by Bob Emiliani
The Center for Lean Business Management LLC

As is often the case, great ideas and practices are the result of many people’s thoughts and labors over many years. Things that seem new to us were often known by others long ago. Taking a look back in time to how people understood the meaning of the “waste” in industrial management can help us understand present-day challenges.

The Tragedy of Waste is the title of a long-forgotten book written by Mr. Stuart Chase (1888-1985) and published in 1925 [1]. I came across this book as I was researching industrial management and engineering texts published between 1910 and 1930. The title alone was very intriguing, given the prominence of waste in Lean management. More importantly, it turns out the contents of the book had much to reveal about what people at that time understood about waste and how to eliminate it.

Stuart Chase was an accountant interested in improving the efficiency and economic performance of government and industry [2]. He was a prolific author, having written more than a dozen books. The Tragedy of Waste gained world-wide attention [3] for the direct way in which it exposed big problems in industrial planning, production, and consumption.

The English language version of the book almost certainly found its way to Japan ( Hokkaido University library has a copy, for example). It is not known if The Tragedy of Waste was translated into Japanese or if it influenced the thinking of Kiichiro Toyoda, Eiji Toyoda, or Taiichi Ohno. We do know that Henry Ford’s book, Today and Tomorrow, published in 1926 [4], discussed waste at length and did influence Ohno’s thinking [5].

It is likely that Henry Ford read Chase’s book, as well a 1921 book titled Waste in Industry [6], written by a committee of engineers chaired by Herbert Hoover (whose undergraduate degree was in geology). Hoover, a Republican, became the 31 st President of the United States (1929-1933), and was perhaps the only President who had a good understanding of waste [7]. Some of the facts, figures, and sources and causes of waste found in Waste in Industry appeared in Chase’s book.

The New York Times had this to say about The Tragedy of Waste:

"An exciting and informing book. The author has surveyed this sorry world and has shown how absurdly it is organized and managed. That one-half of productive man-power is waste is the conclusion at which he has arrived.” [8]

It was worth reading then, and again now, because it informs us of the rich history of modern industrial management and the people who long ago dedicated their lives to eliminating waste and improving the workplace and economic standing of the country and its citizens.

The Tragedy of Waste was written in an era of enlightenment when it came to the application modern industrial management practices. Frederick Winslow Taylor (1856-1915) and his colleagues Frank and Lillian Gilbreth were key figures in the “Progressive Era” [9], which advocated improving efficiency through the application of scientific methods. Taylor’s 1911 book, The Principles of Scientific Management [10] became an early work on a body of knowledge what would soon be known as “industrial engineering.”

The development of Scientific Management and evolution into industrial engineering in the United States in the late-1800’s and early-1900’s links directly to the U.S. government’s World War II-era “Training Within Industry” program. This program was exported to Japan at the conclusion of World War II to aid in re-building Japan’s industrial base, and forms the roots of kaizen as practiced by Toyota Motor Corporation personnel [11]. In addition, Shigeo Shingo’s “P-Course,” taught at Toyota from 1955-1980 [12], was derived in part from these early industrial engineering works.

It is interesting to note that the Progressive Era was very much intertwined with politics and political thinking of the day. At the time, opponents of the Progressives generally characterized them as left-leaning; liberal, socialist, or even communist depending upon the commentator [2]. I’ll return to that point later.

So what did Chase have to say about waste? The starting point is the onset of the World War in April 1917. Chase discusses at length how 25% of the workforce was displaced from their civilian jobs to fight in the war within several months. Did the productive output of the nation decline? No it did not; in fact, it increased. The remaining civilian workforce produced as much goods as when there were 25% more workers. Was this a miracle? Mr. Chase states:

"No miracle. Only common sense. Faced with grave national danger, and acting under the psychological unity which common danger imparts to a group, the warring nations re-organized their industrial systems on the principle that a straight line is the shortest distance between two points. This principle tends to become mislaid in times of peace. It is not operating now in 1925 for instance.” (pp. 7-8)

Isn’t it interesting how the managers in the few companies that have done Lean well for many years do not lose their business sense of “danger” – i.e. the competition. Amazingly, for over eight decades, Toyota management has not lost its sense of crisis [13] nor has it mislaid the straight line principle.

Chase goes on to say:

"During the war, the sense of crisis created the unity necessary for control [of economic activity and resources by the U.S. government].” (p. 8)

"War control lifted the economic system of the country, stupefied by decades of profit-seeking, and hammered it and pounded it into an intelligent mechanism for delivering goods and services according to the needs of the army and of the working population. Money tended to fall out of the picture… yet the standard of living for the underlying population [was raised].” (p.10)

"[After the war] reconstruction collapsed, normalcy returned, output slumped drastically, unemployment raised its ugly head, 1921 registered a terrible business depression… with four men back on the job, the house went up more slowly than it had done with t hree. An economic system which can, by taking thought, make three men do the work of four, merits perhaps a rather careful examination into the sources and extent of economic waste.” (p. 11)

In other words, Chase was asking why, when faced with a crisis, we respond in ways that are good for us: more efficient, more productive, and conserving of resources. But when peace comes, we return to our wasteful ways and the standard of living declines. Sound familiar?

Mr. Chase favored a functional society,

"…where industry is devoted primarily to supplying human wants, and where profits are a by-product.” (p. 23)

In contrast, the current system, Chase said, is less desirable:

"…acquisitive society, where property is a right anterior to, and independent of f unction; and where accordingly, production to meet necessary requirements becomes a by-product rather than the main end of economic activity.” (p. 23).

In other words, producing useful goods and services are simply by-products of profit-seeking in an acquisitive society. Chase goes on to say:

“Our standard for measuring waste must in the end be based squarely on a functional conception of industry.” (p. 24)

Thus, Chase disliked luxury goods and services sought by the wealthy. His focus was the practical needs and necessities of people, as well as improving the human condition by eliminating malnutrition, reducing infant mortality, better housing, eliminating illiteracy and ignorance, etc.

Chase, the accountant, had close ties to engineers and liked the way they thought about and analyzed problems. He preferred to use “the engineer’s definition” of waste:

“…any bar to maximum use value of output at minimum real cost in energy and materials.” (p. 16)

Today’s definition of waste in the context of Lean management is [14]:

“Any activity that consumes resources but creates no value for the customer.”

Chase thought of industrial output in two parts: the actual amount of goods and services required, and the effectiveness of the methods used to produce the requirements. He describes “four main channels of waste” (pp. 30-37):

1. Wastes in Consumption
2. Idle Man-Power
3. Wastes in the Technique of Production and Distribution
4. The Waste of Natural Resources

Chase did not to assign blame for all the waste in industry, saying: “There is no occasion for blame or recrimination.” (p. 28).

1. Wastes in Consumption

Chase defines this as: “…the production of goods which lie outside the category of human wants.” (p. 30). This includes “the perversion of wants and harmful products,” goods made prior to the production of sufficient quantities of the necessities, or goods that should have never been produced.

Chase went on to say:

“If somehow the consumer could be educated to demand the things which tend to give maximum value at minimum cost, a great amount of productive labor might be saved.” (p. 32)

2. Idle Man-Power

Chase defines this as unemployment due to seasonal variations in production, business depressions, and “residual unemployment,” as well as losses due to changing jobs, labor strikes, preventable accidents and sickness, absenteeism, “lost labor of the idle rich,” and “lost labor of the hobo and bum.” (p. 33).

3. Wastes in the Technique of Production and Distribution

Chase defines this as: “Wastes in the techniques of distribution – excessive selling costs, duplication of wholesale and retail facilities, cross-hauling.” (p. 36). He points out the vast improvements in output that are achieved simply by improving plant and equipment layout, then asks to what extent could productivity be improved if production were located closer to the source of raw materials? He notes many cases in which raw materials and production are separated by great distances. For example, the raw materials for shoe manufacturing in New England are located in the Midwest, so it would make a lot more sense for shoe manufacturing to be located in the Midwest.

4. The Waste of Natural Resources

Chase defines this as: “…the destruction of natural resources, over and above the needs of prudent current consumption.” (p. 36). In this section, he describes how waste should be measured. He says it should not be measured in dollars because of the changing value of money over time. Instead, waste should be measured in “…man-power or raw materials by physical count [i.e. physical units of measure such as pounds, feet, etc.]…” (p. 38). This is partly how we measure waste today.

Mr. Chase criticizes many things due to the waste associated with them, including: conspicuous consumption among the leisure class, excessive product variety, illicit drugs, proliferation of “patent drugs,” adulteration and poor quality of raw materials, trade industry associations, quackery and get-rich-quick-schemes, speculation and gambling, luxuries and super-luxuries, fashions, secret processes and formulas which lead to duplication of effort, and drinks with alcohol content over 10%. Tobacco, like alcohol, is a “legitimate want,” provided it does not become “unduly inflated by the appeals of advertisers.” (p. 68).

Chase also criticizes the “overhead professions” and their job growth – what we would today call service industry occupations. He notes the legitimate need for them, but questions the number of positions they occupy compared to the value-adding occupations. For example, the insurance business, while necessary and useful to an extent,

“…creates nothing. It simply keeps busy a few hundred thousand clerks, actuaries, salesmen, lawyers, printers… and passing pieces of paper from hand to hand…” (p. 103)

Chase is highly critical of advertising, devoting a whole chapter to it. He says:

“Advertising… is the life blood of quackery… It is not an end product. No one consumes advertising directly. It is an intermediate service which points the to consumption and which enters into the cost of consumption…” (p. 107)

Chase does note a special case in which advertising could be useful:

“National advertising, for the education of the consumer, if conducted by some impartial scientific body might conceivably provide a great channel for eliminating wastes in consumption.” (p. 113)

Mr. Chase, along with F.J. Schlink, founded Consumer Research in 1929, a nonprofit consumer advocate organization and a forerunner to Consumer Reports.

Later in the book, Chase notes:

“The tendency of modern business seems to run in the direction of nullifying economies in production by throwing the gains into greater outlays for salesmanship.” (p. 212).

Of course, greater outlays in sales is only the tip of the iceberg. Today we also see improvement in shop and office processes nullified by greater outlays in expenses for ever-more management personnel, executive pay, top-tier management consulting firms, etc.

Chapter nine focuses on wastes in production, a familiar topic to Lean people. Chase laments that industry has failed “to take advantage of these demonstrated methods [of Scientific Management], and shuffles along in its own rut in its own way…” (p. 146). He cites mistakes and blunders made in the application of Scientific Management, including:

“The quacks, as in the case of every new discovery, descend in hordes and succeed as usual in discounting a good part of the value of the movement… In many cases, the ‘extra high wages’ to be paid [to laborers] for approaching performance standards turned out to be a carrot in front of the donkey’s nose. The whole value of waste elimination was pocketed by the employer, leaving the worker no share beyond an increased deposit of fatigue poisons.” (p. 149)

Chase notes that Scientific Management has widespread applicability:

“It may invade the home and time-study the labor of washing dishes. It may study marketing and distribution methods… It is a universal technique, and anybody’s to use who has the intelligence and perseverance to apply it to his own problem.” (p. 153)

Standardization, of course, is a prominent feature in Scientific Management and later in industrial engineering practice. Poor production methods, poor management, and a lack of standardization in the boot and shoe business means:

“Here we have, not unemployment on the streets, but unemployment on the job – workers sitting around a third of their time waiting for materials to come along .” (p. 155)

While the Progressives got many things right, they did get some important things wrong, such as small lot production.

“The ‘sell the goods before you make them’ policy is prevalent [in men’s clothing], and, as in the case of the metal industry, is disastrous to internal shop efficiency. It forces manufacture in small lots… Small lots mean constant interruption in work and a high cost per garment.” (p. 158)

When it came to product variation, the recommendation was to limit sizes and styles to enable large lot production:

“If the industry had foresight enough to study its records of actual sales, it could concentrate on these comparatively few sizes and styles and plan in advance for large lot production on a balanced load basis.” (p. 158)

People have long misunderstood the meaning of the word “standardization.” According to Chase:

“The word ‘standardization’ is perhaps an unhappy one. It connotes in the lay reader’s mind a dead level of uniformity, regimentation; an industrial goose step… A better name for it might be ‘simplification’.” (pp. 171-172)

Chase criticizes as wasteful the great number of businesses competing in the same market trying to sell too great a variety of products. He discusses industrial coordination spanning both inter- and intra-plant levels (and at national and global levels) as a means to improve the entire system, rather than optimizing individual parts. Chase speaks of this in a manner similar to how Womack and Jones have recently described Lean consumption [15].

“Coordination means planning for a given end. It means the traffic cop instead of a free-for-all… it means the ascertaining of human requirements in bulk terms of food, shelter, clothing, and the adaptation of the productive plant and the distributive system to meet them with a minimum of lost motion.” (pp. 176-177)

Chase talks about production load balancing, and points out the multiple errors and waste associated with building plant capacity for peak load versus average load:

“February and August are the ‘peak load’ months, and they determine the capacity of the shop. You must accordingly have over three times three times as large a shop, and three times as much machinery, to make 9000 pairs of shoes on a peak load basis, as you would require on a balanced load basis of a steady 30 pairs per day.” (p. 185)

He also talks of customers batching their orders which contributed to idleness of equipment and workers during non-peak periods. He says further that:

“Peak loads are not always cyclical or seasonal. They may occur weekly or daily… the Meat Packing industry shows Monday and Wednesday peaks in the run of animals over the killing beds. Slaughtering plants must be designed to handle these peaks. On other days of the week, much of the capacity is idle.” (pp. 187-188)

Thus, we see that Chase and his contemporaries understood the problems caused by unevenness (mura).

Chase is concerned about how to address the wasteful human tendency among top managers to intentionally restrict output in order to raise prices.

“One wonders what the Scientific Management engineers can do when they collide with this principle. Their work in such an event can only be a saving at the spigot while the bunghole runs…. The true engineer wants to see the shop running at approximately full capacity every working day – maximum output, minimum effort. The true business man with his eye on his sales sheet, cannot afford to think of the shop in such terms. If more money is to be made by going on half-time, then he must go on half-time. And it is the business man and not the engineer who has the final word.” (p. 191)

Chase is concerned about the waste in distribution because “There is a gathering opinion in the United States that it costs more to distribute things than it does to produce them.” (p. 209). He notes that in 1850 there were one distributor for every four producers, but by 1920 there was one distributor for each producer. The rising numbers of distributors add cost but do not create value.

“It costs 19 cents to make a Gillette safety razor for which you pay five dollars. The profit will not reach one dollar, leaving a ‘distribution’ cost, including selling and advertising, of at least $3.80 as against the factory cost of 19 cents.” (p. 213)

Along with this, Chase notes how orders for perishable goods are forced into the market and distributed in advance of known requirements, resulting in spoilage and higher costs to the consumer. High-pressure sales persons and company sales policies, such as “new brands and new systems of rebates” (p. 217) and channel stuffing are cited as contributing factors. He notes that each company in the chain of producers and suppliers is doing this – i.e. point optimization. Thus, advertising, sales, and distribution constitute an enormous amount of waste and added cost.

There is also the problem of too many suppliers serving too few customers:

“In the Rochester Milk Survey of 1912, it was found that the milk wagons in use traveled a combined total of 447 miles a day, where a unified delivery system would have required only 39.1 miles – or 9% of the competitive total. In one section, 273 homes were supplied by 27 distributors traveling 25 miles, whereas one dealer could render the same service traveling not more than 2.6 miles. The survey concluded with the statement that the City of Rochester under a unified system of milk distribution could be served at one-third the current cost, saving consumers a half a million dollars, or a possible reduction in price of about 2 cents a quart.” (p. 224)

The chapter on natural resources gives a detailed description of the large amount of waste in the production and utilization of basic commodities such as water, minerals, oil, coal, natural gas, and lumber.

Overall, Chase finds that the total amount of waste in industry is 30-50% (p. 207). This means that output could be doubled within existing resources, for the purpose of improving the human condition by making available to all citizens the necessities of life at low cost. In addition,

“Waste elimination does not call for a hard, bright, regimented efficiency… It calls for a life more abundant – for living instead of existing.” (p. 276)

Yes, we should enjoy the fruits our labors.

The final chapter is called “The Challenge of Waste.” Chase tackled the question of how to get people to recognize and respond to waste – a question dear to all our hearts. Chase notes that “The engineering aspect is probably manageable.” (p. 277). But,

“The point at issue is the behavior of the animal [man]… social psychology as a science is still in embryo… The way out turns on a genuine science of social psychology more than it turns on any other single factor.” (p. 278)

Chase clearly favored the type of business man who had a balanced view of the human and economic nature of business, and spoke of the growing divide between them and the type of business man more narrowly focused on the economic aspects of business:

“And we note the gathering cleavage between stock-and-bond business men like Mr. Gary and engineer business men like Mr. [Henry] Ford. Mr. Gary sees industry primarily in terms of profitable investment, while Mr. Ford sees it as primarily in terms of services turned out on a balanced load basis – with still an eye to his own profit and loss account.” (p. 278-279)

“In short, it is by no means clear that the engineering type of business man will not ultimately supersede the stock-and-bond type, and so usher in a functional society of sorts while the radicals are still baying for the abolition of the profit system.” (p. 279).

“So far as we see the future of the abatement of waste it lies with the man of science – the social scientist, the engineer.” (p. 279)

Perhaps this is too tight a focus. After all, “…it is the business man and not the engineers who has the final word.” (p. 191). The abatement of waste – and unevenness and unreasonableness – lie with all business men and women who can reason, who are willing to learn, and who will invest their labor into improvement.

Chase thought the abatement of waste “…lies with the man of science – the social scientist, the engineer.” The type of influential social scientist he wanted was the psychologist to determine what would motivate people to act. But the influential social scientist he got instead was the economist who, it turns out, created theories – many filled with assumptions that result in ideal, non-real world conditions but help facilitate mathematical modeling [17, 18] – which did in fact motivate people to act, but in ways that led to increases in waste through widespread point optimization in free markets.

Lastly, I return the negative left-leaning political characterization given to Progressives by their opponents. Could this image or some remnant of it still exist? If so, it is interesting to speculate that this could be an important reason why many top managers of large corporations today, and in the past, have not fully adopted Lean management [16].

Perhaps Lean management simply does not line up with top management’s politics. Perhaps it does not line up with the standard economic model that most managers have in mind – that people are rational self-interested maximizers (i.e. point optimizers). Maybe Lean just smells wrong to them, for reasons they might not even be able to explain.

What we do know for certain is that most top managers adopt or create narrow derivative forms of Lean. Perhaps they do this because it provides a better fit to their own or society’s mainstream political and economic views of business, inclusive of contemporary models of employee relations, corporate purpose and corporate governance. In their eyes, using a derivative form of Lean reduces the many risks that inevitably come with being different. So the point of optimization is to be different, but not too different – but which leaves the best opportunities to eliminate waste, unevenness, and unreasonableness wholly unaddressed for many years.

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Bob Emiliani is an associate professor in the School of Technology at Central Connecticut State University in New Britain, Conn. and President of The Center for Lean Business Management, LLC. Before joining CCSU, Bob worked for 20 years in manufacturing and service industries, and has implemented Lean principles and practices on the manufacturing shop floor, in supply networks, and in higher education. Bob is the principle author of the 2003 Shingo Prize winning book Better Thinking, Better Results, a detailed case study and analysis of The Wiremold Company’s Lean transformation from 1991 to 2001. For more information, please visit http://www.theclbm.com. Copyright © 2006 by The CLBM, LLC.

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Notes:

[1] S. Chase, The Tragedy of Waste, The Macmillan Company, New York, NY, 1925. You can buy a used copy of this book from alibris.com or bn.com

[2] For more information on Stuart Chase, see http://aaahq.org/northeast/1999/p21.pdf by Richard Vangermeersch, http://en.wikipedia.org/wiki/Stuart_Chase. Also see The Life and Writings of Stuart Chase (1888-1985) , by Richard Vangermeersch, http://www.amazon.com/Life-Writings-Stuart-Chase-1888-1985/dp/0762312130/ref=sr_11_1/104-8197456-9027942?ie=UTF8

[3] W. Hodson, and J. Carfora, “Stuart Chase,” Harvard Magazine, http://www.harvardmagazine.com/on-line/090431.html

[4] H. Ford, Today and Tomorrow, Doubleday, Page & Company, New York, NY., 1926

[5] T. Ohno, Toyota Production System, Productivity Press, Portland, OR, 1988, Chapter 5.

[6] Waste in Industry, By the Committee on Elimination of Waste in Industry of the Federated American Engineering Societies, Federated American Engineering Societies, Washington, D.C., distributed by McGraw-Hill Book Company, Inc., New York, NY, 1921. The first sentence of the Introduction says: “In making the studies upon which this report is based and in preparing the repot itself there has been no purpose or desire to place blame on any individual, group or class.” (p. 3). The final paragraph of the Introduction says: “…before there can be a material reduction in the sum total of waste in industry, much earnest, painstaking work must be done. The solution of such a problem is not one of hours or days but of years. Fundamental changes in our economic, financial, managerial and operating concepts and practices will be required. There will be need of both cooperative and individual effort. As regards groups, each must frankly face it’s own responsibility and meet its own duties. Each individual – plant executive or worker – must discover his own opportunities and then accept responsibility for performance.” (pp. 6-7). The four aspects of waste in industry cited are: “1. Low production caused by faulty management of materials, plant, equipment, and men. 2. Interrupted production, caused by idle men, idle materials, idle plants, idle equipment. 3. Restricted production intentionally caused by owners, management, or labor. 4. Lost production caused by ill health, physical defects and industrial accidents.” (p. 8). The first paragraph in Chapter II says: “Management has the greatest opportunity and hence responsibility for eliminating waste in industry. The opportunity and responsibility of labor is no less real though smaller in degree.” (p. 8).

[7] For more information on President Hoover, see http://hoover.archives.gov/ and http://en.wikipedia.org/wiki/Herbert_Hoover

[8] From back cover of the dust jacket, 1929 edition, published by Grosset and Dunlap. The back cover contains an image of money slipping out of one’s hands, while the front cover contains a menacing image of a hooded grim reaper, hand outstretched, causing waste.

[9] For a quick read on the Progressive Era, see http://en.wikipedia.org/wiki/Progressive_Era

[10] F.W. Taylor, The Principles of Scientific Management, W.W. Norton & Company, New York, NY, 1911. For a brief biography of Mr. Taylor, see http://en.wikipedia.org/wiki/Frederick_Winslow_Taylor

[11] S. Kato, ”Mr. Shigeo Shingo's P-Course and Contribution to TPS,”, http://www.superfactory.com/articles/kato_shingo.htm, July 2006

[12] J. Huntzinger, “The Roots of Lean,” http://www.superfactory.com/articles/Huntzinger_roots_lean.pdf, June 2005, and A. Smalley, “TWI Influence on TPS and Kaizen,” http://www.superfactory.com/articles/Smalley_Kato_TWI.htm, May 2006

[13] T. Peterson, “Hiroshi Okuda: ‘ Toyota Always Has a Sense of Crisis’,” BusinessWeek, 25 April 2000, http://www.businessweek.com/bwdaily/dnflash/apr2000/nf00425e.htm and “Toyota Nearly No. 1, So Why Is Its Chief So Nervous?” The Nikkei Weekly, 21 August 2006

[14] Lean Lexicon, Third edition, version 3.0, Lean Enterprise Institute, Cambridge, MA, p. 100

[15] J. Womack and D. Jones, “Lean Consumption,” Harvard Business Review, March 2005, Vol. 83, No. 3, pp. 58-68.

[16] Where Lean is understood as a management system comprised of two principles: “Continuous Improvement” and “Respect for People,” as defined in "The Toyota Way 2001," Toyota Motor Corporation, internal document, Toyota City, Japan, April 2001.

[17] S. Ghoshal, “Bad Management Theories are Destroying Good Management Practices,” Academy of Management Learning and Education , Vol. 4, No. 1, 2005, pp. 75-91

[18] F. Ferraro, J. Pfeffer, and R. Sutton, “Economics Language and Assumptions: How Theories Can Become Self-Fulfilling,” Academy of Management Review , Vol. 30, No. 1, 2005, pp. 8-24