why do patients have to ask nurses and physicians if they have properly cleaned their hands?

The focus of my question is on the patients, why is it necessary to ask patients to take such an active role in the quality of care delivery, not "why is it important to properly clean your hands?"

Do we ever hear food safety advocates suggest, "You should ask your restaurant to confirm that the meat was cooked to the proper temperature"?? Are car buyers encouraged to nag Toyota or GM about whether the car is safe to drive off of the lot?

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Standardized Work for an Airline

Can US Airways Pass Test of Time? - WSJ.com:

Saw this about US Airways (LCC), an airline I used to fly a lot when I lived and it was just America West. The airline has struggled through its merger -- executive purchase eyes were bigger than their "integrate the companies and cultures" stomach. This WSJ article focuses on COO Robert Isom:

"Next, Mr. Isom insists, US Airways needs to start acting like a single airline, not two separate cultures. Hamstrung by the separate procedures of the predecessor airlines, the company lacked 'a common focus as to what's important to fix,' he says.

To address late flights, his team assembled a standard departure checklist every department now follows. The new 'countdown to departure' checklist sets concrete metrics and goals for each workgroup. In the past, varied procedures led to delays of four to six minutes that cascaded across cities. Mr. Isom, who earlier oversaw ground operations and customer service at Northwest Airlines, says, departure planning 'had not been done in a coordinated fashion.'"

Sounds like standardized work, doesn't it? It does sound like it, it's not necessarily part of any "Lean" implementation that's going on, it's just common sense right? Isn't it amazing sometimes what companies have not formalized into a procedure?

He also tightened the leash on airport station managers who used to have more discretion to delay a flight for connecting passengers or other reasons. That leeway may have worked at smaller America West, but it wreaked havoc at US Airways. The approach left aircraft out of place and caused crew shortages in certain cities. Now, decisions have to be cleared through the airline's centralized operations control center.

Seeing this, you might think "but I thought we were supposed to decentralize thinking and push decisions to the lowest level in the organization." Sure, but not if that local thinking leads to suboptimization because local managers don't have enough visibility to information, or the right incentives, to allow for system optimization. It seems pretty clear the centralized decision making might be better for the passengers, if not also for the company and the employees.

If this were a Lean project, I'd work to make sure that the Standardized Work had room for flexibility when necessary. Management needs to check to make sure the station managers are following the Standardized Work, rather than just assuming that the published procedure is being followed. But, if the Standardized Work is not being followed, there might be a good reason... people still need to be able to exercise professional judgment, but if they're ALWAYS feeling the need to violate the standard, maybe the Standardized Work wasn't appropriate to begin with?

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God Forbid You Actually Listen to the Bottom 98%

Management Leaders Turn Attention to Followers - WSJ.com

This article caught my eye, this idea that someone other than top executives might actually have some ideas.

In "Followership," a book being published this winter, Ms. Kellerman argues that a big organization's fate can be surprisingly dependent on how well it understands thousands of low-ranking employees, and makes them more effective. Entrepreneurs Ori Brafman and Rod Beckstrom took a similar perspective last year in their book, "The Starfish and the Spider," suggesting that lower-ranking employees, called catalysts, need to drive organizational change, instead of top bosses.

Considering that the Lean and Toyota Way philosophies have been, for so long, based on listening to the ideas of those who actually do the work, how is this considered innovative thought?? Isn't that the whole magic of the Toyota approach, helping make all employees effective and getting them pointed in the same direction? Is Toyota avoiding that "big companies die" dynamic better than most?

The Best Buy chain is trying, to their credit, to implement such ideas:

"Look at why big companies die," says Shari Ballard, Best Buy's executive vice president, retail channel. "They implode on themselves. They create all these systems and processes -- and then end up with a very small percentage of people who are supposed to solve complex problems, while the other 98% of people just execute. You can't come up with enough good ideas that way to keep growing."

When she visits Best Buy's electronics stores, Ms. Ballard says she asks managers: "What do you know about your customers that I couldn't possibly know?" The question encourages local initiatives that help Best Buy grow.

The idea that the "very small percentage" of top leaders are supposed to come up with the ideas, with the workers "just executing" -- that's Taylorism and MBA-centric thinking at its finest (yes, I have an MBA myself... sorry). What do you think about that question she asks her store managers. Would you phrase it that way? Seems like the right direction, but there's something about that phrasing I don't like... that "I couldn't possibly know" part could put people on the defensive (making them not want to show up the boss) depending on how the words are delivered and the organizational culture.

Anyway, interesting article and hopefully a trend that will grow -- actually listening to the people who are closer to the front lines. Shocking! Well... it's shocking, unless you've been studying Toyota and Lean.

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Waste in the 787 Development Process

Boeing Scrambles to Repair Problems With New Plane - WSJ.com

Interesting article in today's WSJ about the ongoing problems in bringing the new 787 "Dreamliner" to market. Sounds like a nightmare of a process.

Look at the waste highlighted in the article. On the Lean theme of "doing things right the first time":

"The first Dreamliner to show up at Boeing's factory was missing tens of thousands of parts, Boeing said."

Ok, you'll say, I don't understand the complexities of modern global supply chains. Maybe I don't, but look at the rework involved:

"When mechanics later opened boxes and crates accompanying the fuselage sections, they found them filled with thousands of brackets, clips, wires and other items that already should have been installed. In some cases, officials say, components came with no paperwork at all, or assembly instructions written in Italian, requiring translation.

Boeing officials thought they could work through this unexpected twist in a couple of weeks. Instead, they had to put the plane up on jacks and remove its engines and tail to get to tight spots."

Is there any concept of "stopping the line" in the development process here? Better to scramble and go out of process with a lot of rework than to take the time to do it right?

Boeing says:

Rejecting the idea that Boeing might be better off increasing production more slowly, Mr. Carson says, "I couldn't stand the pain of telling a customer it's going to be worse for them, just to make my life easier."

It seems like they aren't subscribing to the idea of "going slow to go fast." Boeing set up this global supply chain and chose the suppliers. Now, they seem to be dumping on the suppliers, saying how they wouldn't use some of them again. And there might be good reasons for that, but how many were set up to fail through poor selection or poor planning?

I don't know all of the answers here, of course, but it's a real eye opener to see that much waste in their efforts to bring a new product to market. How would Toyota do this differently?

The Need for Clean Hospitals

Our Unsanitary Hospitals - WSJ.com

That's "Clean", not a typo of "Lean." Good column in the WSJ today by Betsy McCaughey, head of the Committee to Reduce Infection Deaths organization (link).

She asks why restaurants and meat packing plants get inspected more than our nation's operating rooms.

"Restaurants in New York are inspected, without prior notice, once a year. In Los Angeles, inspections are done three times a year, and restaurants must display their grade near the front door. After L.A. instituted this inspection system in 1998, the number of people sickened by food-borne illnesses fell 13%, according to the Journal of Environmental Health. Other cities are now following L.A.'s lead.

Why aren't hospitals held to the same rigorous standard? The consequences of inadequate hygiene are far deadlier in hospitals than in restaurants. The Centers for Disease Control and Prevention estimate that 2,500 people die each year after picking up a food-borne illness in a restaurant or prepared food store. Forty times that number -- 100,000 people -- die each year, according to the CDC, from infections contracted in health-care facilities."

What leads to infections? Some of it is a classic Lean "standardized work" issue:

These infections are caused largely by unclean hands, inadequately cleaned equipment and contaminated clothing that allow bacteria to spread from patient to patient. In a study released in April, Boston University researchers examining 49 operating rooms at four New England hospitals found that more than half the objects that should have been disinfected were overlooked by cleaners.

Why is this? Lack of training? Lack of clear standardized work? Lack of time to do their job properly?

She then writes:

"Hospitals used to routinely test surfaces for bacteria, but in 1970 the CDC and the American Hospital Association advised them to stop, saying testing was unnecessary. The CDC still adheres to that position despite a 32-fold increase in MRSA infections. CDC officials say that lab capacity should be reserved for tests on patients.

Testing surfaces is so simple and inexpensive that it's used routinely in the food industry. Is it more important to test for bacteria in meat processing plants than in operating rooms?"

If we have lab capacity issues (that testing is done in a hospital lab), there is another opportunity for Lean, to improve flow and to free up capacity. The healthcare industry has smart people and the tools to fix all of these problems, we just need the leadership and the attention to be paid to these issues. The public needs to start standing up and demanding better.

It's not just hospitals, either, it's doctor's offices, which get no inspection at all. McCaughey tells a story of a physician who was REUSING NEEDLES (yes, you read that right) with patients. Who in their right mind does that?

The New York State Department of Health called Dr. Finkelstein's reuse of syringes
a "correctable error," and is allowing him to continue to practice under observation.

I know I often write about not blaming people, but this is not an "error," it's a "violation," which involves choices that doctor is knowingly making. How can he not be held more accountable? The state "regulators" knew, in 2005, the doctor was doing this, but they wouldn't suspend his license. Yeah, the state sure is looking out for you in New York. (another article) It's mindboggling that we'll fire and punish people who make an inadvertant error, but we'll look the other way when a doctor is purposefully and intentionally doing something unsafe. They're having to test patients of his for Hep C and HIV because of his stupidity. Ok, enough of that tangent.

Anyway, the WSJ piece is a good article if you have access to check it out. Rupert Murdoch is most likely going to make the WSJ a free ad supported website in the future, rather than relying on paid subscriptions.

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It's Not That We're Worse...

The Middle Seat - WSJ.com

Quick story here, not so much about Lean but about customer service and general incompetence. The WSJ shares data about how complaints about the Transportation Security Administration have jumped:

"Complaints to the TSA about security courtesy, procedures, processing time and personal property fell sharply during the first five months of the year, but began climbing in June, with a 9.2% jump in the total number of complaints, compared with June 2006. By August, total service complaints were 88.1% higher than a year earlier, and September, the most recent month reported by the government, saw a 71.4% increase in TSA complaints."

That might seem to be a clear indicator that service has gotten really bad. Not so, says the TSA leadership. You see, in the past they weren't even able to count or track all complaints properly... so instead of complaints going up, what you really have is just better tracking. So hurray for the TSA?

"The TSA concedes it was missing and underreporting complaints in the past, with travelers either frustrated at getting busy signals on phone lines (1-866-289-9673) and never recording a complaint, or emails (TSA-ContactCenter@dhs.gov) not being properly handled. The numbers suggest the TSA was missing a very large chunk of complaints."

The TSA has a new "customer service" center with better software for tracking these problems and complaints. That's not really getting to the root cause of the poor attitudes and the cause of the complaints, is it?

I guess there is a parallel to manufacturing, if your scrap or defect rate went up, only because you weren't inspecting products at the end of the line or tracking defects before? Maybe the surest path to "zero defects" or Six Sigma quality levels is to not count or track it!!! :-)

Maybe a little hansei would be in order.

by Dan Markovitz

Without realizing it, James B. Stewart, the SmartMoney columnist for the Wall Street Journal, touched on the value and power of hansei (reflection) in yesterday's piece (available for free here). Commenting on the recent ouster of Merrill Lynch CEO Stan O'Neal, he writes that

Mr. O'Neal and his board may have failed to engage in the kind of debate that would have prevented this tragedy [the $8.4 billion write-down of assets]. To be specific, what was Merrill's board asking O'Neal when Merrill was earning record profits on the outsize success of its huge investment in subprime mortgages and related collateralized debt and loan obligations?. . . I know it's hard to ask tough questions in the face of success. It's not a strategy for winning popularity contests. But it's essential in the worlds of business and investing.

We often think of hansei as something that's done after project completion to determine what went wrong. But in fact, hansei is just as valuable -- and perhaps even more so -- when things go well. Matt May addressed this very idea in a recent blog post about Toyota exceeding their global sales goal, and doing it three years early:

Hansei is not about confirmation. It's not about celebrating success. It's a sobering reality check, even when a project has been wildly successful. Were you to attend a hansei meeting following a resounding success at Toyota, you would be shocked at the tone of the meeting. It's stern and serious. Yes, the team greatly exceeded expectations, but exceeding expectations also means project members didn't fully understand the process, or else misjudged the impact of factors beyond their control. Their objectives should have been met. And even if they reached their exact target, the team must still examine their course of action and the interim measures, not just the final results.

Matt goes on to explain that

the fruit of all hansei is new policy and the road to new policy is lined with sharp questions.

These are precisely the questions that the Merrill board wasn't asking. They accepted the fantastic returns O'Neal delivered without questioning whether those returns could be generated without a commensurate increase in risk.

Stewart's column focuses on your responsibility as an individual investor to examine the top performing positions in your portfolio so that you can understand why you're doing so well -- and what risk you might be taking on. But his point is equally valid for your personal lean efforts at work: do you really understand why some of your efforts go smoothly?

Don't just congratulate yourself on your brilliance. Do some hansei and figure out why you succeeded. You're guaranteed to learn something important.

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Automotive Overproduction Comparison

How GM Handles a Hit: Build Fewer - WSJ.com

Welcome to new readers from the MoneyCentral MSN blog. To explore more about "Lean," visit the main page of my blog or click on "What is Lean?" in the left column.

The WSJ had an article today about how GM is trying to avoid overproduction of hot new vehicles (like the Buick Enclave) so that they don't have to dump inventory to rental fleets or resort to using incentives and discounts to move metal. Both of those practices harm resale value, which is one buying point for many customers.

I read recently how Toyota's goal is to build one car less than customer demand, always keeping that in balance.

So how does Toyota compare to the "Detroit Three" in terms of inventory levels and avoiding overproduction? This graphic from the article tells quite a story.

Toyota has half the inventory of GM, Ford, and Chrysler, not just in total numbers, but in adjusted "inventory per market share point." Toyota carries fewer days of inventory than their competitors, clearly.

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