The Manufacturing Leadership Center

The Manufacturing Leadership Center explores various aspects of manufacturing excellence delivered and moderated by renowned lean expert Bill Waddell.

We are bringing together the best lean thinkers, the most credible experts and manufacturing thought leaders who are defining the future. The content includes facts, lessons, opinions and news on manufacturing excellence. The format ranges from blog posts and white papers to videos, presentations and graphics. In order to assure our objectivity, we do not accept advertising, and link only to the sites where you can get more information concerning our content providers. Lastly, we are always looking for emerging lean thinkers who may not be well known, but have something important to contribute to the body of knowledge, and may well be the thought leaders of the future. Anyone interested is encouraged to submit their content for review.

People, Paper and a Whole New Ball Game

June 18, 2013 by Bill Waddell 5 Comments

I sent something to my daughter on the west coast yesterday by overnight mail. Following my usual routine in such endeavors, I texted the tracking numbers from my copy of the receipt to her. It was a few hours later that it dawned on me that I could have just taken a picture of the receipt and messaged that to her – saving time, eliminating the possibility of error in typing in the numbers, an all around much better way to share the information.

That sort of lag in figuring out the possibilities of rapidly evolving information management technology happens to an old guy like me quite often. While I am feeling good about myself for mastering text messaging instead of calling her to give her the numbers and interrupting her at work, in fact I am at least a step or two behind even better possibilities.

I am working with a client on a big project, and talked to them about the need and techniques involved in standard work as their new processes come into place, and –lo and behold – find that they put the standard work onto a tablet kept in the work area and embedded brief videos in some places of it because the video could show three dimensional aspects of the work so much better. Great idea – wish I had thought of it.

The way information can be collected and disseminated throughout the business is exploding in ways that could not have been imagined only a few years ago … and its potential cannot be bottlenecked by old timers like me. If it has to wait for those of us steeped in paper based thinking, a world of centralized ERP systems, its potential will never be realized. By the time we get good with it, the next generation of information sharing will have kicked in and we will never get there.

God love the leaders at Soar Printing in New Zealand for their lean efforts, but “Every week the senior managers at Soar Printing meet to go through the latest brainwaves from the shop floor.” And “A classic example is one we got from our printers, which was to move the ink rack one metre from the wall so it could be accessed from both sides. That simple change has saved so much time and wastage.” An employee’s idea that can save “so much time and wastage” should not have to be submitted to a meeting of senior managers for approval – especially an idea as simple and low risk as to move a rack a couple of feet. They are never going to get standard work in video format on tablets if the senior folks can’t even let a rack be moved unless and until they can wrap their heads around the idea.

More to the point, in the ongoing battle at GE’s locomotive plant in Erie, “Union officials say that GE wants to revise work rules to increase productivity. These changes would include unpaid lunches, bans on cell-phone use, … “ Banning cell phone use? My cousin’s husband works for one of the big cell phone companies and a few years ago he told me that the cell companies don’t care about phone calls – they are a give away item and that the future of the cell industry was in the myriad of applications to integrate the Internet with people’s personal and business lives. At the time my biggest concern was how many minutes were allowed on my cell phone plan and I had no idea what he was talking about. He was right, of course, and GE looking to ban cell phones in the plant means they are banning the integration of information with people – not a policy likely to improve productivity.

Karen McGrane writes about the dangers of letting paper paradigms limit a digital strategy. She is absolutely correct. My friends at iDatix who host the Manufacturing Leadership Center are all about merging paper and digital. More than that, they are all about merging paper and digital with people. That is the real trick.

My story at the post office, on the surface, is about merging paper and digital – when do you convert the document to digital form and take advantage of the communications power of whatever that device is in my pocket (seems kind of limiting to call it my cell phone any more). More important is the question of how long it takes me to figure out the possibilities

For management, the question is the pace of the entire transition from paper and filing cabinets – big centrally controlled MRP systems – to a wide open sharing of information in any and all forms along the work flows – value streams. This is the revolution iDatix is leading and it will result in a network of information flows we cannot yet conceive. If it has to evolve at the pace a few old guys – guys like me – at the top figure it out we are all in trouble. If management will empower young, creative people like my clients with their tablet/video standard work ideas; and if they can understand the absurdity of banning cell phones – a device that barely exists any more – they can unleash power we cannot begin to imagine.

Filed Under: Culture & Leadership, Execution Tools

Solution to Problems, or a Purveyor of Stuff?

June 17, 2013 by Bill Waddell 4 Comments

The story of Marlin Steel is perhaps the best lean story I have read all year, even though there is nary a mention of 5S, kaizen, kanban, or even the term lean itself. It is a story of flexibility, quality and recognizing that the very heart of lean lies in creating value for customers.

“People come to us with a problem and we try to solve it,” says design engineer Kash Alur.

The idea if the company has a solution to customers’ problems, rather than simply a producer and purveyor of stuff, is the critical ingredient to being a lean manufacturer – a company that maximizes customer value and minimizes waste – that which doesn’t add value. Without this focus – with a cost only focus – the definition of waste is simply cost.

“The final line of defense for Marlin lies in the customers it targets: [owner and CEO Drew] Greenblatt wants the toughest ones, the kind who make his competitors roll their eyes. ‘What I realized is that the customers who are a pain in the neck are really the great customers,’ he says.”

The big deal about these statements is that this was a company that made wire baskets for bagel shops. Now it makes a lot more money making ire baskets for just about everyone. It accomplished this by aggressively going after tough jobs and setting its internal quality bar a whole lot higher than that of even the most demanding customers.

“Often three nearly identical images of a part are etched into the same check fixture. The one on the right is the customer’s requirement–say, a tolerance of 0.12 inches. The one in the center is Marlin’s ‘okay to ship’ standard, always better than the customer request–say, a tolerance of 0.06 inches. The one on the left is the ‘Drew’ standard–perhaps a tolerance of 0.03 inches–four times the precision of the customer’s spec. ‘If we send them that left one, they will never leave,’ Greenblatt says.”

How good are they? Good enough that Toyota not only buys their baskets, but buys quality fixtures from them as well. Not bad for what was once a bagel basket makers who measured quality with a tape measure – the standard was whether bagels would fall through the baskets or not.

These guys’ story is in such dramatic contrast to that that of so many companies that focus on easy customers – those that put up with average quality and delivery – and view tough customers as a pain. It is also in dramatic contrast to the many companies who view cost as the alpha and the omega of manufacturing. Rather than be a solution to customer problems, too many companies measure success by simply avoiding the creation of customer problems.

Filed Under: Culture & Leadership, Strategy

Where are we going?

June 13, 2013 by Bill Waddell 1 Comment

As the old saying goes, when you don’t know where you are going, any road will take you there. I have concluded that figuring out where we are going is the single most important task of the leader. All of the charisma, hard work and soft skills in the world are of little value if they aren’t used to actually lead the organization somewhere.

The organization has to have a ‘true north’ and a future state vision. If it doesn’t doing nothing is acceptable, and those who want to do something are often in conflict with each other. The future state can (and should) be defined in a number of forms. The overall company future state may look like a set of strategic objectives, and the operational future state may well look like Toyota’s:

One piece flow

Zero defects

$0 non value adding expense

100% employee engagement in the improvement effort

I have also seen them with statements such as ‘100% make to order and ship within one week’, or less than 10% of our operational employees will be in non-value adding roles’.

Note that there is no set time frame. This is not a strategic plan. Planning and execution tools such as Hoshin Kanri and A3’s will define the work to be done to move toward these objectives. The primary purpose of the defined future state and a company statement of true north is a necessary guide for every day work.

What sorts of things should our kaizen efforts attack? Should we buy that software or not? Should we launch that training program, or not? For that matter, what should new employee training include? Without a clear definition of where the company is going answering these questions is nigh unto impossible. Instead, it results in inaction – or well intended, but unresolvable differences of opinion between people. With a clear understanding of true north and the future state it defines, it becomes easier. All of those questions can be answered by simply asking ‘what will take us closer to the future state?’

As a consultant it really defines why I am there. It is surprising how often there is no vision of a future state in the companies I visit. By default, the future state is the status quo (absent whatever specific problem I was asked to help solve) – a vision of things pretty much the way they are, only without all of the missed shipments. A pretty uninspiring reason to get out of bed and go to work.

It doesn’t matter whether the company has any idea how to get there. In fact, if it knows exactly how and when to reach the future state, that future state vision is probably not nearly aggressive – visionary – enough. What matters is that everyone has a clear understanding of where you hope all of this ends up, and therefore a good lens to evaluate all the ideas and options available to ‘improve’ the business.

Filed Under: Culture & Leadership, Strategy

The Management Work Ethic

June 12, 2013 by Bill Waddell 2 Comments

The story in Twin Cities Business about Medtronic axing 2,000 jobs in order to “beat its fourth quarter earnings expectations” sits in curious conflict with the company’s description of itself – founded by a couple of guys with “a deep moral purpose and an inner drive to use their scientific knowledge and entrepreneurial skills to help others”; and “That spirit – combined with our founders personal integrity and passion – became our guiding philosophy.

Especially hoot-worthy is their mission statement, which includes the goal: “To recognize the personal worth of employees by providing an employment framework that allows personal satisfaction in work accomplished, security, advancement opportunity, and means to share in the company’s success.”

How on earth the folks in charge can trash the lives of 2,000 employees and their families in order to beat an earnings estimate, and keep a straight face while publishing a mission statement pledging to enable employees to “share in the company’s success” is beyond me. Of course, the reason for such blatant hypocrisy is pure selfishness. Maximizing shareholder value? Maybe – but conveniently lucrative for management, as well. An easy, lazy solution to the challenge of meeting financial objectives for the company that pays off in terms of bonuses, promotions and raises.

It stands in sharp contract with the management of Hypotherm. They don’t seem to have any problems meeting earnings estimates – although if they estimate earnings they don’t bother to share them with anyone. “Hypertherm … has come out of the recession stronger, more focused and more profitable, associates of the company said Tuesday. The company experienced record sales in 2011 and is projecting growth again in 2012.”

While Medtronics bails out on such lofty blather about employees sharing in company success the moment it becomes inconvenient for senior management, Hypotherm lives it. “’For the past five years the year-end bonus averaged 24 percent of the base salary of the individual associate’, Hackett [Charlie Hackett, corporate improvement leader] said. ‘That’s a tremendous incentive if you know that at the end of the year there’s a potential for a 20, 25 percent profit sharing pay out.’”

“We’ve been committed since our founding to a no layoff philosophy and we do a number of unique things to protect employment here,” Miller [Jim Miller, VP of Manufacturing] said. “One of the things that we learned is we have a very valuable and flexible work force.”

“We have some core values that are very important to us. And certainly we wouldn’t be in business today if we didn’t have a high-tech product that we believe in and a way of focusing our attention in a way to provide the best services possible,” said Hackett. “But over time we realized that it is also equally important that we take advantage of the human capital, so to speak, that we have in the company. And so many of our core values represent how important we feel it is that our individual associates provide us with that competitive advantage over the long haul.”

It really is no more complicated than the difference between laziness and hard work. Making money without laying people off is not only possible, it is being done by lean companies every day, everywhere. It is no more complicated than simply taking the option of whacking headcount off the table when faced with the challenge of difficulty in making profits. Without that option, managers have to work hard – get creative – abandon paradigms and easy outs.

I am sure the powers in command at Medtronics have an eloquent rationalization – most likely along the lines of preserving the health of the company for the remaining employees and economic events beyond their control. I am sure they have convinced themselves that they are different and the philosophies and polices of a company such as Hypotherm simply don’t apply to them. They most likely see their superior size as a reason for taking such a self-serving managerial approach (in fact great size simply makes it easier to see people as headcount numbers, rather than human beings). But none of it is true.

Managing and leading are really no different than any other line of work in that doing it well is hard work. The leadership at Hypotherm clearly works harder at achieving excellence than the leaders at Medtronics. That doesn’t mean they put in longer hours – I’m sure the Medtronics guys burn plenty of midnight oil creating, beating and rationalizing earnings estimates. That is the sort of work that puts money into their own pockets first and foremost. But the effort they put into running the business in accordance with a mission statement that might actually create long term value for all of the stakeholders is not nearly that of the folks at Hypotherm. That much is plain to see.

Filed Under: Culture & Leadership

Some Advice: Don’t Swing and Miss So Often

June 11, 2013 by Bill Waddell 7 Comments

It is sometimes breathtaking to realize how incredibly wide of the mark people who are supposed to be in the know can be. Imagine a baseball team mired at the bottom of the standings – and the best advice its coach has to offer is ‘play better’. That’s it? That is the best a person paid to be an expert has to offer? You have the equivalent from a couple of guys writing in the HBR Blog under the heading of “The Imperatives of an Organization Built for Speed”.

Toyota’s Taiichi Ohno said, “”All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value added wastes.” Simple enough, and the alpha and omega of lean and the Toyota Production System. It is the embodiment of ‘work smarter – not harder’. Reduce cycle times by eliminating work that doesn’t create value … and along the way reduce the cost by putting an end to a lot of work customers won’t pay for.

I suppose it shouldn’t come as a surprise that one of the authors missed the entire ‘work smarter – not harder idea’, and that he missed the concept of lean altogether. After all, “Vijay Govindarajan is the Earl C. Daum 1924 Professor of International Business at the Tuck School of Business at Dartmouth”. As such, he can’t be expected to have a clue. But the other guy -Manish Tangri – “is Associate Director of New Business Development at Intel Corporation”. You would think an Intel guy would know better, but obviously not.

Instead, these guys think you reduce the time line by measuring it and lighting a fire under people to get stuff done faster. Getting them to work faster, according to these guys requires getting people to “feel the jungle” (an absurd phrase if ever I heard one) and make an “emotional investment.”

“Threatening people is a good means of getting them to make that emotional investment in feeling the jungle. When people are working as hard as humanly possible, reduce cycle times by outsourcing or getting people to fail fast to enter a white space with a higher probability of success” – another academic soufflé of a phrase.

This nonsense ranks right up there with ‘do more with less’ as a descriptor of lean. An accurate enough description of the end result, I suppose, but totally devoid of how more is to be done with less. The baseball equivalent of a coaching strategy to not swing and miss so often.

The authors would do well to study the work of Japanese industrial engineer and psychologist Ueno Yoichi, referred to as the ‘father of Japanese administrative science.’ He had a profound influence on early Toyota thinking when he preached that both workers and employers had a deep moral obligation to respect each other’s time. Workers, of course, should not steal time from employers by taking pay for no work; but it is just a morally critical for employers not to waste the precious little time we all have on this earth by compelling workers to waste it on work that created no value.

Of course processes have to be executed faster. Anyone who doesn’t understand that has missed the train entirely when it comes to lean, Six Sigma, the Theory of Constraints and just about every business idea with any degree of merit over the last thirty or forty years. Cycle time compression is the magic bullet – when cycle times are reduced it forces the simultaneous improvement of cost, delivery, quality, cash flow and investment.

But you have to know how and you have to know why.

Simply telling people to work faster – work harder – is not going to get the job of achieving excellence done. The failing of the HBR advice is that it assumes everything people are doing has to be done; and that leadership is all about getting them to keep their noses a little closer to the grindstone; and in that they have missed the fundamental point entirely.

Filed Under: Culture & Leadership

Silly Accountants! Profits Are For Companies

June 5, 2013 by Bill Waddell 4 Comments

A tip of the hat to Paul Todd in Georgia for alerting me to this article in the Detroit News waxing euphorically about GM. According to the boys in Detroit, “The reinvention of GM isn’t ending anytime soon because it can’t. After years of chaos in its financial management, GM is nearing the point where its finance and IT operations expect to be able to track the profitability of individual cars and trucks, a nearly impossible goal in the loose accounting systems of pre-bankruptcy GM.”

Profitability of individual cars and trucks? Really? How?

Only companies can earn profits. Whenever someone refers to products being profitable – or not; or they refer to customers being profitable – or not, you can rest assured they have taken a long drink of GAAP Kool Aid and fully absorbed every drop.

There are all sorts of problems with such absurd assertions, but let’s focus in on two big ones.

Let’s say a GM plant has two cells that machine similar parts. One cell has four machines that are run by one person making $25 an hour. The cell can crank out 50 parts per hour, so the labor cost is 50¢ per part. Simple enough.

The other cell also has four machines and it too can crank out 50 parts per hour. However, it has two people in it because the machines are goofy Chinese makes that are not easily retrofitted with automatic material feeders. These two guys also make $25 an hour, so the labor cost is $1.00 per part.

In all other respects the two cells are equal, especially with regard to part quality.

The plant makes two car models and each takes a nearly – but not exactly – the same widget. So whoever assigns parts to cells can pretty much flip a coin as to which widget is assigned to which cell. Too bad for whichever car loses the coin toss and ends up getting widgets from the two people cell. Even though the higher part cost has absolutely nothing whatsoever to do with the product – it simply luck of the scheduling draw, the GM accountants will declare that it is a less profitable car.

Or say the plant hires someone who makes a spectacular mistake that results in $10,000 in scrap. Whichever car got the poorly trained employee is declared to be less profitable even though the root cause of the scrap expense had nothing to do with the particular car the parts were for … and could have just as easily been parts for the other car had the employee been assigned to its parts instead.

The point is that factories incur all sorts of expenses for all sorts of reasons, many of which have nothing at all to do with the part or the product being made when the cost was incurred. Under GAAP accounting, however, every cost has to have a home and some product or another will be charged with that cost – and then the costs will be rolled up and those accountants will declare the unlucky recipient product ‘unprofitable.

The other big problem – the one much better known – is the assignment of fixed overheads. While there may be some value in the full absorption/matching principle theory for bankers and investors (what that value is I have no idea but let’s give them the unearned benefit of the doubt), it wreaks havoc on management decision making. Regardless, every remotely related cost is assigned to products no matter how tenuous the relationship between the cost and any specific product is; no matter whether the cost is fixed or variable.

So the Acme company makes product A in its original plant. Then it cooks up product B, and builds plant B to make it. One plant or the other gets hit with a Pick 1: (a) blizzard, (B) flu epidemic, (C) hundred year rain and resulting flood. No matter which largely random event occurs, the unlucky plant it strikes loses 10% of its production volume for several days. But rent, depreciation, management salaries and a host of other expenses march on. The product made in the unlucky plant is deemed to be unprofitable when those fixed costs are spread over fewer items produced.

Obviously such an event would be well known and management thinking would compensate, but the point is that lots of things can cause volumes to decrease and many of them have little or no relationship to the product being made (or not made in this case). Calculating a higher cost simply because some product has to be charged with those fixed costs, then determining product profitability or lack thereof based on those calculations is hopelessly inaccurate and misleading.

All of the costs I cited are very real and there most certainly is an economic impact from lower volumes. But taking them to the product level and then making product profitability claims is absolutely inane

Only companies can be profitable or not. All products sold for anything above their pure direct costs (usually limited to material costs) contribute to profits. Some contribute more than others, but all are contributors. The company is profitable or not based on whether the sum of all of those contributions total up to something greater than all of those costs that had nothing to do with products.

If GM really “is nearing the point where its finance and IT operations expect to be able to track the profitability of individual cars and trucks” then they should turn back the clock as fast as they can to the good old days when they had “the loose accounting systems of pre-bankruptcy GM.”

Filed Under: Accounting & Finance

A Reader Asks .. Innovation and Value Streams

June 5, 2013 by Bill Waddell 3 Comments

I stopped at a lean conference while in Europe, because Philips was presenting. Two different speakers said co-locating technology with sales / marketing will destroy technical learning. I am reflecting on this. Somehow technology driven innovation has to be concurrently reinforced. It is similar to having both value streams and sales silo P&L’s… a situation like having both of these.

I don’t think the issue is as ‘all or none’, ‘black or white’ as some make it out to be.

There is a product engineering continuum that runs from the low end – product maintenance – passing up to product extensions, then development of new products that are similar to existing ones, all the way up to the results of true, blue sky R&D that result in break through innovations.

From a lean perspective, it is the continuum from kaizen (continuous, incremental improvement) to kaikaku (breakthrough, transformational improvements).

It is somewhat aligned with the continuum from applied research to theoretical research.

It is up to management to decide where to draw the line between what should be in the value stream (and co-located and co-managed) with sales, as well as with supply chain and manufacturing; and what to keep isolated as a corporate function not tied to day to day priorities. The product development kept close to sales in the value stream may not be as technically advanced, but it will be developed for specific customer requirements and deployed quicker than that coming out of an independent R&D function – and there is a place in all businesses for that.

Management can draw that line wherever it wants – keeping product extensions in the value stream, for instance, but new products and R& D out; or it can put new products in the value stream, leaving only R & D out.

Of course the other big issue is funding and resources. If new product development is in the value stream and R&D is isolated, how much money – how many engineers – are put into each effort?

Wall Street and the big guys like Philips love kaikaku, blue sky, breakthrough innovation of the Steve Jobs sort because it has the potential to generate huge short term financial results (although it rarely does). However, I believe most successful company’s histories have been a long stream of successful, more incremental, kaizen-type product improvements. The current product is not fundamentally different from the ones originally conceived, but they have gone through a steady stream of incremental improvements in materials, precision and performance to make them radically better in every aspect from the original.

That technical learning can take place primarily at the high end, and then the trick is to be sure it trickles down to the engineers working in the value streams.

Filed Under: Strategy

A Reader Asks …. Inventory Valuation

June 5, 2013 by Bill Waddell Leave a Comment

When the previous CFO was here he changed valuing inventory from standard to current cost. There is some debate now whether that was the correct move or should we go back to standard cost valuing. Can you please give your thoughts? Maybe this will help the group.

The lean in me says the answer is a big ‘Who cares?’ because either method values inventory incorrectly and distorts the financial picture of the business. Beyond the inherent distortion of classifying inventory as an asset, inventory is supposed to be valued at the lower of cost or market, and neither standard costs nor current costs incurred in some time frame coincidental to making stuff that didn’t sell comes close to reflecting either the cost or the market value of residual inventories – accounting delusions notwithstanding.

That said, you have to play the hand you are dealt. Unless the current dealer learns anew game (lean accounting) or you get a new dealer, you have to deal with GAAPand inventory valuation questions.

The CFO was wrong. Valuing at standard cost is the much better approach because it makes inventory measurement and tracking much simpler. If inventory is valued at current cost it is difficult to determine whether increases or decreases in inventory are the result of improvements or degradation in operations and flow, or if the changes are due to pricing. It also helps to isolate spending variances (i.e. variances in purchase prices from standard) and measure purchasing and other operational functional performance.

Valuing inventory at current cost is an approach that helps accounting – valuing inventory at standard cost is an approach that helps operations.

Filed Under: Accounting & Finance

You Can’t Ignore the Fundamentals

June 4, 2013 by Bill Waddell Leave a Comment

Several years ago I pull up to a KFC drive up window with my kids only to be told that they were out of chicken … but I could order anything else on the menu. I remember thinking ‘what’s the point of their even being open?’ If KFC doesn’t have chicken it really doesn’t matter what else is on the menu. It is the same with manufacturers striving to be lean, but largely ignoring the factory scheduling and flow process.

It doesn’t matter how many kaizen events you have, how good your quality is, how 5S’d you are or how many value stream maps have been drawn. If a manufacturer does not have the planning and control of production through the plant – what used to be called materials management – it is not lean and never will be. It is surprising how many companies and their leaders have missed this basic point.

The factory is the wide spot in the supply chain where value is actually created. It is the heart, soul and only reason for the manufacturing company to exist. That fundamental process of how material moves from the receiving dock to the shipping dock (and in the process is transformed from something relatively worthless to something valuable) is the whole enchilada. The rules the factory operates by that dictate what will be done at each step – and when it will be done and in what quantities – are the single most important element of the business. If this process isn’t excellent it doesn’t really matter much how good anything else works, does it?

In some cases it seems to be the result of unwarranted faith in an ERP system – the notion that the big computer has this humming along as well as can be expected so there is no need to improve it. Or perhaps the fact that the big ERP system is so inflexible that there is no point in trying to change anything it controls.

I suspect it is also the product of senior leaders who don’t really understand the factory scheduling, flow and control processes, so they simply choose to ignore it. After all, it is a pretty complicated process, and one leaders from financial, engineering or engineering backgrounds typically have not mastered.

Perhaps even more significant is that this is where lean collides most forcefully with accounting. Improving factory flow means reducing inventory … and everyone knows that inventory is an asset.

Regardless of the cause the number of companies that have determined that demand pull – kanban – doesn’t apply to their sort of factory, that are wholly ignorant of the Theory of Constraints, that plan inventory levels by elementary school level math in the form of ‘average weeks of demand’ policies pulled from thin air, or simply treat the logic embedded n their ERP system as a sort of religion to be followed blindly is disturbing.

Ohno’s assertion, “All we are doing is looking at the time line, from the moment the customer gives us an order to the point when we collect the cash. And we are reducing that time line by removing the non-value added wastes,” can’t be simply ignored. The time line runs squarely through the factory, and how production is planned and executed through the factory governs the time line. Pay short shrift to this in the pursuit of lean and you are not much different from a KFC with no chicken.

Filed Under: Execution Tools

Systems Thinking Is The Key to Excellence

May 30, 2013 by Bill Waddell 1 Comment

According to Wikipedia:

“Systems thinking is the process of understanding how things, regarded as systems, influence one another within a whole. In nature, systems thinking examples include ecosystems in which various elements such as air, water, movement, plants, and animals work together to survive or perish. In organizations, systems consist of people, structures, and processes that work together to make an organization ‘healthy’ or ‘unhealthy’.

Systems thinking has been defined as an approach to problem solving, by viewing “problems” as parts of an overall system, rather than reacting to specific part, outcomes or events and potentially contributing to further development of unintended consequences. Systems thinking is not one thing but a set of habits or practices within a framework that is based on the belief that the component parts of a system can best be understood in the context of relationships with each other and with other systems, rather than in isolation. Systems thinking focuses on cyclical rather than linear cause and effect.

In systems science, it is argued that the only way to fully understand why a problem or element occurs and persists is to understand the parts in relation to the whole. Standing in contrast to Desccarteses’ scientific reductionism and philosophical analysis, it proposes to view systems in a holistic manner. Consistent with systems philosophy, systems thinking concerns an understanding of a system by examining the linkages and interactions between the elements that compose the entirety of the system.”

Lean is systems thinking epitomized, and the failure or inability to think in terms of systems is at the heart of the foolish application of lean at the tool level only, at the core of a failure of senior leadership to understand an embrace lean, and at the very center of all of the valid criticism of traditional accounting.

In short, no one can truly understand lean and no one can truly lead a lean enterprise unless they are a system thinker.

… the only way to fully understand why a problem or element occurs and persists is to understand the parts in relation to the whole.

Lack of systems thinking is what leads people to set inventory reduction metrics on supply chain managers, invest in better ERP systems and pound relentlessly on the inventory management tools and people, all the while ignoring product design. Component and SKU proliferation, failure to design products that explode into multiple variations from a narrow set of primary components, and measuring design by component purchase cost rather than unique component count are the real drivers of high inventories; and there isn’t much even the best supply chain manager with the newest computer can do to alter the trajectory design puts inventory onto.

… by viewing “problems” as parts of an overall system, rather than reacting to specific part, outcomes or events and potentially contributing to further development of unintended consequences.

Such as outsourcing manufacturing to China then wondering why the product development and manufacturing engineering functions don’t work so good any more.

… the belief that the component parts of a system can best be understood in the context of relationships with each other and with other systems, rather than in isolation.

This is why lean accounting is the only way to understand the business. Collecting costs and revenues by value stream puts all of the components with a relationship to each other on one statement that can be measured by the overall bottom line. Traditional accounting ignored the “context of relationships” – it assumes you can cut sostsin one area without consequences in other areas.

… systems thinking concerns an understanding of a system by examining the linkages and interactions between the elements that compose the entirety of the system.

A high-fallutin’ way of saying value stream mapping is the way to understand the business, rather than as a set of disjointed departmental budgets, goals and metrics.

Traditional management assumes an independent set of functions – lean assumes a hopelessly inter-connected system. We have traditionally thought that good leadership came from understanding all of the functions of the business – sales, manufacturing, design, accounting, etc… Knowing all of them individually – no matter how well they are known – is not of much value unless leadership understands them in terms of a system and how they inter-relate and inter-act with each other to make the whole what it is.

Filed Under: Accounting & Finance, Culture & Leadership, Strategy

Manufacturing best practices, news and information

People, Paper and a Whole New Ball Game

Solution to Problems, or a Purveyor of Stuff?

Where are we going?

The Management Work Ethic

Some Advice: Don’t Swing and Miss So Often

Silly Accountants! Profits Are For Companies

A Reader Asks .. Innovation and Value Streams

A Reader Asks …. Inventory Valuation

You Can’t Ignore the Fundamentals

Systems Thinking Is The Key to Excellence

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