Gemba Panta Rei

Qingdao Haier, the giant Chinese appliance manufacturer along with Blackstone Group and Bain Capital has placed a bid to acquire Maytag. Their bid is $2 per share higher than the competing bid from Ripplewood Holdings. It is far from a done deal, but should Haier acquire Maytag it could have interesting implications for not Lean manufacturing in China.

This bid is more than another in a series of high profile acquisitions of major manufacturers by Chinese companies. Although this acquisition would be in the league of China's TCL purchasing Alcatel (mobile handsets) and also Thomson (owner of RCA brand TVs), Lenovo purchasing IBM's PC business, and the new bid by CNOOC (petroleum) for Unocal, there is a unique Lean manufacturing angle to this Maytag story.

If Haier succeeds in making this purchase they would be in the top 4 American appliance manufacturers along with Whirlpool, GM and Electrolux. They would own Maytag痴 respected American brands. They would also inherit a team of Lean trainers, six sigma black belts, and workers and managers experienced in kaizen.

Maytag has been going down the Lean path actively for the past 5 years or so. They have a close relationship with a well-known American Lean consulting firm. If you look up the term "LeanSigma" on the U.S. Patent & Trademark registration website you will find that it is a service mark registered by Maytag.

For example at the Herrin, Illinois production facility they used kaizen to improve the capacity by 50% and cut defects 70% between 2001 and last year without major spending according to a June 22nd, 2005 article in the Chicago Tribune. These are typical Lean manufacturing results that Maytag has been enjoying for years. Yet will it be enough to keep Maytag assembly jobs in the United States?

While shipping large appliances for overseas isn't cheap, with the burdened cost of labor being around $300 per day at U.S. assembly factories and roughly $10 per day in Chinese assembly factories Haier would be more than tempted to move production offshore. Haier is certainly interested in Maytag because of its brand, its North American and European sales and distribution channels, but the chance to slash labor costs can not be far down the list of reasons to buy.

It's hard to say whether Haier is aware of Maytag's Lean Six Sigma competencies. Lean Six Sigma is just becoming a recognized concept in China with an increased number of Foreign Invested Enterprises bringing it to the awareness of local managers and business owners. The people in Haier at the decision making level likely are concerned with strategic issues like brand, sales channels, and off shoring rather than value stream maps or line-level kaizen issues.

Yet it is interesting to see that one of three positions posted at the online HR database on the Global Haier Group website is for a Cost Management Expert whose role is to "Specify, implement plan for cost analysis and cost control of home appliances, design and conduct plan for reducing cost, specify, implement plan for cost analysis and cost control of home appliances, design and conduct plan for reducing cost." This position requires a Bachelor degree or above in mechanical engineering and more than 10 years work experience in cost control in global company. It sounds like a Lean position to me.

Should Haier's bid succeed, and should they chose to move manufacturing offshore, it would be a shame to see Maytag's Lean transformation cut short. Many manufacturing jobs would be lost in the United States. If Haier gains Maytag's LeanSigma capability, this may accelerate the development of awareness and competence for Lean manufacturing in China, and that would be a good thing. Is this a crisis or an opportunity? Probably both, but only time will tell.

Posted by Jon Miller at 4:45 PM | Permalink | Comments (0)

According to a June 17, 2005 article in the Financial Times, Toyota plans to cut the cost of hydrogen powered fuel cell vehicles by from $1,000,000 to $50,000 by 2015. That is a 95% cost reduction, in 10 years.

The Lean manufacturing efforts of most companies would be considered successful with an annual 10% cost reduction each year over 10 years. Yet over 10 years 34% of the original cost still remains. Considering factors like inflation, price erosion, and competitors with very different cost structures this may not be enough to survive.

As the number (cost) that is getting reduced is smaller, the percentage of reduction must be bigger to cut it by 50%, not to mention 95%. Toyota would have to cut the cost by more than 26% each year in order to achieve 95% in 10 years (100 > 74 > 54 > 40 > 30 > 22 > 16 > 12 > 9 > 6.6 > 5). Of course reducing cost of the hydrogen fuel cell car is different from doing continuous kaizen on a mature product, but it demonstrates how challenging this is.

Toyota and several other Japanese firms have long had a "cost half" strategy. This is often the part of the Lean manufacturing thinking that most Western companies are missing. While Toyota is great at relentlessly doing kaizen to take out waste, this can take a long time especially when you are fairly Lean already (as Toyota certainly is).

The "cost half" idea is that you must have a goal of zero inventory, zero defects, zero breakdowns, and double the output in the existing space, etc. in order to cut costs by 50%. This type of thinking also forces you to go beyond the Gemba and the direct costs found in the factory and consider the end-to-end costs. These can include variable costs such as purchased parts cost, vendor operations cost, energy cost, logistics cost, and also fixed costs such as overhead and depreciation.

Each of these areas will require a series of Lean tools and Lean behaviors to make them possible, and this will help focus the kaizen activity in order to achieve "cost half". The key point is that it forces you to reconsider everything. You have to look at the forest, then the trees, then down to the roots.

At a post-conference dinner several years ago in Seattle Dr. Jim Womack told the story of when he first visited Boeing with the late Yoshiki Iwata, then President of Shingijutsu Co. Ltd. They were sitting in a board room with a group of Boeing executives in the early stages of discussion about starting Lean at Boeing. The interpreter had to leave for a few minutes. Unable to converse without an interpreter, the room was quiet until Mr. Iwata broke the silence by pounding the table and saying "Cost half! Space half! Inventory half!" That was of course a bit of theater, but underlying is a genuine sentiment that Mr. Iwata felt Boeing needed radical improvement (Kaikaku).

Cost half is actually easier than 10% cost reduction. It is another one of those counter-intuitive things about Lean. If the goal is bigger, there are fewer 'sacred cows'. You have more management attention and support for achieving the goal. I can't say whether 95% reduction is easier than cost half. Let痴 see in 10 years.

Posted by Jon Miller at 11:46 AM | Permalink | Comments (0)

Who or what is telling people to look at throughput time (lead-time) through the assembly line when measuring productivity? This number is completely unrelated to assembly line productivity.

I have run into the situation where people charged with doing kaizen on assembly lines (industrial engineers, project managers) are measuring the wrong thing, throughput time. These are trained and educated people. This is happening at name-brand, global manufacturing companies. This week was the third time in two years. Please make this stop.

I don't have a formal IE background so I don't know if this is a standard IE practice or if it comes out of a text book. I do know that the definition of "cycle time" in some textbooks is what we call "manufacturing lead-time" rather than the Lean definition which is something like "hand-time" or "operator cycle time". This can cause confusion at times.

When doing kaizen to design assembly lines for one-piece flow one of the first activities is measuring all of the assembly cycle times (total hands-on time to build one unit, and separately total automatic cycle time). The next step is to calculate takt time for the particular product or product family or value stream. The next step is to balance the workload to takt time and design the layout, work sequence, standard WIP positions, etc (creating Standard Work).

Measuring the time it takes for one unit to make it from the beginning of the assembly line to the end has *no* direct relation to the productivity of the line. While it can be an interesting measure of response time to customer orders, this lead-time number should not be used for designing one-piece flow (or even batch & queue) assembly lines.

After one-piece flow is achieved, only Standard WIP remains in the line so the lead-time calculation is takt time x Standard WIP quantity. If you are doing "fake flow" and pushing, your lead time will be longer and cycle times will be out of balance. However the lead-time of "fake flow" will have no bearing on what Standard Work and one-piece flow should look like.

There is no need to measure this throughput time at all when doing kaizen in assembly since all you are doing is identifying the "wait time" of parts in transit on a belt or sitting on an assembly bench. A quick demonstration has been enough in each case to help people see that throughput time in assembly is irrelevant to productivity.

I have thought about other reasons for this type of measurement but to no avail. I don't plan on researching it further but if someone knows the source of this practice of measuring assembly line throughput time please let me know.

Posted by Jon Miller at 7:43 AM | Permalink | Comments (13)

I was reminded again this week at how easy it is to make things more complicated than necessary. This is true in so many ways. When asked "What is Lean?" by people who really want to know, it is tempting to explain the entire history from scientific management through Ford and Deming, then onto the Toyota Production System in details. We want them to understand the entire beautiful complexity of Lean.

But teaching Lean manufacturing must be Lean also. This is especially true when the students are not native speakers of English, my preferred teaching language. So this week, the definition of Lean was "Making work as simple as possible, but not simpler."

Traditional engineering and manufacturing management often pursues solutions that are not as simple as possible. Equipment can be 50% larger, 50% faster, and 50% more costly than it needs to be to support one piece flow production paced at takt time and customer pull. This results in imbalance between locally optimized processes.

Optimized processes are separated and managed individually. In factories this means machines that are too fast (faster than the pace of making one at customer demand - takt time) create additional need for space, handling, rework, and isolation of processes resulting in added scheduling points. Complexity ensues.

Lean manufacturing specialists would agree with the "as simple as possible" part I am sure. This means ideally connecting all processes directly, one-to-one, on-demand, in a way that is visual and understandable to almost anyone. What this looks like for most discrete manufacturing processes is one-piece flow.

What I mean by "but Not Simpler" is that one-piece flow can expose 'hidden' problems of long changeover times, supplier quality problems, lack of cross training, batch & queue equipment design, etc. These barriers to flow make going to one-piece flow (as simple as possible) right away not practical. Doing so would be "simpler than possible" at this time.

The aim of Kaizen is to demonstrate a business case in a practical, hands-on way. This will drive the changes needed so that these barriers to flow are removed. This often means changing behaviors (local optimization), changing measurements (efficiency, absorption, utilization), and even changing people when they simply refuse to move with the times.

Lean Manufacturing demonstrates 30% to 50% improvement through simple kaizen demonstrations regularly because of this fact. Most traditional manufacturing processes are not as simple as they possibly can be. Lean makes work simpler by bringing processes as close to one-piece flow as possible (but not closer).

Albert Einstein said that everything should be made as simple as possible, but not simpler. He was talking about the construction of the universe but the same principle applies in designing factory operations, information systems, and business processes in general.

Posted by Jon Miller at 9:10 AM | Permalink | Comments (0)

One of our clients has 3 people in their Lean department and about 1,000 people in IT. I recently met about 30 of them at a planning meeting for a new factory. They were all very nice people. To be fair there is also a group of manufacturing engineers at the corporate and factory levels of this company to support operations, but they are not Lean-trained, and they number in the low hundreds.

Why so many IT people? This company is a global firm with operations in a dozen factories in nearly as many countries. Like many other of the world's best run businesses, (as you will be reminded if you spend any time walking through airports) they run SAP.

Masaaki Homma, a Lean-ERP integration guru and principal of PSI consulting in Japan. "SAP is a push system" he will come right out and tell you. Mr. Homma is a blunt and brilliant man, and he knows the limitations of ERP systems too well. According to him you have to take apart or turn off most of the shop floor control functions to make ERP systems work with Lean. In a statement like a zen koan he told me "To pull with ERP, you must use many small pushes." Perhaps these 1,000 people are all helping to push.

While many aspects of ERP systems are gee-whiz and necessary for firms to have multi-site, worldwide visibility across financial, materials, and scheduling functions this ratio of 3 to 1,000 Lean people to IT people seems a bit out of control.

After all, the value-added, profit-making work done in the factory (lower half of the Value Stream Map) supports the IT infrastructure (top half of the Value Stream Map). In Lean manufacturing thinking all support functions should enable a simple, highly value-added, smoothly flowing series of processes.

This company is making good progress in changing mindsets in the factories towards Lean thinking. The challenge ahead is to get the same can-do response from the purchasing and sales people in this organization in supporting Lean enterprise behaviors. These include selling behaviors that promote smooth and leveled schedules, and sourcing of materials not for the lowest price but lowest overall cost.

What is encouraging is that so far the IT people supporting SAP at this firm have been very can-do in terms of changes needed to support a Lean execution system on the shop floor. Let's hope they find ways to code these Lean behaviors into the systems and processes at their company.

Posted by Jon Miller at 6:13 AM | Permalink | Comments (0)